CAE Inc.  Consolidated Financial Statements  Management’s Report on Internal Control Over Financial Reporting

   2Independent Auditor’s Report

   2Consolidated Financial Statements

   4Consolidated Statement of Financial Position

   4Consolidated Income Statement

   5Consolidated Statement of Comprehensive Income

   6Consolidated Statement of Changes in Equity

   7Consolidated Statement of Cash Flows

   8Notes to the Consolidated Financial Statements

   9Note 1 – Nature of Operations and Summary of Significant Accounting Policies

   9Note 2 – Changes in Accounting Policies

   21Note 3 – Business Combinations

   24Note 4 – Investments in Joint Ventures

   26Note 5 – Accounts Receivable

   27Note 6 – Inventories

   27Note 7 – Property, Plant and Equipment

   28Note 8 – Intangible Assets

   29Note 9 – Other Assets

   30Note 10 – Accounts Payable and Accrued Liabilities

   31Note 11 – Contracts in Progress

   31Note 12 – Provisions

   32Note 13 – Debt Facilities

   33Note 14 – Government Assistance

   36Note 15 – Employee Benefits Obligations

   37Note 16 – Deferred Gains and Other Non-Current Liabilities

   40Note 17 – Income Taxes

   40Note 18 – Share Capital, Earnings per Share and Dividends

   43Note 19 – Accumulated Other Comprehensive Loss

   44Note 20 – Employee Compensation

   44Note 21 – Impairment of Non-Financial Assets

   44Note 22 – Other Gains – Net

   45Note 23 – Restructuring, Integration and Acquisition Costs

   45Note 24 – Finance Expense – Net

   45Note 25 – Share-Based Payments

   46Note 26 – Supplementary Cash Flows Information

   50Note 27 – Contingencies

   50Note 28 – Commitments

   50Note 29 – Capital Risk Management

   51Note 30 – Financial Instruments

   52Note 31 – Financial Risk Management

   55Note 32 – Operating Segments and Geographic Information

   62Note 33 – Related Party Relationships

   65Note 34 – Related Party Transactions

   67Note 35 – Events After the Reporting Period

   ##TS


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Management’s Report on Internal Control Over Financial Reporting  Management of CAE is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f), 15d-15(f) under the Securities Exchange Act of 1934). CAE’s internal control over financial reporting is a process designed under the supervision of CAE’s President and Chief Executive Officer and Chief Financial Officer to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the Company’s financial statements for external reporting purposes in accordance with Canadian generally accepted accounting principles.  As of March 31, 2013, management conducted an assessment of the effectiveness of the Company’s internal control over the financial reporting based on the framework and criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this assessment, management concluded that the Company’s internal control over financial reporting as of March 31, 2013 was effective.      Marc_Parent  M. Parent                                                                S. Lefebvre President and Chief Executive Officer                   Vice-president, Finance and Chief Financial Officer   Montreal (Canada) May 16, 2013  Independent Auditor’s Report  To the Shareholders of CAE Inc.  We have completed integrated audits of CAE Inc. and its subsidiaries' 2013 and 2012 consolidated financial statements and their internal control over financial reporting as at March 31, 2013. Our opinions, based on our audits, are presented below.  Report on the consolidated financial statements We have audited the accompanying consolidated financial statements of CAE Inc. and its subsidiaries, which comprise the consolidated statements of financial position as at March 31, 2013 and March 31, 2012 and the consolidated statements of income, comprehensive income, changes in equity, and cash flows for the years ended March 31, 2013 and March 31, 2012, and the related notes, which comprise a summary of significant accounting policies and other explanatory information.  Management’s responsibility for the consolidated financial statements Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.  Auditor’s responsibility Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with Canadian generally accepted auditing standards and the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement. Canadian generally accepted auditing standards also require that we comply with ethical requirements.  An audit involves performing procedures to obtain audit evidence, on a test basis, about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the company’s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances. An audit also includes evaluating the appropriateness of accounting principles and policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.  We believe that the audit evidence we have obtained in our audits is sufficient and appropriate to provide a basis for our audit opinion on the consolidated financial statements.    2| CAE Year-End Financial Results 2013


---



Consolidated Financial Statements
 Opinion In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of CAE Inc. and its subsidiaries as at March 31, 2013 and March 31, 2012 and their financial performance and their cash flows for the years ended March 31, 2013 and March 31, 2012 in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board.  Report on internal control over financial reporting We have also audited CAE Inc. and its subsidiaries’ internal control over financial reporting as at March 31, 2013, based on criteria established in Internal Control - Integrated Framework, issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).  Management’s responsibility for internal control over financial reporting Management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control over Financial Reporting.  Auditor’s responsibility Our responsibility is to express an opinion on the company’s internal control over financial reporting based on our audit. We conducted our audit of internal control over financial reporting in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.  An audit of internal control over financial reporting includes obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control, based on the assessed risk, and performing such other procedures as we consider necessary in the circumstances.  We believe that our audit provides a reasonable basis for our audit opinion on the company’s internal control over financial reporting.  Definition of internal control over financial reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that: (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.  Inherent limitations Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate.  Opinion In our opinion, CAE Inc. and its subsidiaries maintained, in all material respects, effective internal control over financial reporting as at March 31, 2013, based on criteria established in Internal Control - Integrated Framework issued by COSO.  [1] May 16, 2013 Montréal, Quebec, Canada   1Chartered accountant auditor permit No.A123498
  CAE Year-End Financial Results 2013 |3


---



Consolidated Financial Statements
 Consolidated Statement of Financial PositionAs at March 31(amounts in millions of Canadian dollars)

   Notes

   

   

   2013

   

   

   2012AssetsCash and cash equivalents

   

   

   $

   293.2

   

   $

   287.3Accounts receivable

   5

   

   

   399.5

   

   

   308.4Contracts in progress : assets

   11

   

   

   247.3

   

   

   245.8Inventories

   6

   

   

   186.6

   

   

   153.1Prepayments

   

   

   

   56.3

   

   

   47.7Income taxes recoverable

   

   

   

   141.9

   

   

   95.5Derivative financial assets

   30

   

   

   9.0

   

   

   10.3Total current assets

   

   

   $

   1,333.8

   

   $

   1,148.1Property, plant and equipment

   7

   

   

   1,498.6

   

   

   1,293.7Intangible assets

   8

   

   

   799.2

   

   

   533.2Deferred tax assets

   17

   

   

   39.4

   

   

   24.1Derivative financial assets

   30

   

   

   6.4

   

   

   7.2Other assets

   9

   

   

   201.3

   

   

   177.4Total assets

   

   

   $

   3,878.7

   

   $

   3,183.7Liabilities and equityAccounts payable and accrued liabilities

   10

   

   $

   695.5

   

   $

   597.6Provisions

   12

   

   

   49.2

   

   

   21.6Income taxes payable

   

   

   

   13.7

   

   

   10.9Contracts in progress : liabilities

   11

   

   

   117.9

   

   

   104.6Current portion of long-term debt

   13

   

   

   113.0

   

   

   136.0Derivative financial liabilities

   30

   

   

   13.5

   

   

   12.7Total current liabilities

   

   

   $

   1,002.8

   

   $

   883.4Provisions

   12

   

   

   8.3

   

   

   6.0Long-term debt

   13

   

   

   1,097.0

   

   

   685.6Royalty obligations

   30

   

   

   160.6

   

   

   161.6Employee benefits obligations

   15

   

   

   136.1

   

   

   114.2Deferred gains and other non-current liabilities

   16

   

   

   194.6

   

   

   186.0Deferred tax liabilities

   17

   

   

   131.6

   

   

   91.8Derivative financial liabilities

   30

   

   

   13.2

   

   

   12.9Total liabilities

   

   

   $

   2,744.2

   

   $

   2,141.5EquityShare capital

   18

   

   $

   471.7

   

   $

   454.5Contributed surplus

   

   

   

   21.9

   

   

   19.2Accumulated other comprehensive loss

   19

   

   

   (16.6)

   

   

   (9.8)Retained earnings

   

   

   

   625.7

   

   

   558.0Equity attributable to equity holders of the Company

   

   

   $

   1,102.7

   

   $

   1,021.9Non-controlling interests

   

   

   

   31.8

   

   

   20.3Total equity

   

   

   $

   1,134.5

   

   $

   1,042.2Total liabilities and equity

   

   

   $

   3,878.7

   

   $

   3,183.7The accompanying notes form an integral part of these Consolidated Financial Statements.
  4| CAE Year-End Financial Results 2013


---



Consolidated Financial Statements
 Consolidated Income StatementYears ended March 31(amounts in millions of Canadian dollars, except per share amounts)

   Notes

   

   

   2013

   

   

   2012Revenue

   32

   

   $

   2,104.5

   

   $

   1,821.2Cost of sales

   

   

   

   1,482.8

   

   

   1,221.1Gross profit

   

   

   $

   621.7

   

   $

   600.1Research and development expenses

   

   

   

   60.6

   

   

   62.8Selling, general and administrative expenses

   

   

   

   269.9

   

   

   256.4Other gains – net

   22

   

   

   (23.4)

   

   

   (21.2)Restructuring, integration and acquisition costs

   23

   

   

   68.9

   

   

   -Operating profit

   

   

   $

   245.7

   

   $

   302.1Finance income

   24

   

   

   (7.3)

   

   

   (6.6)Finance expense

   24

   

   

   75.5

   

   

   69.2Finance expense – net

   

   

   $

   68.2

   

   $

   62.6Earnings before income taxes

   

   

   $

   177.5

   

   $

   239.5Income tax expense

   17

   

   

   35.1

   

   

   57.5Net income

   

   

   $

   142.4

   

   $

   182.0Attributable to:Equity holders of the Company

   

   

   $

   139.4

   

   $

   180.3Non-controlling interests

   

   

   

   3.0

   

   

   1.7$

   142.4

   

   $

   182.0Earnings per share from continuing operationsattributable to equity holders of the CompanyBasic and diluted

   18

   

   $

   0.54

   

   $

   0.70The accompanying notes form an integral part of these Consolidated Financial Statements.
  CAE Year-End Financial Results 2013 |5


---



Consolidated Financial Statements
 Consolidated Statement of Comprehensive IncomeYears ended March 31(amounts in millions of Canadian dollars)

   

   2013

   

   

   2012Net income

   $

   142.4

   

   $

   182.0Foreign currency translationNet currency translation difference on the translation of financialstatements of foreign operations

   $

   10.6

   

   $

   13.5Net losses on certain long-term debt denominated in foreigncurrency and designated as hedges of net investments in foreign operations

   

   (8.8)

   

   

   (3.9)Income taxes

   

   0.7

   

   

   0.8$

   2.5

   

   $

   10.4Net changes in cash flow hedgesEffective portion of changes in fair value of cash flow hedges

   $

   (2.5)

   

   $

   (8.7)Reclassifications to net income or to the related non-financial assets or liabilities

   

   (10.2)

   

   

   (4.7)Income taxes

   

   3.5

   

   

   3.1$

   (9.2)

   

   $

   (10.3)Defined benefit plan actuarial lossesDefined benefit plan actuarial losses

   $

   (30.8)

   

   $

   (64.9)Income taxes

   

   8.3

   

   

   17.4$

   (22.5)

   

   $

   (47.5)Other comprehensive loss

   $

   (29.2)

   

   $

   (47.4)Total comprehensive income

   $

   113.2

   

   $

   134.6Attributable to:Equity holders of the Company

   $

   110.1

   

   $

   132.8Non-controlling interests

   

   3.1

   

   

   1.8$

   113.2

   

   $

   134.6The accompanying notes form an integral part of these Consolidated Financial Statements.
  6| CAE Year-End Financial Results 2013


---



Consolidated Financial Statements
  Consolidated Statement of Changes in EquityAttributable to equity holders of the CompanyYear ended March 31, 2013

   

   Common shares

   

   

   Accumulated other

   

   

   

   

   

   

   

   Non-(amounts in millions of Canadian dollars,

   

   Number of

   

   

   Stated

   

   Contributed

   

   comprehensive

   

   Retained

   

   

   

   

   controlling

   

   

   Totalexcept number of shares)

   Notes

   shares

   

   

   value

   

   

   surplus

   

   loss

   

   earnings

   

   

   Total

   

   interests

   

   

   equityBalances, beginning of year

   258,266,295

   $

   454.5

   $

   19.2

   $

   (9.8)

   $

   558.0

   $

   1,021.9

   $

   20.3

   $

   1,042.2Net income

   

   -

   

   -

   

   -

   

   -

   

   139.4

   

   139.4

   

   3.0

   

   142.4Other comprehensive income (loss):Foreign currency translation

   

   -

   

   -

   

   -

   

   2.4

   

   -

   

   2.4

   

   0.1

   

   2.5Net changes in cash flow hedges

   

   -

   

   -

   

   -

   

   (9.2)

   

   -

   

   (9.2)

   

   -

   

   (9.2)Defined benefit plan actuarial losses

   -

   

   -

   

   -

   

   -

   

   (22.5)

   

   (22.5)

   

   -

   

   (22.5)Total comprehensive income

   

   -

   $

   -

   $

   -

   $

   (6.8)

   $

   116.9

   $

   110.1

   $

   3.1

   $

   113.2Stock options exercised

   

   482,250

   

   3.9

   

   -

   

   -

   

   -

   

   3.9

   

   -

   

   3.9Optional cash purchase

   

   1,683

   

   -

   

   -

   

   -

   

   -

   

   -

   

   -

   

   -Stock dividends

   18

   1,228,831

   

   12.1

   

   -

   

   -

   

   (12.1)

   

   -

   

   -

   

   -Transfer upon exercise of stock options

   

   -

   

   1.2

   

   (1.2)

   

   -

   

   -

   

   -

   

   -

   

   -Share-based payments

   

   -

   

   -

   

   3.9

   

   -

   

   -

   

   3.9

   

   -

   

   3.9Additions to non-controlling interests

   

   -

   

   -

   

   -

   

   -

   

   -

   

   -

   

   8.4

   

   8.4Dividends

   18

   -

   

   -

   

   -

   

   -

   

   (37.1)

   

   (37.1)

   

   -

   

   (37.1)Balances, end of year

   259,979,059

   $

   471.7

   $

   21.9

   $

   (16.6)

   $

   625.7

   $

   1,102.7

   $

   31.8

   $

   1,134.5Attributable to equity holders of the CompanyYear ended March 31, 2012

   

   Common shares

   

   

   Accumulated other

   

   

   

   

   

   

   

   

   Non-(amounts in millions of Canadian dollars,

   

   Number of

   

   

   Stated

   

   Contributed

   

   comprehensive

   

   Retained

   

   

   

   

   controlling

   

   

   Totalexcept number of shares)

   Notes

   shares

   

   

   value

   

   

   surplus

   

   loss

   

   earnings

   

   

   Total

   

   interests

   

   

   equityBalances, beginning of year

   256,964,756

   $

   440.7

   $

   17.1

   $

   (9.8)

   $

   466.4

   $

   914.4

   $

   18.5

   $

   932.9Net income

   

   -

   

   -

   

   -

   

   -

   

   180.3

   

   180.3

   

   1.7

   

   182.0Other comprehensive income (loss):Foreign currency translation

   

   -

   

   -

   

   -

   

   10.3

   

   -

   

   10.3

   

   0.1

   

   10.4Net changes in cash flow hedges

   

   -

   

   -

   

   -

   

   (10.3)

   

   -

   

   (10.3)

   

   -

   

   (10.3)Defined benefit plan actuarial losses

   -

   

   -

   

   -

   

   -

   

   (47.5)

   

   (47.5)

   

   -

   

   (47.5)Total comprehensive income

   

   -

   $

   -

   $

   -

   $

   -

   $

   132.8

   $

   132.8

   $

   1.8

   $

   134.6Stock options exercised

   

   538,600

   

   4.4

   

   -

   

   -

   

   -

   

   4.4

   

   -

   

   4.4Optional cash purchase

   

   898

   

   -

   

   -

   

   -

   

   -

   

   -

   

   -

   

   -Stock dividends

   18

   762,041

   

   7.8

   

   -

   

   -

   

   (7.8)

   

   -

   

   -

   

   -Transfer upon exercise of stock options

   

   -

   

   1.6

   

   (1.6)

   

   -

   

   -

   

   -

   

   -

   

   -Share-based payments

   

   -

   

   -

   

   3.7

   

   -

   

   -

   

   3.7

   

   -

   

   3.7Dividends

   18

   -

   

   -

   

   -

   

   -

   

   (33.4)

   

   (33.4)

   

   -

   

   (33.4)Balances, end of year

   258,266,295

   $

   454.5

   $

   19.2

   $

   (9.8)

   $

   558.0

   $

   1,021.9

   $

   20.3

   $

   1,042.2The total retained earnings and accumulated other comprehensive loss for the year ended March 31, 2013 was $609.1 million (2012 – $548.2 million).The accompanying notes form an integral part of these Consolidated Financial Statements.
  CAE Year-End Financial Results 2013 |7


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Consolidated Financial Statements
 Consolidated Statement of Cash FlowsYears ended March 31(amounts in millions of Canadian dollars)

   Notes

   

   

   2013

   

   

   2012Operating activitiesNet income

   

   

   $

   142.4

   

   $

   182.0Adjustments to reconcile net income to cash flows from operating activities:Depreciation of property, plant and equipment

   

   

   

   107.6

   

   

   92.3Amortization of intangible and other assets

   

   

   

   49.7

   

   

   33.5Financing cost amortization

   24

   

   

   1.8

   

   

   1.6Deferred income taxes

   17

   

   

   28.1

   

   

   36.4Investment tax credits

   

   

   

   (22.6)

   

   

   (14.5)Share-based compensation

   25

   

   

   (4.2)

   

   

   4.7Defined benefit pension plans

   15

   

   

   (9.3)

   

   

   (13.1)Amortization of other non-current liabilities

   

   

   

   (15.6)

   

   

   (12.0)Other

   

   

   

   (12.1)

   

   

   (5.3)Changes in non-cash working capital

   26

   

   

   (61.7)

   

   

   (71.7)Net cash provided by operating activities

   

   

   $

   204.1

   

   $

   233.9Investing activitiesBusiness combinations, net of cash and cash equivalents acquired

   3

   

   $

   (285.3)

   

   $

   (126.0)Joint ventures, net of cash and cash equivalents acquired

   4

   

   

   (0.7)

   

   

   (27.6)Capital expenditures for property, plant and equipment

   

   

   

   (155.8)

   

   

   (165.7)Proceeds from disposal of property, plant and equipment

   

   

   

   8.9

   

   

   34.4Capitalized development costs

   

   

   

   (49.6)

   

   

   (42.8)Enterprise resource planning (ERP) and other software

   

   

   

   (19.4)

   

   

   (17.3)Other

   

   

   

   (3.0)

   

   

   5.0Net cash used in investing activities

   

   

   $

   (504.9)

   

   $

   (340.0)Financing activitiesNet borrowing under revolving unsecured credit facilities

   13

   

   $

   54.0

   

   $

   14.2Net effect of current financial assets program

   31

   

   

   (37.1)

   

   

   4.9Proceeds from long-term debt, net of transaction costs

   13

   

   

   740.4

   

   

   195.0Repayment of long-term debt

   13

   

   

   (380.2)

   

   

   (36.1)Repayment of finance lease

   13

   

   

   (36.3)

   

   

   (32.8)Dividends paid

   

   

   

   (37.1)

   

   

   (33.4)Common stock issuance

   18

   

   

   3.9

   

   

   4.4Other

   

   

   

   (0.9)

   

   

   (0.7)Net cash provided by financing activities

   $

   306.7

   

   $

   115.5Effect of foreign exchange rate changes on cashand cash equivalents

   

   

   $

   -

   

   $

   1.5Net increase in cash and cash equivalents

   

   

   $

   5.9

   

   $

   10.9Cash and cash equivalents, beginning of year

   

   

   

   287.3

   

   

   276.4Cash and cash equivalents, end of year

   

   

   $

   293.2

   

   $

   287.3Supplemental information:Dividends received

   

   

   $

   2.4

   

   $

   4.7Interest paid

   

   

   

   53.6

   

   

   49.4Interest received

   

   

   

   5.0

   

   

   4.7Income taxes paid

   

   

   

   26.5

   

   

   26.9The accompanying notes form an integral part of these Consolidated Financial Statements.
   8| CAE Year-End Financial Results 2013


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Notes to the Consolidated Financial Statements
 Notes to the Consolidated Financial Statements (Unless otherwise stated, all amounts are in millions of Canadian dollars)  The consolidated financial statements were authorized for issue by the board of directors on May 16, 2013.  NOTE 1 – NATURE OF OPERATIONS AND summary of SIGNIFICANT ACCOUNTING POLICIES Nature of operations CAE Inc. and its subsidiaries (or the Company) design, manufacture and supply simulation equipment services and develop integrated training solutions for the military, commercial airlines, business aircraft operators, aircraft manufacturers, healthcare education and service providers and the mining industry. CAE’s flight simulators replicate aircraft performance in normal and abnormal operations as well as a comprehensive set of environmental conditions utilizing visual systems that contain an extensive database of airports, other landing areas, flying environments, motion and sound cues to create a fully immersive training environment. The Company offers a range of flight training devices based on the same software used on its simulators. The Company also operates a global network of training centres in locations around the world.  The Company’s operations are managed through five segments:  (i)    Training & Services/Civil (TS/C) – Provides commercial, business and helicopter aviation training for flight, cabin, maintenance and ground personnel and ab initio pilot training and crew sourcing  services; (ii)   Simulation Products/Civil (SP/C) – Designs, manufactures and supplies civil flight simulation training devices and visual systems; (iii)  Simulation Products/Military (SP/M) – Designs, manufactures and supplies advanced military training equipment and software tools for air forces, armies and navies; (iv)Training & Services/Military (TS/M) – Supplies turnkey training services, simulation-based integrated enterprise solutions and maintenance and in-service support solutions; (v)New Core Markets (NCM) – Provides, designs and manufactures healthcare training services and devices and mining services and tools.  CAE is a limited liability company incorporated and domiciled in Canada. The address of the main office is 8585 Côte-de-Liesse, Saint-Laurent, Québec, Canada, H4T 1G6. CAE shares are traded on the Toronto Stock Exchange and on the New York Stock Exchange.  Basis of preparation The key accounting policies applied in the preparation of these consolidated financial statements are described below. These policies have been consistently applied to all years presented, unless otherwise stated.  The consolidated financial statements have been prepared in accordance with Part I of the Canadian Institute of Chartered Accountants (CICA) Handbook (referred to as IFRS) as issued by the International Accounting Standards Board (IASB).  The consolidated financial statements have been prepared under the historical cost convention, except for the following items measured at fair value: derivative financial instruments, financial instruments at fair value through profit and loss, an available‐for‐sale financial asset and liabilities for cash-settled share-based arrangements.  The functional and presentation currency of CAE Inc. is the Canadian dollar.  Basis of consolidation Subsidiaries Subsidiaries are all entities (including special purpose entities) over which the Company has the power to govern the financial and operating policies to obtain benefits from its activities. Subsidiaries are fully consolidated from the date control is obtained and they are de-consolidated on the date control ceases.  Joint ventures Joint ventures are accounted for under the proportionate consolidation method. Joint ventures are entities in which the Company exercises joint control by virtue of a contractual agreement. The Company’s investment in joint ventures includes goodwill identified on acquisition, net of any accumulated impairment loss.  Gains and losses realized on internal sales with joint ventures are eliminated, to the extent of the Company’s interest in the joint venture.   CAE Year-End Financial Results 2013 |9


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Notes to the Consolidated Financial Statements
 Business combinations Business combinations are accounted for under the acquisition method. The consideration transferred for the acquisition of a subsidiary is the fair value of the assets transferred, the liabilities incurred and the equity interests issued by the Company, if any, at the date control is obtained. The consideration transferred includes the fair value of any liability resulting from a contingent consideration arrangement. Acquisition-related costs, other than share and debt issue costs incurred to issue financial instruments that form part of the consideration transferred, are expensed as incurred. Identifiable assets acquired and liabilities assumed in a business combination are measured initially at their fair value at the acquisition date. If a business combination is achieved in stages, the Company remeasures its previously held interest in the acquiree at its acquisition-date fair value and recognizes the resulting gain or loss, if any, in net income.  The excess of the consideration transferred over the fair value of the Company’s share of the identifiable net assets acquired is recorded as goodwill.  Contingent consideration classified as a provision is measured at fair value, with subsequent changes recognized in income. If the contingent consideration is classified as equity, it is not remeasured until it is finally settled within equity.  New information obtained during the measurement period, up to 12 months following the acquisition date, about facts and circumstances existing at the acquisition date will affect the acquisition accounting.  Non-controlling interests Non-controlling interests (NCI) represent equity interests in subsidiaries owned by outside parties. The share of net assets of subsidiaries attributable to non-controlling interests is presented as a component of equity. Changes in the Company’s ownership interest in subsidiaries that do not result in a loss of control are accounted for as equity transactions.  The Company treats transactions with non-controlling interests as transactions with equity owners of the Company. For interests purchased from non-controlling interests, the difference between any consideration paid and the relevant share acquired of the carrying value of net assets of the subsidiary is recorded in equity. Gains or losses on disposals of non-controlling interests are also recorded in equity.  Financial instruments and hedging relationships Financial instruments Financial assets and financial liabilities A financial instrument is any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity. Financial assets and financial liabilities, including derivatives, are recognized on the consolidated statement of financial position when the Company becomes a party to the contractual provisions of the financial instrument. On initial recognition, all financial instruments are measured at fair value.  The fair value of a financial instrument is the amount at which the financial instrument could be exchanged in an arm’s-length transaction between knowledgeable and willing parties under no compulsion to act. The best evidence of fair value at initial recognition is the transaction price (i.e., the fair value of the consideration given or received), unless the fair value of that instrument is evidenced by comparison with other observable current market transactions in the same instrument (i.e., without modification or repackaging) or based on a valuation technique whose variables include only data from observable markets. When there is a difference between the fair value of the consideration given or received at initial recognition and the amount determined using a valuation technique, such difference is recognized immediately in income unless it qualifies for recognition as some other type of asset or liability. Subsequent measurement of the financial instruments is based on their classification as described below. Financial assets and financial liabilities can be classified into one of these categories: fair value through profit and loss, held-to-maturity investments, loans and receivables, other financial liabilities and available-for-sale. The determination of the classification depends on the purpose for which the financial instruments were acquired and their characteristics. Except in very limited circumstances, the classification is not changed subsequent to the initial recognition.  Financial instruments at fair value through profit and loss Financial instruments classified at fair value through profit and loss (FVTPL) are carried at fair value at each reporting date with the change in fair value recorded in income. The FVTPL classification is applied when a financial instrument: -Is a derivative, including embedded derivatives accounted for separately from the host contract, but excluding those derivatives designated as effective hedging instruments; -Has been acquired or incurred principally for the purpose of selling or repurchasing in the near future; -Is part of a portfolio of financial instruments that are managed together and for which there is evidence of a recent actual pattern of short-term profit-taking; or -Has been irrevocably designated as such by the Company (fair value option).  Held-to-maturity investments, loans and receivables and other financial liabilities Financial instruments classified as held-to-maturity investments, loans and receivables and other financial liabilities are carried at amortized cost using the effective interest method. Interest income or expense is included in income in the period as incurred.    10| CAE Year-End Financial Results 2013


