CAE Inc.

CONSOLIDATED FINANCIAL STATEMENTS

|                                                                                                  |   
|------------------------------------------------------------------------------------------------- | --
|MANAGEMENTS REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING                                  | 2 
|                                                                                                 
|INDEPENDENT AUDITORS REPORT                                                                      | 2 
|                                                                                                 
|CONSOLIDATED FINANCIAL STATEMENTS                                                                 | 3 
|Consolidated Balance Sheets                                                                       | 4 
|Consolidated Statements of Earnings                                                               | 5 
|Consolidated Statements of Changes in Shareholders Equity                                        | 5 
|Consolidated Statements of Comprehensive Income                                                   | 7 
|Consolidated Statement of Accumulated Other Comprehensive Loss                                    | 7 
|Consolidated Statements of Cash Flows                                                             | 8 
|                                                                                                 
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS                                                    | 9 
|Note 1  Nature of Operations and Significant Accounting Policies                                 | 9 
|Note 2  Changes in Accounting Policies                                                           | 17
|Note 3  Business Acquisitions and Combinations                                                   | 19
|Note 4  Investments in Joint Ventures                                                            | 20
|Note 5  Discontinued Operations                                                                  | 21
|Note 6  Accounts Receivable                                                                      | 22
|Note 7  Inventories                                                                              | 22
|Note 8  Property, Plant and Equipment                                                            | 23
|Note 9  Intangible Assets                                                                        | 23
|Note 10  Goodwill                                                                                | 24
|Note 11  Other Assets                                                                            | 24
|Note 12  Debt Facilities                                                                         | 25
|Note 13  Deferred Gains and Other Long-Term Liabilities                                          | 27
|Note 14  Income Taxes                                                                            | 28
|Note 15  Capital Stock                                                                           | 29
|Note 16  Stock-Based Compensation Plans                                                          | 30
|Note 17  Capital Management                                                                      | 32
|Note 18  Financial Instruments and Financial Risk Management                                     | 33
|Note 19  Supplementary Cash Flows and Earnings Information                                       | 41
|Note 20  Contingencies                                                                           | 41
|Note 21  Commitments                                                                             | 42
|Note 22  Government Cost-Sharing                                                                 | 42
|Note 23  Employee Future Benefits                                                                | 43
|Note 24  Variable Interest Entities                                                              | 47
|Note 25  Operating Segments and Geographic Information                                           | 48
|Note 26  Differences Between Canadian and United States Generally Accepted Accounting Principles | 50
|Note 27  Comparative Financial Statements                                                        | 58
|Note 28  Subsequent Events                                                                       | 58

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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 and 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, 2009, 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 Organization of the Treadway Commission. Based on this assessment, management concluded that the Companys internal control over financial reporting as of March 31, 2009 was effective.



| | Montreal (Canada)May 14, 2009
| | -----------------------------



| | Independent Auditors ReportTo the Shareholders of CAE Inc.
| | -----------------------------------------------------------

We have completed integrated audits of the consolidated financial statements and internal control over financial reporting of CAE Inc. (the Company) as at March 31, 2009, 2008 and 2007. Our opinions, based on our audits, are presented below.

Consolidated financial statements

We have audited the accompanying consolidated balance sheets of the Company as at March 31, 2009 and 2008, and the related consolidated statements of earnings, changes in shareholders equity, comprehensive income, accumulated other comprehensive loss and cash flows for each of the three years in the period ended March 31, 2009. These consolidated financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits of the Companys financial statements 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 an audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as at March 31, 2009 and 2008 and the results of its operations and its cash flows for each of the three years in the period ended March 31, 2009 in accordance with Canadian generally accepted accounting principles.

Internal control over financial reporting

We have also audited the Companys internal control over financial reporting as at March 31, 2009, based on criteria established inInternal Control - Integrated Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Companys management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on the effectiveness of 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 opinion.

2 | CAE Year-End Financial Results 2009

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A companys internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A companys internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the companys assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as at March 31, 2009 based on criteria established inInternal Control  Integrated Frameworkissued by the COSO.



|1Chartered accountant auditor permit No.12300
|---------------------------------------------



|Consolidated Financial Statements
|---------------------------------

CAE Year-End Financial Results 2009 | 3

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|                                                        |   |         |   |   |         |  
|------------------------------------------------------- | - | ------- | - | - | ------- | -
|Consolidated Financial Statements                       |   |         |   |   |         |  
|                                                       
|Consolidated Balance Sheets                             |   |         |   |   |         |  
|                                                       
|As at March 31                                          |   |         |   |   |         |  
|(amounts in millions of Canadian dollars)               |   | 2009    |   |   | 2008    |  
|                                                       
|Assets                                                  |   |         |   |   |         |  
|Current assets                                          |   |         |   |   |         |  
|Cash and cash equivalents                               | $ | 195.2   |   | $ | 255.7   |  
|Accounts receivable(Note 6)                             |   | 322.4   |   |   | 255.0   |  
|Inventories(Note 7)                                     |   | 334.2   |   |   | 229.9   |  
|Prepaid expenses                                        |   | 31.3    |   |   | 32.7    |  
|Income taxes recoverable                                |   | 11.5    |   |   | 39.0    |  
|Future income taxes(Note 14)                            |   | 5.3     |   |   | 14.1    |  
|                                                        | $ | 899.9   |   | $ | 826.4   |  
|Property, plant and equipment, net(Note 8)              |   | 1,302.4 |   |   | 1,046.8 |  
|Future income taxes(Note 14)                            |   | 86.0    |   |   | 64.3    |  
|Intangible assets(Note 9)                               |   | 77.1    |   |   | 62.0    |  
|Goodwill(Note 10)                                       |   | 159.1   |   |   | 115.5   |  
|Other assets(Note 11)                                   |   | 151.6   |   |   | 138.2   |  
|                                                        | $ | 2,676.1 |   | $ | 2,253.2 |  
|                                                       
|Liabilities and shareholders equity                    |   |         |   |   |         |  
|Current liabilities                                     |   |         |   |   |         |  
|Accounts payable and accrued liabilities                | $ | 540.4   |   | $ | 482.7   |  
|Deposits on contracts                                   |   | 203.8   |   |   | 209.3   |  
|Current portion of long-term debt(Note 12)              |   | 125.6   |   |   | 27.3    |  
|Future income taxes(Note 14)                            |   | 20.9    |   |   | 16.8    |  
|                                                        | $ | 890.7   |   | $ | 736.1   |  
|Long-term debt(Note 12)                                 |   | 354.7   |   |   | 352.5   |  
|Deferred gains and other long-term liabilities(Note 13) |   | 185.6   |   |   | 184.9   |  
|Future income taxes(Note 14)                            |   | 40.0    |   |   | 31.2    |  
|                                                        | $ | 1,471.0 |   | $ | 1,304.7 |  
|                                                       
|Shareholders equity                                    |   |         |   |   |         |  
|Capital stock(Note 15)                                  | $ | 430.2   |   | $ | 418.9   |  
|Contributed surplus                                     |   | 10.1    |   |   | 8.3     |  
|Retained earnings                                       |   | 813.3   |   |   | 644.5   |  
|Accumulated other comprehensive loss                    |   | (48.5   | ) |   | (123.2  | )
|                                                        | $ | 1,205.1 |   | $ | 948.5   |  
|                                                        | $ | 2,676.1 |   | $ | 2,253.2 |  

Contingencies and commitments (Notes 20 and 21)

The accompanying notes form an integral part of these Consolidated Financial Statements.

Approved by the Board:

4 | CAE Year-End Financial Results 2009

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|                                                                                         |   |                                   |   |   |         |   |   |         |  
|---------------------------------------------------------------------------------------- | - | --------------------------------- | - | - | ------- | - | - | ------- | -
|                                                                                         |   | Consolidated Financial Statements |  
|                                                                                        
|Consolidated Statements of Earnings                                                      |   |                                   |   |   |         |   |   |         |  
|                                                                                        
|Years ended March 31                                                                     |   |                                   |   |   |         |   |   |         |  
|(amounts in millions of Canadian dollars, except per share amounts)                      |   | 2009                              |   |   | 2008    |   |   | 2007    |  
|Revenue                                                                                  | $ | 1,662.2                           |   | $ | 1,423.6 |   | $ | 1,250.7 |  
|Earnings before interest and income taxes(Note 25)                                       | $ | 303.6                             |   | $ | 251.5   |   | $ | 189.4   |  
|Interest expense, net(Note 12)                                                           |   | 20.2                              |   |   | 17.5    |   |   | 10.6    |  
|Earnings before income taxes                                                             | $ | 283.4                             |   | $ | 234.0   |   | $ | 178.8   |  
|Income tax expense(Note 14)                                                              |   | 82.9                              |   |   | 69.2    |   |   | 49.7    |  
|Earnings from continuing operations                                                      | $ | 200.5                             |   | $ | 164.8   |   | $ | 129.1   |  
|Results of discontinued operations(Note 5)                                               |   | (1.1                              | ) |   | (12.1   | ) |   | (1.7    | )
|Net earnings                                                                             | $ | 199.4                             |   | $ | 152.7   |   | $ | 127.4   |  
|Basic and diluted earnings per share from continuing operations                          | $ | 0.79                              |   | $ | 0.65    |   | $ | 0.51    |  
|Basic earnings per share                                                                 | $ | 0.78                              |   | $ | 0.60    |   | $ | 0.51    |  
|Diluted earnings per share                                                               | $ | 0.78                              |   | $ | 0.60    |   | $ | 0.50    |  
|Weighted average number of shares outstanding (basic)(Note 15)                           |   | 254.8                             |   |   | 253.4   |   |   | 251.1   |  
|Weighted average number of shares outstanding (diluted)(Note 15)                         |   | 255.0                             |   |   | 254.6   |   |   | 253.0   |  
|                                                                                        
|The accompanying notes form an integral part of these Consolidated Financial Statements. |   |                                   |   |   |         |   |   |         |  

Consolidated Statements of Changes in Shareholders Equity

|                                                                   |             |   |               |   |             |   |   |          |   |   |               |   |   |               |  
|------------------------------------------------------------------ | ----------- | - | ------------- | - | ----------- | - | - | -------- | - | - | ------------- | - | - | ------------- | -
|Year ended March 31, 2009                                          |             |   |               |   |             |   |   |          |   |   |               |   |   |               |  
|(amounts in millions of Canadian dollars, except number of shares) |             |   |               |   |             |   |   |          |   |   |               |  
|                                                                   |             |   |               |   |             |   |   |          |   |   | Accumulated   |   |   |               |  
|                                                                   |             |   | Common Shares |   |             |   |   |          |   |   | Other         |   |   | Total         |  
|                                                                   | Number of   |   | Stated        |   | Contributed |   |   | Retained |   |   | Comprehensive |   |   | Shareholders |  
|                                                                   | Shares      |   | Value         |   | Surplus     |   |   | Earnings |   |   | Loss          |   |   | Equity        |  
|Balances,                                                          |             |   |               |   |             |   |   |          |   |   |               |   |   |               |  
|beginning of year                                                  | 253,969,836 | $ | 418.9         | $ | 8.3         |   | $ | 644.5    |   | $ | (123.2        | ) | $ | 948.5         |  
|Stock options exercised                                            | 1,077,200   |   | 9.3           |   |            |   |   |         |   |   |              |   |   | 9.3           |  
|Transfer upon exercise of                                          |             |   |               |   |             |   |   |          |   |   |               |   |   |               |  
|stock options                                                      |            |   | 1.0           |   | (1.0        | ) |   |         |   |   |              |   |   |              |  
|Stock dividends                                                    | 99,407      |   | 1.0           |   |            |   |   | (1.0     | ) |   |              |   |   |              |  
|Stock-based                                                        |             |   |               |   |             |   |   |          |   |   |               |   |   |               |  
|compensation(Note 16)                                              |            |   |              |   | 2.8         |   |   |         |   |   |              |   |   | 2.8           |  
|Net earnings                                                       |            |   |              |   |            |   |   | 199.4    |   |   |              |   |   | 199.4         |  
|Dividends                                                          |            |   |              |   |            |   |   | (29.6    | ) |   |              |   |   | (29.6         | )
|Other comprehensive                                                |             |   |               |   |             |   |   |          |   |   |               |   |   |               |  
|income                                                             |            |   |              |   |            |   |   |         |   |   | 74.7          |   |   | 74.7          |  
|Balances,                                                          |             |   |               |   |             |   |   |          |   |   |               |   |   |               |  
|end of year                                                        | 255,146,443 | $ | 430.2         | $ | 10.1        |   | $ | 813.3    |   | $ | (48.5         | ) | $ | 1,205.1       |  

The total ofRetained earningsandAccumulated other comprehensive lossfor the year ended March 31, 2009 was $764.8 million (2008 $521.3 million; 2007  $422.5 million).