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Notes to the Consolidated Financial Statements
 Available-for-sale Available-for-sale financial assets are non-derivative financial assets that are designated as available-for-sale or that are not classified in any of the preceding categories. Financial assets classified as available-for-sale are carried at fair value at each reporting date. Unrealized gains and losses, including changes in foreign exchange rates for non-monetary financial assets, are recognized in other comprehensive income (loss) (OCI) in the period in which the changes arise and are transferred to income when the assets are derecognized or an other than temporary impairment occurs. If objective evidence of impairment exists these changes are recognized in income in the period incurred. If a reliable estimate of the fair value of an unquoted equity instrument cannot be made, this instrument is measured at cost, less any impairment losses. Dividends are recognized in income when the right of payment has been established.  As a result, the following classifications were determined: (i)Cash and cash equivalents, restricted cash and all derivative instruments, except for derivatives designated as effective hedging instruments, are classified as FVTPL; (ii)Accounts receivable, contracts in progress, non-current receivables and advances are classified as loans and receivables, except for those that the Company intends to sell immediately or in the near term which are classified as FVTPL; (iii)A portfolio investment is classified as available-for-sale; (iv)Accounts payable and accrued liabilities and long-term debt, including interest payable, as well as finance lease obligations are classified as other financial liabilities, all of which are measured at amortized cost using the effective interest rate method.  Transaction costs Transaction costs that are directly related to the acquisition or issuance of financial assets and financial liabilities (other than those classified as FVTPL) are included in the fair value initially recognized for those financial instruments. These costs are amortized to income using the effective interest rate method.  Offsetting of financial assets and financial liabilities Financial assets and financial liabilities are offset and the net amount is presented in the consolidated statement of financial position when the Company has a legally enforceable right to set off the recognized amounts and intends to settle on a net basis or to realize the assets and settle the liabilities simultaneously.  Impairment of financial assets At each reporting date, the carrying amounts of the financial assets other than those to be measured at FVTPL are assessed to determine whether there is objective evidence of impairment. Impairment losses on financial assets carried at cost are reversed in subsequent periods if the amount of loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognized.  Hedge accounting Documentation At the inception of a hedge, if the Company elects to use hedge accounting, the Company formally documents the designation of the hedge, the risk management objectives and strategy, the hedging relationship between the hedged item and hedging item and the method for testing the effectiveness of the hedge, which must be reasonably assured over the term of the hedging relationship and can be reliably measured. The Company formally assesses, both at inception of the hedge relationship and on an ongoing basis, whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in fair values or cash flows of hedged items in relation to the hedged risk.  Method of accounting The method of recognizing fair value gains and losses depends on whether derivatives are at FVTPL or are designated as hedging instruments, and, if the latter, the nature of the risks being hedged. All gains and losses from changes in the fair value of derivatives not designated as hedges are recognized in income. When derivatives are designated as hedges, the Company classifies them either as: (a) hedges of the change in fair value of recognized assets or liabilities or firm commitments (fair value hedges); or (b) hedges of the variability in highly probable future cash flows attributable to a recognized asset or liability, a firm commitment or a forecasted transaction (cash flow hedges); or (c) hedges of a net investment of a foreign operation.  Fair value hedge For fair value hedges outstanding, gains or losses arising from the measurement of derivative hedging instruments at fair value are recorded in income and the carrying amount of the hedged items are adjusted by gains and losses on the hedged item attributable to the hedged risks which are recorded in income.  Cash flow hedge The effective portion of changes in the fair value of derivative instruments that are designated and qualify as cash flow hedges is recognized in OCI, while the ineffective portion is recognized immediately in income. Amounts accumulated in OCI are reclassified to income in the period in which the hedged item affects income. However, when the forecasted transactions that are hedged items result in recognition of non-financial assets (for example, inventories or property, plant and equipment), gains and losses previously recognized in OCI are included in the initial carrying value of the related non-financial assets acquired or liabilities incurred. The deferred amounts are ultimately recognized in income as the related non-financial assets are derecognized or amortized.   CAE Year-End Financial Results 2013 |11


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Notes to the Consolidated Financial Statements
 Hedge accounting is discontinued prospectively when the hedging relationship no longer meets the criteria for hedge accounting, when the designation is revoked, or when the hedging instrument expires or is sold. Any cumulative gain or loss directly recognized in OCI at that time remains in OCI until the hedged item is eventually recognized in income. When it is probable that a hedged transaction will not occur, the cumulative gain or loss that was recognized in OCI is recognized immediately in income.  Hedge of net investments in foreign operations The Company has designated certain long-term debt as a hedge of CAE’s overall net investments in foreign operations whose activities are denominated in a currency other than the Company’s functional currency. The portion of gains or losses on the hedging item that is determined to be an effective hedge is recognized in OCI, net of tax and is limited to the translation gain or loss on the net investment.  Derecognition Financial assets A financial asset (or, where applicable a part of a financial asset or part of a group of similar financial assets) is derecognized when: -The rights to receive cash flows from the asset have expired; -The Company has transferred its rights to receive cash flows from the asset and either has transferred substantially all the risks and rewards of the asset or has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset.  Financial liabilities A financial liability is derecognized when the obligation under the liability is discharged, cancelled or expires.  When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and the recognition of a new liability, and the difference in the respective carrying amounts is recognized in income.  Foreign currency translation Foreign operations Assets and liabilities of subsidiaries that have a functional currency other than the Canadian dollar are translated from their functional currency to Canadian dollars at exchange rates in effect at the reporting date. The resulting translation adjustments are included in the foreign currency translation adjustment reserve in equity. Translation gains or losses related to long term intercompany account balances, which form part of the overall net investment in foreign operations, and those arising from the translation of debt denominated in foreign currencies and designated as hedges on the overall net investments in foreign operations are also included in the foreign currency translation adjustment reserve. Revenue and expenses are translated at the average exchange rates for the period.  When the Company reduces its overall net investment in foreign operations, which includes a reduction in the initial capital that does not result in a loss of control or through the settlement of inter-company advances that had been considered part of the Company’s overall net investment, the relevant amount in the foreign currency translation adjustment reserve is transferred to income.  Transactions and balances Monetary assets and liabilities denominated in foreign currencies are translated at the prevailing exchange rate at the reporting date. Non-monetary assets and liabilities, and revenue and expense items denominated in foreign currencies are translated into the functional currency using the exchange rate prevailing at the dates of the respective transactions. Foreign exchange gains and losses resulting from the settlement of such transactions are recognized in income.  Cash and cash equivalents Cash and cash equivalents consist of cash and highly-liquid investments with original terms to maturity of 90 days or less at the date of purchase.  Accounts receivable Receivables are initially recognized at fair value and are subsequently carried at amortized cost, net of an allowance for doubtful accounts, based on expected recoverability. The amount of the allowance is the difference between the asset’s carrying amount and the present value of the estimated future cash flows, discounted at the original effective interest rate. The loss is recognized in income. Subsequent recoveries of amounts previously provided for or written-off are credited against the same account.  The Company is involved in a program in which it sells undivided interests in certain of its accounts receivable and contracts in progress: assets (current financial assets program) to third parties for cash consideration for an amount up to $150.0 million without recourse to the Company. The Company continues to act as a collection agent. These transactions are accounted for when the Company is considered to have surrendered control over the transferred accounts receivable and contracts in progress: assets.  Inventories Raw materials are valued at the lower of average cost and net realizable value. Spare parts to be used in the normal course of business are valued at the lower of cost, determined on a specific identification basis, and net realizable value.   12| CAE Year-End Financial Results 2013


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Notes to the Consolidated Financial Statements
 Work in progress is stated at the lower of cost, determined on a specific identification basis, and net realizable value. The cost of work in progress includes material, labour and an allocation of manufacturing overhead, which is based on normal operating capacity.  Net realizable value is the estimated selling price in the ordinary course of business, less estimated costs of completion and the estimated costs necessary to make the sale. In the case of raw materials and spare parts, the replacement cost is the best measure of net realizable value.  Property, plant and equipment Property, plant and equipment are recorded at cost less any accumulated depreciation and any accumulated net impairment losses. Costs include expenditures that are directly attributable to the acquisition or manufacturing of the item. The cost of an item of property, plant and equipment that is initially recognized includes, when applicable, the initial present value estimate of the costs required to dismantle and remove the asset and restore the site on which it is located at the end of its useful life. Purchased software that is integral to the functionality of the related equipment is capitalized as part of that equipment. Subsequent costs are included in the asset’s carrying amount or recognized as a separate asset, as appropriate, only when it is probable that future economic benefits are present and the cost of the item can be measured reliably. Updates on training devices are recognized in the carrying value of the training device if it is probable that the future economic benefits embodied with the part will flow to the Company and its cost can be measured reliably; otherwise, they are expensed. The costs of day-to-day servicing of property, plant and equipment are recognized in income as incurred.  A loss on disposal is recognized in income when the carrying value of a replaced item is derecognized, unless the item is transferred to inventories. If it is not practicable to determine the carrying value, the cost of the replacement and the accumulated depreciation calculated by reference to that cost will be used to derecognize the replaced part. Gains and losses on disposal of property, plant and equipment are determined by comparing the proceeds from disposal with its carrying amount, and are recognized net within other gains and losses.  The different components of property, plant and equipment are recognized separately when their useful lives are materially different and such components are depreciated separately in income. Leased assets are depreciated over the shorter of the lease term and their useful lives. If it is reasonably certain that the Company will obtain ownership by the end of the lease term, the leased asset is depreciated over its useful life. Land is not depreciated. The estimated useful lives, residual values and depreciation methods are as follows:  Method

   

   Rates/YearsBuildings and improvements

   Declining balance/Straight-line

   

   2.5 to 10%/3 to 20 yearsSimulators

   Straight-line (10% residual)

   

   Not exceeding 25 yearsMachinery and equipment

   Declining balance/Straight-line

   

   20 to 35%/2 to 10 yearsAircraft

   Straight-line (15% residual)

   

   Not exceeding 12 yearsAircraft engines

   Based on utilization

   

   Not exceeding 3,000 hoursDepreciation methods, useful lives and residual values are reviewed and adjusted, if appropriate, on a prospective basis at each reporting date.
  Leases The Company leases certain property, plant and equipment from and to others. Leases where the Company has substantially all the risks and rewards of ownership are classified as finance leases. All other leases are accounted for as operating leases.  The Company as a lessor With regards to finance leases, the asset is derecognized at the commencement of the lease and a gain (loss) is recognized in income. The net present value of the minimum lease payments and any discounted unguaranteed residual value are recognized as non‐current receivables. Finance income is recognized over the term of the lease based on the effective interest rate method. Income from operating leases is recognized on a straight-line basis over the term of the corresponding lease.  The Company as a lessee Finance leases are capitalized at the lease’s commencement at the lower of the fair value of the leased item and the present value of the minimum lease payments. Any initial direct costs of the lessee are added to the amount recognized as an asset. The corresponding obligations are included in long-term debt. Payments made under operating leases are charged to income on a straight-line basis over the period of the lease.  Sale and leaseback transactions The Company engages in sales and leaseback transactions as part of the Company’s financing strategy to support investment in the civil and military training and services business. Where a sale and leaseback transaction results in a finance lease, any excess of sales proceeds over the carrying amount is deferred and amortized over the lease term. Where a sale and leaseback transaction results in an operating lease, and it is clear that the transaction is established at fair value, any profit or loss is recognized immediately. If the sales price is below fair value, the shortfall is recognized in income immediately except that, if the loss is compensated for by future lease payments at below market price, it is deferred and amortized in proportion to the lease payments over the period for which the asset is expected to be used. If the sale price is above fair value, the excess over fair value is deferred and amortized over the period the asset is expected to be used.  CAE Year-End Financial Results 2013 |13


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Notes to the Consolidated Financial Statements
 Intangible assets Goodwill Goodwill is measured at cost less accumulated impairment losses, if any.  Goodwill arises on the acquisition of subsidiaries and joint ventures. Goodwill represents the excess of the cost of an acquisition, including the Company’s best estimate of the fair value of contingent consideration, over the fair value of the Company’s share of the net identifiable assets of the acquired subsidiary or joint venture at the acquisition date.  Gains and losses on the disposal of an entity include the carrying amount of goodwill relating to the entity sold.  Research and development (R&D) Research costs are expensed as incurred. Development costs are also charged to income in the period incurred unless they meet all the specific capitalization criteria established in IAS 38,Intangible Assets. Capitalized development costs are stated at cost and net of accumulated amortization and accumulated impairment losses, if any. Amortization of the capitalized development costs commences when the asset is available for use and is included in research and development expense.  Other intangible assets Intangible assets acquired separately are measured at cost upon initial recognition. The cost of intangible assets acquired in a business combination is the fair value as at the acquisition date. Following initial recognition, intangible assets are carried at cost, net of accumulated amortization and accumulated impairment losses, if any.  The cost of an internally generated intangible asset comprises all directly attributable costs necessary to create, produce, and prepare the asset to be capable of operating in the manner intended by management. Subsequent costs are recognized in the carrying amount of the item if it is probable that the future economic benefits embodied with the item will flow to the Company and its cost can be measured reliably.  Gains and losses on disposal of intangible assets are determined by comparing the proceeds from disposal with its carrying amount and are recognized within other gains and losses.  AmortizationAmortization is calculated using the straight-line method for all intangible assets over their estimated useful lives as follows:Amortization period(in years)Capitalized development costs

   Not exceeding 10Customer relationships

   3 to 20ERP and other software

   3 to 10Technology

   3 to 15Other intangible assets

   2 to 40Amortization methods and useful lives are reviewed and adjusted, if appropriate, on a prospective basis at each reporting date.
  Impairment of non-financial assets The carrying amounts of the Company’s non-financial assets, other than inventories, deferred tax assets and assets arising from employee benefits are tested for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Goodwill and assets that have indefinite lives or that are not yet available for use are tested for impairment annually or at any time if an indicator of impairment exists.  The recoverable amount of an asset or a cash-generating unit (CGU) is the greater of its value in use and its fair value less costs to sell. The recoverable amount is determined for an individual asset; unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets. In such case, the CGU that the asset belongs to is used to determine the recoverable amount.  For the purposes of impairment testing, the goodwill acquired in a business combination is allocated to CGUs, which generally corresponds to its operating segments or one level below, that are expected to benefit from the synergies of the combination, irrespective of whether other assets or liabilities of the acquiree are assigned to those units.  An impairment loss is recognized if the carrying amount of an asset or CGU exceeds its estimated recoverable amount. Where the recoverable amount of a CGU to which goodwill has been allocated is lower than the CGU’s carrying amount, the related goodwill is impaired. Any remaining amount of impairment exceeding the impaired goodwill is recognized on a pro rata basis of the carrying amount of each asset in the respective CGU. Impairment losses are recognized in income.   14| CAE Year-End Financial Results 2013


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Notes to the Consolidated Financial Statements
 The Company evaluates impairment losses, other than goodwill impairment, for potential reversals at each reporting date. An impairment loss is reversed if there is any indication that the loss has decreased or no longer exists due to changes in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortization, if no impairment loss had been recognized. Such reversal is recognized in income.  Borrowing costs Borrowing costs that are directly attributable to the acquisition or construction of a qualifying asset are capitalized as part of the cost of the asset. A qualifying asset is one that necessarily takes a substantial period of time to get ready for its intended use or sale. Capitalization of borrowing costs ceases when the asset is completed and ready for productive use. All other borrowing costs are recognized as finance expense in income, as incurred.  Other assets Restricted cash The Company is required to hold a defined amount of cash as collateral under the terms of certain subsidiaries’ external bank financing, government-related sales contracts and business combination arrangements.  Deferred financing costs Deferred financing costs related to the revolving unsecured term credit facilities, when it is probable that some or all of the facilities will be drawn down, and deferred financing costs related to sale and leaseback agreements are included in other assets at cost and are amortized on a straight-line basis over the term of the related financing agreements.  Accounts payable and accrued liabilities Accounts payable and accrued liabilities are recognized initially at fair value and subsequently measured at amortized cost using the effective interest method.  Provisions Provisions are recognized when the Company has a present legal or constructive obligation as a result of past events, it is probable that an outflow of resources will be required to settle the obligation and the amount can be reliably estimated. Provisions are not recognized for future operating losses. Provisions are measured at the present value of the expenditures expected to be required to settle the obligation using a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the obligation. The increase in the provision due to passage of time is recognized as a finance expense. When there are a number of similar obligations, the likelihood that an outflow will be required in settlement is determined by considering the class of obligations as a whole.  Long-term debt Long-term debt is recognized initially at fair value, net of transaction costs incurred. They are subsequently stated at amortized cost. Any difference between the proceeds (net of transaction costs) and the redemption value is recognized in income over the period of borrowings using the effective interest method.  Fees paid on the establishment of loan facilities are recognized as transaction costs of the loan to the extent that it is probable that some or all of the facility will be drawn down. In these cases, the fee is deferred until the draw-down occurs. To the extent that there is no evidence that it is probable that some or all of the facility will be drawn down, the fee is capitalized as a pre-payment for liquidity services and amortized over the period of the facility to which it relates.  Share capital Common shares are classified as equity. Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds.  Accumulated other comprehensive income Foreign currency translation This is used to record exchange differences arising from the translation of the financial statements of foreign operations. It is also used to record the effect of hedging net investments in foreign operations.  Net changes in cash flow hedges This represents the effective portion of the cumulative net change in the fair value of cash flow hedging instruments related to hedged transactions that have not yet occurred.  Net changes in available-for-sale This records fair value changes on the available-for-sale financial asset.  Defined benefit plan actuarial losses This is used to record actuarial gains and losses of defined benefit plans in the period in which they occur.   CAE Year-End Financial Results 2013 |15


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Notes to the Consolidated Financial Statements
 Revenue recognition Revenue is measured at the fair value of the consideration received or receivable. Revenue is recognized when the outcome can be reliably estimated, when it is probable that future economic benefits will flow to the Company and when specific criteria have been met for each of the categories, as described below.  Multiple component arrangements The Company sometimes enters into multiple component revenue arrangements, which may include a combination of design, engineering and manufacturing of flight simulators, as well as the provision of spare parts and maintenance. When a single sales transaction requires the delivery of more than one product or service (multiple components), the revenue recognition criteria are applied to the separately identifiable components. A component is considered separately identifiable if the delivered item has value to the customer on a stand-alone basis and the fair value associated with the product or service can be measured reliably.  The allocation of the revenue from a multiple component arrangement is based on the fair value of each element in relation to the fair value of the arrangement as a whole.  The Company's revenues can be divided into two main accounting categories: construction contracts and sales of goods and services.  Construction contracts A construction contract is a contract specifically negotiated for the construction of an asset or of a group of assets, which are interrelated in terms of their design, technology, function, purpose or use. According to its characteristics, a construction contract can either be accounted for separately, be segmented into several components which are each accounted for separately, or be combined with another construction contract in order to form a single construction contract for accounting purposes in respect of which revenues and expense will be recognized.  Revenue from construction contracts for the design, engineering and manufacturing of training devices is recognized using the percentage-of-completion method when the revenue, contract costs to complete and the stage of contract completion at the end of the reporting period can be measured reliably and when the contract costs can be clearly identified and measured reliably so that actual contract costs incurred can be compared with prior estimates.  Provisions for estimated contract losses are recognized in the period in which the loss is determined. Contract losses are measured at the amount by which the estimated total costs exceed the estimated total revenue from the contract. Warranty provisions are recorded when revenue is recognized based on past experience.  The cumulative amount of costs incurred and profit recognized, reduced by losses and progress billing, is determined on a contract‐by‐contract basis. If this amount is positive it is classified as an asset. If this amount is negative it is classified as a liability.  Post-delivery customer support is billed separately, and revenue is recognized over the support period.  Sales of goods and services Software arrangements Revenue from off-the-shelf software sales is recognized when delivery has occurred. Revenue from fixed-price software arrangements and software customization contracts that require significant production, modification, or customization of software fall under the scope of construction contracts.  Spare parts Revenue from the sale of spare parts is recognized when the significant risks and rewards of ownership of the goods are transferred and the Company retains neither continuing managerial involvement to the degree usually associated with ownership nor effective control over the goods sold.  Product maintenance Revenue from maintenance contracts is generally recognized on the basis of the percentage-of-completion of the transaction. Under the percentage-of-completion method, revenue is recorded as related costs are incurred, on the basis of the percentage of actual costs incurred to date, related to the estimated total costs to complete the contract.  Training and consulting services Revenue from training and consulting services is recognized as the services are rendered.  For flight schools, cadet training courses are offered mainly by way of ground school and live aircraft flight. During the ground school phase, revenue is recognized in income on a straight-line basis, while during the live aircraft flight phase, revenue is recognized based on actual hours flown.   16| CAE Year-End Financial Results 2013


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Notes to the Consolidated Financial Statements
 Other Sales incentives to customers The Company may provide sales incentives in the form of credits, free products and services, and minimum residual value guarantees. Generally, credits and free products and services are recorded at their estimated fair value as a reduction of revenues or included in the cost of sales. Sales with minimum residual value guarantees are recognized in accordance with the substance of the transaction taking into consideration whether the risks and rewards of ownership have been transferred.  Non-monetary transactions The Company may also enter into sales arrangements where little or no monetary consideration is involved. The non-monetary transactions are measured at the more reliable measure of the fair value of the asset given up and fair value of the asset received.  Deferred revenue Cash payments received or advances currently due pursuant to contractual arrangements are recorded as deferred revenue until all of the foregoing conditions of revenue recognition have been met.  Employee benefits Defined benefit pension plans The Company maintains defined benefit pension plans that provide benefits based on length of service and final average earnings. The service costs and the pension obligations are actuarially determined for each plan using the projected unit credit method, management’s best estimate of expected plan investment performance, salary escalation, retirement ages of employees and life expectancy.  The defined benefit asset or liability comprises the present value of the defined benefit obligation at the reporting date, less past service costs not yet recognized and less the fair value of plan assets out of which the obligations are to be settled. The value of any employee benefit asset recognized is restricted to the sum of any past service costs not yet recognized and the present value of any economic benefits available in the form of refunds from the plan or reductions in the future contributions to the plan (asset ceiling test). Minimum funding requirements may give rise to an additional liability to the extent they require paying contributions to cover an existing shortfall. Plan assets are not available to the creditors of the Company nor can they be paid directly to the Company. Fair value of plan assets is based on market price information. Contributions reflect actuarial assumptions of future investment returns, salary projections and future service benefits.  Actuarial gains and losses arising from experience adjustments, changes in actuarial assumptions and the effect of any asset ceiling and minimum liability are recognized to OCI in the period in which they arise. Past service costs are recognized as an expense on a straight-line basis over the average period until the benefits become vested. To the extent that the benefits are already vested following the introduction of, or changes to, a defined benefit plan, the Company recognizes past service costs immediately into income.  Defined contribution pension plans The Company also maintains defined contribution plans for which the Company pays fixed contributions to publicly or privately administered pension insurance plans on a mandatory, contractual or voluntary basis and will have no legal or constructive obligation to pay further amounts. Obligations for contributions to defined contribution pension plans are recognized as an employee benefit expense in income as the services are provided.  Termination benefits Termination benefits are recognized as an expense when the Company is demonstrably committed, without realistic possibility of withdrawal, to a formal detailed plan to either terminate employment before the normal retirement date, or to provide termination benefits as a result of an offer made to encourage voluntary redundancy. Termination benefits for voluntary redundancies are recognized as an expense, if the Company has made an offer of voluntary redundancy, based on the number of employees expected to accept the offer. Benefits falling due more than 12 months after the reporting date are discounted to their present value.  Share-based payment transactions The Company’s five share-based payment plans are segregated into two categories of plans: Employee Stock Option Plan (ESOP), which is considered an equity-settled share-based payment plan; and Employee Stock Purchase Plan (ESPP), Deferred Share Unit (DSU) plan, Long-Term Incentive Deferred Share Unit (LTI-DSU) plan and Long-Term Incentive Restricted Share Unit (LTI-RSU) plan, which are considered cash-settled share-based payment plans.  For both categories, the fair value of the employee services received in exchange is recognized as an expense in income. Service and non-market performance conditions attached to the transactions are not taken into account in determining fair value.  For equity-settled plan, the cost of equity-settled transactions is measured at fair value using the Black-Scholes option pricing model. The compensation expense is measured at the grant date and recognized over the service period with a corresponding increase to contributed surplus. The cumulative expenses recognized for equity-settled transactions at each reporting date represents the extent to which the vesting period has expired and management’s best estimate of the number of equity instruments that will ultimately vest. For options with graded vesting, each tranche is considered a separate grant with a different vesting date and fair value, and each tranche is accounted for separately.   CAE Year-End Financial Results 2013 |17


---



Notes to the Consolidated Financial Statements
 For cash-settled plans, a corresponding liability is recognized. The fair value of employee services received is calculated by multiplying the number of units expected to vest with the fair value of one unit as of grant date based on the market price of the Company’s common shares. The fair value of the ESPP is a function of the Company’s contributions. Until the liability is settled, the Company re-measures the fair value of the liability at the end of each reporting period and at the date of settlement, with any changes in fair value recognized in income for the period. The Company has entered into equity swap agreements with a major Canadian financial institution in order to reduce its cash and earnings exposure related to the fluctuation in the Company’s share price relating to the DSU and LTI-DSU programs.  Current and deferred income tax Income tax expense comprises of current and deferred tax. An income tax expense is recognized in income except to the extent that it relates to items recognized directly in equity, in which case it is recognized in equity.  Current tax is the amount expected to be paid or recovered from taxation authorities on the taxable income/loss for the year, using tax rates enacted or substantively enacted at the reporting date, and any adjustment to tax payable/receivable in respect of previous years.  Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation. It establishes provisions, where appropriate, on the basis of amounts expected to be paid to the tax authorities.  Deferred tax is recognized using the balance sheet liability method, providing for temporary differences between the tax bases of assets or liabilities and their carrying amount for financial reporting purposes.  Deferred income tax is provided on temporary differences arising on investments in subsidiaries, and jointly controlled entities, except where the timing of the reversal of the temporary difference is controlled by the Company and it is probable that the temporary difference will not reverse in the foreseeable future.  Deferred tax is measured on an undiscounted basis at the tax rates that are expected to be applied to temporary differences when they reverse, based on the laws that have been enacted or substantively enacted by the reporting date.  Deferred tax assets are recognized for all deductible temporary differences and carry forward of unused tax losses. The recognition of deferred tax assets are limited to the amount which is probable to be realized.  Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that a recognized deferred income tax asset will be realized. Unrecognized deferred income tax assets are reassessed at each reporting date and are recognized to the extent that it has become probable that an unrecognized deferred income tax asset will be realized.  Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities and assets, and they relate to income taxes levied by the same tax authority on the same taxable entity, or on different taxable entities which intend to settle current tax liabilities and assets on a net basis or their tax assets and liabilities will be realized simultaneously.  Taxes on income in the interim periods are accrued by jurisdiction using the effective tax rate that would be applicable to expected total annual profit or loss of the jurisdiction.  Investment tax credits Investment tax credits (ITCs) arising from R&D activities are deducted from the related costs and are accordingly included in the determination of net income when there is reasonable assurance that the credits will be realized. ITCs arising from the acquisition or development of property, plant and equipment and capitalized development costs are deducted from the cost of those assets with amortization calculated on the net amount.  Earnings per share Earnings per share is calculated by dividing the net income for the period attributable to the common shareholders of the Company by the weighted average number of common shares outstanding during the period. The diluted weighted average number of common shares outstanding is calculated by taking into account the dilution that would occur if the securities or other agreements for the issuance of common shares were exercised or converted into common shares at the later of the beginning of the period or the issuance date unless it is anti-dilutive. The treasury stock method is used to determine the dilutive effect of the stock options. The treasury stock method is a method of recognizing the use of proceeds that could be obtained upon the exercise of options in computing diluted earnings per share. It assumes that any proceeds would be used to purchase common shares at the average market price during the period. The Company has one category of dilutive potential common shares which is share options.  Dividend distribution In the period in which the dividends are approved by the Company’s Board of Directors, the dividend is recognized as a liability in the Company’s financial statements.   18| CAE Year-End Financial Results 2013


---



Notes to the Consolidated Financial Statements
 Government assistance Government contributions are recognized where there is reasonable assurance that the contribution will be received and all attached conditions will be complied with by the Company.  The Company benefits from investment tax credits that are deemed to be equivalent to government contributions.  Contributions are received for Project New Core Markets from Investissement Québec (IQ) for costs incurred in R&D programs. Contributions were received in previous fiscal years for Project Phoenix from Industry Canada under the Technology Partnerships Canada (TPC) program and from IQ. Repayable government assistance is recognized as royalty obligations. The current portion is included as part of accrued liabilities.  The obligation to repay royalties is recorded when the contribution is receivable and is estimated based on future projections. The obligation is discounted using the prevailing market rates of interest, at that time, for a similar instrument (similar as to currency, term, type of interest rate, guarantees or other factors) with a similar credit rating. The difference between government contributions and the discounted value of royalty obligations is accounted for as a government contribution which is recognized as a reduction of costs or as a reduction of capitalized expenditures.  The Company recognizes the Government of Canada’s participation in Project Falcon as an interest-bearing long-term debt. The initial measurement of the accounting liability recognized to repay the lender is discounted using the prevailing market rates of interest, at that time, for a similar instrument (similar as to currency, term, type of interest rate, guarantees or other factors) with a similar credit rating. The difference between the face value of the long-term obligation and the discounted value of the long-term obligation is accounted for as a government contribution which is recognized as a reduction of costs or as a reduction of capitalized expenditures.  Use of judgements, estimates and assumptions The preparation of the consolidated financial statements requires the Company’s management (management) to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements, as well as the reported amounts of revenues and expenses for the period reported. It also requires management to exercise its judgement in applying the Company’s accounting policies. The areas involving a high degree of judgement or complexity, or areas where assumptions and estimates are significant to the consolidated financial statements are disclosed below. Actual results could differ from those estimates. Changes will be reported in the period in which they are identified.  Business combinations Business combinations are accounted for in accordance with the acquisition method; thus, on the date that control is obtained. The acquiree’s identifiable assets, liabilities and contingent liabilities are measured at their fair value. Depending on the complexity of determining these valuations, the Company either consults with independent experts or develops the fair value internally by using appropriate valuation techniques which are generally based on a forecast of the total expected future net discounted cash flows. These evaluations are linked closely to the assumptions made by management regarding the future performance of the related assets and any changes in the discount rate applied.  Development costs Development costs are recognized as intangible assets and are amortized over their useful lives when they meet the criteria for capitalization. Forecasted revenue and profitability for the relevant projects are used to assess compliance with the capitalization criteria and to assess the recoverable amount of the assets.  Impairment of non-financial assets The Company’s impairment test for goodwill is based on fair value less costs to sell calculations and uses valuation models such as the discounted cash flows model. The cash flows are derived from the projections approved by management for the next five years. Cash flow projections take into account past experience and represent management’s best estimate about future developments. Cash flows after the five-year period are extrapolated using estimated growth rates. Key assumptions which management has based its determination of fair value less costs to sell include estimated growth rates, post-tax discount rates and tax rates. The post-tax discount rates were derived from the respective CGUs’ representative weighted average cost of capital which range from 7.5% to 9.5%. These estimates, including the methodology used, can have a material impact on the respective values and ultimately the amount of any goodwill impairment.  Likewise, whenever property, plant and equipment and intangible assets are tested for impairment, the determination of the assets’ recoverable amount involves the use of estimates by management and can have a material impact on the respective values and ultimately the amount of any impairment.   CAE Year-End Financial Results 2013 |19


---



Notes to the Consolidated Financial Statements
 Revenue recognition The Company uses the percentage-of-completion method in accounting for its fixed-price contracts to deliver services and manufacture products.  Use of the percentage-of-completion method requires the Company to estimate the work performed to date as a proportion of the total work to be performed. Management conducts monthly reviews of its estimated costs to complete, percentage-of-completion estimates and revenues and margins recognized, on a contract-by-contract basis. The impact of any revisions in cost and earnings estimates is reflected in the period in which the need for a revision becomes known.  Defined benefit pension plans The cost of defined benefit pension plans as well as the present value of the pension obligations is determined using actuarial valuations. The actuarial valuations involve making assumptions about discount rates, expected rates of return on assets, future salary increases, mortality rates and future pension increases. All assumptions are reviewed at each reporting date. Any changes in these assumptions will impact the carrying amount of pension obligations. In determining the appropriated discount rate management considers the interest rates of high quality corporate bonds that are denominated in the currency in which the benefits will be paid, and that have terms to maturity approximating the terms of the related pension liability. The mortality rate is based on publicly available mortality tables for the specific country. Future salary increases and pension increases are based on expected future inflation rates for the specific country.  The expected return on plan assets is determined by considering the expected returns on the assets underlying the current investment policy applicable over to the period over which the obligation is to be settled.  For the purpose of calculating the expected return on plan assets, historical and expected future returns were considered separately for each class of assets based on the asset allocation and the investment policy.  Other key assumptions for pension obligations are based, in part, on current market conditions. See Note 15 for further details regarding assumptions used.  Government assistance repayments In determining the amount of repayable government assistance, assumptions and estimates are made in relation to discount rates, expected revenues and the expected timing of revenues, when relevant. Revenue projections take into account past experience and represent management’s best estimate about the future. Revenues after a five-year period are extrapolated using estimated growth rates depending on the estimated timing of repayments. The estimated repayments are discounted using average rates ranging from 7.6% to 8.5% based on terms of similar financial instruments. These estimates, along with the methodology used to derive the estimates, can have a material impact on the respective values and ultimately any repayable obligation in relation to government assistance. A 1% increase to the growth rates would increase the royalty obligation at March 31, 2013 by approximately $10.2 million (2012 − $8.2 million).  Share-based payments The Company measures the cost of cash and equity-settled transactions with employees by reference to the fair value of the related instruments at the date at which they are granted. Estimating fair value for share-based payments requires determining the most appropriate valuation model for a grant, which is dependent on the terms and conditions of the grant. This also requires making assumptions and determining the most appropriate inputs to the valuation model including the expected life of the option, volatility and dividend yield.  Income taxes The Company is subject to income tax laws in numerous jurisdictions. Judgement is required in determining the worldwide provision for income taxes. The determination of tax liabilities and assets involve certain uncertainties in the interpretation of complex tax regulations. The Company provides for potential tax liabilities based on the probability weighted average of the possible outcomes. Differences between actual results and those estimates could have an effect on the income tax liabilities and deferred tax liabilities in the period in which such determinations are made.  Deferred tax assets are recognized to the extent that it is probable that taxable profit will be available against the losses that can be utilised. Significant management judgement is required to determine the amount of deferred tax assets that can be recognized, based upon the likely timing and the level of future taxable profits together with future tax planning strategies. The recorded amount of total deferred tax assets could be altered if estimates of projected future taxable income and benefits from available tax strategies are lowered, or if changes in current tax regulations are enacted that impose restrictions on the timing or extent of the Company’s ability to utilise future tax benefits.  20| CAE Year-End Financial Results 2013


---



Notes to the Consolidated Financial Statements
 NOTE 2 – cHANGES IN ACCOUNTING POLICIES New and amended standard adopted by the Company Financial instruments In October 2010, the International Accounting Standards Board (IASB) amended IFRS 7,Financial Instruments: Disclosures.IFRS 7 was amended to require quantitative and qualitative disclosures for transfers of financial assets where the transferred assets are not derecognized in their entirety or the transferor retains continuing managerial involvement. If a substantial portion of the total amount of the transfer activity occurs in the closing days of a reporting period, the amendment also requires disclosure of supplementary information. These amendments are effective for annual periods beginning on or after July 1, 2011. The Company adopted these amendments during fiscal 2013. The Company sells certain of its accounts receivable and contracts in progress: assets through its current financial asset program. These transferred financial assets are derecognized in their entirety as the Company does not retain continuing managerial involvement. Therefore, the amendments to IFRS 7 did not impact the Company’s disclosure. New standards not yet adopted by the Company Joint arrangements In May 2011, the IASB released IFRS 11,Joint Arrangements, which supersedes IAS 31,Interests in Joint Ventures, and SIC-13,Jointly Controlled Entities – Non-monetary Contributions by Venturers. IFRS 11 focuses on the rights and obligations of a joint arrangement, rather than its legal form as is currently the case under IAS 31. The standard addresses inconsistencies in the reporting for joint arrangements by requiring the equity method to account for interest in jointly controlled entities. IFRS 11 is effective for annual periods beginning on or after January 1, 2013. The Company currently uses proportionate consolidation to account for interests in joint ventures, but will apply the equity method under IFRS 11 beginning April 1st, 2013.  Under the equity method, the Company’s share of net assets, net income and OCI of joint ventures will be presented as one-line items on the statement of financial position, the statement of income and the statement of comprehensive income, respectively. The Company assessed that the classification of its joint arrangements will remain the same upon adoption of IFRS 11. When making this assessment, the Company considered the structure of the arrangements, the legal form of any separate vehicles, the contractual terms of the arrangements and other facts and circumstances.  Employee benefits In June 2011, the IASB amended IAS 19,Employee Benefit. IAS 19 was amended to require the calculation of a net interest on the net defined benefit liability or asset using the discount rate used to measure the defined benefit obligationandto expand the disclosure requirements.These amendments are effective for years beginning on or after January 1, 2013. As a result,the Companywill determine a net interest income (expense) on the net defined benefit asset (liability) which will be presented as part of the finance expense or income.The net interest on the defined benefit obligation liability or asset will replace the interest cost on the defined benefit obligation and the expected return on plan assets.  Consolidation In May 2011, the IASB released IFRS 10,Consolidated Financial Statements, which replaces SIC-12,Consolidation – Special Purpose Entities, and parts of IAS 27,Consolidated and Separate Financial Statements. The new standard builds on existing principles by identifying the concept of control as the determining factor in whether an entity should be included in a company’s consolidated financial statements. IFRS 10 is effective for annual periods beginning on or after January 1st, 2013. The Company assessed that the adoption of IFRS 10 on April 1st, 2013 will not result in any change in the consolidation status of its subsidiaries.  Disclosure of interests in other entities In May 2011, the IASB released IFRS 12,Disclosure of Interests in Other Entities. IFRS 12 is a new and comprehensive standard on disclosure requirements for all forms of interests in other entities, including joint arrangements, associates and unconsolidated structured entities. The standard requires an entity to disclose information regarding the nature and risks associated with its interests in other entities and the effects of those interests in its financial position, financial performance and cash flows. IFRS 12 is effective for annual periods beginning on or after January 1, 2013. The new disclosures pursuant to IFRS 12 will be included in the Company’s consolidated financial statements in fiscal 2014.  Fair value measurement In May 2011, the IASB released IFRS 13,Fair Value Measurement. IFRS 13 defines fair value, sets out in a single IFRS a framework for measuring fair value and requires disclosures about fair value measurements. IFRS 13 applies when other IFRS standards require or permit fair value measurements. It does not introduce any new requirements to measure an asset or a liability at fair value, change what is measured at fair value in IFRS standards or address how to present changes in fair value. The standard is effective for annual periods beginning on or after January 1, 2013. The Company is currently evaluating the impact of the standard on its consolidated financial statements.  Financial statement presentation In June 2011, the IASB amended IAS 1,Financial Statement Presentation,to change the disclosure of items presented in OCI, including a requirement to separate items presented in OCI into two groups based on whether or not they may be recycled to income in the future. The amendments are effective for annual periods beginning on or after July 1, 2012. The new OCI requirements will be presented in the Company’s consolidated other comprehensive income statement in fiscal 2014.   CAE Year-End Financial Results 2013 |21


---



Notes to the Consolidated Financial Statements
 Property, plant and equipment In the 2011 Annual Improvements, the IASB amended IAS 16,Property, Plant and Equipment,to clarify when certain assets are property, plant and equipment or inventory. This amendment clarifies that major spare parts and servicing equipment that meet the definition of property, plant and equipment are not inventory. The 2011 annual improvement amendment removes the requirement for spare parts and servicing equipment used only in connection with an item of property, plant and equipment to be classified as property, plant and equipment. This annual improvement is effective for annual periods beginning on or after January 1, 2013. The Company is currently evaluating the impact of the standard on its consolidated financial statements.  Financial instruments In November 2009, the IASB released IFRS 9,Financial Instruments, which is the first part of a three-part project to replace IAS 39,Financial Instruments: Recognition and Measurement. It addresses classification and measurement of financial assets and liabilities. IFRS 9 replaces the multiple category and measurement models of IAS 39 for debt instruments with a new mixed measurement model having two categories: amortized cost and fair value through profit or loss. Most of the requirements in IAS 39 for classification and measurement of financial liabilities were carried forward in IFRS 9. However, the portion of the changes in fair value related to the Company’s own credit risk must be presented in OCI rather than in income. IFRS 9 is effective for annual periods beginning on or after January 1, 2015, with earlier application permitted. The Company is currently evaluating the impact of the standard on its consolidated financial statements.  The following tables summarize the adjustments to the Company’s consolidated statement of financial position as at April 1, 2012 and March 31, 2013, its consolidated statements of net income, comprehensive income and cash flows for the year end March 31, 2013 as a result of the future changes in accounting policies applicable in fiscal 2014:  Summary reconciliation of financial positionIFRS 11

   

   

   IAS 19

   

   March 31, 2013

   

   

   

   IFRS 11

   

   

   IAS 19

   

   April 1, 2012(amounts in millions)

   March 31, 2013

   

   Adjustment

   

   Adjustment

   

   Amended

   

   April 1, 2012

   

   Adjustment

   

   Adjustment

   

   AmendedAssetsCash and cash equivalents

   

   $

   293.2

   $

   (33.2)

   $

   -

   $

   260.0

   $

   287.3

   $

   (32.6)

   $

   -

   $

   254.7Total current assets, excludingcash and cash equivalent

   

   

   1,040.6

   

   7.0

   

   -

   

   1,047.6

   

   860.8

   

   0.1

   

   -

   

   860.9Property, plant and equipment

   

   

   1,498.6

   

   (355.8)

   

   -

   

   1,142.8

   

   1,293.7

   

   (300.5)

   

   -

   

   993.2Investment in equityaccounted investees

   

   

   -

   

   196.9

   

   -

   

   196.9

   

   -

   

   172.9

   

   -

   

   172.9Other non-current assets

   

   

   1,046.3

   

   (2.3)

   

   -

   

   1,044.0

   

   741.9

   

   5.3

   

   -

   

   747.2Total assets

   

   $

   3,878.7

   $

   (187.4)

   $

   -

   $

   3,691.3

   $

   3,183.7

   $

   (154.8)

   $

   -

   $

   3,028.9Liabilities and equityTotal current liabilities

   

   $

   1,002.8

   $

   (96.4)

   $

   -

   $

   906.4

   $

   883.4

   $

   (57.6)

   $

   -

   $

   825.8Provisions

   

   

   8.3

   

   (0.4)

   

   -

   

   7.9

   

   6.0

   

   (0.5)

   

   -

   

   5.5Long-term debt

   

   

   1,097.0

   

   (94.2)

   

   -

   

   1,002.8

   

   685.6

   

   (97.2)

   

   -

   

   588.4Royalty obligations

   

   

   160.6

   

   -

   

   -

   

   160.6

   

   161.6

   

   -

   

   -

   

   161.6Employee benefits obligations

   

   

   136.1

   

   -

   

   -

   

   136.1

   

   114.2

   

   -

   

   0.1

   

   114.3Other non-current liabilities

   

   

   339.4

   

   (8.3)

   

   -

   

   331.1

   

   290.7

   

   (8.8)

   

   -

   

   281.9Total liabilities

   

   $

   2,744.2

   $

   (199.3)

   $

   -

   $

   2,544.9

   $

   2,141.5

   $

   (164.1)

   $

   0.1

   $

   1,977.5EquityShare capital

   

   $

   471.7

   $

   -

   $

   -

   $

   471.7

   $

   454.5

   $

   -

   $

   -

   $

   454.5Contributed surplus

   

   

   21.9

   

   -

   

   -

   

   21.9

   

   19.2

   

   -

   

   -

   

   19.2Accumulated othercomprehensive loss

   

   

   (16.6)

   

   4.6

   

   -

   

   (12.0)

   

   (9.8)

   

   3.8

   

   -

   

   (6.0)Retained earnings

   

   

   625.7

   

   7.3

   

   -

   

   633.0

   

   558.0

   

   5.5

   

   (0.1)

   

   563.4Equity attributable to equityholders of the Company

   

   $

   1,102.7

   $

   11.9

   $

   -

   $

   1,114.6

   $

   1,021.9

   $

   9.3

   $

   (0.1)

   $

   1,031.1Non-controlling interests

   

   

   31.8

   

   -

   

   -

   

   31.8

   

   20.3

   

   -

   

   -

   

   20.3Total equity

   

   $

   1,134.5

   $

   11.9

   $

   -

   $

   1,146.4

   $

   1,042.2

   $

   9.3

   $

   (0.1)

   $

   1,051.4Total liabilities and equity

   

   $

   3,878.7

   $

   (187.4)

   $

   -

   $

   3,691.3

   $

   3,183.7

   $

   (154.8)

   $

   -

   $

   3,028.9
  22| CAE Year-End Financial Results 2013


---



Notes to the Consolidated Financial Statements
  Reconciliation of net incomeYear ended March 31, 2013

   

   As currently

   

   

   

   IFRS 11

   

   

   

   IAS 19(amounts in millions, except per share amounts)

   

   

   reported

   

   

   Adjustment

   

   

   Adjustment

   

   

   AmendedRevenue

   

   

   $

   2,104.5

   

   $

   (69.3)

   

   $

   -

   

   $

   2,035.2Cost of sales

   

   

   

   1,482.8

   

   

   (31.8)

   

   

   (0.6)

   

   

   1,450.4Gross profit

   

   

   $

   621.7

   

   $

   (37.5)

   

   $

   0.6

   

   $

   584.8Research and development expenses

   

   

   

   60.6

   

   

   (0.5)

   

   

   -

   

   

   60.1Selling, general and administrative expenses

   

   

   

   269.9

   

   

   (5.6)

   

   

   0.2

   

   

   264.5Other gains – net

   

   

   

   (23.4)

   

   

   1.0

   

   

   -

   

   

   (22.4)After tax share in profit of equity accounted investees

   

   

   

   -

   

   

   (20.1)

   

   

   -

   

   

   (20.1)Restructuring, integration and acquisition costs

   

   

   

   68.9

   

   

   (0.2)

   

   

   -

   

   

   68.7Operating profit

   

   

   $

   245.7

   

   $

   (12.1)

   

   $

   0.4

   

   $

   234.0Finance income

   

   

   

   (7.3)

   

   

   (2.1)

   

   

   -

   

   

   (9.4)Finance expense

   

   

   

   75.5

   

   

   (6.1)

   

   

   5.1

   

   

   74.5Finance expense – net

   

   

   $

   68.2

   

   $

   (8.2)

   

   $

   5.1

   

   $

   65.1Earnings before income taxes

   

   

   $

   177.5

   

   $

   (3.9)

   

   $

   (4.7)

   

   $

   168.9Income tax expense

   

   

   

   35.1

   

   

   (5.7)

   

   

   (1.2)

   

   

   28.2Net income

   

   

   $

   142.4

   

   $

   1.8

   

   $

   (3.5)

   

   $

   140.7Attributable to:Equity holders of the Company

   

   

   $

   139.4

   

   $

   1.8

   

   $

   (3.5)

   

   $

   137.7Non-controlling interests

   

   

   

   3.0

   

   

   -

   

   

   -

   

   

   3.0Earnings per share from continuing operationsattributable to equity holders of the CompanyBasic and diluted

   

   

   $

   0.54

   

   $

   -

   

   $

   (0.01)

   

   $

   0.53Weighted average number ofshares outstanding (basic)

   

   

   

   259.0

   

   

   -

   

   

   -

   

   

   259.0Weighted average number ofshares outstanding (diluted)

   

   

   

   259.4

   

   

   -

   

   

   -

   

   

   259.4
  Summary reconciliation of comprehensive incomeYear ended March 31, 2013

   

   As currently

   

   

   IFRS 11

   

   

   IAS 19(amounts in millions)

   

   

   reported

   

   Adjustment

   

   Adjustment

   

   

   AmendedNet income

   

   

   $

   142.4

   $

   1.8

   $

   (3.5)

   

   $

   140.7Foreign currency translation

   

   

   $

   2.5

   $

   -

   $

   -

   

   $

   2.5Net changes in cash flow hedge

   

   

   

   (9.2)

   

   0.8

   

   -

   

   

   (8.4)Defined benefit plan actuarial losses

   

   

   

   (22.5)

   

   -

   

   3.6

   

   

   (18.9)Other comprehensive loss

   

   $

   (29.2)

   $

   0.8

   $

   3.6

   

   $

   (24.8)Total comprehensive income

   

   $

   113.2

   $

   2.6

   $

   0.1

   

   $

   115.9Attributable to:Equity holders of the Company

   

   

   $

   110.1

   $

   2.6

   $

   0.1

   

   $

   112.8Non-controlling interests

   

   

   

   3.1

   

   -

   

   -

   

   

   3.1$

   113.2

   $

   2.6

   $

   0.1

   

   $

   115.9
  Summary reconciliation of statement of cash flowsYear ended March 31, 2013

   

   

   As currently

   

   

   IFRS 11

   

   

   IAS 19(amounts in millions)

   

   

   

   

   reported

   

   Adjustment

   

   Adjustment

   

   AmendedCash provided by operating activities

   

   

   

   $

   204.1

   $

   (49.6)

   $

   -

   $

   154.5Cash used in investing activities

   

   

   

   

   (504.9)

   

   71.2

   

   -

   

   (433.7)Cash provided by financing activities

   

   

   

   

   306.7

   

   (22.2)

   

   -

   

   284.5
  CAE Year-End Financial Results 2013 |23


---



Notes to the Consolidated Financial Statements
 NOTE 3 – BUSINESS COMBINATIONS Fiscal 2013 acquisitions During fiscal 2013, the Company entered into two business combination transactions for a total purchase consideration of $304.0 million.  An amount of $6.0 million of acquisition-related costs was included in restructuring, integration and acquisition costs in the consolidated income statement for the year ended March 31, 2013.  Oxford Aviation Academy Luxembourg S.à r.l. In May 2012, the Company acquired 100% of the shares of Oxford Aviation Academy Luxembourg S.à r.l. (OAA), a provider of aviation training and crew sourcing services. This acquisition strengthens CAE’s leadership and global reach in civil aviation training by increasing its training centre footprint, growing its flight academy network and extending its portfolio aviation training solutions and aircraft crew sourcing services.  The determination of the fair value for the above acquisition of the net identifiable assets acquired and liabilities assumed is included in the following table. The fair value of the acquired identifiable intangible assets is $71.3 million (including trade names and customer relationships) and goodwill is $142.4 million. The goodwill arising from the acquisition of OAA is attributable to the advantages gained, which include:  -Synergies from combining CAE’s operations and OAA’s operations; -Broadening of CAE’s portfolio by extending into pilot and maintenance crew sourcing via Parc Aviation; -An experienced workforce with subject matter expertise.  The fair value of the acquired accounts receivable was $28.2 million. Gross contractual amounts receivable amount to $29.6 million, of which $1.4 million has been provisioned in the allowance for doubtful accounts.  The revenue and segment operating income included in the consolidated income statement from OAA since the acquisition date is $245.1million and $12.7million respectively. Had OAA been consolidated from April 1, 2012, the consolidated income statement would have shown additional revenue and segment operating income from OAA of $39.0 million and $0.9 million respectively. These pro-forma amounts are estimated based on the operations of the acquired business prior to the business combination by the Company. The amounts are provided as supplemental information and are not indicative of the Company’s future performance.  Advanced Medical Technologies, LLC (Blue PhantomTM) In November 2012, the Company acquiredAdvanced Medical Technologies, LLC (Blue Phantom) which specializes in the design, development and sales of hands-on training models for ultrasound simulation training.This acquisitionenables CAE to expand its healthcare simulation business by integrating tissue-based simulation into its product offerings as well as enhancing its human patient simulators and its line of computer based ultrasound simulators.  The determination of the fair value for the above acquisition of the net identifiable assets acquired and liabilities assumed is included in the following table. The fair value of the acquired identifiable intangible assets is $10.0 million (including trade name, technology, intellectual property and customer relationships) and goodwill is $9.7 million. The goodwill arising from the acquisition of Blue Phantom is attributable to the advantages gained, which include:  -Expansion of CAE’s healthcare product line by integrating tissue-based simulation into its product offerings; -Projected future growth of the Blue Phantom product line.  The fair value and the gross contractual amounts of the acquired accounts receivable was $1.1 million.  The revenue and segment operating income included in the consolidated income statement from Blue Phantom since the acquisition date is $2.1million and $1.4million respectively. Had Blue Phantom been consolidated from April 1, 2012, the consolidated income statement would have shown additional revenue and segment operating income of $4.2 million and $2.9 million respectively. These pro-forma amounts are estimated based on the operations of the acquired business prior to the business combination by the Company. The amounts are provided as supplemental information and are not indicative of the Company’s future performance.  Other Adjustments to the determination of net identifiable assets acquired and liabilities assumed for fiscal 2012 acquisitions was also completed during the period which included a net decrease to goodwill of $2.3 million and a net increase to intangible assets of $2.8 million.  24| CAE Year-End Financial Results 2013


---



Notes to the Consolidated Financial Statements
  Net assets acquired and liabilities assumed arising from the acquisitions are as follows:As at March 31

   

   

   

   

   

   

   

   

   Total

   

   

   

   Total(amounts in millions)

   

   OAA

   

   

   

   Other

   

   

   

   2013

   

   

   2012Current assets(1)

   $

   35.9

   

   $

   1.1

   

   $

   37.0

   

   $

   17.8Current liabilities

   

   (90.4)

   

   

   (0.1)

   

   

   (90.5)

   

   

   (19.7)Property, plant and equipment

   

   151.0

   

   

   0.1

   

   

   151.1

   

   

   3.3Other assets

   

   -

   

   

   -

   

   

   -

   

   

   20.6Intangible assets

   

   71.3

   

   

   10.0

   

   

   81.3

   

   

   39.7Goodwill(2)

   

   142.4

   

   

   9.7

   

   

   152.1

   

   

   99.1Deferred income taxes

   

   (7.5)

   

   

   -

   

   

   (7.5)

   

   

   (8.1)Long-term debt

   

   (16.1)

   

   

   -

   

   

   (16.1)

   

   

   -Non-current liabilities

   

   (18.1)

   

   

   -

   

   

   (18.1)

   

   

   (26.1)Fair value of the net assets acquired, excluding cash positionat acquisition

   $

   268.5

   

   $

   20.8

   

   $

   289.3

   

   $

   126.6Cash and cash equivalents in subsidiary acquired

   

   14.6

   

   

   0.1

   

   

   14.7

   

   

   4.8Total purchase consideration(3)

   $

   283.1

   

   $

   20.9

   

   $

   304.0

   

   $

   131.4Purchase price payable

   

   (3.8)

   

   

   (0.9)

   

   

   (4.7)

   

   

   (0.3)Other

   

   -

   

   

   -

   

   

   -

   

   

   (0.3)Total purchase consideration settled in cash

   $

   279.3

   

   $

   20.0

   

   $

   299.3

   

   $

   130.8Additional consideration related to previous fiscal year's acquisitions

   

   -

   

   

   0.7

   

   

   0.7

   

   

   -Total cash consideration

   $

   279.3

   

   $

   20.7

   

   $

   300.0

   

   $

   130.8(1)Excluding cash on hand(2)The goodwill includes $9.7 million that is deductible for tax purposes.(3)Total purchase consideration in relation to OAA acquisition includes an amount of $279.3 million paid to former OAA shareholders to repay debt.
  The net assets, including goodwill, of OAA are included in the Training & Services/Civil segment. The net assets, including goodwill, of Blue Phantom are included in the New Core Markets segment.  CAE Year-End Financial Results 2013 |25


---



Notes to the Consolidated Financial Statements
 NOTE 4 – INVESTMENTS IN JOINT VENTURES During fiscal 2013, the Company entered into one new joint venture arrangement to form Rotorsim USA LLC. See Note 33 for a complete list of the Company’s investments in joint ventures.  Except for the Helicopter Training Media International GmbH joint venture, whose operations are essentially focused on designing, manufacturing and supplying advanced helicopter military training product applications, the other joint ventures’ operations are focused on providing civil and military aviation training and related services.  The following table summarizes the financial information of the Company's investment in joint ventures:(amounts in millions)

   

   

   2013

   

   2012AssetsCurrent assets

   

   $

   83.4

   $

   74.4Property, plant and equipment and other non-current assets

   

   

   378.8

   

   315.6LiabilitiesCurrent liabilities

   

   

   74.7

   

   53.8Long-term debt (including current portion)

   

   

   136.5

   

   113.9Deferred gains and other non-current liabilities

   

   

   8.8

   

   9.5
  (amounts in millions)

   

   

   2013

   

   

   2012Earnings informationRevenue

   

   $

   134.3

   

   $

   111.5Net income

   

   

   34.8

   

   

   28.9Segmented operating incomeTS/C

   

   

   28.1

   

   

   23.8SP/M

   

   

   1.0

   

   

   2.1TS/M

   

   

   15.0

   

   

   12.4
  There are no contingent liabilities relating to the Company’s interests in the joint ventures and no contingent liabilities from the joint ventures themselves.  The Company’s share of the capital commitments from the joint ventures themselves amount to $56.2 million as at March 31, 2013 (2012–$84.7 million).  26| CAE Year-End Financial Results 2013