The accompanying notes form an integral part of these Consolidated Financial Statements.

CAE Year-End Financial Results 2009 | 5

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|                                                                                         |             |   |               |   |             |   |   |          |       |   |               |             |   |               |       |  
|---------------------------------------------------------------------------------------- | ----------- | - | ------------- | - | ----------- | - | - | -------- | ----- | - | ------------- | ----------- | - | ------------- | ----- | -
|Consolidated Financial Statements                                                        |             |   |               |   |             |   |   |          |       |   |               |             |   |               |      
|                                                                                        
|Year ended March 31, 2008                                                                |             |   |               |   |             |   |   |          |       |   |               |             |   |               |       |  
|(amounts in millions of Canadian dollars, except number of shares)                       |             |   |               |   |             |   |   |          |       |   |               |             |  
|                                                                                         |             |   |               |   |             |   |   |          |       |   |               | Accumulated |   |               |       |  
|                                                                                         |             |   | Common Shares |   |             |   |   |          |       |   |               | Other       |   |               | Total |  
|                                                                                         | Number of   |   | Stated        |   | Contributed |   |   | Retained |       |   | Comprehensive |             |   | Shareholders |      
|                                                                                         | Shares      |   | Value         |   | Surplus     |   |   | Earnings |       |   | Loss          |             |   | Equity        |      
|Balances,                                                                                |             |   |               |   |             |   |   |          |       |   |               |             |   |               |       |  
|beginning of year                                                                        | 251,960,449 | $ | 401.7         | $ | 5.7         |   | $ | 510.2    |       | $ | (87.7         | )           | $ | 829.9         |      
|Shares issued                                                                            | 169,851     |   | 0.8           |   |            |   |   |          |      |   |               |            |   |               | 0.8   |  
|Stock options exercised                                                                  | 1,814,095   |   | 13.9          |   |            |   |   |          |      |   |               |            |   |               | 13.9  |  
|Transfer upon exercise of                                                                |             |   |               |   |             |   |   |          |       |   |               |             |   |               |       |  
|stock options                                                                            |            |   | 2.2           |   | (2.2        | ) |   |          |      |   |               |            |   |               |      |  
|Stock dividends                                                                          | 25,441      |   | 0.3           |   |            |   |   |          | (0.3  | ) |               |            |   |               |      |  
|Stock-based                                                                              |             |   |               |   |             |   |   |          |       |   |               |             |   |               |       |  
|compensation(Note 16)                                                                    |            |   |              |   | 4.8         |   |   |          |      |   |               |            |   |               | 4.8   |  
|Cumulative effect of                                                                     |             |   |               |   |             |   |   |          |       |   |               |             |   |               |       |  
|implementing                                                                             |             |   |               |   |             |   |   |          |       |   |               |             |   |               |       |  
|accounting standards                                                                     |             |   |               |   |             |   |   |          |       |   |               |             |   |               |       |  
|(Note 2)                                                                                 |            |   |              |   |            |   |   |          | (8.3  | ) |               | (3.5        | ) |               | (11.8 | )
|Net earnings                                                                             |            |   |              |   |            |   |   |          | 152.7 |   |               |            |   |               | 152.7 |  
|Dividends                                                                                |            |   |              |   |            |   |   |          | (9.8  | ) |               |            |   |               | (9.8  | )
|Other comprehensive loss                                                                 |            |   |              |   |            |   |   |          |      |   |               | (32.0       | ) |               | (32.0 | )
|Balances,                                                                                |             |   |               |   |             |   |   |          |       |   |               |             |   |               |       |  
|end of year                                                                              | 253,969,836 | $ | 418.9         | $ | 8.3         |   | $ | 644.5    |       | $ | (123.2        | )           | $ | 948.5         |      
|                                                                                        
|Year ended March 31, 2007                                                                |             |   |               |   |             |   |   |          |       |   |               |             |   |               |       |  
|(amounts in millions of Canadian dollars, except number of shares)                       |             |   |               |   |             |   |   |          |       |   |               |             |  
|                                                                                         |             |   |               |   |             |   |   |          |       |   |               | Accumulated |   |               |       |  
|                                                                                         |             |   | Common Shares |   |             |   |   |          |       |   |               | Other       |   |               | Total |  
|                                                                                         | Number of   |   | Stated        |   | Contributed |   |   | Retained |       |   | Comprehensive |             |   | Shareholders |      
|                                                                                         | Shares      |   | Value         |   | Surplus     |   |   | Earnings |       |   | Loss          |             |   | Equity        |      
|Balances,                                                                                |             |   |               |   |             |   |   |          |       |   |               |             |   |               |       |  
|beginning of year                                                                        | 250,702,430 | $ | 389.0         | $ | 5.6         |   | $ | 392.8    |       | $ | (115.2        | )           | $ | 672.2         |      
|Stock options exercised                                                                  | 1,236,895   |   | 10.0          |   |            |   |   |          |      |   |               |            |   |               | 10.0  |  
|Transfer upon exercise of                                                                |             |   |               |   |             |   |   |          |       |   |               |             |   |               |       |  
|stock options                                                                            |            |   | 2.5           |   | (2.5        | ) |   |          |      |   |               |            |   |               |      |  
|Stock dividends                                                                          | 21,124      |   | 0.2           |   |            |   |   |          | (0.2  | ) |               |            |   |               |      |  
|Stock-based                                                                              |             |   |               |   |             |   |   |          |       |   |               |             |   |               |       |  
|compensation(Note 16)                                                                    |            |   |              |   | 2.6         |   |   |          |      |   |               |            |   |               | 2.6   |  
|Net earnings                                                                             |            |   |              |   |            |   |   |          | 127.4 |   |               |            |   |               | 127.4 |  
|Dividends                                                                                |            |   |              |   |            |   |   |          | (9.8  | ) |               |            |   |               | (9.8  | )
|Other comprehensive                                                                      |             |   |               |   |             |   |   |          |       |   |               |             |   |               |       |  
|income                                                                                   |            |   |              |   |            |   |   |          |      |   |               | 27.5        |   |               | 27.5  |  
|Balances,                                                                                |             |   |               |   |             |   |   |          |       |   |               |             |   |               |       |  
|end of year                                                                              | 251,960,449 | $ | 401.7         | $ | 5.7         |   | $ | 510.2    |       | $ | (87.7         | )           | $ | 829.9         |      
|                                                                                        
|The accompanying notes form an integral part of these Consolidated Financial Statements. |             |   |               |   |             |   |   |         

6 | CAE Year-End Financial Results 2009

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|                                                                                         |   |             |   |   |                                   |   |   |               |   |  |       |  
|---------------------------------------------------------------------------------------- | - | ----------- | - | - | --------------------------------- | - | - | ------------- | - |  | ----- | -
|                                                                                         |   |             |   |   | Consolidated Financial Statements |  
|                                                                                        
|Consolidated Statements of Comprehensive Income                                          |   |             |   |   |                                   |   |   |               |   | 
|                                                                                        
|Years ended March 31                                                                     |   |             |   |   |                                   |   |   |               |   |  |       |  
|(amounts in millions of Canadian dollars)                                                |   |             |   |   | 2009                              |   |   | 2008          |   |  | 2007  |  
|Net earnings                                                                             | $ | 199.4       |   | $ | 152.7                             |   | $ | 127.4         |  
|Other comprehensive income (loss), net of income taxes:                                  |   |             |   |   |                                   |   |   |               |   |  |       |  
|Foreign currency translation adjustment                                                  |   |             |   |   |                                   |   |   |               |   |  |       |  
|Net foreign exchange gains (losses) on translation of                                    |   |             |   |   |                                   |   |   |               |   |  |       |  
|financial statements of self-sustaining foreign operations                               | $ | 113.3       |   | $ | (50.2                             | ) | $ | 26.1          |  
|Net change in (losses) gains on certain long-term debt                                   |   |             |   |   |                                   |   |   |               |   |  |       |  
|denominated in foreign currency and designated as                                        |   |             |   |   |                                   |   |   |               |   |  |       |  
|hedges on net investments of self-sustaining foreign                                     |   |             |   |   |                                   |   |   |               |   |  |       |  
|operations                                                                               |   |             |   |   | (7.7                              | ) |   | 15.7          |   |  | 1.5   |  
|Reclassifications to income                                                              |   |             |   |   | (1.9                              | ) |   |              |   |  |      |  
|Income tax adjustment                                                                    |   |             |   |   | (1.3                              | ) |   | (0.6          | ) |  | (0.1  | )
|                                                                                         | $ | 102.4       |   | $ | (35.1                             | ) | $ | 27.5          |  
|Net changes in cash flow hedge                                                           |   |             |   |   |                                   |   |   |               |   |  |       |  
|Net change in (losses) gains on derivative items designated                              |   |             |   |   |                                   |   |   |               |   |  |       |  
|as hedges of cash flows                                                                  | $ | (48.8       | ) | $ | 29.7                              |   |   | $            |  
|Reclassifications to income or to the related                                            |   |             |   |   |                                   |   |   |               |   |  |       |  
|non-financial assets or liabilities                                                      |   |             |   |   | 10.4                              |   |   | (25.2         | ) |  |      |  
|Income tax adjustment                                                                    |   |             |   |   | 10.7                              |   |   | (1.4          | ) |  |      |  
|                                                                                         | $ | (27.7       | ) | $ | 3.1                               |   |   | $            |  
|Total other comprehensive income (loss)                                                  | $ | 74.7        |   | $ | (32.0                             | ) | $ | 27.5          |  
|Comprehensive income                                                                     | $ | 274.1       |   | $ | 120.7                             |   | $ | 154.9         |  
|                                                                                        
|The accompanying notes form an integral part of these Consolidated Financial Statements. |   |             |   |   |                                   |   |   |               |   | 
|                                                                                        
|Consolidated Statement of Accumulated Other Comprehensive Loss                           |   |             |   |  
|                                                                                        
|                                                                                         |   | Foreign     |   |   |                                   |   |   | Accumulated   |  
|                                                                                         |   | Currency    |   |   |                                   |   |   |               |   |  | Other |  
|As at and for the year ended March 31, 2009                                              |   | Translation |   |   | Cash Flow                         |   |   | Comprehensive |  
|(amounts in millions of Canadian dollars)                                                |   | Adjustment  |   |   | Hedge                             |   |   |               |   |  | Loss  |  
|Balance in accumulated other comprehensive                                               |   |             |   |   |                                   |   |   |               |   |  |       |  
|loss at beginning of year                                                                | $ | (122.8      | ) | $ | (0.4                              | ) | $ | (123.2        | )
|Details of other comprehensive loss:                                                     |   |             |   |   |                                   |   |   |               |   |  |       |  
|Net change in gains (losses)                                                             |   | 105.6       |   |   | (48.8                             | ) |   |               |   |  | 56.8  |  
|Reclassifications to income or to the related                                            |   |             |   |   |                                   |   |   |               |   |  |       |  
|non-financial assets or liabilities                                                      |   | (1.9        | ) |   | 10.4                              |   |   |               |   |  | 8.5   |  
|Income tax adjustment                                                                    |   | (1.3        | ) |   | 10.7                              |   |   |               |   |  | 9.4   |  
|Total other comprehensive income for the year                                            | $ | 102.4       |   | $ | (27.7                             | ) | $ | 74.7          |  
|Balance in accumulated other comprehensive                                               |   |             |   |   |                                   |   |   |               |   |  |       |  
|loss at end of year                                                                      | $ | (20.4       | ) | $ | (28.1                             | ) | $ | (48.5         | )
|                                                                                        
|The accompanying notes form an integral part of these Consolidated Financial Statements. |   |             |   |   |                                   |   |   |               |   | 