---



Notes to the Consolidated Financial Statements
 NOTE 5 – ACCOUNTS RECEIVABLE Accounts receivable are carried on the consolidated statement of financial position net of allowance for doubtful accounts. This provision is established based on the Company’s best estimates regarding the ultimate recovery of balances for which collection is uncertain. Uncertainty of ultimate collection may become apparent from various indicators, such as a deterioration of the credit situation of a given client and delay in collection beyond the contractually agreed upon payment terms. Management regularly reviews accounts receivable, monitors past due balances and assesses the appropriateness of the allowance for doubtful accounts.  Details of accounts receivable were as follows:(amounts in millions)

   

   

   

   2013

   2012Past due trade receivables not impaired1-30 days

   

   

   $

   44.9

   $

   30.131-60 days

   

   

   

   19.1

   

   10.261-90 days

   

   

   

   15.3

   

   8.5Greater than 90 days

   

   

   

   47.7

   

   33.5Total

   

   

   $

   127.0

   $

   82.3Allowance for doubtful accounts

   

   

   

   (11.0)

   

   (7.6)Current trade receivables

   

   

   

   156.2

   

   121.6Accrued receivables

   

   

   

   73.3

   

   48.2Receivables from related parties (Note 34)

   

   

   

   12.4

   

   23.4Other receivables

   

   

   

   41.6

   

   40.5Total accounts receivable

   

   

   $

   399.5

   $

   308.4
  Changes in the allowance for doubtful accounts were as follows:(amounts in millions)

   

   

   

   2013

   

   

   2012Allowance for doubtful accounts, beginning of year

   

   

   $

   (7.6)

   

   $

   (6.0)Additions

   

   

   

   (7.2)

   

   

   (6.2)Amounts charged off

   

   

   

   2.3

   

   

   2.4Unused amounts reversed

   

   

   

   1.6

   

   

   2.0Exchange differences

   

   

   

   (0.1)

   

   

   0.2Allowance for doubtful accounts, end of year

   

   

   $

   (11.0)

   

   $

   (7.6)
   NOTE 6 – inventories (amounts in millions)

   

   

   

   2013

   

   2012Work in progress

   

   

   $

   101.7

   $

   99.2Raw materials, supplies and manufactured products

   

   

   

   84.9

   

   53.9$

   186.6

   $

   153.1The amount of inventories recognized as cost of sales was as follows:(amounts in millions)

   

   

   

   2013

   

   2012Work in progress

   

   

   $

   58.8

   $

   72.6Raw materials, supplies and manufactured products

   

   

   

   40.6

   

   34.3$

   99.4

   $

   106.9
  Write-downs of inventories in the amount of $0.7 million were made during fiscal 2013 (2012 – $1.4 million).  CAE Year-End Financial Results 2013 |27


---



Notes to the Consolidated Financial Statements
 NOTE 7 – Property, plant and equipment AssetsBuildings

   

   

   

   

   Machinery

   

   Aircraft and

   

   under

   

   Assetsand

   

   

   

   

   and

   

   aircraft

   

   finance

   

   under(amounts in millions)

   

   Land

   

   improvements

   

   Simulators

   

   equipment

   

   engines

   

   lease

   

   construction

   

   

   TotalNet book value at March 31, 2011

   $

   23.5

   $

   175.0

   $

   701.0

   $

   55.1

   $

   12.9

   $

   144.2

   $

   99.3

   $

   1,211.0Additions

   

   6.5

   

   22.2

   

   45.1

   

   14.6

   

   0.6

   

   -

   

   76.7

   

   165.7Acquisition of subsidiaries

   

   -

   

   0.7

   

   1.5

   

   1.1

   

   -

   

   -

   

   0.1

   

   3.4Acquisition of joint venture

   

   -

   

   -

   

   20.3

   

   -

   

   -

   

   -

   

   5.9

   

   26.2Disposals

   

   -

   

   -

   

   (24.1)

   

   -

   

   (0.1)

   

   -

   

   -

   

   (24.2)Depreciation

   

   -

   

   (14.1)

   

   (44.6)

   

   (15.6)

   

   (3.3)

   

   (14.7)

   

   -

   

   (92.3)Impairment (Note 21)

   

   -

   

   (0.5)

   

   -

   

   -

   

   -

   

   -

   

   -

   

   (0.5)Transfers and others

   

   -

   

   1.9

   

   43.0

   

   1.1

   

   1.8

   

   (6.2)

   

   (45.3)

   

   (3.7)Exchange differences

   

   0.1

   

   0.9

   

   6.2

   

   (0.5)

   

   (0.2)

   

   2.4

   

   (0.8)

   

   8.1Net book value at March 31, 2012

   $

   30.1

   $

   186.1

   $

   748.4

   $

   55.8

   $

   11.7

   $

   125.7

   $

   135.9

   $

   1,293.7Additions

   

   -

   

   26.2

   

   79.3

   

   5.3

   

   1.0

   

   -

   

   44.0

   

   155.8Acquisition of subsidiaries

   

   -

   

   11.7

   

   91.1

   

   2.9

   

   12.8

   

   32.6

   

   -

   

   151.1Acquisition of joint ventures

   

   -

   

   -

   

   7.2

   

   -

   

   -

   

   -

   

   -

   

   7.2Disposals

   

   -

   

   (1.0)

   

   (5.1)

   

   -

   

   (0.1)

   

   -

   

   -

   

   (6.2)Depreciation

   

   -

   

   (14.0)

   

   (59.4)

   

   (12.7)

   

   (2.3)

   

   (19.2)

   

   -

   

   (107.6)Transfers and others

   

   -

   

   (0.2)

   

   27.5

   

   (1.5)

   

   (2.4)

   

   (2.7)

   

   (22.5)

   

   (1.8)Exchange differences

   

   (0.2)

   

   (0.7)

   

   1.4

   

   (0.4)

   

   0.2

   

   3.7

   

   2.4

   

   6.4Net book value at March 31, 2013

   $

   29.9

   $

   208.1

   $

   890.4

   $

   49.4

   $

   20.9

   $

   140.1

   $

   159.8

   $

   1,498.6
  AssetsBuildings

   

   

   

   

   Machinery

   

   Aircraft and

   

   under

   

   Assetsand

   

   

   

   

   and

   

   aircraft

   

   finance

   

   under(amounts in millions)

   

   Land

   

   improvements

   

   Simulators

   

   equipment

   

   engines

   

   lease

   

   construction

   

   

   TotalCost

   $

   30.1

   $

   305.6

   $

   946.7

   $

   198.2

   $

   20.8

   $

   246.4

   $

   135.9

   $

   1,883.7Accumulated depreciation

   

   -

   

   (119.5)

   

   (198.3)

   

   (142.4)

   

   (9.1)

   

   (120.7)

   

   -

   

   (590.0)Net book value at March 31, 2012

   $

   30.1

   $

   186.1

   $

   748.4

   $

   55.8

   $

   11.7

   $

   125.7

   $

   135.9

   $

   1,293.7Cost

   $

   29.9

   $

   340.6

   $

   1,142.3

   $

   200.9

   $

   31.0

   $

   280.5

   $

   159.8

   $

   2,185.0Accumulated depreciation

   

   -

   

   (132.5)

   

   (251.9)

   

   (151.5)

   

   (10.1)

   

   (140.4)

   

   -

   

   (686.4)Net book value at March 31, 2013

   $

   29.9

   $

   208.1

   $

   890.4

   $

   49.4

   $

   20.9

   $

   140.1

   $

   159.8

   $

   1,498.6
  As at March 31, 2013, the average remaining amortization period for full-flight simulators is 14 years (2012–15 years).  As at March 31, 2013, bank borrowings are collateralized by property, plant and equipment for a value of $149.0 million (2012–$113.7 million).  28| CAE Year-End Financial Results 2013


---



Notes to the Consolidated Financial Statements
  Assets under finance lease, with lease terms between 3 and 21 years, include simulators, buildings and machinery and equipment, as follows:(amounts in millions)

   

   

   

   2013

   

   2012SimulatorsCost

   

   

   $

   245.6

   $

   211.8Accumulated depreciation

   

   

   

   (128.5)

   

   (110.5)Net book value

   

   

   $

   117.1

   $

   101.3BuildingsCost

   

   

   $

   34.3

   $

   34.0Accumulated depreciation

   

   

   

   (11.3)

   

   (9.6)Net book value

   

   

   $

   23.0

   $

   24.4Machinery and equipmentCost

   

   

   $

   0.6

   $

   0.6Accumulated depreciation

   

   

   

   (0.6)

   

   (0.6)Net book value

   

   

   $

   -

   $

   -Total net book value

   

   

   $

   140.1

   $

   125.7
  As at March 31, 2013, the net book value of simulators leased out to third parties is $22.3 million (2012–$5.4 million).   NOTE 8 – intangible assets Capitalized

   

   

   

   

   ERP and

   

   

   

   

   Otherdevelopment

   

   Customer

   

   

   other

   

   

   

   

   intangible(amounts in millions)

   Goodwill

   

   costs

   

   relationships

   

   software

   

   Technology

   

   assets

   

   

   TotalNet book value at March 31, 2011

   $

   195.1

   $

   45.2

   $

   47.5

   $

   45.4

   $

   25.0

   $

   17.6

   $

   375.8Additions – internal development

   

   -

   

   42.8

   

   -

   

   17.3

   

   -

   

   0.2

   

   60.3Additions – acquired separately

   

   -

   

   -

   

   0.2

   

   -

   

   -

   

   1.1

   

   1.3Acquisition of subsidiaries

   

   99.1

   

   1.4

   

   20.9

   

   0.1

   

   12.3

   

   5.0

   

   138.8Amortization

   

   -

   

   (5.7)

   

   (8.1)

   

   (5.3)

   

   (3.4)

   

   (3.5)

   

   (26.0)Impairment (Note 21)

   

   -

   

   (3.3)

   

   (1.3)

   

   (0.2)

   

   -

   

   -

   

   (4.8)Transfers and others

   

   -

   

   (8.2)

   

   1.1

   

   0.1

   

   (6.5)

   

   (3.3)

   

   (16.8)Exchange differences

   

   3.9

   

   0.1

   

   0.1

   

   (0.1)

   

   0.3

   

   0.3

   

   4.6Net book value at March 31, 2012

   $

   298.1

   $

   72.3

   $

   60.4

   $

   57.3

   $

   27.7

   $

   17.4

   $

   533.2Additions – internal development

   

   -

   

   49.6

   

   -

   

   19.4

   

   -

   

   0.1

   

   69.1Additions – acquired separately

   

   -

   

   -

   

   6.5

   

   -

   

   -

   

   -

   

   6.5Acquisition of subsidiaries

   

   149.8

   

   0.8

   

   63.7

   

   1.1

   

   0.8

   

   17.7

   

   233.9Amortization

   

   -

   

   (9.3)

   

   (12.9)

   

   (9.5)

   

   (3.9)

   

   (3.2)

   

   (38.8)Transfers and others

   

   -

   

   (8.1)

   

   0.8

   

   (2.7)

   

   -

   

   -

   

   (10.0)Exchange differences

   

   4.1

   

   0.2

   

   0.8

   

   -

   

   0.1

   

   0.1

   

   5.3Net book value at March 31, 2013

   $

   452.0

   $

   105.5

   $

   119.3

   $

   65.6

   $

   24.7

   $

   32.1

   $

   799.2
  Capitalized

   

   

   

   

   ERP and

   

   

   

   

   Otherdevelopment

   

   Customer

   

   other

   

   

   

   

   intangible(amounts in millions)

   Goodwill

   

   costs

   

   relationships

   

   software

   

   Technology

   

   assets

   

   

   TotalCost

   $

   298.1

   $

   106.7

   $

   79.7

   $

   95.7

   $

   41.0

   $

   32.3

   $

   653.5Accumulated depreciation

   

   -

   

   (34.4)

   

   (19.3)

   

   (38.4)

   

   (13.3)

   

   (14.9)

   

   (120.3)Net book value at March 31, 2012

   $

   298.1

   $

   72.3

   $

   60.4

   $

   57.3

   $

   27.7

   $

   17.4

   $

   533.2Cost

   $

   452.0

   $

   149.2

   $

   151.5

   $

   117.8

   $

   41.9

   $

   50.6

   $

   963.0Accumulated depreciation

   

   -

   

   (43.7)

   

   (32.2)

   

   (52.2)

   

   (17.2)

   

   (18.5)

   

   (163.8)Net book value at March 31, 2013

   $

   452.0

   $

   105.5

   $

   119.3

   $

   65.6

   $

   24.7

   $

   32.1

   $

   799.2
  For the year ended March 31, 2013, amortization of $29.1 million (2012 – $19.7 million) has been recorded in cost of sales, $8.2million (2012 – $5.4 million) in research and development expenses, $1.5 million (2012 – $0.9 million) in selling, general and administrative expenses and nil (2012 – nil) was capitalized.  As at March 31, 2013, the average remaining amortization period for the capitalized development costs is 5 years (2012 – 6 years).  CAE Year-End Financial Results 2013 |29


---



Notes to the Consolidated Financial Statements
  The Company has no indefinite life intangible assets other than goodwill.  The carrying amount of goodwill allocated to the Company's CGUs per operating segment is as follows:(amounts in millions)

   

   

   2013

   2012TS/C

   

   

   $

   176.5

   $

   32.3SP/M

   

   

   

   103.9

   

   103.1TS/M

   

   

   

   37.6

   

   37.2NCM

   

   

   

   134.0

   

   125.5Total goodwill

   

   

   $

   452.0

   $

   298.1
   NOTE 9 – Other assets (amounts in millions)

   

   

   2013

   

   2012Restricted cash

   

   $

   9.2

   $

   9.8Prepaid rent to a portfolio investment

   

   

   77.5

   

   85.4Investment in a portfolio investment

   

   

   1.3

   

   1.3Advances to related parties

   

   

   33.9

   

   26.7Deferred financing costs, net of accumulated amortization of $21.4 (2012 – $20.6)

   

   

   4.2

   

   3.1Non-current receivables

   

   

   58.4

   

   42.3Other, net of accumulated amortization of $11.5 (2012 – $10.6)

   

   

   16.8

   

   8.8$

   201.3

   $

   177.4
  Finance lease receivablesThe present value of future minimum lease payment receivables, included in the non-current receivables is as follows:(amounts in millions)

   

   

   2013

   

   2012Gross investment in finance lease contracts

   

   $

   53.3

   $

   13.6Less: unearned finance income

   

   

   22.9

   

   2.7Less: discounted unguaranteed residual values of leased assets

   

   

   0.5

   

   -Present value of future minimum lease payment receivables

   

   $

   29.9

   $

   10.9
  Future minimum lease payments from investments in finance lease contracts to be received are as follows:(amounts in millions)

   

   

   

   

   2013

   

   

   

   

   2012Present value of

   

   

   

   Present value ofGross

   

   future minimum

   

   

   Gross

   

   future minimumInvestment

   

   lease payments

   

   Investment

   

   lease paymentsNo later than 1 year

   $

   1.4

   $

   0.9

   $

   1.2

   $

   0.8Later than 1 year and no later than 5 years

   

   7.6

   

   2.4

   

   4.8

   

   3.5Later than 5 years

   

   44.3

   

   26.6

   

   7.6

   

   6.6$

   53.3

   $

   29.9

   $

   13.6

   $

   10.9
  30| CAE Year-End Financial Results 2013


---



Notes to the Consolidated Financial Statements
 NOTE 10 – ACCOUNTs PAYABLE AND ACCRUED LIABILITIES (amounts in millions)

   

   

   

   2013

   

   2012Accounts payable trade

   

   

   $

   299.8

   $

   272.8Accrued liabilities

   

   

   

   246.1

   

   216.6Amounts due to related parties (Note 34)

   

   

   

   12.6

   

   5.4Deferred revenue

   

   

   

   123.4

   

   88.7Current portion of royalty obligations

   

   

   

   13.6

   

   14.1$

   695.5

   $

   597.6
   NOTE 11 – contracts IN PROGRESS The amounts recognized in the consolidated statement of financial position correspond, for each construction contract, to the aggregate amount of costs incurred plus recognized profits (less recognized losses), less progress billings and amounts sold.  (amounts in millions)

   

   2013

   

   

   2012Contracts in progress: assets

   $

   247.3

   

   $

   245.8Contracts in progress: liabilities

   

   (117.9)

   

   

   (104.6)Contracts in progress: net assets

   $

   129.4

   

   $

   141.2These amounts correspond to:(amounts in millions)

   

   2013

   

   

   2012Aggregate amount of costs incurred plus recognizedprofits (less recognized losses) to date

   $

   3,052.3

   

   $

   2,716.3Less: progress billing

   

   2,919.8

   

   

   2,569.9Less: amounts sold

   

   3.1

   

   

   5.2Contracts in progress: net assets

   $

   129.4

   

   $

   141.2
  Advances received from customers on construction contracts related to work not yet commenced amounts to $1.6 million atMarch 31, 2013(2012– $0.3 million).  Construction contracts revenue recognized in fiscal 2013 amounts to $784.9 million (2012– $761.1 million).  CAE Year-End Financial Results 2013 |31


---



Notes to the Consolidated Financial Statements
 NOTE 12 – provisionS Restoration and simulator removal In certain situations, simulators are installed at locations that are not owned by the Company. In some of these cases, the Company has an obligation to dismantle and remove the simulators from these sites and to restore the location to its original condition. A provision is recognized for the present value of estimated costs to be incurred to dismantle and remove the simulators from these sites and restore the location. The provision also includes amounts relating to leased land and building where restoration costs are contractually required at the end of the lease. Where such costs arise as a result of capital expenditure on the leased asset, the restoration costs are also capitalized.  Restructuring Restructuring costs consist mainly of severances and other related costs.  Legal claims The amount represents a provision for certain legal claims brought against the Company. The corresponding charge is recognized in the consolidated income statement within selling, general and administrative expenses. In Management’s opinion, the outcome of these legal claims will not give rise to any significant loss beyond the amounts provided at March 31, 2013.  Warranties A provision is recognized for expected warranty claims on products sold in the last two years, based on past experience of the level of repairs and returns. It is expected that most of these costs will be incurred in the next financial year and all will have been incurred within two to five years of the consolidated statement of financial position date. Assumptions used to calculate the provision for warranties were based on current sales levels and current information available about returns based on the warranty period of products sold.  Changes in provisions are as follows:ContingentRestoration

   

   

   

   

   

   

   

   

   liabilities arisingand simulator

   

   Restructuring

   

   Legal

   

   

   on business

   

   

   Other(amounts in millions)

   removal

   

   (Note 23)

   

   claims

   

   Warranties

   

   combinations

   

   provisions

   

   

   TotalTotal provisions, beginning of year

   $

   0.9

   $

   0.7

   $

   1.6

   $

   11.1

   $

   9.0

   $

   4.3

   $

   27.6Additions including increasesto existing provisions

   

   4.0

   

   55.1

   

   4.4

   

   8.3

   

   -

   

   7.2

   

   79.0Amounts used

   

   (0.3)

   

   (28.1)

   

   (0.8)

   

   (9.8)

   

   (1.0)

   

   (2.3)

   

   (42.3)Unused amounts reversed

   

   -

   

   -

   

   -

   

   (1.2)

   

   (6.1)

   

   (0.2)

   

   (7.5)Changes in thediscounted amount

   

   -

   

   -

   

   -

   

   -

   

   0.3

   

   0.1

   

   0.4Exchange differences

   

   (0.1)

   

   0.4

   

   -

   

   -

   

   -

   

   -

   

   0.3Total provisions, end of year

   $

   4.5

   $

   28.1

   $

   5.2

   $

   8.4

   $

   2.2

   $

   9.1

   $

   57.5Less: current portion

   

   0.7

   

   28.1

   

   4.7

   

   8.4

   

   0.4

   

   6.9

   

   49.2Long-term portion

   $

   3.8

   $

   -

   $

   0.5

   $

   -

   $

   1.8

   $

   2.2

   $

   8.3
  32| CAE Year-End Financial Results 2013


---



Notes to the Consolidated Financial Statements
 NOTE 13 – DEBT FACILITIES Long-term debt, net of transaction costs is as follows:  (amounts in millions)

   

   

   2013

   

   2012Total recourse debt

   

   $

   1,089.4

   $

   678.1Total non-recourse debt(1)

   

   

   120.6

   

   143.5Total long-term debt

   

   $

   1,210.0

   $

   821.6Less:Current portion of long-term debt

   

   

   86.1

   

   113.6Current portion of finance leases

   

   

   26.9

   

   22.4$

   1,097.0

   $

   685.6(1)Non-recourse debt is a debt in a subsidiary for which recourse is limited to the assets, equity, interest and undertaking of such subsidiary and not CAE Inc.
  Details of the recourse debt are as follows:(amounts in millions)

   

   

   2013

   

   2012(i)

   Senior notes ($125.0 and US$225.0 maturing between December 2019 and December 2027), floating interest rate based on bankers’ acceptances rate plus a spread on $50.0 and interest rate ranging from 3.59% and 4.15% for remaining $75.0 and US$225.0

   

   $

   353.5

   $

   -(ii)

   Senior notes (US$33.0 matured in June 2012), fixed interest rate of 7.76% payable semi-annually in June and December

   

   

   -

   

   33.3(iii)

   Senior notes ($15.0 and US$45.0 maturing in June 2016 and US$60.0 maturing in June 2019), average blended rate of 7.15% payable semi-annually in June and December

   

   

   119.0

   

   119.7(iv)

   Senior notes (US$100.0 maturing in August 2021 and US$50.0 maturing in August 2026), average blended rate of 4.47% payable semi-annually in August and February

   

   

   152.3

   

   149.9(v)

   Revolving unsecured term credit facilities maturing in April 2017 (US$550.0)

   

   

   67.5

   

   13.3(vi)

   Obligations under finance lease commitments, with various maturities from October 2013 to October 2036, interest rates from 3.11% to 10.68%

   

   

   142.5

   

   142.9(vii)

   Term loan maturing in June 2014 (outstanding as at March 31, 2013 – US$7.7 and £3.2, as at March 31, 2012 – US$13.2 and £5.4)

   

   

   12.4

   

   21.3Term loan maturing in June 2018 (outstanding as at March 31, 2013 – US$43.2 and £8.5, as at March 31, 2012 – US$43.2 and £8.5)

   

   

   55.2

   

   54.7Combined coupon rate of post-swap debt of 6.92% (2012 – 7.90%)(viii)

   R&D obligation from a government agency maturing in July 2029

   

   

   97.5

   

   58.3(ix)

   Term loan, maturing in December 2017 (outstanding as at March 31, 2013 – €6.7, as at March 31, 2012 – €7.9), floating interest rate with a floor of 2.50%

   

   

   8.6

   

   10.5(x)

   Term loan maturing in January 2020 (outstanding as at March 31, 2013 – €4.4, as at March 31, 2012 – €4.9), floating interest rate of EURIBOR plus a spread

   

   

   5.5

   

   6.1(xi)

   Credit facility maturing in January 2015 (outstanding as at March 31, 2013 – $2.2 and INR 349.2, as at March 31, 2012 – $2.1 and INR 384.2), bearing interest based on floating interest rates in India prevailing at the time of each drawdown

   

   

   8.7

   

   9.6(xii)

   Term loans maturing between October 2020 and March 2023 (outstanding as at March 31, 2013 – US$28.4, as at March 31, 2012 – US$17.1) bearing interest at a mix of fixed rate and floating rate plus spread

   

   

   28.8

   

   17.1(xiii)

   Other debt, with various maturities from April 2013 to March 2024, average interest rate of approximately 2.69%

   

   

   37.9

   

   41.4Total recourse debt, net amount

   

   $

   1,089.4

   $

   678.1
   (i)Represents senior unsecured notes for$125.0 million and US$225.0 million by way of a private placement.  (ii)Represents unsecured senior notes for US$33.0 million by way of a private placement. These unsecured senior notes rank equally with term bank financings. The Company has entered into an interest rate swap agreement converting the fixed interest rate into the equivalent of a three-month LIBOR borrowing rate plus 3.6%.  (iii)Represents unsecured senior notes for $15.0 million and US$105.0 million by way of a private placement.  (iv)Represents unsecured senior notes for US$150.0 million by way of a private placement.   CAE Year-End Financial Results 2013 |33


---



Notes to the Consolidated Financial Statements
 (v)Effective June 29, 2012, the Company amended its revolving unsecured term credit facilities to extend the maturity date from April 2015 to April 2017, and to increase the available facility amount from US$450.0 million to US$550.0 million at more favourable terms with an option, subject to the lender’s consent, to increase to a total amount of up to US$850.0 million. The facility has covenants requiring a minimum fixed charge coverage and a maximum debt coverage. The applicable interest rate on this revolving term credit facility is at the option of the Company, based on the bank’s prime rate, bankers’ acceptance rates or LIBOR plus a spread which depends on the credit rating assigned by Standard & Poor’s Rating Services. The spread over prime has been reduced to reflect current market pricing.  (vi)These finance leases relate to the leasing of various buildings, simulators, machinery and equipment. Through the acquisition of OAA, the Company assumed leases for several simulators located in Europe. These leases are classified as finance leases and represent finance lease obligations of $18.4 million as at March 31, 2013, with implicit lease rates ranging from approximately 4.30% to 10.18%.  During fiscal 2013, the Company exercised repurchase options in the amounts of US$6.9 million and €1.6 million for two simulators previously accounted for as finance leases, resulting in a reduction in the Company’s obligations under finance leases.  (vii)Represents senior financing for two civil aviation training centres. Tranche A is repaid in quarterly instalments of principal and interest while Tranche B begins quarterly amortization in July 2014.  (viii)Represents an interest-bearing long-term obligation from the Government of Canada for its participation in Project Falcon, an R&D program that will continue until the end of fiscal 2014, for a maximum amount of $250.0 million. The aggregate amount recognized at the end of fiscal 2013 was $200.8 million (2012 – $141.4 million) (see Note 1). The discounted value of the debt recognized amounted to $97.5 million as at March 31, 2013 (2012 – $58.3 million).  (ix)Represents the Company’s proportionate share of the debt in Rotorsim S.r.l., totalling $8.7 million (€6.7 million) (2012 – $10.6 million (€7.9 million)).  (x)Represents a loan agreement of $5.7 million (€4.4 million) (2012 – $6.4 million (€4.8 million)) for the financing of one of the Company’s subsidiaries.  (xi)Represents the financing facility for certain of the Company’s operations in India. The financing facility is comprised of a term loan of up to $8.8 million (INR 470.0 million) and working capital facilities of up to an aggregate of $2.3 million (INR 125.0 million). Drawdowns can be made in INR or any other major currencies acceptable to the lender.  (xii)Represents various term loans maturing between October 2020 and March 2023 to finance simulators deployed in the Middle East.  (xiii)Other debts include an unsecured facility for the financing of the cost of establishment of an ERP system. The facility is repayable with monthly repayments over a term of seven years beginning at the end of the first month following each quarterly disbursement. Other debts also include bonds for which $31.3 million (2012 – $30.8 million) of letters of credit have been issued to support the bonds for the outstanding amount of the loans. Combined interest rate for these bonds is 2.15% (2012 – 2.45%).  Details of the non-recourse debt are as follows:(amounts in millions)

   

   

   2013

   

   2012(i)

   Term loan of £12.7 collateralized, maturing in October 2016 (outstanding as at March 31, 2013 – £1.3, as at March 31, 2012 – £1.9), interest rate of approximately LIBOR plus 0.95%

   

   $

   2.1

   $

   3.0(ii)

   Term loan maturing in December 2019 (outstanding as at March 31, 2013 – €34.4, as at March 31, 2012 – €39.1), interest rate at EURIBOR rate swapped to a fixed rate of 4.97%

   

   

   44.5

   

   51.5(iii)

   Term loans with various maturities to March 2018 (outstanding as at March 31, 2013 – US$31.2 and ¥92.0, as at March 31, 2012 – US$23.8 and ¥29.4)

   

   

   46.7

   

   28.4(iv)

   Term loan maturing in September 2025 collateralized (outstanding as at March 31, 2013 – US$21.1, as at March 31, 2012 – US$21.1), fixed interest rate of 10.35% after effect of USD-Indian Rupees cross currency swap agreement

   

   

   20.8

   

   20.4(v)

   Term loan maturing in January 2020 (outstanding as at March 31, 2013 – US$2.7, as at March 31, 2012 – US$3.1), floating interest rate

   

   

   2.8

   

   3.1(vi)

   Agreement for the sale of certain accounts receivable and contracts in progress: assets

   

   

   -

   

   37.1(vii)

   Term loan of US$48.0 collateralized, maturing in March 2028 (outstanding as at March 31, 2013 – US$4.0), interest rate of approximately LIBOR plus 2.50%

   

   

   3.7

   

   -Total non-recourse debt, net amount

   

   $

   120.6

   $

   143.5
  34| CAE Year-End Financial Results 2013


---



Notes to the Consolidated Financial Statements
   (i)The credit facility to finance the Company’s MSH program for the MoD in the U.K., includes a term loan that is collateralized by the project assets of the subsidiary and a bi-annual repayment that is required until 2016. The Company has entered into an interest rate swap totalling £1.1 million as at March 31, 2013 (2012 – £1.6 million) fixing the interest rate at 6.31%. The book value of the assets pledged as collateral for the credit facility as at March 31, 2013 is £73.2 million (2012 – £83.0 million).  (ii)Represents the Company’s proportionate share of the German NH90 project. The total amount available for the project under the facility is €182.7 million.  (iii)Represents the Company’s proportionate share of term debt for the acquisition of simulators and expansion of the building for its joint venture in Zhuhai Xiang Yi Aviation Technology Company Limited. Borrowings are denominated in U.S. dollars and Chinese Yuan Renminbi (¥). The U.S. dollar-based borrowings bear interest on a floating rate basis of U.S. LIBOR plus a spread ranging from 0.50% to 4.50% and have maturities between December2013 and March 2018. The ¥ based borrowings bear interest at the local rate of interest with final maturities between December 2013 and December 2015.  (iv)Represents the Company’s proportionate share of the US$42.1 million senior collateralized non-recourse financing for the HATSOFF Helicopter Training Private Limited (Hatsoff) joint venture. The debt begins semi-annual amortization in September 2013.  (v)Represents the Company’s proportionate share in a term loan to finance the Emirates-CAE Flight Training LLC, a joint venture.  (vi)Represents an agreement with financial institutions to sell undivided interests in certain of our contracts in progress: assets through its current financial assets program.  (vii)Represents collateralized non-recourse financing for a term loan to finance CAE Brunei Multi Purpose Training Centre Sdn Bhd (MPTC), a joint venture. MPTC may also avail an additional amount of up to US$12.0 million in the form of letters of credit.   Payments required in each of the next five fiscal years to meet the retirement provisions of the long-term debt and face values of finance leases are as follows:Long-term

   

   Finance(amounts in millions)

   

   

   debt

   

   

   leases

   

   

   

   Total2014

   

   $

   87.5

   

   $

   26.9

   

   $

   114.42015

   

   

   39.6

   

   

   22.2

   

   

   61.82016

   

   

   91.2

   

   

   14.6

   

   

   105.82017

   

   

   96.0

   

   

   8.7

   

   

   104.72018

   

   

   43.5

   

   

   8.7

   

   

   52.2Thereafter

   

   

   715.9

   

   

   61.4

   

   

   777.3$

   1,073.7

   

   $

   142.5

   

   $

   1,216.2
  As at March 31, 2013, CAE is in compliance with all of its financial covenants, except for Hatsoff, a joint venture between CAE and Hindustan Aeronautics Limited, which is in breach of certain covenants and has defaulted on a portion of an interest payment in the amount of US$1.4 million on its debt. As at March 31, 2013, the portion of the non-recourse debt outstanding attributable to CAE’s equity stake is $20.8 million and has been reclassified as current on the Company’s consolidated statement of financial position. Hatsoff management is in discussion with the financial institution for resolution of the breach and default.  Short-term debt The Company no longer has an unsecured and uncommitted bank line of credit available in euros (2012 – $2.7 million), of which nil was used as at March 31, 2012. The line of credit bore interest at a euro base rate.  Finance lease commitmentsThe present value of future finance lease commitments, included in debt facilities is as follows:(amounts in millions)

   

   

   

   2013

   

   2012Future finance lease commitments

   

   

   $

   142.5

   $

   142.9Less: Future finance charges on finance leases

   

   

   

   38.3

   

   41.3Net investment in finance lease contracts

   

   

   $

   104.2

   $

   101.6Less: Discounted guaranteed residual values of leased assets

   

   

   

   7.3

   

   6.5Present value of future minimum lease payments

   

   

   $

   96.9

   $

   95.1
  CAE Year-End Financial Results 2013 |35


---



Notes to the Consolidated Financial Statements
  Future minimum lease payments for finance lease commitments are as follows:(amounts in millions)

   

   

   

   

   2013

   

   

   

   

   2012Future

   

   Present value of

   

   Future

   

   Present value offinance lease

   

   future minimum

   

   finance lease

   

   future minimumcommitments

   

   lease payments

   

   commitments

   

   lease paymentsNo later than 1 year

   $

   26.9

   $

   26.2

   $

   22.4

   $

   21.6Later than 1 year and no later than 5 years

   

   54.2

   

   46.6

   

   56.3

   

   47.9Later than 5 years

   

   61.4

   

   24.1

   

   64.2

   

   25.6$

   142.5

   $

   96.9

   $

   142.9

   $

   95.1
   NOTE 14 – GOVERNMENT ASSISTANCE The Company has signed agreements with various governments whereby the latter share in the cost, based on expenditures incurred by the Company, of certain R&D programs for modeling and simulation, visual systems and advanced flight simulation technology for civil applications and networked simulation for military applications, as well as for the new markets of simulation-based training in healthcare and mining.  During fiscal 2009, the Company announced that it will invest up to $714 million in Project Falcon, an R&D program that will continue over five years. The goal of Project Falcon is to expand the Company’s modeling and simulation technologies, develop new ones and increase its capabilities beyond training into other areas of the aerospace and defence market, such as analysis and operations. Concurrently, the Government of Canada agreed to participate in Project Falcon through a repayable investment of up to $250 million made through the Strategic Aerospace and Defence Initiative (SADI), which supports strategic industrial research and pre-competitive development projects in the aerospace, defence, space and security industries (see Notes 1 and 13 for an explanation of the royalty obligation and debt).  During fiscal 2010, the Company announced that it will invest up to $274 million in Project New Core Markets, an R&D program extending over seven years. The aim is to leverage CAE’s modeling, simulation and training services expertise into the new markets of healthcare and mining. The Québec government agreed to participate up to $100 million in contributions related to costs incurred before the end of fiscal 2016.  The following table provides aggregate information regarding contributions recognized and amounts not yet received for the projects Falcon and New Core Markets:  (amounts in millions)

   

   

   2013

   

   2012Outstanding contribution receivable, beginning of year

   

   $

   8.3

   $

   12.9Contributions

   

   

   29.4

   

   42.8Payments received

   

   

   (31.9)

   

   (47.4)Outstanding contribution receivable, end of year

   

   $

   5.8

   $

   8.3
  Aggregate information about programsThe aggregate contributions recognized for all programs are as follows:(amounts in millions)

   

   2013

   

   2012Contributions credited to capitalized expenditures:Project Falcon

   $

   6.4

   $

   7.5Project New Core Markets

   

   3.7

   

   11.4Contributions credited to income:Project Falcon

   $

   17.6

   $

   20.9Project New Core Markets

   

   1.7

   

   3.0Total contributions:Project Falcon

   $

   24.0

   $

   28.4Project New Core Markets

   

   5.4

   

   14.4There are no unfulfilled conditions or unfulfilled contingencies attached to these government contributions.
  36| CAE Year-End Financial Results 2013


---



Notes to the Consolidated Financial Statements
 NOTE 15 – employee benefits OBLIGATIONS Defined benefit plans The Company has two registered funded defined benefit pension plans in Canada (one for employees and one for designated executives) that provide benefits based on length of service and final average earnings. The Company also maintains a funded pension plan for employees in the Netherlands, in the United Kingdom and two in Norway that provides benefits based on similar provisions.  In addition, the Company maintains a supplemental plan in Canada, two in Germany (CAE Elektronik GmbH plan and CAE Beyss GmbH plan (Beyss)) and two in Norway to provide defined benefits based on length of service and final average earnings. These supplemental plans are the sole obligation of the Company, and there is no requirement to fund them. However, the Company is obligated to pay the benefits when they become due. As at March 31, 2013, the supplemental defined benefits pension obligations are $59.7 million (2012 – $57.1 million) and the Company has issued letters of credit totalling $54.3 million (2012 – $53.7 million) to collateralize these obligations under the Canadian supplemental plan.  Contributions reflect actuarial assumptions of future investment returns, salary projections and future service benefits. Plan assets are represented primarily by Canadian and foreign equities, government and corporate bonds.  In fiscal 2013, in the acquisition of OAA, the Company assumed two pension plans resulting in additional pension obligations of $2.3 million and additional plan assets of $1.7 million.  The employee benefits obligations are as follows:(amounts in millions)

   

   

   

   2013

   

   2012Funded defined benefits pension obligations

   

   

   $

   377.7

   $

   320.4Fair value of plan assets

   

   

   

   301.3

   

   263.2Funded defined benefits pension obligations – net

   

   

   

   76.4

   

   57.2Supplemental defined benefits pension obligations

   

   

   

   59.7

   

   57.1Unrecognized past service costs

   

   

   

   -

   

   (0.1)Employee benefits obligations

   

   

   $

   136.1

   $

   114.2
  The changes in the funded defined pension obligations and the fair value of plan assets are as follows:(amounts in millions)

   

   

   

   

   

   

   

   2013

   

   

   

   

   

   

   

   2012Canadian

   

   

   Foreign

   

   Total

   

   Canadian

   

   

   Foreign

   

   TotalPension obligations, beginning of year

   $

   279.4

   $

   41.0

   $

   320.4

   $

   217.7

   $

   37.2

   $

   254.9Current service cost

   

   13.6

   

   1.6

   

   15.2

   

   8.5

   

   1.0

   

   9.5Interest cost

   

   13.3

   

   1.7

   

   15.0

   

   12.6

   

   1.8

   

   14.4Employee contributions

   

   3.6

   

   0.3

   

   3.9

   

   2.0

   

   0.3

   

   2.3Actuarial loss

   

   37.2

   

   1.3

   

   38.5

   

   48.9

   

   2.7

   

   51.6Pension benefits paid

   

   (11.1)

   

   (0.6)

   

   (11.7)

   

   (10.3)

   

   (0.6)

   

   (10.9)Business combination

   

   -

   

   2.3

   

   2.3

   

   -

   

   -

   

   -Curtailments

   

   (2.1)

   

   -

   

   (2.1)

   

   -

   

   -

   

   -Settlements

   

   (3.0)

   

   -

   

   (3.0)

   

   -

   

   (0.5)

   

   (0.5)Exchange differences

   

   -

   

   (0.8)

   

   (0.8)

   

   -

   

   (0.9)

   

   (0.9)Pension obligations, end of year

   $

   330.9

   $

   46.8

   $

   377.7

   $

   279.4

   $

   41.0

   $

   320.4Fair value of plan assets, beginning of year

   228.6

   

   34.6

   

   263.2

   

   206.4

   

   32.4

   

   238.8Expected return on plan assets

   

   15.4

   

   1.4

   

   16.8

   

   14.9

   

   1.7

   

   16.6Actuarial gain (loss)

   

   4.5

   

   3.3

   

   7.8

   

   (4.9)

   

   0.7

   

   (4.2)Employer contributions

   

   22.5

   

   2.2

   

   24.7

   

   20.5

   

   1.2

   

   21.7Employee contributions

   

   3.6

   

   0.3

   

   3.9

   

   2.0

   

   0.3

   

   2.3Pension benefits paid

   

   (11.1)

   

   (0.6)

   

   (11.7)

   

   (10.3)

   

   (0.6)

   

   (10.9)Business combination

   

   -

   

   1.7

   

   1.7

   

   -

   

   -

   

   -Settlements

   

   (4.3)

   

   -

   

   (4.3)

   

   -

   

   (0.3)

   

   (0.3)Exchange differences

   

   -

   

   (0.8)

   

   (0.8)

   

   -

   

   (0.8)

   

   (0.8)Fair value of plan assets, end of year

   $

   259.2

   $

   42.1

   $

   301.3

   $

   228.6

   $

   34.6

   $

   263.2The actual return on plan assets was $24.6 million in fiscal 2013 (2012 – $12.4 million).
  CAE Year-End Financial Results 2013 |37


---



Notes to the Consolidated Financial Statements
  The changes in the supplemental arrangements pension obligations are as follows:(amounts in millions)

   

   

   

   

   

   

   

   2013

   

   

   

   

   

   

   

   2012Canadian

   

   Foreign

   

   Total

   

   Canadian

   

   Foreign

   

   TotalPension obligations, beginning of year

   $

   47.9

   $

   9.2

   $

   57.1

   $

   38.3

   $

   8.7

   $

   47.0Current service cost

   

   2.3

   

   0.1

   

   2.4

   

   1.4

   

   0.1

   

   1.5Interest cost

   

   2.3

   

   0.4

   

   2.7

   

   2.2

   

   0.5

   

   2.7Actuarial (gain) loss

   

   (1.4)

   

   1.5

   

   0.1

   

   8.3

   

   0.8

   

   9.1Pension benefits paid

   

   (2.5)

   

   (0.5)

   

   (3.0)

   

   (2.5)

   

   (0.6)

   

   (3.1)Past service cost

   

   0.6

   

   -

   

   0.6

   

   0.2

   

   -

   

   0.2Exchange differences

   

   -

   

   (0.2)

   

   (0.2)

   

   -

   

   (0.3)

   

   (0.3)Pension obligations, end of year

   $

   49.2

   $

   10.5

   $

   59.7

   $

   47.9

   $

   9.2

   $

   57.1
  The net pension cost is as follows:Years ended March 31(amounts in millions)

   

   

   

   

   

   

   

   2013

   

   

   

   

   

   

   

   2012Canadian

   

   Foreign

   

   Total

   

   Canadian

   

   Foreign

   

   TotalFunded plansCurrent service cost

   $

   13.6

   $

   1.6

   $

   15.2

   $

   8.5

   $

   1.0

   $

   9.5Interest cost

   

   13.3

   

   1.7

   

   15.0

   

   12.6

   

   1.8

   

   14.4Expected return on plan assets

   

   (15.4)

   

   (1.4)

   

   (16.8)

   

   (14.9)

   

   (1.7)

   

   (16.6)Past service cost

   

   0.1

   

   -

   

   0.1

   

   0.2

   

   -

   

   0.2Curtailments

   

   (2.1)

   

   -

   

   (2.1)

   

   -

   

   -

   

   -Settlements

   

   1.3

   

   -

   

   1.3

   

   -

   

   (0.2)

   

   (0.2)Net pension cost

   $

   10.8

   $

   1.9

   $

   12.7

   $

   6.4

   $

   0.9

   $

   7.3Supplemental arrangementsCurrent service cost

   $

   2.3

   $

   0.1

   $

   2.4

   $

   1.4

   $

   0.1

   $

   1.5Interest cost

   

   2.3

   

   0.4

   

   2.7

   

   2.2

   

   0.5

   

   2.7Past service cost

   

   0.6

   

   -

   

   0.6

   

   0.2

   

   -

   

   0.2Net pension cost

   $

   5.2

   $

   0.5

   $

   5.7

   $

   3.8

   $

   0.6

   $

   4.4Total net pension cost

   $

   16.0

   $

   2.4

   $

   18.4

   $

   10.2

   $

   1.5

   $

   11.7
  For the year ended March 31, 2013, pension costs of $7.9 million (2012 – $5.1 million) have been charged in cost of sales, $2.0 million (2012 – $1.7 million) in research and development expenses, $7.8 million (2012 – $3.7 million) in selling, general and administrative expenses and $1.5 million (2012 – $1.2 million) were capitalized. In fiscal 2013, the curtailment and settlement gain of $0.8 million has been included in restructuring, integration and acquisition costs.  The percentage of the major categories of assets which constitutes the fair value of plan assets is as follows:Canadian plans

   

   

   Netherlands plan

   

   

   United Kingdom plan

   

   

   Norway plansAs at March 31

   2013

   

   2012

   

   2013

   

   2012

   

   2013

   

   2012

   

   2013

   

   2012Equity instruments

   63%

   

   

   62%

   

   

   29%

   

   

   24%

   

   

   50%

   

   

   60%

   

   

   7%

   

   

   9%Debt instruments

   36%

   

   

   36%

   

   

   70%

   

   

   76%

   

   

   38%

   

   

   29%

   

   

   56%

   

   

   73%Property

   -

   

   

   -

   

   

   -

   

   

   -

   

   

   -

   

   

   -

   

   

   18%

   

   

   18%Other

   1%

   

   

   2%

   

   

   1%

   

   

   -

   

   

   12%

   

   

   11%

   

   

   19%

   

   

   -100%

   

   

   100%

   

   

   100%

   

   

   100%

   

   

   100%

   

   

   100%

   

   

   100%

   

   

   100%As at March 31, 2013, there are no Company's ordinary shares in the pension plan assets (2012 – $0.3 million).
  38| CAE Year-End Financial Results 2013


---



Notes to the Consolidated Financial Statements
  Significant assumptions (weighted average):Canadian

   

   

   Foreign2013

   

   2012

   

   2013

   

   2012Pension obligations as at March 31:Discount rate

   

   4.25%

   

   

   4.75%

   

   

   3.53%

   

   

   4.12%Compensation rate increases

   

   3.50%

   

   

   3.50%

   

   

   2.98%

   

   

   2.98%Net pension cost for years ended March 31:Expected return on plan assets

   

   6.50%

   

   

   7.00%

   

   

   4.19%

   

   

   5.20%Discount rate

   

   4.75%

   

   

   5.75%

   

   

   4.05%

   

   

   5.13%Compensation rate increases

   

   3.50%

   

   

   3.50%

   

   

   3.01%

   

   

   2.35%
  Amounts for the funded plans and supplemental arrangements are as follows:(amounts in millions)

   

   2013

   

   2012

   

   2011Funded Canadian plansDefined benefit obligations

   $

   330.9

   $

   279.4

   $

   217.7Plan assets

   

   259.2

   

   228.6

   

   206.4Deficit

   

   71.7

   

   50.8

   

   11.3Experience adjustments (losses) gains on plan liabilities

   

   (9.2)

   

   (0.6)

   

   2.8Experience adjustments gains (losses) on plan assets

   

   4.5

   

   (4.9)

   

   9.6Funded foreign plansDefined benefit obligations

   $

   46.8

   $

   41.0

   $

   37.2Plan assets

   

   42.1

   

   34.6

   

   32.4Deficit

   

   4.7

   

   6.4

   

   4.8Experience adjustments gains (losses) on plan liabilities

   

   0.7

   

   1.3

   

   (0.6)Experience adjustments gains on plan assets

   

   3.3

   

   0.7

   

   2.1Canadian supplemental arrangementsDefined benefit obligation

   $

   49.2

   $

   47.9

   $

   38.3Experience adjustments gains (losses) on plan liabilities

   

   4.5

   

   (2.6)

   

   (1.6)Foreign supplemental arrangementsDefined benefit obligations

   $

   10.5

   $

   9.2

   $

   8.7Experience adjustments gains (losses) on plan liabilities

   

   0.5

   

   (0.6)

   

   (0.5)
  As at March 31, 2013, the total cumulative amount of net actuarial losses before income taxes recognized in other comprehensive income was $87.1 million (2012 – $56.3 million).  Expected contribution for the next fiscal year is as follows:Funded plans

   

   Supplemental arrangements(amounts in millions)

   Canadian

   

   

   Foreign

   

   

   Canadian

   

   

   ForeignExpected contribution – fiscal 2014

   $

   26.0

   

   $

   1.3

   

   $

   2.7

   

   $

   0.5
  CAE Year-End Financial Results 2013 |39


---



Notes to the Consolidated Financial Statements
 NOTE 16 – DEFERRED GAINS AND OTHER non-CURRENT LIABILITIES  (amounts in millions)

   

   

   

   2013

   

   2012Deferred gains on sale and leasebacks(1)

   

   

   $

   39.7

   $

   44.0Deferred revenue

   

   

   

   91.8

   

   95.4LTI-RSU/DSU compensation obligations (Note 25)

   

   

   

   29.3

   

   33.9License payable

   

   

   

   4.5

   

   4.9Purchase options

   

   

   

   14.7

   

   -Deferred gains and other

   

   

   

   14.6

   

   7.8$

   194.6

   $

   186.0(1)The related amortization for the year amounted to $4.7 million (2012 – $4.8 million).
   NOTE 17 – iNCOME TAXEs Income tax expenseA reconciliation of income taxes at Canadian statutory rates with the reported income taxes is as follows:Years ended March 31(amounts in millions, except for income tax rates)

   

   

   

   

   2013

   

   

   2012Earnings before income taxes

   

   

   $

   177.5

   

   $

   239.5Canadian statutory income tax rates

   

   

   

   26.74%

   

   

   27.99%Income taxes at Canadian statutory rates

   

   

   $

   47.4

   

   $

   67.0Difference between Canadian and Foreign statutory rates

   

   

   

   (14.3)

   

   

   (9.3)Losses not tax effected

   

   

   

   7.6

   

   

   5.0Tax benefit of operating losses not previously recognized

   

   

   

   (0.3)

   

   

   (3.0)Non-taxable capital gain

   

   

   

   (0.1)

   

   

   (0.5)Non-deductible items

   

   

   

   6.2

   

   

   3.6Prior years' tax adjustments and assessments

   

   

   

   (8.1)

   

   

   1.0Impact of change in income tax rates on deferred income taxes

   

   

   

   (0.5)

   

   

   (2.7)Non-taxable research and development tax credits

   

   

   

   (1.6)

   

   

   (1.2)Other tax benefits not previously recognized

   

   

   

   (4.1)

   

   

   (5.3)Other

   

   

   

   2.9

   

   

   2.9Income tax expense

   

   

   $

   35.1

   

   $

   57.5
  The applicable statutory tax rates are 26.74% in 2013 and 27.99% in 2012. The Company's applicable tax rate is the Canadian combined rates applicable in the jurisdictions in which the Company operates. The decrease is mainly due to the reduction of the Federal income tax rate in 2013 from 16.13% to 15%.  Significant components of the provision for the income tax expense are as follows:(amounts in millions)

   

   

   

   2013

   

   

   2012Current income tax expense:Current period

   

   

   $

   7.4

   

   $

   21.5Adjustment for prior years

   

   

   

   (0.4)

   

   

   (0.4)Deferred income tax expense (recovery):Tax benefit not previously recognized used to reduce the deferred tax expense

   

   

   

   (4.5)

   

   

   (8.3)Impact of change in income tax rates on deferred income taxes

   

   

   

   (0.5)

   

   

   (2.7)Origination and reversal of temporary differences

   

   

   

   33.1

   

   

   47.4Income tax expense

   

   

   $

   35.1

   

   $

   57.5
  40| CAE Year-End Financial Results 2013


---



Notes to the Consolidated Financial Statements
  Income tax recognized in other comprehensive income(amounts in millions)

   

   

   

   2013

   

   

   2012Current income tax expense

   

   

   $

   0.3

   

   $

   -Deferred income tax recovery

   

   

   

   (12.8)

   

   

   (21.3)Income tax recovery recognized in other comprehensive income

   

   

   $

   (12.5)

   

   $

   (21.3)
  Deferred tax assets and liabilitiesDeferred tax assets and liabilities are attributable to the following:As at March 31(amounts in millions)

   

   

   

   

   Assets

   

   

   

   Liabilities

   

   

   

   

   

   Net2013

   

   2012

   

   2013

   

   2012

   

   2013

   

   2012Non-capital loss carryforwards

   $

   59.4

   $

   44.2

   $

   -

   $

   -

   $

   59.4

   $

   44.2Intangible assets

   

   4.4

   

   9.2

   

   (72.8)

   

   (49.4)

   

   (68.4)

   

   (40.2)Amounts not currently deductible

   

   22.9

   

   25.5

   

   -

   

   -

   

   22.9

   

   25.5Deferred revenues

   

   8.8

   

   11.0

   

   -

   

   -

   

   8.8

   

   11.0Tax benefit carryover

   

   0.7

   

   5.2

   

   -

   

   -

   

   0.7

   

   5.2Unclaimed research & developmentexpenditures

   

   10.2

   

   7.7

   

   -

   

   -

   

   10.2

   

   7.7Investment tax credits

   

   -

   

   -

   

   (31.8)

   

   (18.9)

   

   (31.8)

   

   (18.9)Property, plant and equipment

   

   13.6

   

   13.8

   

   (95.9)

   

   (95.1)

   

   (82.3)

   

   (81.3)Unrealized gains (losses) on foreign exchange

   

   0.7

   

   0.1

   

   (2.0)

   

   (4.9)

   

   (1.3)

   

   (4.8)Financial instruments

   

   4.5

   

   3.6

   

   (0.2)

   

   (1.6)

   

   4.3

   

   2.0Government assistance

   

   -

   

   -

   

   (9.9)

   

   (3.1)

   

   (9.9)

   

   (3.1)Employee benefit plans

   

   32.9

   

   27.2

   

   -

   

   -

   

   32.9

   

   27.2Percentage-of-completion versuscompleted contract

   

   -

   

   -

   

   (32.7)

   

   (36.3)

   

   (32.7)

   

   (36.3)Other

   

   1.5

   

   0.8

   

   (6.5)

   

   (6.7)

   

   (5.0)

   

   (5.9)Tax assets (liabilities)

   $

   159.6

   $

   148.3

   $

   (251.8)

   $

   (216.0)

   $

   (92.2)

   $

   (67.7)(120.2)

   

   (124.2)

   

   120.2

   

   124.2

   

   -

   

   -Net deferred income tax assets (liabilities)

   $

   39.4

   $

   24.1

   $

   (131.6)

   $

   (91.8)

   $

   (92.2)

   $

   (67.7)
  CAE Year-End Financial Results 2013 |41


---



Notes to the Consolidated Financial Statements
  Movement in temporary differences during fiscal year 2013 is as follows:Balance

   

   Recognized

   

   Recognized

   

   Acquisition

   

   Balance(amounts in millions)

   beginning of year

   

   in income

   

   in OCI

   

   of subsidiary

   

   end of yearNon-capital loss carryforwards

   

   $

   44.2

   $

   8.1

   $

   0.4

   $

   6.7

   $

   59.4Intangible assets

   

   

   (40.2)

   

   (17.0)

   

   (0.4)

   

   (10.8)

   

   (68.4)Amounts not currently deductible

   

   

   25.5

   

   (4.1)

   

   0.2

   

   1.3

   

   22.9Deferred revenues

   

   

   11.0

   

   (1.8)

   

   (0.3)

   

   (0.1)

   

   8.8Tax benefit carryover

   

   

   5.2

   

   (4.5)

   

   -

   

   -

   

   0.7Unclaimed research & development expenditures

   

   

   7.7

   

   2.5

   

   -

   

   -

   

   10.2Investment tax credits

   

   

   (18.9)

   

   (12.9)

   

   -

   

   -

   

   (31.8)Property, plant and equipment

   

   

   (81.3)

   

   7.7

   

   (2.3)

   

   (6.4)

   

   (82.3)Unrealized gains (losses) on foreign exchange

   

   

   (4.8)

   

   2.0

   

   1.5

   

   -

   

   (1.3)Financial Instrument

   

   

   2.0

   

   (1.3)

   

   3.6

   

   -

   

   4.3Government assistance

   

   

   (3.1)

   

   (6.8)

   

   -

   

   -

   

   (9.9)Employee benefit plans

   

   

   27.2

   

   (3.3)

   

   8.8

   

   0.2

   

   32.9Percentage-of-completion versuscompleted contract

   

   

   (36.3)

   

   2.9

   

   -

   

   0.7

   

   (32.7)Other

   

   

   (5.9)

   

   0.4

   

   -

   

   0.5

   

   (5.0)Net deferred income tax (liabilities) assets

   

   $

   (67.7)

   $

   (28.1)

   $

   11.5

   $

   (7.9)

   $

   (92.2)
  Movement in temporary differences during fiscal year 2012 was as follows:Balance

   

   Recognized

   

   Recognized

   

   Acquisition

   

   Balance(amounts in millions)

   beginning of year

   

   in income

   

   in OCI

   

   of subsidiaries

   

   end of yearNon-capital loss carryforwards

   

   $

   40.9

   $

   1.9

   $

   (0.5)

   $

   1.9

   $

   44.2Intangible assets

   

   

   (21.3)

   

   (5.7)

   

   0.4

   

   (13.6)

   

   (40.2)Amounts not currently deductible

   

   

   26.2

   

   (2.0)

   

   0.1

   

   1.2

   

   25.5Deferred revenues

   