CAE Year-End Financial Results 2009 | 7

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|                                                                                         |   |        |   |   |        |   |   |        |  
|---------------------------------------------------------------------------------------- | - | ------ | - | - | ------ | - | - | ------ | -
|Consolidated Financial Statements                                                        |   |        |   |   |        |   |   |        |  
|                                                                                        
|Consolidated Statements of Cash Flows                                                    |   |        |   |   |        |   |   |        |  
|                                                                                        
|Years ended March 31                                                                     |   |        |   |   |        |   |   |        |  
|(amounts in millions of Canadian dollars)                                                |   | 2009   |   |   | 2008   |   |   | 2007   |  
|Operating activities                                                                     |   |        |   |   |        |   |   |        |  
|Net earnings                                                                             | $ | 199.4  |   | $ | 152.7  |   | $ | 127.4  |  
|Results of discontinued operations(Note 5)                                               |   | 1.1    |   |   | 12.1   |   |   | 1.7    |  
|Earnings from continuing operations                                                      | $ | 200.5  |   | $ | 164.8  |   | $ | 129.1  |  
|Adjustments to reconcile earnings to cash flows from operating activities:               |   |        |   |   |        |   |   |        |  
|Depreciation                                                                             |   | 71.3   |   |   | 60.6   |   |   | 55.0   |  
|Financing cost amortization                                                              |   | 0.8    |   |   | 0.8    |   |   | 0.8    |  
|Amortization and write down of intangible and other assets                               |   | 19.7   |   |   | 16.9   |   |   | 15.8   |  
|Future income taxes (Note 14)                                                            |   | 8.0    |   |   | 26.4   |   |   | (14.2  | )
|Investment tax credits                                                                   |   | 19.9   |   |   | 15.4   |   |   | 19.3   |  
|Stock-based compensation plans (Note 16)                                                 |   | (11.5  | ) |   | (0.8   | ) |   | 24.6   |  
|Employee future benefits, net (Note 23)                                                  |   | 0.4    |   |   | 0.1    |   |   | (0.9   | )
|Amortization of other long-term liabilities                                              |   | (9.6   | ) |   | (6.8   | ) |   | (7.8   | )
|Other                                                                                    |   | (9.4   | ) |   | (0.8   | ) |   | (2.6   | )
|Changes in non-cash working capital (Note 19)                                            |   | (94.6  | ) |   | (15.7  | ) |   | 20.2   |  
|Net cash provided by operating activities                                                | $ | 195.5  |   | $ | 260.9  |   | $ | 239.3  |  
|Investing activities                                                                     |   |        |   |   |        |   |   |        |  
|Business acquisitions (net of cash and cash equivalents acquired)(Note 3)                | $ | (41.5  | ) | $ | (41.8  | ) | $ | (4.4   | )
|Proceeds from the disposal of discontinued operations (net of cash and                   |   |        |   |   |        |   |   |        |  
|cash equivalents disposed)(Note 5)                                                       |   |       |   |   |       |   |   | (3.8   | )
|Capital expenditures                                                                     |   | (203.7 | ) |   | (189.5 | ) |   | (158.1 | )
|Deferred development costs                                                               |   | (10.5  | ) |   | (16.5  | ) |   | (3.0   | )
|Deferred pre-operating costs                                                             |   | (1.8   | ) |   | (3.9   | ) |   | (5.9   | )
|Other                                                                                    |   | (5.0   | ) |   | (5.5   | ) |   | (2.9   | )
|Net cash used in investing activities                                                    | $ | (262.5 | ) | $ | (257.2 | ) | $ | (178.1 | )
|Financing activities                                                                     |   |        |   |   |        |   |   |        |  
|Net borrowing under revolving unsecured credit facilities(Note 12)                       |   | $     |   |   | $     |   | $ | (0.6   | )
|Proceeds from long-term debt, net of transaction costs and debt basis                    |   |        |   |   |        |   |   |        |  
|adjustment(Note 12)                                                                      |   | 50.3   |   |   | 141.1  |   |   | 45.8   |  
|Repayment of long-term debt(Note 12)                                                     |   | (27.8  | ) |   | (37.4  | ) |   | (39.8  | )
|Dividends paid                                                                           |   | (29.6  | ) |   | (9.8   | ) |   | (9.8   | )
|Common stock issuance(Note 15)                                                           |   | 9.3    |   |   | 13.9   |   |   | 10.0   |  
|Other                                                                                    |   | (13.4  | ) |   | (5.9   | ) |   | (2.1   | )
|Net cash (used in) provided by financing activities                                      | $ | (11.2  | ) | $ | 101.9  |   | $ | 3.5    |  
|Effect of foreign exchange rate changes on cash and cash equivalents                     | $ | 17.7   |   | $ | (0.1   | ) | $ | 4.4    |  
|Net (decrease) increase in cash and cash equivalents                                     | $ | (60.5  | ) | $ | 105.5  |   | $ | 69.1   |  
|Cash and cash equivalents at beginning of year                                           |   | 255.7  |   |   | 150.2  |   |   | 81.1   |  
|Cash and cash equivalents at end of year                                                 | $ | 195.2  |   | $ | 255.7  |   | $ | 150.2  |  
|                                                                                        
|Supplementary Cash Flows Information (Note 19)                                           |   |        |   |   |        |   |   |        |  
|The accompanying notes form an integral part of these Consolidated Financial Statements. |   |        |   |   |        |   |   |        |  

8 | CAE Year-End Financial Results 2009

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Notes to the Consolidated Financial Statements

Years ended March 31, 2009, 2008 and 2007 (amounts in millions of Canadian dollars)

NOTE 1  NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIESNature of operations

CAE Inc. (or the Company) designs, manufactures and supplies simulation equipment and services and develops integrated training solutions for the military, commercial airlines, business aircraft operators and aircraft manufacturers. 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 full 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 four segments:

|(i)   | Simulation Products/Civil  Designs, manufactures and supplies civil flight simulators, training devices and visual systems;                                
|----- | ------------------------------------------------------------------------------------------------------------------------------------------------------------
|(ii)  | Simulation Products/Military  Designs, manufactures and supplies advanced military training equipment and software tools for air forces, armies and navies;
|(iii) | Training & Services/Civil  Provides business and commercial aviation training for all flight and ground personnel and all associated services;             
|(iv)  | Training & Services/Military  Supplies turnkey training services, support services, systems maintenance and modelling and simulation solutions.            

Generally accepted accounting principles and financial statements presentation

The Companys accounting policies and those of its subsidiaries conform, in all material respects, to Canadian generally accepted accounting principles (GAAP), as defined by the Canadian Institute of Chartered Accountants (CICA). In some respects, these accounting principles differ from United States generally accepted accounting principles (U.S. GAAP). The main differences are described in Note 26.

Except where otherwise indicated, all amounts in these consolidated financial statements are expressed in Canadian dollars.

Use of estimates

The preparation of consolidated financial statements in conformity with GAAP requires CAEs management (management) to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and reported amounts of revenues and expenses for the period reported. Management reviews its estimates on an ongoing basis, particularly as they relate to accounting of long-term contracts, useful lives, employee future benefits, income taxes, impairment of long-lived assets, fair value of certain financial instruments, goodwill and intangibles, based on managements best knowledge of current events and actions that the Company may undertake in the future. Actual results could differ from those estimates; significant changes in estimates and/or assumptions could result in the impairment of certain assets.

Basis of consolidation

The consolidated financial statements include the accounts of CAE Inc. and of all its majority-owned subsidiaries, and variable interest entities for which the Company is the primary beneficiary. They also include the Companys proportionate share of assets, liabilities and earnings of joint ventures in which the Company has an interest (refer to Note 4). All significant intercompany accounts and transactions have been eliminated. The investment over which the Company exercises significant influence is accounted for using the equity method and the portfolio investment is accounted at fair value unless there is no readily available market value.

The Company adheres to the principles of Accounting Guideline-15 (AcG-15), Consolidation of Variable Interest Entities, to determine if variable interest entities would be consolidated into the accounts of CAE Inc. AcG-15 requires the consolidation of a variable interest entity (VIE) (a party with an ownership, contractual or other financial interest) when a variable interest holder is exposed to a majority of the risk of loss from the VIEs activities, is entitled to receive a majority of the VIEs residual returns (if no party is exposed to a majority of the VIEs losses), or both (the primary beneficiary). Upon consolidation, the primary beneficiary must initially record all of the VIEs assets, liabilities and non-controlling interests at fair value at the date the enterprise became the primary beneficiary. However, for VIEs created prior to the adoption of AcG-15 on January 1, 2005, the assets, liabilities and non-controlling interests of these entities must be initially consolidated as if the entities were always consolidated based on the majority voting interest. The Company revises its determination of the accounting for VIEs when certain events occur, such as changes in governing documents or contractual arrangements. Refer to Note 24 for additional information.

CAE Year-End Financial Results 2009 | 9

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|Notes to the Consolidated Financial StatementsRevenue recognitionLong-term contracts
|------------------------------------------------------------------------------------

Revenue from long-term contracts for the design, engineering and manufacturing of flight simulators is recognized using the percentage-of-completion method when there is persuasive evidence of an arrangement, when the fee is fixed or determinable and when collection is reasonably certain.

Under this method, revenue and earnings are 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. Recognized revenues and margins are subject to revisions as the contract progresses to completion. 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 cumulative impact of any revisions in cost and earning estimates are reflected in the period in which the need for a revision becomes known. Provisions for estimated contract losses, if any, 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. Generally, no right of return or complementary upgrade is provided to customers. Post-delivery customer support is billed separately, and revenue is recognized over the support period.

Multiple-element arrangements

The Company sometimes enters into multiple-element revenue arrangements, which may include a combination of design, engineering and manufacturing of flight simulators, spare parts and maintenance. A multiple-element arrangement is separated into more than one unit of accounting, and applicable revenue recognition criteria are considered separately for the different units of accounting if all of the following criteria are met:

|(i)   | The delivered item has value to the customer on a stand-alone basis;                                                                                                                                       
|----- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(ii)  | There is objective and reliable evidence of the fair value of the undelivered item (or items);                                                                                                             
|(iii) | If the arrangement includes a general right of return related to the delivered item, delivery or performance of the undelivered item is considered probable and substantially in the control of the vendor.

The allocation of the revenue from a multiple deliverable agreement is based on fair value of an undelivered item as evidenced by the price of the item regularly charged by the Company on an individual basis or on other basis covered by the concept of vendor-specific objective evidence as presented in the Statement of Position (SOP) 97-2,Software Revenue Recognition, issued by the American Institute of Certified Public Accountants. The Company does enter into stand-alone transactions on a regular basis in regards to the sale of spare parts and maintenance arrangements, therefore the price charged when the elements are sold separately is readily available. The process for determining fair value of undelivered items, with respect to the design, engineering and manufacturing of flight simulators, entails evaluating each transaction and taking into account the unique features of each deal.

The applicable revenue recognition criteria for the separated units of accounting in regards to the individual design, engineering and manufacturing of flight simulators, spare parts and maintenance elements are described below.

Product maintenance

Revenue from maintenance contracts is recognized in earnings on a straight-line method over the contract period. In situations when it is clear that costs will be incurred by using a basis other than a straight-line method, based on historical evidence, revenue is recognized over the contract period in proportion to the costs expected to be incurred in performing services under the contract.

Spare parts

Revenue from the sale of spare parts is recognized when there is persuasive evidence of an arrangement, delivery has occurred, the fee is fixed or determinable and collection is reasonably assured.

Software arrangements

The Company also enters into software arrangements to sell, independently or in multiple-element arrangements, stand-alone software, services, maintenance and software customization. Revenue from software arrangements is recognized in accordance with the guidance set out in SOP 97-2 as described in more detail as follows:

|(i)   | Stand-alone products                                                                                                                                                                                                                                                                               
|----- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|      | Revenue from software license arrangements that do not require significant production, modification, or customization of software, is recognized when there is persuasive evidence of an arrangement, delivery has occurred, the fee is fixed or determinable and collection is reasonably assured.
|(ii)  | Consulting services                                                                                                                                                                                                                                                                                
|      | Revenues arising from direct consulting or training services that are provided to customers are recognized as the services are rendered.                                                                                                                                                           
|(iii) | Maintenance                                                                                                                                                                                                                                                                                        
|      | Maintenance and support revenues are recognized ratably over the term of the related agreements.                                                                                                                                                                                                   
|(iv)  | Multiple-element arrangements                                                                                                                                                                                                                                                                      
|      | The Company sometimes enters into multiple-element revenue software arrangements, which may include any combination of software, services or training, customization and maintenance. In such instances, the fee is allocated to the various elements as previously described.                     
|(v)   | Long-term software arrangements                                                                                                                                                                                                                                                                    
|      | Revenues from fixed-price software arrangements and software customization contracts that require significant production,                                                                                                                                                                          
|10    | | CAE Year-End Financial Results 2009                                                                                                                                                                                                                                                              

---





|Notes to the Consolidated Financial Statements
|----------------------------------------------

modification, or customization of software are also recognized under the percentage-of-completion method.