   

   9.6

   

   (1.4)

   

   -

   

   2.8

   

   11.0Tax benefit carryover

   

   

   5.0

   

   0.2

   

   (0.1)

   

   0.1

   

   5.2Unclaimed research & development expenditures

   

   

   6.2

   

   1.5

   

   -

   

   -

   

   7.7Investment tax credits

   

   

   (14.7)

   

   (4.2)

   

   -

   

   -

   

   (18.9)Property, plant and equipment

   

   

   (64.9)

   

   (14.9)

   

   (1.0)

   

   (0.5)

   

   (81.3)Unrealized gains (losses) on foreign exchange

   

   

   (7.3)

   

   2.4

   

   0.1

   

   -

   

   (4.8)Financial Instruments

   

   

   (0.9)

   

   (1.0)

   

   3.9

   

   -

   

   2.0Government assistance

   

   

   5.1

   

   (8.2)

   

   -

   

   -

   

   (3.1)Employee benefit plans

   

   

   13.6

   

   (3.8)

   

   17.4

   

   -

   

   27.2Percentage-of-completion versuscompleted contract

   

   

   (38.2)

   

   1.8

   

   0.1

   

   -

   

   (36.3)Other

   

   

   (3.1)

   

   (3.0)

   

   0.2

   

   -

   

   (5.9)Net deferred income tax assets (liabilities)

   

   $

   (43.8)

   $

   (36.4)

   $

   20.6

   $

   (8.1)

   $

   (67.7)
  Following the acquisition of METI, the Company recognized an amount of $2.0 million of deferred tax assets for its pre-acquisition unrecognized losses in fiscal 2012.  As at March 31, 2013, taxable temporary differences of $454.5 million (2012 – $327.5 million) related to investments in foreign operations, including subsidiaries and interests in joint ventures has not been recognized, because the Company controls whether the liability will be incurred and it is satisfied that it will not be incurred in the foreseeable future.  42| CAE Year-End Financial Results 2013


---



Notes to the Consolidated Financial Statements
  The non-capital losses expire as follows:(amounts in millions)Expiry date

   

   

   

   

   Unrecognized

   

   Recognized2014

   

   

   

   

   $

   -

   $

   -2015

   

   

   

   

   

   0.3

   

   -2016

   

   

   

   

   

   3.4

   

   -2017

   

   

   

   

   

   1.4

   

   -2018

   

   

   

   

   

   4.0

   

   -2019

   

   

   

   

   

   6.8

   

   -2020 – 2032

   

   

   

   

   

   16.2

   

   101.3No expiry date

   

   

   

   

   

   62.7

   

   90.7$

   94.8

   $

   192.0
  As at March 31, 2013, the Company has $312.8 million (2012 – $280.3 million) of deductible temporary differences for which deferred tax assets have not been recognized. These amounts will reverse during a period of up to 30 years.   NOTE 18 – SHARE CAPITAL, Earnings per share and dividends Share capital Authorized shares The Company is authorized to issue an unlimited number of common shares without par value and an unlimited number of preferred shares without par value, issuable in series.  The preferred shares may be issued with rights and conditions to be determined by the Board of Directors, prior to their issue. To date, the Company has not issued any preferred shares.  Issued shares A reconciliation of the issued and outstanding common shares of the Company is presented in the Consolidated Statement of Changes in Equity. As at March 31, 2013, the number of shares issued and that are fully paid amount to 259,979,059 (2012–258,266,295).  Earnings per share computationThe denominators for the basic and diluted earnings per share computations are as follows:Years ended March 31

   

   

   

   2013

   

   

   2012Weighted average number of common shares outstanding

   

   258,982,945

   257,461,318Effect of dilutive stock options

   

   

   412,661

   

   763,581Weighted average number of common shares outstanding for diluted earnings per share calculation

   259,395,606

   258,224,899As at March 31, 2013, options to acquire 2,490,041 common shares (2012 – 2,671,643) have been excluded from the above calculation since their inclusion would have had an anti-dilutive effect.
  Dividends The dividends declared for fiscal 2013 were $49.2 million or $0.19 per share (2012–$41.2 million or $0.16 per share).  CAE Year-End Financial Results 2013 |43


---



Notes to the Consolidated Financial Statements
 NOTE 19 – ACCUMULATED OTHER COMPREHENSIVE LOSS  Net changes inForeign currency

   

   Net changes in

   

   available-for-saleAs at March 31

   translation

   

   cash flow hedges

   

   financial instruments

   

   

   

   

   

   Total(amounts in millions)

   

   2013

   

   2012

   

   2013

   

   2012

   

   2013

   

   2012

   

   2013

   

   2012Balances, beginning of year

   $

   (10.2)

   $

   (20.5)

   $

   -

   $

   10.3

   $

   0.4

   $

   0.4

   $

   (9.8)

   $

   (9.8)Other comprehensive income (loss)

   

   2.4

   

   10.3

   

   (9.2)

   

   (10.3)

   

   -

   

   -

   

   (6.8)

   

   -Balances, end of year

   $

   (7.8)

   $

   (10.2)

   $

   (9.2)

   $

   -

   $

   0.4

   $

   0.4

   $

   (16.6)

   $

   (9.8)
   NOTE 20 – EMPLOYEE COMPENSATION The total employee compensation expense recognized in the determination of net income is as follows:(amounts in millions)

   

   

   2013

   

   2012Salaries and benefits

   

   $

   661.7

   $

   627.8Share-based payments, net of equity swap

   

   

   14.0

   

   14.2Pension costs – defined benefit plans

   

   

   16.9

   

   10.5Pension costs – defined contribution plans

   

   

   8.4

   

   6.7Total employee compensation expense

   

   $

   701.0

   $

   659.2
   NOTE 21 – impairment of non-financial assets Fiscal 2013 There are no impairment losses in fiscal 2013.  Fiscal 2012 Impairment of property, plant and equipment In fiscal 2012, an impairment loss of $0.5 million representing the write-down of a building to its recoverable amount was recognized in cost of sales within the Training & Services/Civil segment. The asset had a carrying amount of $6.1 million. The recoverable amount was based on the fair value less costs to sell.  Impairment of intangible assets In fiscal 2012, an impairment loss of $1.3 million representing the write-down of a customer relationship was recognized in cost of sales within the New Core Markets segment. The asset had a carrying amount of $2.6 million. An impairment test was triggered during the year as a result of an amendment to a contract upon the acquisition of METI in August 2011. The recoverable amount was estimated based on a value in use.  In addition, an impairment loss of $3.5 million mainly representing the full write-down of certain deferred development costs and other software, also within the New Core Markets segment, was recognized in research and development expenses during the fiscal year. An impairment test was triggered upon the acquisition of METI and the subsequent realignment of the approach to the healthcare market.  44| CAE Year-End Financial Results 2013


---



Notes to the Consolidated Financial Statements
 NOTE 22 – other gains–net (amounts in millions)

   

   

   2013

   

   2012Disposal/full retirement of property, plant and equipment

   

   $

   (2.7)

   $

   (10.2)Net foreign exchange differences

   

   

   (11.1)

   

   (0.5)Dividend income

   

   

   (0.9)

   

   (4.0)Royalty income

   

   

   (0.3)

   

   (0.7)Reversal of contingent liabilities arising on business combinations (Note 12)

   

   

   (6.1)

   

   -Remeasurement of previously-held interest in available-for-sale investment

   

   

   -

   

   0.3Other

   

   

   (2.3)

   

   (6.1)Other gains – net

   

   $

   (23.4)

   $

   (21.2)
   NOTE 23 – Restructuring, integration and acquisition costs  (amounts in millions)

   

   

   

   2013

   

   2012Restructuring costs (Note 12)

   

   

   $

   55.1

   $

   -Integration costs

   

   

   

   7.8

   

   -Acquisition costs (Note 3)

   

   

   

   6.0

   

   -Restructuring, integration and acquisition costs

   

   

   $

   68.9

   $

   -
  Restructuring Restructuring costs consist mainly of severances and other related costs.  Integration costs Integration costs represent incremental costs directly related to the integration of OAA in the Company’s ongoing activities. This primarily includes expenditures related to redeployment of simulators, regulatory and process standardization, systems integration and other activities.  Acquisition costs Acquisition costs include expenses, fees, commissions and other costs associated with the collection of information, negotiation of contracts, risk assessments, and the services of lawyers, advisors and specialists.   NOTE 24 – FINANCE EXPENSE - NET  (amounts in millions)

   

   

   

   2013

   

   

   2012Finance expense:Long-term debt (other than finance leases)

   

   

   $

   51.1

   

   $

   38.0Finance leases

   

   

   

   10.0

   

   

   11.2Royalty obligations

   

   

   

   10.2

   

   

   13.6Financing cost amortization

   

   

   

   1.8

   

   

   1.6Accretion of other non-current liabilities

   

   

   

   1.7

   

   

   1.9Other

   

   

   

   3.9

   

   

   7.1Post interest rate swaps

   

   

   

   (0.4)

   

   

   (2.0)Borrowing costs capitalized(1)

   

   

   

   (2.8)

   

   

   (2.2)Finance expense

   

   

   $

   75.5

   

   $

   69.2Finance income:Interest income on loans and receivables

   

   

   $

   (2.5)

   

   $

   (1.6)Other

   

   

   

   (4.8)

   

   

   (5.0)Finance income

   

   

   $

   (7.3)

   

   $

   (6.6)Finance expense - net

   

   

   $

   68.2

   

   $

   62.6(1)The average capitalization rate used during fiscal 2013 to determine the amount of borrowing costs eligible for capitalization was 3.86% (2012 - 5.19%).
  CAE Year-End Financial Results 2013 |45


---



Notes to the Consolidated Financial Statements
 NOTE 25 – SHARE-BASED PAYMENTS The Company’s five share-based payment plans consist of two categories of plans: the Employee Stock Option Plan (ESOP), which qualifies as an equity-settled share-based payment plan; and the Employee Stock Purchase Plan (ESPP), Deferred Share Unit (DSU) Plans, Long-Term Incentive Deferred Share Unit (LTI-DSU) Plan and the Long-Term Incentive Restricted Share Unit (LTI-RSU) Plans, which qualify as cash-settled share-based payments plans.  The effect before income taxes of share-based payment arrangements in the consolidated income statement and in the consolidated statement of financial position are as follows as at, and for the years ended March 31:  Compensation

   

   Recognized in the consolidatedcost/(recovery)

   

   statement of financial position(amounts in millions)

   

   2013

   

   2012

   

   2013

   

   2012Cash-settled share-based compensation:ESPP

   $

   5.6

   $

   5.4

   $

   -

   $

   -DSU

   

   0.9

   

   (0.8)

   

   (8.1)

   

   (8.2)LTI-DSU, net of equity swap

   

   3.3

   

   4.5

   

   (19.3)

   

   (21.5)LTI-RSU

   

   1.1

   

   2.4

   

   (6.5)

   

   (12.2)Total cash-settled share-based compensation

   $

   10.9

   $

   11.5

   $

   (33.9)

   $

   (41.9)Equity-settled share-based compensation:ESOP

   

   3.9

   

   3.7

   

   (21.9)

   

   (19.2)Total equity-settled share-based compensation

   $

   3.9

   $

   3.7

   $

   (21.9)

   $

   (19.2)Total share-based compensation

   $

   14.8

   $

   15.2

   $

   (55.8)

   $

   (61.1)
  The compensation costs listed above include capitalized costs of $0.8 million (2012–$1.0 million). The share-based payment plans are described below. There have been no plan cancellations during fiscal 2013 or fiscal 2012. Employee Stock Option Plan Under the Company’s long-term incentive program, options may be granted to its officers and other key employees of its subsidiaries to purchase common shares of the Company at a subscription price of 100% of the market value at the date of the grant. Market value is determined as the weighted average closing price of the common shares on the Toronto Stock Exchange (TSX) of the five days of trading prior to the effective date of the grant. As at March 31, 2013, a total of 12,304,776 common shares (2012–12,787,026) remained authorized for issuance under the Employee Stock Option Plan (ESOP). The options are exercisable during a period not to exceed seven years (six years for options issued before March 31, 2011), and are not exercisable during the first 12 months after the date of the grant. The right to exercise all of the options vests over a period of four years of continuous employment from the grant date. Upon termination of employment at retirement, unvested options continue to vest following the retiree’s retirement date, subject to the four year vesting period. However, if there is a change of control of the Company, the options outstanding become immediately exercisable by option holders. Options are adjusted proportionately for any stock dividends or stock splits attributed to the common shares of the Company.  Outstanding options are as follows:Years ended March 31

   

   

   

   

   2013

   

   

   

   

   2012Weighted

   

   

   

   

   WeightedNumber

   

   average

   

   Number

   

   averageof options

   

   exercise price

   

   of options

   

   exercise priceOptions outstanding, beginning of year

   

   6,473,768

   $

   10.20

   

   6,020,489

   $

   9.67Granted

   

   1,755,400

   

   10.16

   

   1,223,434

   

   12.25Exercised

   

   (482,250)

   

   8.13

   

   (538,600)

   

   8.18Forfeited

   

   (412,076)

   

   11.61

   

   (224,280)

   

   11.88Expired

   

   (22,875)

   

   11.97

   

   (7,275)

   

   13.18Options outstanding, end of year

   

   7,311,967

   $

   10.24

   

   6,473,768

   $

   10.20Options exercisable, end of year

   

   3,829,769

   $

   10.44

   

   3,134,974

   $

   10.73
  46| CAE Year-End Financial Results 2013


---



Notes to the Consolidated Financial Statements
  Summarized information about the Company's ESOP as at March 31, 2013 is as follows:Range of exercise prices

   

   

   

   Options Outstanding

   

   Options ExercisableWeighted

   

   

   Weighted

   

   

   

   

   WeightedNumber

   

   average remaining

   

   

   average

   

   Number

   

   

   averageOutstanding

   

   contractual life (years)

   

   

   exercise price

   

   exercisable

   

   

   exercise price$7.29 to $9.69

   

   3,200,304

   

   2.62

   

   

   $

   7.93

   

   2,029,148

   

   

   $

   7.72$10.04 to $11.01

   

   1,682,972

   

   6.10

   

   

   

   10.20

   

   41,856

   

   

   

   10.31$11.10 to $14.10

   

   2,428,691

   

   2.24

   

   

   

   13.33

   

   1,758,765

   

   

   

   13.60Total

   

   7,311,967

   

   3.29

   

   

   $

   10.24

   

   3,829,769

   

   

   $

   10.44
  The weighted average market share price for share options exercised in 2013 was $10.45 (2012–$11.70). For the year ended March 31, 2013, compensation cost for CAE’s stock options of $3.9 million (2012–$3.7 million) was recognized in the consolidated income statement with a corresponding credit to contributed surplus using the fair value method of accounting for awards that were granted since fiscal 2009.  The assumptions used for the purpose of the option calculations outlined in this note are presented below:2013

   

   

   2012Weighted average assumptions used in the Black-Scholes options pricing model:Weighted average share price

   

   

   $

   10.08

   

   $

   12.12Exercise price

   

   

   $

   10.16

   

   $

   12.25Dividend yield

   

   

   

   1.60%

   

   

   1.33%Expected volatility

   

   

   

   33.56%

   

   

   34.05%Risk-free interest rate

   

   

   

   1.29%

   

   

   2.16%Expected option term

   

   

   5 years

   

   

   5 yearsWeighted average fair value option granted

   

   

   $

   2.59

   

   $

   3.33Expected volatility is estimated by considering historical average share price volatility over the option's expected term.
  Employee Stock Purchase Plan The Company maintains an Employee Stock Purchase Plan (ESPP) to enable employees of the Company and its participating subsidiaries to acquire CAE common shares through regular payroll deductions or a lump-sum payment plus employer contributions. The Company and its participating subsidiaries match the first $500 employee contribution and contribute $1 for every $2 of additional employee contributions, up to a maximum of 3% of the employee’s base salary. The Company recorded compensation cost in the amount of $5.6 million (2012–$5.4 million) in respect of employer contributions under the Plan.  CAE Year-End Financial Results 2013 |47


---



Notes to the Consolidated Financial Statements
 Deferred Share Unit Plans The Company maintains a Deferred Share Unit (DSU) plan for executives, whereby an executive may elect to receive any cash incentive compensation in the form of deferred share units. The plan is intended to promote a greater alignment of interests between executives and the shareholders of the Company. A DSU 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 TSX 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. DSUs mature upon termination of employment, whereupon an executive is entitled to receive a cash payment equal to the fair market value of the equivalent number of common shares, net of withholdings. The Company also maintains a DSU plan for non-employee directors. A non-employee director holding less than the minimum holdings of common shares of the Company receives the Board retainer and attendance fees in the form of deferred share units. Minimum holdings means no less than the number of common shares or deferred share units equivalent in fair market value to three times the annual retainer fee payable to a director for service on the Board. A non-employee director holding no less than the minimum holdings of common shares may elect to participate in the plan in respect of half or all of his or her retainer and part or all of his or her attendance fees. The terms of the plan are essentially identical to the executive DSU Plan except that units are issued on the basis of the closing board lot sale price per share of CAE common shares on the TSX during the last day on which the common shares traded prior to the date of issue. The Company records the cost of the DSU plans as a compensation expense and accrues its non-current liability in deferred gains and other non-current liabilities on the consolidated statement of financial position. The cost recorded in fiscal 2013 was $0.9 million (2012–$0.8 million recovery).  DSUs outstanding are as follows:Years ended March 31

   

   

   

   2013

   

   

   2012DSUs outstanding, beginning of year

   

   

   805,527

   

   

   699,866Units granted

   

   

   

   97,457

   

   

   94,441Units cancelled

   

   

   

   -

   

   

   -Units redeemed

   

   

   

   (104,807)

   

   

   -Dividends paid in units

   

   

   

   15,014

   

   

   11,220DSUs outstanding, end of year

   

   

   

   813,191

   

   

   805,527DSUs vested, end of the year

   

   

   

   813,191

   

   

   805,527The intrinsic values of the DSUs amount to $8.1 million at March 31, 2013 (2012 – $8.2 million).
  Long-Term Incentive (LTI) – Deferred Share Unit Plan The Company maintains a Long-Term Incentive Deferred Share Unit (LTI-DSU) plan for executives and senior management to promote a greater alignment of interests between executives and shareholders of the Company. A LTI-DSU is equal in value to one common share at a specific date. The LTI-DSUs are also entitled to dividend equivalents payable in additional units in an amount equal to dividends paid on CAE common shares. Eligible participants are entitled to receive a cash payment equivalent to the fair market value of the number of vested LTI-DSUs held upon any termination of employment. Upon termination of employment at retirement, unvested units continue to vest until November 30 of the year following the retirement date. For participants subject to section 409A of the United States Internal Revenue Code, vesting of unvested units takes place at the time of retirement. The Plan stipulates that granted units vest equally over five years and that following a take-over bid, all unvested units vest immediately. The cost recorded in fiscal 2013 was $3.0 million (2012–$1.7 million recovery). The Company entered into equity swap agreements to reduce its earnings exposure to the fluctuations in its share price (See Note 31).  LTI-DSUs outstanding are as follows:Years ended March 31

   

   

   

   2013

   

   

   2012LTI-DSUs outstanding, beginning of year

   

   

   2,431,314

   

   

   2,333,669Units granted

   

   

   

   293,990

   

   

   241,266Units cancelled

   

   

   

   (85,394)

   

   

   (64,883)Units redeemed

   

   

   

   (421,170)

   

   

   (115,927)Dividends paid in units

   

   

   

   46,972

   

   

   37,189LTI-DSUs outstanding, end of year

   

   

   

   2,265,712

   

   

   2,431,314LTI-DSUs vested at end of year

   

   

   

   1,917,003

   

   

   2,000,614The intrinsic values of the LTI-DSUs amount to $19.0 million at March 31, 2013 (2012 – $20.5 million).
  48| CAE Year-End Financial Results 2013


---



Notes to the Consolidated Financial Statements
  Long-Term Incentive – Restricted Share Unit Plans The Company maintains Long-Term Incentive Performance Based Restricted Shares Unit (LTI-RSU) plans to enhance the Company’s ability to attract and retain talented individuals and also to promote a greater alignment of interest between eligible participants and the Company’s shareholders. The LTI-RSUs are share-based performance plans. Fiscal year 2008 Plan LTI-RSUs granted pursuant to the plan vest after three years from their grant date as follows: (i)100% of the units, if CAE shares have appreciated by a minimum annual compounded growth defined as the Bank of Canada 10-year risk-free rate of return on the grant date plus 350 basis points (3.50%) over the valuation period, or, in the case of pro‐rated vesting, as of the end of the pro-ration period; (ii)50% of the units if, based on the grant price, the closing average price on the common CAE shares has met or exceeded the performance of the companies listed on the Standard & Poor’s Aerospace and Defence Index (S&P A&D index), adjusted for dividends, or, in the case of pro-rated vesting, as of the end of the pro-ration period.  Participants subject to loss of employment, other than voluntarily or for cause, are entitled to conditional pro-rata vesting. The cost recorded in fiscal 2013 was $0.3 million (2012–$1.0 million). Fiscal year 2011 Plan In May 2010, the Company amended the fiscal year 2008 Plan for fiscal 2011 and subsequent years. LTI-RSUs granted pursuant to the revised plan vest over three years from their grant date as follows:  (i)One-sixth of the total number of granted units multiplied by a factor vests every year. The factor is calculated from the one-year Total Shareholder Return (TSR) relative performance of CAE’s share price versus that of the S&P A&D index for the period April 1st to March 31st, immediately preceding each of the 1st, 2nd, and 3rd anniversary of the grant date, according to the following rule:  Annual TSR Relative Performance

   

   

   

   

   

   Factor1st Quartile (0 – 25th percentile)

   

   

   

   

   -2nd Quartile (26th – 50th percentile)

   

   

   

   

   

   50% – 98%3rd Quartile (51st – 75th percentile)

   

   

   

   100% – 148%4th Quartile (76th – 100th percentile)

   

   

   

   

   

   150%
  (ii)One-half of the total number of granted units multiplied by a factor vests in the final year. The factor is calculated from the three‐year TSR relative performance of CAE’s share price versus that of the companies listed on the S&P A&D index for the period April 1st, immediately preceding the grant date, to March 31st, immediately preceding the 3rdanniversary of the grant date, according to the same rule described in the table above.  Participants subject to loss of employment, other than voluntarily or for cause, are entitled to the units vested. The cost recorded in fiscal 2013 was $0.8 million (2012–$1.4 million).  LTI-RSU units outstanding under all plans are as follows:Fiscal Year 2011 Plan

   

   

   Fiscal Year 2008 PlanYears ended March 31

   

   2013

   

   2012

   

   2013

   

   2012LTI-RSUs outstanding, beginning of year

   

   1,014,155

   

   605,585

   

   660,733

   

   1,064,026Units granted

   

   593,410

   

   480,276

   

   -

   

   -Units cancelled

   

   (138,924)

   

   (65,895)

   

   (5,954)

   

   (403,293)Units redeemed

   

   (5,002)

   

   (5,811)

   

   (654,779)

   

   -LTI-RSUs outstanding, end of year

   

   1,463,639

   

   1,014,155

   

   -

   

   660,733LTI-RSUs vested, end of year

   

   1,060,397

   

   677,817

   

   -

   

   631,804The intrinsic values of the LTI-RSUs amount to $6.5 million at March 31, 2013 (2012 – $12.2 million).
  CAE Year-End Financial Results 2013 |49


---



Notes to the Consolidated Financial Statements
 NOTE 26 – SUPPLEMENTARY CASH FLOWS INFORMATION  (amounts in millions)

   

   

   

   2013

   

   

   2012Cash (used in) provided by non-cash working capital:Accounts receivable

   

   

   $

   (68.4)

   

   $

   (11.0)Contracts in progress: assets

   

   

   

   2.6

   

   

   (7.0)Inventories

   

   

   

   (27.6)

   

   

   (24.1)Prepayments

   

   

   

   (5.8)

   

   

   (0.6)Income taxes recoverable

   

   

   

   (11.4)

   

   

   (11.6)Derivative financial assets

   

   

   

   18.0

   

   

   48.0Accounts payable and accrued liabilities

   

   

   

   18.6

   

   

   6.8Provisions

   

   

   

   19.3

   

   

   (2.2)Income taxes payable

   

   

   

   2.0

   

   

   (2.6)Contracts in progress: liabilities

   

   

   

   13.8

   

   

   (22.2)Derivative financial liabilities

   

   

   

   (22.8)

   

   

   (45.2)Changes in non-cash working capital

   

   

   $

   (61.7)

   

   $

   (71.7)
   NOTE 27 – Contingencies In the normal course of operations, the Company is party to a number of lawsuits, claims and contingencies. Although it is possible that liabilities may be incurred in instances for which no accruals have been made, the Company does not believe that the ultimate outcome of these matters will have a material impact on its consolidated financial position.   NOTE 28 – COMMITMENTS Operating lease commitments As at March 31, 2013, an amount of $17.9 million (2012–$26.0 million) was designated as commitments to CVS Leasing Ltd.  The future aggregate minimum lease payments under non-cancellable operating leases are as follows:(amounts in millions)

   

   2013

   

   2012No later than 1 year

   $

   56.7

   $

   30.2Later than 1 year and no later than 5 years

   

   143.9

   

   79.0Later than 5 years

   

   89.0

   

   32.8$

   289.6

   $

   142.0Rental expenses recorded in the consolidated income statement amount to $64.1million (2012 – $46.8 million).
  Contractual purchase obligationsSignificant contractual purchase obligations are as follows:(amounts in millions)

   

   

   

   

   

   

   

   SP/C

   

   

   Total2014

   

   

   

   

   $

   12.5

   $

   12.52015

   

   

   

   

   

   12.5

   

   12.5$

   25.0

   $

   25.0
  50| CAE Year-End Financial Results 2013


---



Notes to the Consolidated Financial Statements
  Operating Lease Entitlements as a LessorFuture minimum lease payments receivable under non-cancellable operating leases are as follows:(amounts in millions)

   

   2013

   

   2012No later than 1 year

   $

   11.9

   $

   4.5Later than 1 year and no later than 5 years

   

   20.5

   

   14.4Later than 5 years

   

   14.4

   

   1.8$

   46.8

   $

   20.7
   NOTE 29 – capital risk management The Company’s objectives when managing capital are threefold: (i)Optimize the use of debt for managing the cost of capital of the Company; (ii)Keep the debt level at an amount where the Company’s financial strength and credit quality is maintained in order to withstand economic cycles; (iii)Provide the Company’s shareholders with an appropriate rate of return on their investment.  The Company manages its debt to equity. The Company manages its capital structure and makes corresponding adjustments based on changes in economic conditions and the risk characteristics of the underlying assets. In order to maintain or adjust the capital structure, the Company may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares, or use cash to reduce debt.  In view of this, the Company monitors its capital on the basis of the net debt to capital ratio. This ratio is calculated as net debt divided by the sum of the net debt and total equity. Net debt is calculated as total debt, including the short-term portion (as presented in the consolidated statement of financial position and including non-recourse debt) less cash and cash equivalents. Total equity comprises of share capital, contributed surplus, accumulated other comprehensive (loss) income, retained earnings and non-controlling interests. The level of debt versus equity in the capital structure is monitored, and the ratios are as follows:(amounts in millions)

   

   

   2013

   

   2012Total debt

   

   $

   1,210.0

   $

   821.6Less: cash and cash equivalents

   

   

   293.2

   

   287.3Net debt

   

   $

   916.8

   $

   534.3Equity

   

   $

   1,134.5

   $

   1,042.2Net debt: equity

   

   

   45:55

   

   

   34:66
  The Company has certain debt agreements which require the maintenance of a certain level of capital. As at March 31, 2013, the Company is compliant with its financial covenants, except for the portion of the non-recourse debt in Hatsoff attributable to the Company’s equity stake which is in breach of certain covenants (See Note 13).  CAE Year-End Financial Results 2013 |51