Training services

Training services are recognized when persuasive evidence of an arrangement exists, the fee is fixed or determinable, recovery is reasonably certain and the services have been rendered.

For flight schools, the cadet training courses are offered mainly by way of ground school and live aircraft flight. During the ground school phase, revenue is recognized in earnings on a straight-line basis, while during the live aircraft flight phase, revenue is recognized based on actual flown flight hours.

Foreign currency translation

Self-sustaining foreign operations

Assets and liabilities of self-sustaining foreign operations are translated at exchange rates in effect at the balance sheet date and revenue and expenses are translated at the average exchange rates for the period. Foreign exchange gains or losses arising from the translation into Canadian dollars are included in accumulated other comprehensive loss, which have a separate component of shareholders equity.

Amounts related to foreign currency translation in accumulated other comprehensive loss are released to the consolidated statement of earnings when the Company reduces its overall net investment in foreign operations by way of a reduction in capital or through the settlement of long-term intercompany balances, which have been considered part of the Companys overall net investment.

Foreign currency operations

Monetary assets and liabilities denominated in currencies other than the functional currency are translated at the prevailing exchange rate at the balance sheet date. Non-monetary assets and liabilities denominated in currencies other than the functional currency and revenue and expense items are translated into the functional currency using the exchange rate prevailing at the dates of the respective transactions. Translation gains or losses are included in the determination of earnings, except those 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 of self-sustaining foreign operations which are included in accumulated other comprehensive loss.

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 date of purchase.

Accounts receivable

Receivables are carried at amortized cost using the effective interest method, net of a provision for doubtful accounts, based on expected recoverability. The Company is involved in a program under which it sells certain of its accounts receivable to a third party for a cash consideration without recourse to the Company. These transactions are accounted for when the Company is considered to have surrendered control over the transferred accounts receivable. Losses and gains on these transactions are recognized in net earnings.

Inventories

Long-term contract inventories (unbilled sales [UBS]) resulting from applying the percentage-of-completion method to account for revenues for most of the Companys long-term contracts are included as part of inventories and consist of materials, direct labour, relevant manufacturing overhead, and estimated contract margins.

Work in progress is stated at the lower of cost specific identification and net realizable value. The cost of work in progress includes material, labour, and an allocation of manufacturing overhead, based on normal operating capacity but excludes capitalized borrowing costs.

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 specific identification and net realizable value.

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, replacement cost is generally the best measure of net realizable value.

Long-lived assets

Property, plant and equipment and amortization

Property, plant and equipment are recorded at cost less accumulated depreciation, net of any impairment charges. The declining balance and straight-line methods are used to calculate amortization over the estimated useful lives of the assets as follows:

|                          |                                   |                            
|------------------------- | --------------------------------- | ---------------------------
|                          | Method                            | Rates / Years              
|Building and improvements | Declining balance / Straight line | 2.5 to 10% / 10 to 20 years
|Simulators                | Straight-line (10% residual)      | Not exceeding 25 years     
|Machinery and equipment   | Declining balance / Straight line | 20 to 35% / 3 to 10 years  
|Aircraft                  | Straight-line (15% residual)      | Not exceeding 12 years     
|Aircraft engines          | Based on utilization              | Not exceeding 3,000 hours  

CAE Year-End Financial Results 2009 | 11

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|Notes to the Consolidated Financial StatementsAsset retirement obligations
|--------------------------------------------------------------------------

Asset retirement obligations are recognized in the period in which the Company incurs a legal obligation associated to the retirement of an asset. The obligation is measured initially at fair value discounted to its present value using a credit-adjusted risk-free interest rate, and the resulting costs are capitalized into the carrying value of the related assets. The associated liability is accreted to the estimated fair value of the obligation at the settlement date through periodic accretion charges to earnings. Costs related to asset retirement obligations are depreciated over the remaining useful life of the underlying asset.

The Company has a known conditional asset retirement obligation which is the asbestos remediation activities to be performed in the future, that is not reasonably estimable due to insufficient information about the timing and method of settlement of the obligation. Accordingly, this obligation has not been recorded in the consolidated financial statements because the fair value cannot be reasonably estimated. A liability for this obligation will be recorded in the period when sufficient information regarding timing and method of settlement becomes available to make a reasonable estimate of the liabilitys fair value.

Leases

The Company enters into leases in which substantially all the benefits and risks of ownership transferred to the Company are recorded as capital leases and classified as property, plant and equipment and long-term borrowings. All other leases are classified as operating leases under which leasing costs are expensed in the period in which they are incurred and straight-line over the terms of the lease. Gains, net of transaction costs, related to the sale and leaseback of simulators are deferred and the net gains in excess of the residual value guarantees are amortized over the term of the lease. When at the time of the sale and leaseback transactions, the fair value of the asset is less than the carrying value, the difference is recognized as a loss in the Companys net earnings immediately. The residual value guarantees are ultimately recognized in the Companys net earnings upon expiry of the related sale and leaseback agreement unless the Company decides to exercise its early buy-out options, when applicable at fair value. Then, the related deferred gain from the residual value guarantee is applied against the cost of the asset.

Interest capitalization

Interest costs relating to the construction of simulators, buildings for training centres and other internally developed assets are capitalized as part of the cost of property, plant and equipment. Capitalization of interest ceases when the asset is completed and ready for productive use.

Intangible assets with definite useful lives and amortization

Intangible assets with definite useful lives are recorded at their fair value at the acquisition date. Amortization is calculated using the straight-line method for all intangible assets over their estimated useful lives as follows:

|                                                |               |                    
|----------------------------------------------- | ------------- | -------------------
|                                                | Amortization  | Weighted Average   
|                                                | Period        | Amortization Period
|Trade names                                     | 2 to 20 years | 18                 
|Customer relationships                          | 3 to 10 years | 9                  
|Customer contractual agreements                 | 5 to 12 years | 11                 
|Technology                                      | 5 to 10 years | 10                 
|Enterprise resource planning and other software | 3 to 10 years | 7                  
|Other intangible assets                         | 2 to 20 years | 14                 

Impairment of long-lived assets

Long-lived assets or asset groups are reviewed for impairment upon the occurrence of events or changes in circumstances indicating that the carrying value of the assets may not be recoverable, as measured by comparing their carrying amounts to the estimated undiscounted future cash flows generated by their use and eventual disposal. Impairment, if any, is measured as the excess of the carrying amount of the asset or asset group over its fair value.

Other assets

Research and development (R&D) costs

Research costs are charged to consolidated earnings in the period in which they are incurred. Development costs are also charged to consolidated earnings in the period incurred unless they meet all the criteria for deferral, as per CICA Handbook Section 3450,Research and Development Costs, and their recovery is reasonably assured. Government contribution arising from research and development activities is deducted from the related costs or assets, if deferred. Amortization of development costs deferred to future periods commences with the commercial production of the product and is charged to consolidated earnings based on anticipated sales of the product, when possible, over a period not exceeding five years using the straight-line method.

Pre-operating costs

The Company defers costs incurred during the pre-operating period for all new operations related to training centres. Pre-operating costs are incremental in nature and are considered by management to be recoverable from the future operations of the new training centre. Capitalization ceases upon the opening of the training centre. Deferred pre-operating costs are amortized over a five-year period using the straight-line method.

Deferred financing costs

Deferred financing costs related to the revolving unsecured term credit facilities and sale and leaseback agreements are included in other assets and amortized on a straight-line basis over the term of the related financing agreements.

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 acquisition arrangements.

12 | CAE Year-End Financial Results 2009

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|Notes to the Consolidated Financial Statements
|----------------------------------------------

Business combinations and goodwill

Acquisitions are accounted for using the purchase method and, accordingly, the results of operations of the acquired business are included in the consolidated statements of earnings effective on their respective dates of acquisition.

Goodwill represents the excess of the cost of acquired businesses over the net of the amounts assigned to identifiable assets acquired and liabilities assumed. Goodwill is tested for impairment annually or more frequently if events or changes in circumstances indicate a potential impairment in value.

The impairment test consists of a comparison of the fair value of the Companys reporting units with their carrying amount. When the carrying amount of the reporting unit exceeds its fair value, the Company compares, in a second phase, the fair value of goodwill related to the reporting unit to its carrying value and recognizes, if required, an impairment loss equal to the excess. The fair value of a reporting unit is calculated based on one or more fair value measures, including present value techniques of estimated future cash flows and estimated amounts at which the unit, as a whole, could be purchased or sold in a current transaction between willing unrelated parties. If the carrying amount of the reporting unit exceeds its fair value, the second phase requires the fair value of the reporting unit to be allocated to the underlying assets and liabilities of that reporting unit, resulting in an implied fair value of goodwill. If the carrying amount of that reporting units goodwill exceeds the implied fair value of that goodwill, an impairment loss equal to the excess is recorded in consolidated net earnings.

Income taxes and investment tax credits

The Company uses the tax liability method to account for income taxes. Under this method, future income tax assets and liabilities are determined according to differences between the carrying value and the tax bases of assets and liabilities.

This method also requires the recognition of future tax benefits, such as for net operating loss carryforwards, to the extent that the realization of such benefits is more likely than not. A valuation allowance is recognized to the extent that, in the opinion of management, it is more likely than not that the future income tax assets will not be realized.

Future tax assets and liabilities are measured by applying enacted or substantively enacted rates and laws at the date of the consolidated financial statements for the years in which the temporary differences are expected to reverse.

The Company does not provide for income taxes on undistributed earnings of foreign subsidiaries that are not expected to be repatriated in the foreseeable future.

Investment tax credits (ITCs) arising from R&D activities are deducted from the related costs and are accordingly included in the determination of net earnings when there is reasonable assurance that the credits will be realized. ITCs arising from the acquisition or development of property, plant and equipment and deferred development costs are deducted from the cost of those assets with amortization calculated on the net amount.

The Company is subject to examination by taxation authorities in various jurisdictions. The determination of tax liabilities and ITCs recoverable involve certain uncertainties in the interpretation of complex tax regulations. Therefore, the Company provides for potential tax liabilities and ITCs recoverable based on managements best estimates. Differences between the estimates and the ultimate amounts of taxes and ITCs are recorded in net earnings at the time they can be determined.

Stock-based compensation plans

The Companys stock-based compensation plans consist of five categories of plans: Employee Stock Option Plan (ESOP), Employee Stock Purchase Plan (ESPP), Deferred Share Unit (DSU) plan for executives, Long-Term Incentive Deferred Share Unit (LTI-DSU) plan and Long-Term Incentive Restricted Share Unit (LTI-RSU) plan. All plans are described in Note 16.

Using the fair value method, compensation expense is measured at the grant date and recognized over the service period with a corresponding increase to contributed surplus in shareholders equity. The Company estimates the fair value of options using the Black-Scholes option pricing model. The Black-Scholes option pricing model was developed for use in estimating the fair value of traded options which have no vesting restrictions and are fully transferable. In addition, valuation models generally require the input of highly-subjective assumptions including expected stock price volatility.

A compensation expense is also recognized for the Companys portion of the contributions made under the ESPP and for the grant date amount of vested units at their respective valuations for the DSU, LTI-DSU and LTI-RSU plans. For DSU and LTI-DSUs, the Company accrues a liability based on the market price of the Companys common shares. The fair value of the LTI-RSUs liability is determined using a binomial model. Any subsequent changes in the Companys stock price affect the compensation expense. The Company has entered into equity swap agreements with major Canadian financial institutions 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.

CAEs practice is to issue options in May of each fiscal year or at the time of hiring of new employees or making new appointments. In both instances, these options vest equally over four years. Any consideration paid by plan participants on the exercise of share options or the purchase of shares is credited to share capital together with any related stock-based compensation expense.

Since the adoption of Emerging Issues Committee (EIC)-162,Stock-Based Compensation for Employees Eligible to Retire Before the Vesting Date, during fiscal 2007, the Company recognizes the stock-based compensation expense for employees who will become eligible for retirement during the vesting period over the period from grant date to the date the employee becomes eligible to retire. In addition, if an employee is eligible to retire on the grant date, the compensation expense is recognized at that date unless the employee is under contract which, in that case, the compensation expense is recognized over the term of the contract.