---



Notes to the Consolidated Financial Statements
 NOTE 30 – Financial Instruments Fair value of financial instruments The fair value of a financial instrument is determined by reference to the available market information at the reporting date. When no active market exists for a financial instrument, the Company determines the fair value of that instrument based on valuation methodologies as discussed below. In determining assumptions required under a valuation model, the Company primarily uses external, readily observable market data inputs. Assumptions or inputs that are not based on observable market data incorporate the Company’s best estimates of market participant assumptions, and are used when external data is not available. Counterparty credit risk and the fair values of the Company’s own credit risk are taken into account in estimating the fair value of all financial assets and financial liabilities, including derivatives.  The following assumptions and valuation methodologies have been used to estimate the fair value of financial instruments: (i)The fair value of accounts receivable, contracts in progress, accounts payable and accrued liabilities approximate their carrying values due to their short-term maturities; (ii)The fair value of finance lease obligations are estimated using the discounted cash flow method; (iii)The fair value of long-term debt, non-current obligations and non-current receivables, including advances, are estimated based on discounted cash flows using current interest rates for instruments with similar terms and remaining maturities; (iv)The fair value of derivative instruments, including forward contracts, swap agreements and embedded derivatives with economic characteristics and risks that are not clearly and closely related to those of the host contract, are determined using valuation techniques and are calculated as the present value of the estimated future cash flows using an appropriate interest rate yield curve and foreign exchange rate, adjusted for the Company’s and the counterparty’s credit risk. Assumptions are based on market conditions prevailing at each reporting date. Derivative instruments reflect the estimated amounts that the Company would receive or pay to settle the contracts at the reporting date; (v)The fair value of the available-for-sale investment which does not have a readily available market value, but for which fair value can be reliably measured, is estimated using a discounted cash flow model, which includes some assumptions that are not supportable by observable market prices or rates.  The carrying values and fair values of financial instruments, by class, are as follows at March 31, 2013:(amounts in millions)Carrying Value

   

   Fair ValueAt

   

   

   Available-

   

   

   Loans &FVTPL

   

   for-Sale

   

   Receivables

   

   

   DDHR

   

   (1)

   

   TotalFinancial assetsCash and cash equivalents

   $

   293.2

   

   $

   -

   

   $

   -

   

   $

   -

   

   $

   293.2

   $

   293.2Accounts receivable

   

   -

   

   

   -

   

   

   378.7

   (2)

   

   -

   

   

   378.7

   

   378.7Contracts in progress: assets

   

   -

   

   

   -

   

   

   247.3

   

   

   -

   

   

   247.3

   

   247.3Derivative financial assets

   

   5.4

   

   

   -

   

   

   -

   

   

   10.0

   

   

   15.4

   

   15.4Other assets

   

   9.2

   (3)

   

   1.3

   (4)

   

   80.6

   (5)

   

   -

   

   

   91.1

   

   99.4$

   307.8

   

   $

   1.3

   

   $

   706.6

   

   $

   10.0

   

   $

   1,025.7

   $

   1,034.0
  Carrying Value

   

   Fair ValueOtherAt

   

   

   FinancialFVTPL

   

   Liabilities

   

   

   DDHR

   

   (1)

   

   TotalFinancial liabilitiesAccounts payable and accrued liabilities

   

   

   

   $

   -

   

   $

   529.6

   (6)

   $

   -

   

   $

   529.6

   $

   529.6Total provisions

   

   

   

   

   -

   

   

   29.9

   

   

   -

   

   

   29.9

   

   29.9Total long-term debt

   

   

   

   

   -

   

   

   1,216.2

   (7)

   

   -

   

   

   1,216.2

   

   1,334.2Other non-current liabilities

   

   

   

   

   -

   

   

   192.5

   (8)

   

   -

   

   

   192.5

   

   192.5Derivative financial liabilities

   

   

   

   

   5.5

   

   

   -

   

   

   21.2

   

   

   26.7

   

   26.7$

   5.5

   

   $

   1,968.2

   

   $

   21.2

   

   $

   1,994.9

   $

   2,112.9(1)DDHR: Derivatives designated in a hedge relationship.(2)Includes trade receivables, accrued receivables and certain other receivables.(3)Represents restricted cash.(4)Represents the Company's portfolio investment.(5)Includes non-current receivables and advances.(6)Includes trade accounts payable, accrued liabilities, interest payable and certain payroll-related liabilities.(7)Excludes transaction costs.(8)Includes non-current royalty obligations and other non-current liabilities
  52| CAE Year-End Financial Results 2013


---



Notes to the Consolidated Financial Statements
  The carrying values and fair values of financial instruments, by class, were as follows at March 31, 2012:(amounts in millions)Carrying Value

   

   Fair ValueAt

   

   

   Available-

   

   

   Loans &FVTPL

   

   

   for-Sale

   

   

   Receivables

   

   

   DDHR

   

   (1)

   

   TotalFinancial assetsCash and cash equivalents

   $

   287.3

   

   $

   -

   

   $

   -

   

   $

   -

   

   $

   287.3

   $

   287.3Accounts receivable

   

   -

   

   

   -

   

   

   295.6

   (2)

   

   -

   

   

   295.6

   

   295.6Contracts in progress: assets

   

   -

   

   

   -

   

   

   245.8

   

   

   -

   

   

   245.8

   

   245.8Derivative financial assets

   

   3.5

   

   

   -

   

   

   -

   

   

   14.0

   

   

   17.5

   

   17.5Other assets

   

   9.8

   (3)

   

   1.3

   (4)

   

   59.8

   (5)

   

   -

   

   

   70.9

   

   72.0$

   300.6

   

   $

   1.3

   

   $

   601.2

   

   $

   14.0

   

   $

   917.1

   $

   918.2
  Carrying Value

   

   Fair ValueOtherAt

   

   

   FinancialFVTPL

   

   

   Liabilities

   

   

   DDHR

   

   (1)

   

   TotalFinancial liabilitiesAccounts payable and accrued liabilities

   

   

   

   $

   -

   

   $

   434.5

   (6)

   $

   -

   

   $

   434.5

   $

   434.5Total provisions

   

   

   

   

   -

   

   

   15.3

   

   

   -

   

   

   15.3

   

   15.3Total long-term debt

   

   

   

   

   -

   

   

   825.6

   (7)

   

   -

   

   

   825.6

   

   916.1Other non-current liabilities

   

   

   

   

   -

   

   

   165.6

   (8)

   

   -

   

   

   165.6

   

   165.6Derivative financial liabilities

   

   

   

   

   5.5

   

   

   -

   

   

   20.1

   

   

   25.6

   

   25.6$

   5.5

   

   $

   1,441.0

   

   $

   20.1

   

   $

   1,466.6

   $

   1,557.1(1)DDHR: Derivatives designated in a hedge relationship.(2)Includes trade receivables, accrued receivables and certain other receivables.(3)Represents restricted cash.(4)Represents the Company's portfolio investments.(5)Includes non-current receivables and advances.(6)Includes trade accounts payable, accrued liabilities, interest payable and certain payroll-related liabilities.(7)Excludes transaction costs.(8)Includes non-current royalty obligations and other non-current liabilities.
  The Company did not elect to voluntarily designate any financial instruments at FVTPL; moreover, there have not been any changes to the classification of the financial instruments since inception.  As part of its financing transactions, the Company, through its subsidiaries, has pledged certain financial assets including cash and cash equivalents, accounts receivable, other assets and derivative assets. As atMarch 31, 2013, the aggregate carrying value of these pledged financial assets amounted to $67.3 million (2012– $70.5 million).  Fair value hierarchy The following table presents the financial instruments, by class, which are recognized at fair value. The fair value hierarchy reflects the significance of the inputs used in making the measurements and has the following levels: Level 1:   Quoted prices (unadjusted) in active markets for identical assets or liabilities; Level 2:   Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e., as prices) or indirectly (i.e., derived from prices); Level 3:   Inputs for the asset or liability that are not based on observable market data (unobservable inputs).  CAE Year-End Financial Results 2013 |53


---



Notes to the Consolidated Financial Statements
 Each type of fair value is categorized based on the lowest level input that is significant to the fair value measurement in its entirety.  (amounts in millions)

   

   

   

   

   

   

   

   2013

   

   

   

   

   

   

   

   2012Level 2

   

   

   Level 3

   

   

   Total

   

   

   Level 2

   

   

   Level 3

   

   

   TotalFinancial assetsAt FVTPLCash and cash equivalents

   $

   293.2

   $

   -

   $

   293.2

   $

   287.3

   $

   -

   $

   287.3Restricted cash

   

   9.2

   

   -

   

   9.2

   

   9.8

   

   -

   

   9.8Forward foreign currency contracts

   

   4.7

   

   -

   

   4.7

   

   3.2

   

   -

   

   3.2Embedded foreign currency derivatives

   

   0.7

   

   -

   

   0.7

   

   0.3

   

   -

   

   0.3Available-for-sale

   

   -

   

   1.3

   

   1.3

   

   -

   

   1.3

   

   1.3Derivatives designated in a hedge relationshipForward foreign currency contracts

   

   4.6

   

   -

   

   4.6

   

   9.0

   

   -

   

   9.0Foreign currency swap agreements

   

   5.4

   

   -

   

   5.4

   

   4.8

   

   -

   

   4.8Interest rate swap agreements

   

   -

   

   -

   

   -

   

   0.2

   

   -

   

   0.2$

   317.8

   $

   1.3

   $

   319.1

   $

   314.6

   $

   1.3

   $

   315.9Financial liabilitiesAt FVTPLForward foreign currency contracts

   $

   3.4

   $

   -

   $

   3.4

   $

   1.2

   $

   -

   $

   1.2Embedded foreign currency derivatives

   

   1.8

   

   -

   

   1.8

   

   3.3

   

   -

   

   3.3Equity swap agreements

   

   0.3

   

   -

   

   0.3

   

   1.0

   

   -

   

   1.0Derivatives designated in a hedge relationshipForward foreign currency contracts

   

   6.8

   

   -

   

   6.8

   

   6.8

   

   -

   

   6.8Foreign currency swap agreements

   

   2.7

   

   -

   

   2.7

   

   -

   

   -

   

   -Interest rate swap agreements

   

   9.7

   

   -

   

   9.7

   

   10.6

   

   -

   

   10.6Cross currency interest rate swap agreement

   

   -

   

   2.0

   

   2.0

   

   -

   

   2.7

   

   2.7$

   24.7

   $

   2.0

   $

   26.7

   $

   22.9

   $

   2.7

   $

   25.6
  Changes in Level 3 financial instruments are as follows:Years ended March 31(amounts in millions)

   

   2013

   

   2012Balance, beginning of year

   $

   (1.4)

   $

   (2.2)Total realized and unrealized (losses) gains:Included in income

   

   -

   

   (0.3)Included in other comprehensive income

   

   (0.7)

   

   2.2Issued and settled

   

   1.4

   

   (1.1)Balance, end of year

   $

   (0.7)

   $

   (1.4)
  Level 3 input sensitivity analysis For the INR/USD cross currency interest rate swap valued using techniques without observable inputs, the determination of the interest rate and liquidity premium has the most significant impact on the valuation. The impact of assuming an increase or decrease of 1% in this input would result in an increase of fair value of $1.0 million (2012 – $0.6 million) or a decrease of fair value of $1.0 million (2012– $0.6 million) respectively. This analysis assumes all other variables remain constant.  For the Company’s portfolio investment, the determination of the discount rate and the expected future return on the investment has the most significant impact on the valuation.  A reasonably possible 1% increase/decrease in the discount rate or a 10% decrease/increase in the expected future return on the investment would not have a significant impact on the Company’s net income and OCI assuming all other variables remained constant.  54| CAE Year-End Financial Results 2013


---



Notes to the Consolidated Financial Statements
 NOTE 31 – FINANCIAL RISK MANAGEMENT Due tothe nature of the activities that the Company carries out and as a result of holding financial instruments, the Company is exposed to credit risk, liquidity risk and market risk, including foreign currency risk and interest rate risk. The Company’s exposure to credit risk, liquidity risk and market risk is managed within risk management parameters approved by the board of directors. These risk management parameters remain unchanged since the previous period, unless otherwise indicated.  Derivative instruments are utilized by the Company to manage market risk against the volatility in foreign exchange rates, interest rates and share-based payments in order to minimize their impact on the Company’s results and financial position.  Embedded derivatives are recorded at fair value separately from the host contract when their economic characteristics and risks are not clearly and closely related to those of the host contract. The Company may enter into freestanding derivative instruments which are not eligible for hedge accounting, to offset the foreign exchange exposure of embedded foreign currency derivatives. In such circumstances, both derivatives are carried at fair value at each statement of financial position date with the change in fair value recorded in consolidated net income.  The Company’s policy is not to utilize any derivative financial instruments for trading or speculative purposes. The Company may choose to designate derivative instruments, either freestanding or embedded, as hedging items. This process consists of matching derivative hedging instruments to specific assets and liabilities or to specific firm commitments or forecastedtransactions. To some extent, the Company uses non-derivative financial liabilities to hedge foreign currency exchange rate risk exposures.  Credit risk Credit risk is defined as the Company’s exposure to a financial loss if a debtor fails to meet its obligations in accordance with the terms and conditions of its arrangements with the Company. The Company is exposed to credit risk on its accounts receivable and certain other assets through its normal commercial activities. The Company is also exposed to credit risk through its normal treasury activities on its cash and cash equivalents and derivative financial assets.  Credit risks arising from the Company’s normal commercial activities are managed in regards to customer credit risk. An allowance for doubtful accounts is established when there is a reasonable expectation that the Company will not be able to collect all amounts due according to the original terms of the receivables (See Note 5). When a trade receivable is uncollectible, it is written-off against the allowance account for trade receivables. Subsequent recoveries of amounts previously written-off are recognized in income.  The Company’s customers are primarily established companies with publicly available credit ratings and government agencies, which facilitates risk monitoring. In addition, the Company typically receives substantial non-refundable advance payments for construction contracts. The Company closely monitors its exposure to major airlines in order to mitigate its risk to the extent possible. Furthermore, the Company’s trade receivables are not concentrated with specific customers but are held from a wide range of commercial and government organizations. As well, the Company’s credit exposure is further reduced by the sale of certain of its accounts receivable and contracts in progress assets to third-party financial institutions for cash consideration on a non-recourse basis (current financial assets program). The Company does not hold any collateral as security. The credit risk on cash and cash equivalents is mitigated by the fact that they are in place with a diverse group of major North American and European financial institutions.  The Company is exposed to credit risk in the event of non-performance by counterparties to its derivative financial instruments. The Company uses several measures to minimize this exposure. First, the Company enters into contracts with counterparties that are of high credit quality (mainly A-rated or better). The Company signedInternational Swaps & Derivatives Association, Inc. (ISDA)Master Agreements with the majority of counterparties with whom it trades derivative financial instruments. These agreements make it possible to apply full netting when a contracting party defaults on the agreement, for each of the transactions covered by the agreement and in force at the time of default. Also, collateral or other security to support derivative financial instruments subject to credit risk can be requested by the Company or its counterparties (or both parties, if need be) when the net balance of gains and losses on each transaction exceeds a threshold defined in the ISDA Master Agreement. Finally, the Company monitors the credit standing of counterparties on a regular basis to help minimize credit risk exposure.  The carrying amounts presented in Note 5 and Note 30 represent the maximum exposure to credit risk for each respective financial asset as at the relevant dates.  Liquidity risk Liquidity risk is defined as the potential that the Company cannot meet its cash obligations as they become due.  The Company manages this risk by establishing cash forecasts, as well as long-term operating and strategic plans. The management of consolidated liquidity requires a regular monitoring of expected cash inflows and outflows which is achieved through a forecast of the Company’s consolidated liquidity position, for adequacy and efficient use of cash resources. Liquidity adequacy is assessed in view of seasonal needs, growth requirements and capital expenditures, and the maturity profile of indebtedness, including off-balance sheet obligations. The Company manages its liquidity risk to maintain sufficient liquid financial resources to fund its operations and meet its commitments and obligations. In managing its liquidity risk, the Company has access to a revolving unsecured credit facility of US$550.0 million, with an option, subject to the lender’s consent, to increase to a total amount of up to US$850.0 million. As well, the Company has agreements to sell certain of its accounts receivable and contracts in progress assets for an amount of up to $150.0 million (current financial assets program). As atMarch 31, 2013, $88.6 million (2012 – $81.5 million) and $3.1 million (2012 – $54.2 million) of specific accounts receivable and contracts in progress assets respectively were sold to financial institutions pursuant to these agreements. Proceeds were net of $1.6 million in fees (2012 – $2.4 million). The Company also regularly monitors


any financing opportunities to optimize its capital structure and maintain appropriate financial flexibility.  CAE Year-End Financial Results 2013 |55


---



Notes to the Consolidated Financial Statements
  The following tables present a maturity analysis to the contractual maturity date, of the Company’s financial liabilities based on expected cash flows. Cash flows from derivatives presented either as derivative assets or liabilities have been included, as the Company manages its derivative contracts on a gross basis. The amounts are the contractual undiscounted cash flows. All amounts contractually denominated in foreign currency are presented in Canadian dollar equivalent amounts using the period-end spot rate except as otherwise stated:  As at March 31, 2013

   Carrying

   

   Contractual

   

   

   0-12

   

   

   13-24

   

   

   25-36

   

   

   37-48

   

   

   49-60(amounts in millions)

   Amount

   

   Cash Flows

   

   Months

   

   Months

   

   Months

   

   Months

   

   Months

   

   ThereafterNon-derivative financialliabilitiesAccounts payable andand accrued liabilities (1)

   $

   529.6

   $

   529.6

   $

   529.6

   $

   -

   $

   -

   $

   -

   $

   -

   $

   -Total provisions

   

   29.9

   

   30.3

   

   26.7

   

   1.2

   

   1.7

   

   0.4

   

   0.3

   

   -Total long-term debt(2) (6)

   

   1,216.2

   

   1,733.7

   

   139.1

   

   119.7

   

   105.9

   

   154.5

   

   99.2

   

   1,115.3Other non-current liabilities(3) (4)

   

   192.5

   

   396.7

   

   -

   

   15.3

   

   31.5

   

   13.4

   

   15.9

   

   320.6$

   1,968.2

   $

   2,690.3

   $

   695.4

   $

   136.2

   $

   139.1

   $

   168.3

   $

   115.4

   $

   1,435.9Derivative financialinstrumentsForward foreigncurrency contracts(4)

   $

   0.9Outflow

   

   

   $

   682.3

   $

   519.4

   $

   64.2

   $

   56.3

   $

   18.9

   $

   22.2

   $

   1.3Inflow

   

   

   

   (681.6)

   

   (520.2)

   

   (63.5)

   

   (55.9)

   

   (18.8)

   

   (22.0)

   

   (1.2)Swap derivatives on totallong-term debt(5)

   

   9.0Outflow

   

   

   

   136.6

   

   15.5

   

   15.9

   

   15.7

   

   14.9

   

   13.7

   

   60.9Inflow

   

   

   

   (128.9)

   

   (13.1)

   

   (14.4)

   

   (14.9)

   

   (14.8)

   

   (14.0)

   

   (57.7)Equity swap agreement

   

   0.3

   

   0.3

   

   0.3

   

   -

   

   -

   

   -

   

   -

   

   -$

   10.2

   $

   8.7

   $

   1.9

   $

   2.2

   $

   1.2

   $

   0.2

   $

   (0.1)

   $

   3.3$

   1,978.4

   $

   2,699.0

   $

   697.3

   $

   138.4

   $

   140.3

   $

   168.5

   $

   115.3

   $

   1,439.2(1)Includes trade accounts payable, accrued liabilities, interest payable and certain payroll-related liabilities.(2)Contractual cash flows include contractual interest and principal payments related to debt obligations.(3)Includes non-current royalty obligations and other non-current liabilities.(4)Includes forward foreign currency contracts, but excludes all embedded derivatives, either presented as derivative liabilities or derivative assets.Outflows and inflows are presented in CAD equivalent using the contractual forward foreign currency rate.(5)Includes interest rate swap and cross currency swaps designated as cash flow hedges either presented as derivative liabilities or derivative assets.(6)Excludes transaction costs.
  56| CAE Year-End Financial Results 2013


---



Notes to the Consolidated Financial Statements
  As at March 31, 2012

   Carrying

   

   Contractual

   

   

   0-12

   

   

   13-24

   

   

   25-36

   

   

   37-48

   

   

   49-60(amounts in millions)

   Amount

   

   Cash Flows

   

   Months

   

   Months

   

   Months

   

   Months

   

   Months

   

   ThereafterNon-derivative financialliabilitiesAccounts payable andaccrued liabilities (1)

   $

   434.5

   $

   434.5

   $

   434.5

   $

   -

   $

   -

   $

   -

   $

   -

   $

   -Total provisions

   

   15.3

   

   15.3

   

   10.5

   

   0.7

   

   0.1

   

   3.8

   

   0.1

   

   0.1Total long-term debt(2) (6)

   

   825.6

   

   1,230.7

   

   180.4

   

   115.6

   

   89.5

   

   76.2

   

   135.4

   

   633.6Other non-current liabilities(3)

   

   165.6

   

   372.1

   

   13.6

   

   15.2

   

   10.5

   

   11.9

   

   13.0

   

   307.9$

   1,441.0

   $

   2,052.6

   $

   639.0

   $

   131.5

   $

   100.1

   $

   91.9

   $

   148.5

   $

   941.6Derivative financialinstrumentsForward foreigncurrency contracts(4)

   $

   (4.2)Outflow

   

   

   $

   744.2

   $

   593.4

   $

   95.9

   $

   23.8

   $

   14.7

   $

   13.4

   $

   3.0Inflow

   

   

   

   (748.4)

   

   (598.3)

   

   (96.6)

   

   (22.9)

   

   (14.4)

   

   (13.3)

   

   (2.9)Swap derivatives on totallong-term debt(5)

   

   8.3Outflow

   

   

   

   67.1

   

   9.2

   

   10.5

   

   11.0

   

   10.7

   

   9.7

   

   16.0Inflow

   

   

   

   (56.4)

   

   (6.8)

   

   (7.4)

   

   (8.8)

   

   (9.4)

   

   (9.1)

   

   (14.9)Equity swap agreement

   

   1.0

   

   1.0

   

   1.0

   

   -

   

   -

   

   -

   

   -

   

   -$

   5.1

   $

   7.5

   $

   (1.5)

   $

   2.4

   $

   3.1

   $

   1.6

   $

   0.7

   $

   1.2$

   1,446.1

   $

   2,060.1

   $

   637.5

   $

   133.9

   $

   103.2

   $

   93.5

   $

   149.2

   $

   942.8(1)Includes trade accounts payable, accrued liabilities, interest payable and certain payroll-related liabilities.(2)Contractual cash flows include contractual interest and principal payments related to debt obligations.(3)Includes non-current royalty obligations and other non-current liabilities.(4)Includes forward foreign currency contracts, but excludes all embedded derivatives, either presented as derivative liabilities or derivative assets.Outflows and inflows are presented in CAD equivalent using the contractual forward foreign currency rate.(5)Includes interest rate swap and cross currency swap contracts either designated as cash flow hedges or as fair value hedges of long-term debteither presented as derivative liabilities or derivative assets.(6)Excludes transaction costs.
  Market risk Market risk is defined as the Company’s exposure to a gain or a loss in the value of its financial instruments as a result of changes in market prices, whether those changes are caused by factors specific to the individual financial instruments or its issuer, or factors affecting all similar financial instruments traded in the market. The Company is mainly exposed to foreign currency risk and interest rate risk.  Foreign currency risk Foreign currency risk is defined as the Company’s exposure to a gain or a loss in the value of its financial instruments as a result of fluctuations in foreign exchange rates. The Company is exposed to foreign exchange rate variability primarily in relation to certain sale commitments, expected purchase transactions and debt denominated in a foreign currency as well as, exposure on the net investment from its foreign operations’ which have functional currencies other than the Canadian dollar (in particular the U.S. dollar (USD), euro (€) and British pound (GBP or £)). In addition, these operations have exposure to foreign exchange rates primarily through cash and cash equivalents and other working capital elements denominated in currencies other than their functional currencies.  The Company also mitigates foreign currency risks by having its foreign operations transact in their functional currency for material procurement, sale contracts and financing activities.  The Company uses forward foreign currency contracts and foreign currency swap agreements to manage the Company’s exposure from transactions in foreign currencies and to synthetically modify the currency of exposure of certain financial position items. These transactions include forecasted transactions and firm commitments denominated in foreign currencies.  As atMarch 31, 2013, the Company has forward foreign currency contracts totalling $1,012.4 million (buy contracts for $140.8 million and sell contracts for $871.6 million) (2012–$735.4 million, buy contracts for $113.3 million and sell contracts for $622.1 million), mainly to reduce the risk of variability of future cash flows resulting from forecasted transactions and firm sales commitments.  CAE Year-End Financial Results 2013 |57


---



Notes to the Consolidated Financial Statements
  The consolidated forward foreign currency contracts outstanding are as follows:(amounts in millions, except average rate)

   

   

   

   

   

   2013

   

   

   

   

   

   2012Notional

   

   

   Average

   

   Notional

   

   

   AverageCurrencies (sold/bought)

   Amount

   

   (1)

   Rate

   

   Amount

   

   (1)

   RateUSD/CDNLess than 1 year

   $

   501.2

   

   

   0.98

   $

   421.1

   

   

   0.98Between 1 and 3 years

   

   78.9

   

   

   0.98

   

   70.7

   

   

   0.98Between 3 and 5 years

   

   18.7

   

   

   0.98

   

   6.7

   

   

   0.99Over 5 years

   

   1.8

   

   

   0.97

   

   -

   

   

   -CDN/EURLess than 1 year

   

   11.6

   

   

   1.33

   

   16.1

   

   

   1.34Between 1 and 3 years

   

   -

   

   

   -

   

   0.1

   

   

   1.37Between 3 and 5 years

   

   7.7

   

   

   1.40

   

   -

   

   

   -EUR/CDNLess than 1 year

   

   47.9

   

   

   0.75

   

   40.2

   

   

   0.74Between 1 and 3 years

   

   22.3

   

   

   0.77

   

   9.3

   

   

   0.73Between 3 and 5 years

   

   10.3

   

   

   0.72

   

   13.2

   

   

   0.72Over 5 years

   

   -

   

   

   -

   

   2.7

   

   

   0.73EUR/USDLess than 1 year

   

   55.9

   

   

   0.75

   

   0.3

   

   

   0.73GBP/CDNLess than 1 year

   

   37.7

   

   

   0.63

   

   28.5

   

   

   0.62Between 1 and 3 years

   

   26.6

   

   

   0.62

   

   16.8

   

   

   0.63Between 3 and 5 years

   

   0.8

   

   

   0.62

   

   2.8

   

   

   0.62Over 5 years

   

   -

   

   

   -

   

   0.2

   

   

   0.61CDN/GBPBetween 1 and 3 years

   

   5.3

   

   

   1.54

   

   -

   

   

   -CDN/USDLess than 1 year

   

   43.3

   

   

   1.05

   

   70.6

   

   

   1.03Between 1 and 3 years

   

   10.0

   

   

   1.13

   

   17.6

   

   

   1.13Between 3 and 5 years

   

   3.3

   

   

   1.08

   

   4.2

   

   

   1.08GBP/USDLess than 1 year

   

   15.9

   

   

   0.67

   

   -

   

   

   -Between 1 and 3 years

   

   11.5

   

   

   0.65

   

   -

   

   

   -Between 3 and 5 years

   

   12.7

   

   

   0.65

   

   -

   

   

   -USD/EURLess than 1 year

   

   18.6

   

   

   1.31

   

   7.2

   

   

   1.37Between 1 and 3 years

   

   -

   

   

   -

   

   -

   

   

   -SEK/USDLess than 1 year

   

   3.7

   

   

   6.56

   

   -

   

   

   -Between 1 and 3 years

   

   22.1

   

   

   6.68

   

   -

   

   

   -Other currenciesLess than 1 year

   

   33.5

   

   

   -

   

   5.5

   

   

   -Between 1 and 3 years

   

   2.3

   

   

   -

   

   1.6

   

   

   -Between 3 and 5 years

   

   8.8

   

   

   -

   

   -

   

   

   -Total

   $

   1,012.4

   

   

   

   $

   735.4Effect of master netting agreement

   

   153.4

   

   

   

   

   173.1Outstanding amount

   $

   1,165.8

   

   

   

   $

   908.5(1)Exchange rates as at the end of the respective fiscal years were used to translate amounts in foreign currencies.
  58| CAE Year-End Financial Results 2013