CAE Year-End Financial Results 2009 | 13

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|Notes to the Consolidated Financial StatementsEmployee future benefits
|----------------------------------------------------------------------

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 using the projected benefit method prorated on employee service and managements best estimate of expected plan investment performance, salary escalation and retirement ages of employees. For the purpose of calculating the expected return on plan assets, the relevant assets are valued at fair value. The excess of the net actuarial gain (loss) over 10% of the greater of the benefit obligation and the fair value of plan assets is amortized over the remaining service period of active employees. Past service costs, arising from plan amendments, are deferred and amortized on a straight-line basis over the average remaining service lives of active employees at the date of amendment.

When a curtailment arises, any unamortized past service costs associated with the reduction of future services is recognized immediately. Also, the increase or decrease in benefit obligations is recognized as a loss or gain, net of unrecognized actuarial gains or losses. Finally, when an event gives rise to both a curtailment and a settlement of obligations, the curtailment is accounted for prior to the settlement.

Earnings per share

Earnings per share are calculated by dividing consolidated net earnings available for common shareholders by the weighted average number of common shares outstanding during the year. 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 and warrants 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.

Disposal of long-lived assets and discontinued operations

Long-lived assets to be disposed of by sale are measured at the lower of their carrying amounts or fair value less selling costs and are not amortized as long as they are classified as assets to be disposed of by sale. Operating results of a companys components disposed of by sale or being classified as held-for-sale are reported as discontinued operations if the operations and cash flows of those components have been, or will be, eliminated from the Companys current operations pursuant to the disposal and if the Company does not have significant continuing involvement in the operations of the component after the disposal transaction. A component of an enterprise includes operations and cash flows that can be clearly distinguished, operationally and for financial reporting purposes, from the rest of the Companys operations and cash flows.

Financial instruments and hedging relationships



|Financial instrumentsFinancial assets and financial liabilities
|---------------------------------------------------------------

Financial assets and financial liabilities, including derivatives, are recognized on the consolidated balance sheet 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. Subsequent measurement of the financial instruments is based on their classification as described below. Financial assets and financial liabilities are classified into one of these five categories: heldfor-trading, 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.

Held-for-trading

Financial instruments classified as heldfor-trading are carried at fair value at each balance sheet date with the change in fair value recorded in net earnings in the period in which these changes arise. The held-for-trading 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. The interest income or expense is included in net earnings in the period.

Available-for-sale

Financial instruments classified as available-for-sale are carried at fair value at each balance sheet date. Unrealized gains and losses, including changes in foreign exchange rates, are recognized in other comprehensive income (loss) (OCI) in the period in which the changes arise and are transferred to earnings when the assets are derecognized. Securities classified as available-for-sale which do not have a readily available market value are recorded at cost.

14 | CAE Year-End Financial Results 2009

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|Notes to the Consolidated Financial Statements
|----------------------------------------------



|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 held-for-trading;                                                                                 
|----- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(ii)  | Accounts receivable and long-term receivables are classified as loans and receivables;                                                                                                                                                                             
|(iii) | The Companys minority interest investment is classified as available-for-sale while its equity investment in the entity subject to significant influence and its joint ventures are excluded from the scope of the accounting framework of financial instruments; 
|(iv)  | Accounts payable and accrued liabilities and long-term debt, including interest payable, as well as capital lease obligations are classified as other financial liabilities, all of which are measured at amortized costs using the effective interest rate method;
|(v)   | To date, the Company has not classified any financial asset as held-to-maturity.                                                                                                                                                                                   

Transaction costs

Transaction costs that are directly related to the acquisition or issuance of financial assets and financial liabilities (other than those classified as held-for-trading) are included in the fair value initially recognized for those financial instruments. These costs are amortized to earnings 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 balance sheet 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 respectively.



|Derivative instrumentsFreestanding derivatives
|----------------------------------------------

Freestanding derivative instruments are utilized by the Company to manage market risk against the volatility in foreign exchange rates, interest rates and stock-based compensation in order to minimize their impact on the Companys results and financial position. The most frequently used derivative instruments by the Company are forward foreign currency contracts, interest rates, foreign currency and equity swaps agreements. These instruments are carried at fair value at each balance sheet date. Short-term and long-term derivative assets have been included as part of accounts receivable and other assets respectively. Short-term and long-term derivative liabilities have been included as part of accounts payable and accrued liabilities, and deferred gains and other long-term liabilities respectively.

Embedded derivatives

Embedded derivatives are a component of a hybrid instrument that also includes a non-derivative host contract. They 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 terms of the embedded derivatives are the same as those of a freestanding derivative and the hybrid instrument is not classified as held-for-trading or designated at fair value. 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 balance sheet date with the change in fair value recorded in consolidated net earnings in the period in which these changes arise.



|Hedge accountingPolicy
|----------------------

Derivative instruments are utilized by the Company to manage market risk against the volatility in foreign exchange rates, interest rates and stock-based compensation in order to minimize their impact on the Companys results and financial position. The Companys policy is not to utilize any derivative financial instruments for trading or speculative purposes. The Company may choose to designate derivative instruments, either freestanding or embedded, as hedging items. This process consists of matching all derivative hedging instruments to specific assets and liabilities or to specific firm commitments or to forecasted transactions.

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, 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. 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.

Method of accounting

All derivative instruments are carried at fair value at each balance sheet date. The method of recognizing fair value gains and losses depends on whether derivatives are held-for-trading 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 the consolidated statements of earnings. 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).

CAE Year-End Financial Results 2009 | 15

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|Notes to the Consolidated Financial StatementsFair value hedge
|--------------------------------------------------------------

The Company has outstanding and discontinued interest rate swap agreements, which it designates as fair value hedges related to variations of the fair value of its long-term debt due to changes in LIBOR interest rates. For fair value hedges outstanding, gains or losses arising from the measurement of derivative hedging instruments at fair value and attributable to the hedged risks are accounted for as an adjustment to the carrying amount of hedged items and are recorded in earnings. However, for fair value hedges that were discontinued prior to the adoption of financial instrument standards, carrying amounts of hedged items are adjusted by the remaining balances of any deferred gains or losses on the hedging items. The adjustment is amortized in earnings.

Cash flow hedge

The Company has forward foreign currency contracts and foreign currency and interest rate swap agreements, which it designates as cash flow hedges of recognized assets or liabilities, firm commitments or forecasted transactions. When all the critical terms of the hedging items and the hedged item coincide (such as dates, quantities and delivery location), the Company assumes the hedge to be perfectly effective against changes in the overall fair value of the hedged item. Otherwise, the amounts and timing of future cash flows are projected on the basis of their contractual terms and estimated progress on projects. The aggregate cash flows, over time, form the basis for identifying the effective portion of gains and losses on the derivative instruments designated as cash flow hedges. The effective portion of changes in the fair value of derivative instruments that are designated and qualify as cash flow hedges is recognized in comprehensive income (loss). Any gain or loss in fair value relating to the ineffective portion is recognized immediately in the consolidated net earnings. Amounts accumulated in OCI are reclassified to earnings in the period in which the hedged item affects earnings. 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 deferred 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 consolidated net earnings as the related non-financial assets are derecognized or amortized.

Hedge accounting is discontinued prospectively when the hedging relationship no longer meets the criteria for hedge accounting or when the hedging instrument expires or is sold. Any cumulative gain or loss existing in OCI at that time remains in OCI until the hedged item is eventually recognized in earnings. When it is probable that a hedged transaction will not occur, the cumulative gain or loss that was reported in OCI is recognized immediately in earnings.

Hedge of self-sustaining foreign operations

The Company has designated certain long-term debt as a hedge of its overall net investment in self-sustaining 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, while the ineffective portion is recorded in earnings.

Comprehensive income (loss)

Comprehensive income represents the change in shareholders equity, from transactions and other events and circumstances from non-owner sources, and is composed of net earnings and OCI.

OCI refers to revenues, expenses, gains and losses that are recognized in comprehensive income (loss), but excluded from consolidated net earnings. OCI includes net changes in unrealized foreign exchange gains (losses) on translating financial statements of self-sustaining foreign operations, net changes in gains (losses) on items designated as hedges on net investments and as cash flow hedges, reclassifications to income or to the related non-financial assets or liabilities and net changes on financial assets classified as available-for-sale, as well as income tax adjustments.

Government cost sharing

Contributions from Industry Canada under the Technology Partnerships Canada program (TPC) and from Investissement Québec for costs incurred in R&D programs, are recorded as a reduction of costs or as a reduction of capitalized costs.

A liability to repay the government contribution is recognized when conditions arise and the repayment thereof is reflected in the consolidated statements of earnings when royalties become due.

Severance, termination benefits and costs associated with exit and disposal activities

In accordance with EIC-134, Accountingfor Severance and Termination Benefitsand EIC-135,Accounting for Costs Associated with Exit and Disposal Activities (Including Costs Incurred in a Restructuring), the Company recognizes severance benefits that do not vest when the decision is made to terminate the employee. Special termination benefits are accounted for when management commits to a plan that specifically identifies all significant actions to be taken and commits the entity to the event that obligates it under the terms of contract with its employees to pay such termination benefits. Such termination benefits and the benefit arrangements are communicated to the employees in sufficient detail to enable them to determine the type and amount of benefits they will receive when their employment is terminated. All other costs associated with restructuring, exit and disposal activities are recognized in the period in which they are incurred.

Disclosure of guarantees

The Company discloses information concerning certain types of guarantees that may require payments, contingent on specified types of future events. In the normal course of business, CAE issues letters of credit and performance guarantees.

16 | CAE Year-End Financial Results 2009

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|Notes to the Consolidated Financial Statements
|----------------------------------------------



|NOTE 2  CHANGES IN ACCOUNTING POLICIESImplemented in fiscal 2009Financial instruments  disclosures and presentation
|---------------------------------------------------------------------------------------------------------------------

Effective April 1, 2008, the Company adopted CICA Handbook Section 3862,Financial instruments  Disclosuresand Section 3863,

Financial Instruments  Presentation, issued to replace Section 3861,Financial Instruments  Disclosure and Presentation. Under Section 3862, an entity is required to disclose information that enables users to evaluate the significance of financial instruments on an entitys financial position and performance, to evaluate the nature and extent of risks, such as credit risk, liquidity risk and market risks, arising from financial instruments to which the entity is exposed during the period and at the balance sheet date, and to evaluate how the entity monitors and manages those risks.

Section 3863 carries forward standards for presentation of financial instruments and non-financial derivative instruments and provides additional guidance for the classification of financial instruments, from the perspective of the issuer, between liabilities and equity, the classification of related interest, dividends, gains and losses, and circumstances in which financial assets and financial liabilities are offset.

The adoption of these standards did not have any impact on the classification and measurement of the Companys financial statements. The new disclosures pursuant to these new CICA handbook sections are included in Note 18. Comparative information about the nature and extent of risks arising from financial instruments is not required in the year Section 3862 is adopted.

Reclassification of financial assets

In October 2008, the CICA issued amendments to Handbook Section 3855,Financial Instruments  Recognition and Measurementand Section 3862,Financial Instruments  Disclosures. These amendments permit the reclassification of financial assets out of held-for-trading and available-for-sale categories in specified circumstances. The amendments are applicable to the Company to periods beginning on or after July 1, 2008. There were no adjustments to the Companys consolidated financial statements upon adoption of this new standard.

Credit risk and fair value of financial assets and financial liabilities

During the fourth quarter of fiscal 2009, the Company adopted EIC-173,Credit Risk and Fair Value of Financial Assets and Financial Liabilities. This abstract stipulates that counterparties credit risk and an entitys own credit risk should be taken into account when estimating the fair value of all financial assets and financial liabilities, including derivatives. The abstract permits retroactive application with or without restatement of prior periods. The Company applies the abstract retrospectively without restatement of prior periods and as such, EIC-173 was applied April 1, 2008.

Accordingly, the Company has remeasured its financial instruments carried at fair value as at April 1, 2008, to take such risks into account. The application of EIC-173 did not have a material net impact on consolidated financial statements of the Company.

Capital disclosures

Effective April 1, 2008, the Company adopted CICA Handbook Section 1535,Capital Disclosures, which establishes guidelines for the disclosure of information regarding an entitys capital and how it is managed. This standard requires disclosure of an entitys objectives, policies and processes for managing capital, quantitative data about what the entity regards as capital and whether the entity has complied with any capital requirements and, if it has not complied, the consequences of such non-compliance. The new disclosures are included in Note 17.

Inventories

Effective April 1, 2008, the Company adopted CICA Handbook Section 3031,Inventories, which replaced Section 3030 with the same title. The new section specifies the measurement of inventory to be at the lower of cost and net realizable value with the requirement to reverse previous write downs in certain circumstances. It provides more extensive guidance on the determination of cost including allocation of overhead, and narrows the permitted cost formula to apply for the recognition to expense as well as expanding disclosure requirements. There were no adjustments to the Companys consolidated financial statements upon adoption of this new standard. The required disclosures are included in Note 7.

General standards of financial statement presentation

Effective April 1, 2008, the Company adopted CICA revised Handbook Section 1400,General Standards of Financial Statement Presentation. The revision to this section provides additional guidance related to managements assessment of the Companys ability to continue as a going concern. There were no adjustments to the Companys consolidated financial statements upon adoption of this new standard.

Implemented in fiscal 2008

Financial instruments and hedging relationships

On April 1, 2007, the Company adopted CICA Handbook Section 1530,Comprehensive Income, Section 3855,Financial Instruments  Recognition and Measurementand Section 3865,Hedges, which provide accounting guidelines for recognition and measurement of financial assets, financial liabilities and non-financial derivatives, and describe when and how hedge accounting may be applied.

The Companys adoption of these financial instrument standards resulted in changes in the accounting for financial instruments and hedges. The impact of these new standards is presented as a transitional adjustment in opening retained earnings and opening accumulated other comprehensive loss, as applicable.

CAE Year-End Financial Results 2009 | 17

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Notes to the Consolidated Financial Statements

The following table summarizes the required transition adjustment upon adoption of the relevant standards as at April 1, 2007:

|                                                                           |   |                   |   |   |                    |  
|-------------------------------------------------------------------------- | - | ----------------- | - | - | ------------------ | -
|                                                                           |   |                   |   |   | Accumulated Other  |  
|(amounts in millions)                                                      |   | Retained Earnings |   |   | Comprehensive Loss |  
|Financial instruments classified as held-for-trading                       | $ | (0.3              | ) |   | $                 |  
|Effect of discontinued hedging relations                                   |   | (2.6              | ) |   |                   |  
|Carrying value difference of financial instruments recognized as held-to-  |   |                   |   |   |                    |  
|maturity, loans and receivables and other financial liabilities carried at |   |                   |   |   |                    |  
|amortized cost using the effective interest method                         |   | (0.1              | ) |   |                   |  
|Fair value of cash flow hedge                                              |   | (0.1              | ) |   | (6.0               | )
|Effect of initial recognition of embedded derivatives                      |   | (9.4              | ) |   |                   |  
|Other                                                                      |   | 0.3               |   |   | 0.9                |  
|Income tax adjustment                                                      |   | 3.9               |   |   | 1.6                |  
|                                                                           | $ | (8.3              | ) | $ | (3.5               | )

Accounting changes

On April 1, 2007, the Company adopted CICA Handbook Section 1506,Accounting Changes. This standard establishes criteria for changing accounting policies, along with the accounting treatment and disclosure regarding changes in accounting policies, estimates and correction of errors. The adoption of this revised standard had no effect to the Companys consolidated financial statements.

Future changes to accounting standards

Intangible assets

In February 2008, the AcSB issued the new CICA Handbook Section 3064,Goodwill and Intangible Assets, replacing Sections 3062,

Goodwill and Other Intangible Assets, and 3540,Research and Development Costs. New Section 3064 incorporates material from International Accounting Standard (IAS) 38,Intangible Assets, addressing when an internally developed intangible asset meets the criteria for recognition as an asset. EIC-27,Revenues and Expenditures during the Pre-Operating Period, will no longer apply to entities that have adopted Section 3064. For the Company, these changes are effective for interim and annual financial statements beginning on April 1, 2009 and will be adopted on a retrospective basis.

The Company currently defers and amortizes pre-operating costs on a straight-line basis over five years, but will cease this treatment upon adoption of Section 3064. The estimated impact of adopting this accounting standard, on a retrospective basis to the Companys consolidated statement of earnings for years ended March 31 is:

|                                                    |   |      |   |   |      |  
|--------------------------------------------------- | - | ---- | - | - | ---- | -
|(amounts in millions)                               |   | 2009 |   |   | 2008 |  
|Deferred pre-operating costs, net of non-cash items | $ | 2.2  |   | $ | (0.9 | )
|Income tax adjustment                               |   | (0.5 | ) |   | (0.5 | )
|Adjustment to net earnings                          | $ | 1.7  |   | $ | (1.4 | )

As at March 31, 2009, the impact of adopting this future change toother assetson the Companys consolidated balance sheet would be a decrease of $10.4 million. The shareholders equity at April 1, 2007, will decrease by $8.6 million, net of tax recovery of $3.6 million.

The Companys treatment regarding R&D costs will not be impacted as a result of this future change in accounting standard.

International Financial Reporting Standards (IFRS)

In February 2008, the AcSB confirmed that Canadian GAAP, for publicly accountable enterprises in Canada, will be converged with IFRS with a changeover date on January 1, 2011. As a result, the Company is required to prepare its consolidated financial statements in accordance with IFRSs for interim and annual financial statements relating to fiscal year beginning April 1, 2011. The Company is currently evaluating the impact of adopting IFRS on its consolidated financial statements.

Business Combinations, Consolidated Financial Statements and Non-Controlling Interests

In December 2008, the CICA approved three new accounting standards Handbook Section 1582,Business Combinations, Section 1601,Consolidated Financial Statements, and Section 1602,Non-Controlling Interests, replacing Section 1581,Business Combinationsand Section 1600,Consolidated Financial Statements. Section 1582 provides the Canadian equivalent to IFRS 3 

Business Combinations (January 2008)and Sections 1601 and 1602 to IAS 27 Consolidated and Separate Financial Statements (January 2008). Section 1582 requires additional use of fair value measurements, recognition of additional assets and liabilities, and increased disclosure for the accounting of a business combination. The section applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after January 1, 2011. Entities adopting Section 1582 will also be required to adopt Sections 1601 and 1602. Section 1601 establishes standards for the preparation of consolidated financial statements. Section 1602 establishes standards for accounting for a non-controlling interest in a subsidiary in consolidated financial statements subsequent to a business combination. These standards will require a change in the measurement of non-controlling interest and will require the non-controlling interest to be presented as part of shareholders equity on the balance sheet. In addition, the net earnings will include 100% of the subsidiarys results and will be allocated between the controlling interest and non-controlling interest. These standards apply to interim and annual consolidated financial statements relating to fiscal years beginning on or after January 1, 2011. Earlier adoption is permitted. All three standards are effective at the same time Canadian public companies will have adopted IFRS, for fiscal year beginning on or after January 1, 2011. The Company is currently evaluating the impact of this standard on its consolidated financial statements.

18 | CAE Year-End Financial Results 2009

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|Notes to the Consolidated Financial Statements
|----------------------------------------------

NOTE 3  BUSINESS ACQUISITIONS AND COMBINATIONSFiscal 2009 acquisitions

The Company acquired three businesses for a total cost, including acquisition costs, of $64.3 million which was payable primarily in cash of $43.9 million and assumed debt of $20.4 million. The total cost does not include potential additional consideration of $6.3 million that is contingent on certain conditions being satisfied, which, if met, would be recorded as additional goodwill.

Sabena Flight Academy

During the first quarter of fiscal 2009, the Company acquired Sabena Flight Academy (Sabena). Sabena offers cadet training, advanced training and aviation consulting for airlines and self-sponsored pilot candidates.

Academia Aeronautica de Evora S.A.

During the second quarter of fiscal 2009, the Company increased its participation in Academia Aeronautica de Evora S.A. (AAE) to 90% in a non-cash transaction.

Kestrel Technologies Pte Ltd

During the third quarter of fiscal 2009, the Company acquired Kestrel Technologies Pte Ltd (Kestrel) which provides consulting and professional services, and provides simulator maintenance and technical support services.

Fiscal 2008 acquisitions

The Company acquired four businesses for a total cost, including acquisition costs, of $52.4 million which was payable primarily in cash. The total costs did not include potential additional consideration of $12 million that is contingent on certain conditions being satisfied, which, if met, would be recorded as additional goodwill.

Engenuity Technologies Inc.

During the first quarter of fiscal 2008, the Company acquired Engenuity Technologies Inc. (Engenuity) which develops commercial-off-the-shelf (COTS) simulation and visualization software for the aerospace and defence markets.

MultiGen-Paradigm Inc.

During the first quarter of fiscal 2008, the Company acquired MultiGen-Paradigm Inc. (MultiGen), a supplier of real-time COTS software for creating and visualizing simulation solutions and creating industry standard visual simulation file formats.

Macmet Technologies Limited

During the second quarter of fiscal 2008, the Company acquired 76% of the outstanding shares of Macmet Technologies Limited (Macmet). Macmet assembles, repairs and upgrades flight simulators, tank and gunnery trainers, as well as develops software required for simulations.

As part of this agreement, the Company was given a call option on the remaining 24% of outstanding shares. The call option expires six years from the acquisition completion date. At the expiry of the call option period, the remaining shareholders of Macmet can exercise a put option and require the Company to purchase the remaining outstanding shares. As such, the Company considers that all outstanding shares have been purchased and 100% of Macmets results have been consolidated by the Company since the acquisition date.

Flightscape Inc.

During the second quarter of fiscal 2008, the Company acquired Flightscape Inc. (Flightscape), which provides expertise in flight data analysis and flight sciences and develops software solutions that enable the effective study and understanding of recorded flight data to improve safety, maintenance and flight operations.

During the third quarter of fiscal 2009, the Company recorded an additional purchase price for Flightscape of $3.0 million settled in cash and reduced the additional potential consideration of $12.0 million to $1.0 million which, if met, would be recorded as additional goodwill. The additional purchase price was recorded as goodwill.

Fiscal 2007 acquisition

Kesem International Pty Ltd

During the third quarter of fiscal 2007, the Company acquired all the issued and outstanding shares of Kesem International Pty Ltd (Kesem), which offers a range of professional services to support design, analysis and experimentation in the defence and homeland security markets. Total consideration for this acquisition, excluding acquisition costs of $0.3 million, amounted to AUD$5.0 million ($4.6 million).

CAE Year-End Financial Results 2009 | 19

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|                                                           |   |       |   |   |       |   |   |      |  
|---------------------------------------------------------- | - | ----- | - | - | ----- | - | - | ---- | -
|Notes to the Consolidated Financial Statements             |   |       |   |   |       |   |   |      |  
|                                                          
|Summary of total net assets of all acquisitions            |   |       |   |   |       |   |   |      |  
|(amounts in millions)                                      |   | 2009  |   |   | 2008  |   |   | 2007 |  
|Current assets(1)                                          | $ | 12.9  |   | $ | 13.7  |   | $ | 0.9  |  
|Current liabilities                                        |   | (25.4 | ) |   | (23.4 | ) |   | (1.1 | )
|Property, plant and equipment                              |   | 40.2  |   |   | 2.3   |   |   | 0.1  |  
|Other assets                                               |   |      |   |   | 2.8   |   |   |     |  
|Intangible assets                                          |   |       |   |   |       |   |   |      |  
|Trade names                                                |   | 0.1   |   |   | 1.5   |   |   | 0.1  |  
|Technology                                                 |   |      |   |   | 20.8  |   |   | 0.1  |  
|Customer relationships                                     |   | 10.9  |   |   | 5.9   |   |   | 0.6  |  
|Goodwill(2)                                                |   | 21.7  |   |   | 28.8  |   |   | 4.1  |  
|Future income taxes                                        |   | 6.4   |   |   | (5.6  | ) |   | (0.2 | )
|Long-term debt                                             |   | (19.6 | ) |   | (1.8  | ) |   |     |  
|Long-term liabilities                                      |   | (4.0  | ) |   | (2.1  | ) |   | (0.2 | )
|Fair value of net assets acquired, excluding cash          |   |       |   |   |       |   |   |      |  
|position at acquisition                                    | $ | 43.2  |   | $ | 42.9  |   | $ | 4.4  |  
|Cash position at acquisition                               |   | 5.4   |   |   | 9.5   |   |   | 0.5  |  
|Fair value of net assets acquired                          | $ | 48.6  |   | $ | 52.4  |   | $ | 4.9  |  
|Less: Call/put option payable                              |   |      |   |   | (1.1  | ) |   |     |  
|Book value of investment at acquisition date               |   | (4.5  | ) |   |      |   |   |     |  
|Non-controlling interest                                   |   | (0.2  | ) |   |      |   |   |     |  
|Total cash consideration for acquisitions during the       |   |       |   |   |       |   |   |      |  
|fiscal year                                                | $ | 43.9  |   | $ | 51.3  |   | $ | 4.9  |  
|Add: Additional consideration related to a previous fiscal |   |       |   |   |       |   |   |      |  
|year acquisition                                           |   | 3.0   |   |   |      |   |   |     |  
|Total cash consideration(3)                                | $ | 46.9  |   | $ | 51.3  |   | $ | 4.9  |  
|(1)Excluding cash on hand.                                 |   |       |   |   |       |   |   |      |  
|(2)This goodwill is not deductible for tax purposes.       |   |       |   |   |       |   |   |      |  

(3)The total cash consideration includes acquisition costs of $2.7 million in fiscal 2009, $4.0 million in fiscal 2008 and $0.3 million in fiscal 2007.