---



Notes to the Consolidated Financial Statements
  The Company has entered into foreign currency swap agreements related to its senior collateralized financing, obtained in June 2007, to convert a portion of the USD-denominated debt into GBP to finance its civil aviation training centre in the United Kingdom. The Company designated two USD to GBP foreign currency swap agreements as cash flow hedges with outstanding notional amounts of US$1.8 million (£0.9 million) (2012–US$3.1 million (£1.5 million)) and US$17.0 million (£8.5 million) (2012–US$17.0 million (£8.5 million)), amortized in accordance with the repayment schedule of the debt until June 2014 and June 2018 respectively.  Also, in a previous fiscal year, the Company entered into a cross currency interest rate swap agreement in connection with a senior secured non-recourse financing obtained to finance a military aviation training centre in India. This cross currency interest rate swap converts a USD‐denominated floating rate debt into an Indian rupee (INR)-denominated fixed rate debt. This swap is designated as a cash flow hedge with notional amounts of US$21.1 million (INR 1,092.5 million) (2012–US$21.1 million (INR 1,092.5 million)) corresponding to the underlying loan until March 2020.  In fiscal 2013, the Company has entered into interest-only cross currency swap agreements related to its multi-tranche private placement issued in December 2012, to effectively fix the USD-denominated interest cash flows in CAD equivalent. The Company designated two USD to CAD interest-only currency swap agreements as cash flow hedges with outstanding notional amounts ofUS$127.0 million ($130.5 million) andUS$98.0 million ($100.7 million) corresponding to the two tranches of the private placement until December 2024 and December 2027 respectively  The Company’s foreign currency hedging programs are typically unaffected by changes in market conditions, as related derivative financial instruments are generally held until their maturity, consistent with the objective to fix currency rates on the hedged item.  In fiscal2013, net unrealized losses on the measurement of derivatives, before income taxes, of $2.5million (2012–$8.7 million losses) were recognized directly in equity. Net gains/losses were reclassified from equity to be included into income or to the related non-financial asset or liabilities as follows:  (amounts in millions)

   

   

   

   2013

   

   

   2012Amount reclassified from OCI to income:Revenue

   

   

   $

   7.5

   

   $

   6.4Cost of sales

   

   

   

   (0.2)

   

   

   0.1Finance expense – net

   

   

   

   (1.4)

   

   

   (1.1)Other gains – net

   

   

   

   0.7

   

   

   -Total amount reclassified from OCI to income

   

   

   $

   6.6

   

   $

   5.4Amount reclassified from OCI to the related non-financial asset or liabilityContracts in progress: assets

   

   

   $

   3.9

   

   $

   (0.6)Property, plant and equipment

   

   

   

   (0.3)

   

   

   (0.1)Total amount reclassified from OCI to the related non-financial asset or liability

   

   $

   3.6

   

   $

   (0.7)Total amount reclassified from OCI

   

   

   $

   10.2

   

   $

   4.7
  During fiscal 2012, hedge accounting was discontinued for certain forward foreign currency contracts when it became probable that the original forecasted transactions would not occur by the end of the originally specified period. As a result, a gain of $0.3million (2012–loss of $0.2 million) was recorded in income.  Also, a net loss of $0.1 million (2012–net gain of $0.4 million) representing the ineffective portion of the change in fair value of the cash flow hedges and the component of the hedging item’s gain or loss excluded from the assessment of effectiveness, was recognized in income.  The estimated net amount before tax of existing losses reported in accumulated other comprehensive income that is expected to be recognized during the next 12 months is $1.2 million. Future fluctuation in market rate (foreign exchange rate and/or interest rate) will impact the amount expected to be recognized.   CAE Year-End Financial Results 2013 |59


---



Notes to the Consolidated Financial Statements
 Foreign currency risk sensitivity analysis The following table presents the Company’s exposure to foreign currency risk of financial instruments and the pre-tax effects on net income and OCI as a result of a reasonably possible strengthening of 5% in the relevant foreign currency against the Canadian dollar as at March 31. This analysis assumes all other variables remain constant.  (amounts in millions)

   USD

   

   

   €

   

   

   GBPNet

   

   

   

   

   

   

   Net

   

   

   

   

   

   

   NetIncome

   

   

   OCI

   

   

   Income

   

   

   OCI

   

   

   Income

   

   

   OCI2013

   $

   (2.6)

   $

   (20.5)

   

   $

   1.5

   $

   (1.6)

   

   $

   (0.2)

   $

   (2.8)2012

   $

   (0.2)

   $

   (20.6)

   

   $

   (1.0)

   $

   (2.0)

   

   $

   0.2

   $

   (1.9)
  A reasonably possible weakening of 5% in the relevant foreign currency against the Canadian dollar would have an opposite impact on pre-tax income and OCI.  Interest rate risk Interest rate risk is defined as the Company’s exposure to a gain or a loss to the value of its financial instruments as a result of fluctuations in interest rates. The Company bears some interest rate fluctuation risk on its floating rate long-term debt and some fair value risk on its fixed interest long-term debt. The Company mainly manages interest rate risk by fixing project-specific floating rate debt in order to reduce cash flow variability. The Company has a floating rate debt through its revolving unsecured credit facility and other asset-specific floating rate debts. A mix of fixed and floating interest rate debt is sought to reduce the net impact of fluctuating interest rates. Derivative financial instruments used to synthetically convert interest rate exposures are mainly interest rate swap agreements.  As atMarch 31, 2013, the Company has entered into eight interest rate swap agreements with seven different financial institutions to mitigate these risks for a total notional value of $99.6 million (2012–$146.0 million). After considering these swap agreements, as atMarch 31, 2013, 81% (2012–77%) of the long-term debt bears fixed interest rates.  The Company’s interest rate hedging programs are typically unaffected by changes in market conditions, as related derivative financial instruments are generally held until their maturity to establish asset and liability management matching, consistent with the objective to reduce risks arising from interest rate movements. As a result, the changes in variable interest rates do not have a significant impact on net income and OCI.  Interest rate risk sensitivity analysis In fiscal 2013 and fiscal 2012, a 1% increase/decrease in interest rates would not have a significant impact on the Company’s net income and OCI assuming all other variables remained constant.  Share-based payments cost The Company has entered into equity swap agreements with a major Canadian financial institution to reduce its cash and income exposure to fluctuations in its share price relating to the DSU and LTI-DSU programs. Pursuant to the agreement, the Company receives the economic benefit of dividends and share price appreciation while providing payments to the financial institution for the institution’s cost of funds and any share price depreciation. The net effect of the equity swaps partly offset movements in the Company’s share price impacting the cost of the DSU and LTI-DSU programs and is reset quarterly. As atMarch 31, 2013, the equity swap agreements covered 2,706,816 common shares (2012–2,500,000) of the Company. Hedge of net investments in foreign operations As atMarch 31, 2013, the Company has designated a portion of its senior notes totalling US$417.8 million (2012–US$192.8 million) and a portion of the sale lease back obligation totalling US$17.9 million (2012–US$19.7 million) as a hedge of its net investments in foreign operations. Gains or losses on the translation of the designated portion of its senior notes are recognized in OCI to offset any foreign exchange gains or losses on translation of the financial statements of foreign operations. The Company determined that there is no concentration of risks arising from financial instruments and estimated that the information disclosed above is representative of its exposure to risk during the period.  60| CAE Year-End Financial Results 2013


---



Notes to the Consolidated Financial Statements
 Letters of credit and guarantees As atMarch 31, 2013, the Company had outstanding letters of credit and performance guarantees in the amount of $113.2 million (2012–$127.7 million) issued in the normal course of business. These guarantees are issued mainly under the Revolving Term Credit Facility as well as the Performance Securities Guarantee (PSG) account provided by Export Development Corporation (EDC) and under other standby facilities available to the Company through various financial institutions. The advance payment guarantees are related to progress/milestone payments made by the Company’s customers and are reduced or eliminated upon delivery of the product. The contract performance guarantees are linked to the completion of the intended product or service rendered by the Company and to the customer’s requirements. It represents 10% to 20% of the overall contract amount. The customer releases the Company from these guarantees at the signing of a certificate of completion. The letter of credit for the lease obligation provides credit support for the benefit of the owner participant in the September 30, 2003 sale and leaseback transaction and varies according to the payment schedule of the lease agreement.  (amounts in millions)

   

   

   

   2013

   

   

   2012Advance payment

   

   

   $

   59.0

   

   $

   80.1Contract performance

   

   

   

   14.7

   

   

   16.2Lease obligation

   

   

   

   24.5

   

   

   23.6Other

   

   

   

   15.0

   

   

   7.8$

   113.2

   

   $

   127.7
  Sale and leaseback transactions For certain sale and leaseback transactions, the Company has agreed to guarantee the residual value of the underlying equipment in the event that the equipment is returned to the lessor and the net proceeds of any eventual sale do not cover the guaranteed amount. The maximum amount of exposure is $14.5 million (2012–$13.1 million), of which $9.6 million matures in 2020 and $4.9 million in 2023. Of this amount, as atMarch 31, 2013, $12.4 million is recorded as a deferred gain (2012–$13.1 million).  Indemnifications In certain instances when the Company sells businesses, it may retain certain liabilities for known exposures and provide indemnification to the buyer with respect to future claims for certain unknown liabilities that exist, or arise from events occurring, prior to the sale date, including liabilities for taxes, legal matters, environmental exposures, product liability, and other obligations. The terms of the indemnifications vary in duration, from one to two years for certain types of indemnities, terms for tax indemnifications that are generally aligned to the applicable statute of limitations for the jurisdiction in which the divestiture occurred, and terms for environmental liabilities that typically do not expire. The maximum potential future payments that the Company could be required to make under these indemnifications are either contractually limited to a specified amount or unlimited. The Company believes that other than the liabilities already accrued, the maximum potential future payments that it could be required to make under these indemnifications are not determinable at this time, as any future payments would be dependent on the type and extent of the related claims, and all available defences, which cannot be estimated. However, historically, costs incurred to settle claims related to these indemnifications have not been material to the Company’s consolidated financial position, net income or cash flows.  CAE Year-End Financial Results 2013 |61


---



Notes to the Consolidated Financial Statements
 NOTE 32 – OPERATING SEGMENTS AND GEOGRAPHIC INFORMATION The Company elected to organize its businesses based principally on products and services.Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-maker.The Company manages operations through its five segments(see Note 1).  Results by segment The profitability measure employed by the Company for making decisions about allocating resources to segments and assessing segment performance is operating profit (hereinafter referred to as segment operating income). The accounting principles used to prepare the information by operating segments are the same as those used to prepare the Company’s consolidated financial statements. Transactions between operating segments are mainly simulator transfers from the SP/C segment to the TS/C segment, which are recorded at cost. The method used for the allocation of assets jointly used by operating segments and costs and liabilities jointly incurred (mostly corporate costs) between operating segments is based on the level of utilization when determinable and measurable, otherwise the allocation is based on a proportion of each segment’s cost of sales.  Year ended March 31, 2013(amounts in millions)

   

   TS/C

   

   

   SP/C

   

   

   Civil

   

   

   SP/M

   

   

   TS/M

   

   Military

   

   

   NCM

   

   

   TotalExternal revenue

   $

   755.6

   $

   402.4

   $

   1,158.0

   $

   561.6

   $

   272.8

   $

   834.4

   $

   112.1

   $

   2,104.5Depreciation and amortizationProperty, plant and equipment

   

   83.4

   

   4.6

   

   88.0

   

   8.4

   

   8.5

   

   16.9

   

   2.7

   

   107.6Intangible and other assets

   

   18.6

   

   4.0

   

   22.6

   

   6.9

   

   11.2

   

   18.1

   

   9.0

   

   49.7Write-downs and reversals ofwrite-downs of inventories

   

   -

   

   (0.4)

   

   (0.4)

   

   (0.2)

   

   -

   

   (0.2)

   

   0.4

   

   (0.2)Write-downs and reversals ofwrite-downs of accounts receivable

   

   3.3

   

   0.3

   

   3.6

   

   0.2

   

   -

   

   0.2

   

   0.4

   

   4.2Segment operating income

   

   121.5

   

   73.6

   

   195.1

   

   77.9

   

   35.2

   

   113.1

   

   6.4

   

   314.6Year ended March 31, 2012(amounts in millions)

   

   TS/C

   

   

   SP/C

   

   

   Civil

   

   

   SP/M

   

   

   TS/M

   

   Military

   

   

   NCM

   

   

   TotalExternal revenue

   $

   498.4

   $

   342.5

   $

   840.9

   $

   619.2

   $

   278.1

   $

   897.3

   $

   83.0

   $

   1,821.2Depreciation and amortizationProperty, plant and equipment

   

   67.7

   

   5.2

   

   72.9

   

   7.3

   

   10.3

   

   17.6

   

   1.8

   

   92.3Intangible and other assets

   

   13.6

   

   2.2

   

   15.8

   

   4.7

   

   7.8

   

   12.5

   

   5.2

   

   33.5Impairment and reversal of impairmentof non-financial assets (Note 21)

   

   0.5

   

   -

   

   0.5

   

   -

   

   -

   

   -

   

   4.8

   

   5.3Write-downs and reversals ofwrite-downs of inventories

   

   -

   

   -

   

   -

   

   -

   

   -

   

   -

   

   0.7

   

   0.7Write-downs and reversals ofwrite-downs of accounts receivable

   

   1.8

   

   0.2

   

   2.0

   

   0.9

   

   (0.1)

   

   0.8

   

   0.5

   

   3.3Segment operating income (loss)

   

   122.2

   

   51.6

   

   173.8

   

   101.2

   

   40.9

   

   142.1

   

   (13.8)

   

   302.1
  62| CAE Year-End Financial Results 2013


---



Notes to the Consolidated Financial Statements
  Operating profitThe following table provides a reconciliation between total segment operating income and operating profit:(amounts in millions)

   

   2013

   

   2012Total segment operating income

   $

   314.6

   $

   302.1Restructuring, integration and acquisition costs (Note 23)

   

   (68.9)

   

   -Operating profit

   $

   245.7

   $

   302.1
  Capital expenditures which consist of additions to non-current assets (other than financial instruments and deferred tax assets), by segment are as follows:(amounts in millions)

   

   

   

   2013

   

   

   2012TS/C

   

   

   $

   147.5

   

   $

   146.5SP/C

   

   

   

   25.3

   

   

   25.1SP/M

   

   

   

   31.3

   

   

   29.8TS/M

   

   

   

   17.9

   

   

   10.9NCM

   

   

   

   12.6

   

   

   8.5Total capital expenditures

   

   

   $

   234.6

   

   $

   220.8
  Assets and liabilities employed by segment The Company uses assets employed and liabilities employed to assess resources allocated to each segment. Assets employed include accounts receivable, contracts in progress, inventories, prepayments, property, plant and equipment, intangible assets including goodwill, derivative financial assets and other assets. Liabilities employed include accounts payable and accrued liabilities, provisions, contracts in progress, deferred gains and other non-current liabilities and derivative financial liabilities.  Assets and liabilities employed by segment are reconciled to total assets and liabilities as follows:(amounts in millions)

   

   

   

   2013

   

   

   2012Assets employedTS/C

   

   

   $

   1,824.9

   

   $

   1,334.0SP/C

   

   

   

   308.3

   

   

   275.3SP/M

   

   

   

   569.3

   

   

   518.0TS/M

   

   

   

   390.4

   

   

   359.2NCM

   

   

   

   249.4

   

   

   225.9Assets not included in assets employed

   

   

   

   536.4

   

   

   471.3Total assets

   

   

   $

   3,878.7

   

   $

   3,183.7Liabilities employedTS/C

   

   

   $

   273.3

   

   $

   161.0SP/C

   

   

   

   265.4

   

   

   236.2SP/M

   

   

   

   253.5

   

   

   247.6TS/M

   

   

   

   178.1

   

   

   178.0NCM

   

   

   

   50.2

   

   

   46.6Liabilities not included in liabilities employed

   

   

   

   1,723.7

   

   

   1,272.1Total liabilities

   

   

   $

   2,744.2

   

   $

   2,141.5
  CAE Year-End Financial Results 2013 |63


---



Notes to the Consolidated Financial Statements
  Geographic informationThe Company markets its products and services globally. Sales are attributed to countries based on the location of customers. Non-current assets other than financial instruments and deferred tax assets are attributed to countries based on the location of the assets.(amounts in millions)

   

   

   

   2013

   

   

   2012Revenue from external customersCanada

   

   

   $

   205.3

   

   $

   202.0United States

   

   

   

   622.9

   

   

   612.0United Kingdom

   

   

   

   236.5

   

   

   149.8Germany

   

   

   

   83.3

   

   

   121.9Netherlands

   

   

   

   52.1

   

   

   66.7Other European countries

   

   

   

   279.2

   

   

   205.9United Arab Emirates

   

   

   

   74.9

   

   

   55.5China

   

   

   

   154.4

   

   

   117.7Other Asian countries

   

   

   

   208.9

   

   

   139.6Australia

   

   

   

   99.1

   

   

   73.4Other countries

   

   

   

   87.9

   

   

   76.7$

   2,104.5

   

   $

   1,821.2
  (amounts in millions)

   

   

   2013

   

   2012Non-current assets other than financial instruments and deferred tax assetsCanada

   

   $

   459.0

   $

   410.8United States

   

   

   611.2

   

   577.8South America

   

   

   129.2

   

   102.4United Kingdom

   

   

   285.2

   

   255.6Spain

   

   

   43.4

   

   49.6Germany

   

   

   60.5

   

   61.4Belgium

   

   

   60.5

   

   64.7Luxembourg

   

   

   144.4

   

   -Netherlands

   

   

   75.1

   

   79.3Other European countries

   

   

   180.2

   

   72.1United Arab Emirates

   

   

   89.7

   

   81.7Other Asian countries

   

   

   209.9

   

   140.0Other countries

   

   

   59.7

   

   38.0$

   2,408.0

   $

   1,933.4
  64| CAE Year-End Financial Results 2013


---



Notes to the Consolidated Financial Statements
 NOTE 33 – related party relationships  The following table includes principal investments which significantly impact the results or assets of the Company:Investments in subsidiaries consolidated in the Company’s financial statements:% equity

   

   % equityAs at March 31

   

   interest

   

   interestName

   Country of incorporation

   2013

   20127320701 Canada Inc.

   Canada

   100.0%

   100.0%8218765 Canada Inc

   Canada

   100.0%

   -BGT BioGraphic Technologies Inc.

   Canada

   100.0%

   100.0%CAE (UK) PLC

   United Kingdom

   100.0%

   100.0%CAE (US) Inc.

   United States

   100.0%

   100.0%CAE (US) LLC

   United States

   100.0%

   100.0%CAE Aircrew Training Services PLC

   United Kingdom

   77.9%

   77.9%CAE Australia Pty Ltd.

   Australia

   100.0%

   100.0%CAE Aviation Training B.V.

   Netherlands

   100.0%

   100.0%CAE Aviation Training Chile Limitada

   Chile

   100.0%

   100.0%CAE Aviation Training International Ltd.

   Mauritius

   100.0%

   100.0%CAE Aviation Training Peru Inc.

   Peru

   100.0%

   100.0%CAE Beyss Grundstücksgesellschaft mbH

   Germany

   100.0%

   100.0%CAE Brunei Multi Purpose Training Centre Sdn Bhd

   Brunei

   60.0%

   60.0%CAE Center Amsterdam B.V.

   Netherlands

   100.0%

   100.0%CAE Center Brussels N.V.

   Belgium

   100.0%

   100.0%CAE China Support Services Company Limited

   China

   100.0%

   100.0%CAE Civil Aviation Training Solutions, Inc.

   United States

   100.0%

   100.0%CAE Delaware Buyco Inc.

   United States

   100.0%

   100.0%CAE Electronik GmbH

   Germany

   100.0%

   100.0%CAE Engineering Korlátolt Felelősségű Társaság

   Hungary

   100.0%

   100.0%CAE Euroco S.à r.l.

   Luxembourg

   100.0%

   100.0%CAE Flight & Simulator Services Sdn. Bhd.

   Malaysia

   100.0%

   100.0%CAE Flight Solutions USA Inc.

   United States

   100.0%

   100.0%CAE Flight Training Center Mexico, S.A. de C.V.

   Mexico

   100.0%

   100.0%CAE Flightscape Inc.

   Canada

   100.0%

   100.0%CAE Global Academy Évora, SA

   Portugal

   100.0%

   100.0%CAE Healthcare Canada Inc.

   Canada

   100.0%

   100.0%CAE Healthcare Inc.

   United States

   100.0%

   100.0%CAE Holdings B.V.

   Netherlands

   100.0%

   100.0%CAE Holdings Limited

   United Kingdom

   100.0%

   100.0%CAE India Private Limited

   India

   76.0%

   76.0%CAE International Capital Management Hungary LLC

   Hungary

   100.0%

   100.0%CAE International Holdings Limited

   Canada

   100.0%

   100.0%CAE Investments S.à r.l.

   Luxembourg

   100.0%

   100.0%CAE Labuan Inc.

   Malaysia

   100.0%

   100.0%CAE Luxembourg Acquisition, S.à r.l.

   Luxembourg

   100.0%

   -CAE Luxembourg Financing, S.à r.l.

   Luxembourg

   100.0%

   -CAE Management Luxembourg S.à r.l.

   Luxembourg

   100.0%

   100.0%CAE Mining Canada Inc.

   Canada

   100.0%

   100.0%CAE Mining Corporate Limited

   United Kingdom

   100.0%

   100.0%CAE Mining Holdings Inc.

   Canada

   100.0%

   100.0%CAE North East Training Inc.

   United States

   100.0%

   100.0%CAE Oxford Aviation Academy Amsterdam B.V.

   Netherlands

   100.0%

   100.0%CAE Oxford Aviation Academy Phoenix Inc.

   United States

   100.0%

   100.0%CAE Professional Services Australia Pty Ltd.

   Australia

   100.0%

   100.0%CAE Services (Canada) Inc.

   Canada

   100.0%

   100.0%CAE Services GmbH

   Germany

   100.0%

   100.0%CAE Services Italia S.r.l.

   Italy

   100.0%

   100.0%CAE Servicios Globales de Instrucción de Vuelo (España), S.L.

   Spain

   100.0%

   100.0%CAE Shanghai Company, Limited

   China

   100.0%

   -CAE SimuFlite Inc.

   United States

   100.0%

   100.0%CAE Simulation Technologies Private Limited

   India

   100.0%

   100.0%CAE Simulator Services Inc.

   Canada

   100.0%

   100.0%CAE Singapore (S.E.A.) Pte Ltd.

   Singapore

   100.0%

   100.0%CAE South America Flight Training do Brasil Ltda.

   Brazil

   100.0%

   100.0%CAE STS Limited

   United Kingdom

   100.0%

   100.0%CAE Training & Services Brussels NV

   Belgium

   100.0%

   100.0%CAE Training Aircraft B.V.

   Netherlands

   100.0%

   100.0%CAE Training Norway AS

   Norway

   100.0%

   100.0%CAE USA Inc.

   United States

   100.0%

   100.0%CAE Verwaltungsgesellschaft mbH

   Germany

   100.0%

   100.0%Engenuity Holdings (USA) Inc.

   United States

   100.0%

   100.0%Flight Simulator-Capital L.P.

   Canada

   100.0%

   100.0%Flight Training Device (Mauritius) Ltd.

   Mauritius

   100.0%

   100.0%GCAT Australia Pty Ltd.

   Australia

   100.0%

   -GCAT Flight Academy Germany GmbH

   Germany

   100.0%

   -GCAT Flight Academy Matla Ltd.

   Malta

   100.0%

   -International Flight School (Mauritius) Ltd.

   Mauritius

   100.0%

   100.0%Invertron Simulators PLC

   United Kingdom

   100.0%

   100.0%Kestrel Technologies Pte Ltd.

   Singapore

   100.0%

   100.0%Oxford Aviation Academy European Holdings AB

   Sweden

   100.0%

   -Oxford Aviation Academy Finance Ltd.

   Ireland

   100.0%

   -Oxford Aviation Academy Ireland Holdings Ltd.

   Ireland

   100.0%

   -Oxford Aviation Academy (Oxford) Ltd.

   United Kingdom

   100.0%

   -Oxford Aviation Academy Norway Holdings AS

   Norway

   100.0%

   -Oxford Aviation Academy UK Ltd.

   United Kingdom

   100.0%

   -Presagis Canada Inc.

   Canada

   100.0%

   100.0%Presagis Europe (S.A.)

   France

   100.0%

   100.0%Presagis USA Inc.

   United States

   100.0%

   100.0%Rotorsim USA LLC

   United States

   -

   100.0%Servicios de Instrucción de Vuelo, S.L.

   Spain

   80.0%

   80.0%Simubel N.V. (a CAE Aviation Training Company)

   Belgium

   100.0%

   100.0%Simulator Sevicios Mexico, S.A. de C.V.

   Mexico

   100.0%

   100.0%SIV Ops Training, S.L.

   Spain

   100.0%

   100.0%
  CAE Year-End Financial Results 2013 |65


---



Notes to the Consolidated Financial Statements
  Investments in joint ventures accounted for under the proportionate consolidation method:% equity

   

   % equityAs at March 31

   

   interest

   

   interestName

   Country of incorporation

   2013

   2012Asian Aviation Centre of Excellence Sdn. Bhd.

   Malaysia

   50.0%

   50.0%CAE Flight Training (India) Private Limited

   India

   50.0%

   50.0%CAE Japan Flight Training Inc.

   Japan

   51.0%

   51.0%CAE-Lider Training do Brasil Ltda.

   Brazil

   50.0%

   50.0%China Southern West Australia Flying College Pty Ltd.

   Australia

   47.1%

   47.1%Embraer CAE Training Services (UK) Limited

   United Kingdom

   49.0%

   49.0%Embraer CAE Training Services, LLC

   United States

   49.0%

   49.0%Emirates-CAE Flight Training LLC

   United Arab Emirates

   49.0%

   49.0%Hatsoff Helicopter Training Private Limited

   India

   50.0%

   50.0%Helicopter Training Media International GmbH

   Germany

   50.0%

   50.0%HFTS Helicopter Flight Training Services GmbH

   Germany

   25.0%

   25.0%National Flying Training Institute Private Limited

   India

   51.0%

   51.0%Philippine Academy for Aviation Training Inc.

   Philippine

   50.0%

   50.0%Rotorsim s.r.l.

   Italy

   50.0%

   50.0%Rotorsim USA LLC

   United States

   50.0%

   -Zhuhai Xiang Yi Aviation Technology Company Limited

   China

   49.0%

   49.0%
  66| CAE Year-End Financial Results 2013


---



Notes to the Consolidated Financial Statements
  Available-for-sale investment:% equity

   

   % equityAs at March 31

   Country of incorporation

   interest

   

   interestName

   

   2013

   2012CVS Leasing Limited

   United Kingdom

   13.4%

   13.4%The stated percentage of ownership is in relation to the Company’s ownership.
   NOTE 34 – Related Party Transactions The following table presents the Company’s outstanding balances with its joint ventures that are attributable to the interest of the other venturers specifically:  (amounts in millions)

   

   

   

   2013

   

   

   2012Accounts receivable (Note 5)

   

   

   $

   12.4

   

   $

   23.4Contracts in progress: assets

   

   

   

   20.8

   

   

   18.1Other assets

   

   

   

   9.4

   

   

   10.0Accounts payable and accrued liabilities (Note 10)

   

   

   

   12.6

   

   

   5.4Contracts in progress: liabilities

   

   

   

   4.8

   

   

   6.2
  The following table presents the Company’s transactions with its joint ventures that are attributable to the interest of the other venturers specifically:  (amounts in millions)

   

   

   

   2013

   

   

   2012Revenue from products and services

   

   

   $

   63.3

   

   $

   57.6Purchases of products and services, and other

   

   

   

   6.0

   

   

   6.7Other income transactions

   

   

   

   0.5

   

   

   9.8
  Other assets include an obligation under finance leases from a related party maturing in October 2022 and carrying an interest rate of5.14% per annum. There are no provisions held against any of the receivables from related parties as at March 31, 2013 (2012–nil).  In addition, during fiscal 2013, transactions amounting to $4.3 million (2012–$2.1 million) were made, at normal market prices, with organizations of which some of the Company’s directors are partners or officers.  Compensation of key management personnel Key management personnel have the ability and responsibility to make major operational, financial and strategic decisions for the Company and include certain executive officers. The compensation of key management for employee services is shown below:  (amounts in millions)

   

   

   

   2013

   

   

   2012Salaries and other short-term employee benefits

   

   

   $

   4.0

   

   $

   4.9Post-employment benefits

   

   

   

   2.0

   

   

   1.3Termination benefits

   

   

   

   -

   

   

   1.5Share-based payments

   

   

   

   2.4

   

   

   2.5$

   8.4

   

   $

   10.2