The net assets of Sabena, AAE and Flightscape are included in the Training & Services/Civil segment. The net assets of Kestrel, MultiGen and Macmet are included in Simulation Products/Military. The net assets of Engenuity are segregated between the Simulation Products/Military and Training & Services/Military segments. The net assets of Kesem are included in the Training & Services/Military segment.

The above-listed acquisitions were accounted for under the purchase method and the operating results have been included from their acquisition date.

NOTE 4  INVESTMENTS IN JOINT VENTURES

The Companys consolidated balance sheets and consolidated statements of earnings and cash flows include, on a proportionate consolidation basis, the impact of its joint venture companies of Zhuhai Xiang Yi Aviation Technology Company Limited  49%, Helicopter Training Media International GmbH  50%, Helicopter Flight Training Services GmbH  25%, the Emirates-CAE Flight Training centre  50%, Embraer CAE Training Services LLC  49% (starting fiscal 2008), HATSOFF Helicopter Training Private Limited  50% (starting fiscal 2008), National Flying Training Institute Private Limited  51% (starting fiscal 2009), and CAE Bangalore training centre  50% (starting fiscal 2009).

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 venture companies operations are focused on providing civil and military aviation training and related services.

20 | CAE Year-End Financial Results 2009

---



|                                                                                                     |   |                                                |   |   |       |   |   |       |  
|---------------------------------------------------------------------------------------------------- | - | ---------------------------------------------- | - | - | ----- | - | - | ----- | -
|                                                                                                     |   | Notes to the Consolidated Financial Statements |  
|                                                                                                    
|The impact on the Companys consolidated financial statements from all joint ventures is as follows: |   |                                                |   |   |       |   |  
|                                                                                                    
|(amounts in millions)                                                                                |   | 2009                                           |   |   | 2008  |   |   | 2007  |  
|Assets                                                                                               |   |                                                |   |   |       |   |   |       |  
|Current assets                                                                                       | $ | 58.4                                           |   | $ | 33.8  |   | $ | 24.5  |  
|Property, plant and equipment and other non-current assets                                           |   | 242.3                                          |   |   | 163.1 |   |   | 159.4 |  
|Liabilities                                                                                          |   |                                                |   |   |       |   |   |       |  
|Current liabilities                                                                                  |   | 44.9                                           |   |   | 22.9  |   |   | 12.0  |  
|Long-term debt (including current portion)                                                           |   | 120.4                                          |   |   | 75.9  |   |   | 59.2  |  
|Deferred gains and long-term liabilities                                                             |   | 4.5                                            |   |   |      |   |   |      |  
|Earnings                                                                                             |   |                                                |   |   |       |   |   |       |  
|Revenue                                                                                              | $ | 78.9                                           |   | $ | 60.6  |   | $ | 50.0  |  
|Net earnings                                                                                         |   | 17.7                                           |   |   | 11.8  |   |   | 6.8   |  
|Segmented operating income                                                                           |   |                                                |   |   |       |   |   |       |  
|Simulation Products/Military                                                                         |   | 6.0                                            |   |   | 0.6   |   |   | 1.4   |  
|Training and Services/Civil                                                                          |   | 14.4                                           |   |   | 14.0  |   |   | 7.5   |  
|Training and Services/Military                                                                       |   | (0.8                                           | ) |   | (0.5  | ) |   | (0.2  | )
|Cash flows from (used in)                                                                            |   |                                                |   |   |       |   |   |       |  
|Operating activities                                                                                 | $ | 41.3                                           |   | $ | 22.1  |   | $ | 4.6   |  
|Investing activities                                                                                 |   | (40.1                                          | ) |   | (20.1 | ) |   | (39.2 | )
|Financing activities                                                                                 |   | 34.6                                           |   |   | 17.3  |   |   | 29.9  |  



|NOTE 5  DISCONTINUED OPERATIONSCAE Elektronik GmbH Telecommunication Department
|--------------------------------------------------------------------------------

During fiscal 2008, the Company decided to discontinue its German telecommunication department. This department develops and sells unified messaging software for various clients and other office software solutions. As well, the business offers services in both standardized and customer-specific software communication solutions for voice-over-IP and ISDN environment. CAE Elektronik GmbH divested its telecommunication department through a sales agreement with an exclusive buyer. The transaction resulted in the recognition of a net loss in discontinued operations amounting to $2.2 million, net of a tax recovery of $1.0 million during the fourth quarter of fiscal 2008.

Forestry Systems

On May 2, 2003, the Company completed the sale of one of its Forestry Systems businesses to Carmanah Design and Manufacturing. The Company was entitled to receive further consideration based on the performance of the business. During the first quarter of fiscal 2007, a settlement was concluded and the Company received a payment of $0.2 million (net of tax expense of $0.1 million).

On August 16, 2002, the Company sold substantially all the assets of the sawmill division of its Forestry Systems. The Company was entitled to receive further cash consideration from the sale based on operating performance of the disposed business for the three-year period from August 2002 to August 2005. In November 2005, the Company was notified by the buyers that, in their view, the targeted level of operating performance which would trigger further payment had not been achieved. The Company completed a review of the buyers books and records and in January 2006, launched legal proceedings to collect the payment that it believed was owed. Prior to the termination of the arbitration, for fiscal 2008 and 2007, the Company incurred fees in connection with the evaluation and litigation exercise amounting to $1.2 million (net of tax recovery of $0.2 million) and $0.9 million (net of tax recovery of $0.2 million), respectively.

Until April 2008, the Company was in arbitration with the buyer because of this dispute. The arbitration ceased mid-way in April 2008 when the buyer was the subject of a petition for receivership and was understood to be insolvent. A write-off, in the amount of $8.5 million (net of a tax recovery of $1.5 million), was accounted for in fiscal 2008 because, in accordance with the relevant accounting pronouncements, the Company deemed that the impairment conditions existed at the date of the Companys fiscal 2008 consolidated financial statements.

|                                                                                 |  |   |       |   |   |       |   |   |       |  
|-------------------------------------------------------------------------------- |  | - | ----- | - | - | ----- | - | - | ----- | -
|Summary of discontinued operations                                               |  |   |       |   |   |       |   |   |       |  
|(amounts in millions, except per share amounts)                                  |  |   | 2009  |   |   | 2008  |   |   | 2007  |  
|Net loss from CAE Elektronik GmbH Telecommunication Department,                  |  |   |       |   |   |       |   |   |       |  
|2009  net of tax recovery of $0.1; 2008  net of tax recovery of $1.0           |  | $ | (0.3  | ) | $ | (2.2  | ) |   | $    |  
|Net loss from Forestry Systems, 2009  net of tax recovery of $0.1;              |  |   |       |   |   |       |   |   |       |  
|2008  net of tax recovery of $1.7; 2007  net of tax recovery of $0.1           |  |   | (0.7  | ) |   | (9.7  | ) |   | (0.7  | )
|Net loss from other discontinued operations, 2009  net of tax recovery of $nil; |  |   |       |   |   |       |   |   |       |  
|2008  net of tax recovery of $0.1; 2007  net of tax recovery of $0.3           |  |   | (0.1  | ) |   | (0.2  | ) |   | (1.0  | )
|Results of discontinued operations                                               |  | $ | (1.1  | ) | $ | (12.1 | ) | $ | (1.7  | )
|Basic and diluted net loss per share from discontinued operations                |  | $ | (0.01 | ) | $ | (0.05 | ) | $ | (0.01 | )

CAE Year-End Financial Results 2009 | 21

---





|Notes to the Consolidated Financial StatementsNOTE 6  ACCOUNTS RECEIVABLE
|--------------------------------------------------------------------------

Accounts receivable are carried on the consolidated balance sheet net of an 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 of delay in collection when the age of invoices exceeds 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)                           |   | 2009  |   |   | 2008  |  
|Past due trade receivables                      |   |       |   |   |       |  
|1-30 days                                       | $ | 35.1  |   | $ | 38.0  |  
|31-60 days                                      |   | 12.0  |   |   | 10.7  |  
|61-90 days                                      |   | 13.1  |   |   | 6.3   |  
|Greater than 90 days                            |   | 28.0  |   |   | 20.6  |  
|Total                                           | $ | 88.2  |   | $ | 75.6  |  
|Allowance for doubtful accounts                 | $ | (8.2  | ) | $ | (7.4  | )
|Current trade receivables                       |   | 122.9 |   |   | 81.2  |  
|Accrued receivables                             |   | 55.4  |   |   | 48.5  |  
|Derivative assets                               |   | 32.2  |   |   | 17.2  |  
|Other receivables                               |   | 31.9  |   |   | 39.9  |  
|Total accounts receivable                       | $ | 322.4 |   | $ | 255.0 |  

The Company has an agreement to sell third-party receivables to a financial institution for an amount of up to $50 million. Under the terms and conditions of the agreement, the Company continues to act as a collection agent. The selected accounts receivable are sold to a third party for a cash consideration on a non-recourse basis to the Company. As at March 31, 2009, $45.6 million (2008 - $43.7 million) of specific accounts receivable were sold to the financial institution pursuant to this agreement. Proceeds (net of $0.8 million in fees, 2008 $0.5 million) of the sale were used for corporate purposes and to repay borrowings under the Companys credit facilities.

|                                                                                                      |   |       |       |   |       |      |  
|----------------------------------------------------------------------------------------------------- | - | ----- | ----- | - | ----- | ---- | -
|Changes in allowance for doubtful accounts were as follows:                                           |   |       |       |   |       |      |  
|(amounts in millions)                                                                                 |   |       | 2009  |   |       | 2008 |  
|Allowance for doubtful accounts, beginning of year                                                    | $ | (7.4  | )     | $ | (4.4  | )   
|Additions                                                                                             |   |       | (10.0 | ) |       | (6.4 | )
|Amounts charged off                                                                                   |   |       | 10.3  |   |       | 3.2  |  
|Foreign exchange                                                                                      |   |       | (1.1  | ) |       | 0.2  |  
|Allowance for doubtful accounts, end of year                                                          | $ | (8.2  | )     | $ | (7.4  | )   
|                                                                                                     
|NOTE 7  INVENTORIES                                                                                  |   |       |       |   |       |      |  
|                                                                                                     
|(amounts in millions)                                                                                 |   |       | 2009  |   |       | 2008 |  
|Long-term contracts (unbilled sales [UBS])                                                            | $ | 215.3 |       | $ | 138.9 |     
|Work in progress                                                                                      |   |       | 79.1  |   |       | 56.0 |  
|Raw materials, supplies and manufactured products                                                     |   |       | 39.8  |   |       | 35.0 |  
|                                                                                                      | $ | 334.2 |       | $ | 229.9 |     
|                                                                                                     
|The amount of inventories, excluding long-term contracts, recognized as cost of sales was as follows: |   |       |       |   |      
|                                                                                                     
|(amounts in millions)                                                                                 |   |       | 2009  |   |       | 2008 |  
|Work in progress                                                                                      | $ | 78.9  |       | $ | 81.4  |     
|Raw materials, supplies and manufactured products                                                     |   |       | 64.9  |   |       | 36.7 |  
|                                                                                                      | $ | 143.8 |       | $ | 118.1 |     

The amount of provision of inventories recognized as an expense was $2.8 million for fiscal 2009 (2008  $2.4 million; 2007 $1.9 million), which was recorded in cost of sales. The amount of reversals of provision in inventories that was recognized as an expense in prior periods, as a result of an increase in net realizable value, was $1.1 million for fiscal 2009 (2008  $1.4 million; 2007 $2.1 million). The carrying amount of inventories pledged as security for loans was $2.8 million as at March 31, 2009 (2008 $2.0 million).

22 | CAE Year-End Financial Results 2009

---



|                                                                                            |   |         |         |       |              |         |   |          |       |       |                                                |       |              |       |   |          |       |  
|------------------------------------------------------------------------------------------- | - | ------- | ------- | ----- | ------------ | ------- | - | -------- | ----- | ----- | ---------------------------------------------- | ----- | ------------ | ----- | - | -------- | ----- | -
|                                                                                            |   |         |         |       |              |         |   |          |       |       | Notes to the Consolidated Financial Statements |      
|                                                                                           
|                                                                                           
|NOTE 8  PROPERTY, PLANT AND EQUIPMENT                                                      |   |         |         |       |              |         |   |          |       |       |                                                |       |             
|                                                                                           
|(amounts in millions)                                                                       |   |         |         |       |              |         |   |          | 2009  |       |                                                |       |              |       |   |          | 2008  |  
|                                                                                            |   |         |         |       | Accumulated  |         |   | Net Book |       |       |                                                |       | Accumulated  |       |   | Net Book |      
|                                                                                            |   |         | Cost    |       | Depreciation |         |   | Value    |       |       | Cost                                           |       | Depreciation |       |   | Value    |      
|Land                                                                                        | $ | 24.3    |         | $    | $            | 24.3    | $ | 23.2     |       | $    |                                                | $     | 23.2         |      
|Buildings and improvements                                                                  |   |         | 273.5   |       |              | 91.3    |   |          | 182.2 |       |                                                | 244.4 |              | 80.2  |   |          | 164.2 |  
|Simulators                                                                                  |   |         | 1,020.6 |       |              | 189.1   |   |          | 831.5 |       |                                                | 756.5 |              | 111.5 |   |          | 645.0 |  
|Machinery and equipment                                                                     |   |         | 198.2   |       |              | 134.3   |   |          | 63.9  |       |                                                | 193.6 |              | 125.4 |   |          | 68.2  |  
|Aircraft and engines                                                                        |   |         | 15.0    |       |              | 2.0     |   |          | 13.0  |       |                                                |      |              |      |   |          |      |  
|Assets under capital lease(1)                                                               |   |         | 44.3    |       |              | 25.5    |   |          | 18.8  |       |                                                | 33.3  |              | 23.6  |   |          | 9.7   |  
|Assets under construction                                                                   |   |         | 168.7   |       |              |        |   |          | 168.7 |       |                                                | 136.5 |              |      |   |          | 136.5 |  
|                                                                                            | $ | 1,744.6 | $       | 442.2 | $            | 1,302.4 | $ | 1,387.5  | $     | 340.7 |                                                | $     | 1,046.8      |      
|                                                                                           
|(1)Includes simulators, machinery and equipment, and a building.                            |   |         |         |       |              |         |   |          |       |       |                                                |      
|                                                                                           
|The average remaining amortization period for the simulators is 15 years.                   |   |         |         |       |              |         |   |          |       |      
|                                                                                           
|NOTE 9  INTANGIBLE ASSETS                                                                  |   |         |         |       |              |         |   |          |       |       |                                                |       |              |       |   |         
|                                                                                           
|(amounts in millions)                                                                       |   |         |         |       |              |         |   |          | 2009  |       |                                                |       |              |       |   |          | 2008  |  
|                                                                                            |   |         |         |       | Accumulated  |         |   | Net Book |       |       |                                                |       | Accumulated  |       |   | Net Book |      
|                                                                                            |   |         | Cost    |       | Depreciation |         |   | Value    |       |       | Cost                                           |       | Depreciation |       |   | Value    |      
|Trade names                                                                                 | $ | 14.8    | $       | 4.2   | $            | 10.6    | $ | 12.2     | $     | 2.5   |                                                | $     | 9.7          |      
|Customer relationships                                                                      |   |         | 22.7    |       |              | 3.4     |   |          | 19.3  |       |                                                | 8.4   |              | 1.0   |   |          | 7.4   |  
|Customer contractual agreements                                                             |   |         | 8.8     |       |              | 4.7     |   |          | 4.1   |       |                                                | 6.8   |              | 3.2   |   |          | 3.6   |  
|Technology                                                                                  |   |         | 24.0    |       |              | 5.3     |   |          | 18.7  |       |                                                | 21.9  |              | 2.5   |   |          | 19.4  |  
|Enterprise resource planning                                                               |   |         |         |       |              |         |   |          |       |       |                                                |       |              |       |   |          |       |  
|(ERP) and other software                                                                    |   |         | 33.5    |       |              | 10.8    |   |          | 22.7  |       |                                                | 27.6  |              | 7.6   |   |          | 20.0  |  
|Other intangible assets                                                                     |   |         | 4.4     |       |              | 2.7     |   |          | 1.7   |       |                                                | 4.0   |              | 2.1   |   |          | 1.9   |  
|                                                                                            | $ | 108.2   | $       | 31.1  | $            | 77.1    | $ | 80.9     | $     | 18.9  |                                                | $     | 62.0         |      
|                                                                                           
|The continuity of intangible assets is as follows:                                          |   |         |         |       |              |         |   |          |       |       |                                                |       |              |       |  
|                                                                                           
|(amounts in millions)                                                                       |   |         |         |       |              |         |   |          |       |       |                                                |       |              | 2009  |   |          | 2008  |  
|Opening balance                                                                             |   |         |         |       |              |         |   |          |       |       |                                                |       | $            | 62.0  |   | $        | 36.0  |  
|Acquisitions (Note 3)                                                                       |   |         |         |       |              |         |   |          |       |       |                                                |       |              | 11.0  |   |          | 28.2  |  
|ERP and other software additions                                                            |   |         |         |       |              |         |   |          |       |       |                                                |       |              | 5.4   |   |          | 7.2   |  
|Other additions                                                                             |   |         |         |       |              |         |   |          |       |       |                                                |       |              | 2.5   |   |          | 1.1   |  
|Amortization                                                                                |   |         |         |       |              |         |   |          |       |       |                                                |       |              | (9.7  | ) |          | (7.8  | )
|Foreign exchange                                                                            |   |         |         |       |              |         |   |          |       |       |                                                |       |              | 5.9   |   |          | (2.7  | )
|Closing balance                                                                             |   |         |         |       |              |         |   |          |       |       |                                                |       | $            | 77.1  |   | $        | 62.0  |  
|                                                                                           
|The annual amortization expense for the next five years will be approximately $9.1 million. |   |         |         |       |              |         |  

CAE Year-End Financial Results 2009 | 23

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|                                                                                           |            |   |            |   |            |   |           |            |      |           |          |   |      |       |  
|------------------------------------------------------------------------------------------ | ---------- | - | ---------- | - | ---------- | - | --------- | ---------- | ---- | --------- | -------- | - | ---- | ----- | -
|Notes to the Consolidated Financial Statements                                             |            |   |            |   |            |   |           |            |      |           |          |   |      |       |  
|                                                                                          
|NOTE 10  GOODWILL                                                                         |            |   |            |   |            |   |           |            |      |           |          |   |      |       |  
|                                                                                          
|(amounts in millions)                                                                      |            |   |            |   |            |   |           |            |      |           |          |   |      | 2009  |  
|                                                                                           | Simulation |   | Training & |   | Simulation |   |           | Training & |      |           |          |  
|                                                                                           | Products/  |   | Services/  |   | Products/  |   |           | Services/  |      |           |          |  
|                                                                                           | Civil      |   | Civil      |   |            |   | Military  |            |      |           | Military |   |      | Total |  
|Opening balance                                                                            | $         | $ | 0.8        | $ | 76.3       |   | $         | 38.4       |      | $         | 115.5    |  
|Acquisitions (Note 3)                                                                      |           |   | 24.4       |   |            |   | 0.3       |            |      |           |         |   |      | 24.7  |  
|Foreign exchange                                                                           |           |   | 2.4        |   |            |   | 11.3      |            |      |           | 5.2      |   |      | 18.9  |  
|Closing balance                                                                            | $         | $ | 27.6       | $ | 87.9       |   | $         | 43.6       |      | $         | 159.1    |  
|                                                                                          
|(amounts in millions)                                                                      |            |   |            |   |            |   |           |            |      |           |          |   |      | 2008  |  
|                                                                                           | Simulation |   | Training & |   | Simulation |   |           | Training & |      |           |          |  
|                                                                                           | Products/  |   | Services/  |   |            |   | Products/ |            |      | Services/ |          |   |      |      
|                                                                                           | Civil      |   | Civil      |   |            |   | Military  |            |      |           | Military |   |      | Total |  
|Opening balance                                                                            | $         |   | $         | $ | 54.6       |   | $         | 42.3       |      | $         | 96.9     |  
|Acquisitions (Note 3)                                                                      |           |   | 0.8        |   |            |   | 28.0      |            |      |           |         |   |      | 28.8  |  
|Foreign exchange                                                                           |           |   |           |   |            |   | (6.3      | )          |      |           | (3.9     | ) |      | (10.2 | )
|Closing balance                                                                            | $         | $ | 0.8        | $ | 76.3       |   | $         | 38.4       |      | $         | 115.5    |  
|                                                                                          
|NOTE 11  OTHER ASSETS                                                                     |            |   |            |   |            |   |           |            |      |           |          |   |      |       |  
|                                                                                          
|(amounts in millions)                                                                      |            |   |            |   |            |   |           |            |      | 2009      |          |   |      | 2008  |  
|Restricted cash                                                                            |            |   |            |   |            | $ | 15.7      |            |      | $         | 8.6      |  
|Investment in and advances to CVS Leasing Ltd.(i)                                          |            |   |            |   |            |   |           |            |      | 46.0      |          |   |      | 41.7  |  
|Deferred development costs, net of accumulated amortization of $30.0 (2008  $26.7)(ii)    |            |   |            |   |            |   | 22.4      |            |      |           | 20.0     |  
|Deferred pre-operating costs, net of accumulated amortization of $25.7 (2008  $23.6)(iii) |            |   |            |   | 10.4       |   |           |            | 12.7 |          
|Deferred financing costs, net of accumulated amortization of $17.9 (2008  $17.0)          |            |   |            |   |            |   | 2.6       |            |      |           | 3.5      |  
|Long-term receivables                                                                      |            |   |            |   |            |   |           |            |      | 1.3       |          |   |      | 2.0   |  
|Accrued benefit asset (Note 23)                                                            |            |   |            |   |            |   |           |            |      | 28.4      |          |   |      | 25.9  |  
|Other, net of accumulated amortization of $7.8 (2008  $6.7)                               |            |   |            |   |            |   |           |            | 5.7  |           |          |   | 10.1 |      
|Long-term derivative assets                                                                |            |   |            |   |            |   |           |            |      | 19.1      |          |   |      | 13.7  |  
|                                                                                           |            |   |            |   |            | $ | 151.6     |            |      | $         | 138.2    |  

|(i)   | The Company leads a consortium, which was contracted by the United Kingdom (U.K.) Ministry of Defence (MoD) to design, construct, manage, finance and operate an integrated simulator-based aircrew training facility for the Medium Support Helicopter (MSH) fleet of the Royal Air Force. The contract covers a 40-year period, which can be terminated by the MoD after 20 years, in 2018.                                                                                                                                                                                                                                 
|----- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|      | In connection with the contract, the Company has established CAE Aircrew Training Plc (Aircrew). The Companys interest in the subsidiary is 77% with the balance being accounted for as a minority investment of the other consortium partners. This subsidiary has leased the land from the MoD, built the facility and operates the training centre. Aircrew has been consolidated with the accounts of the Company since its inception.                                                                                                                                                                                   
|      | In addition, the Company has a 12% minority shareholding and has advanced funds to CVS Leasing Ltd. (CVS), the entity that owns the simulators and other equipment leased to Aircrew.                                                                                                                                                                                                                                                                                                                                                                                                                                         
|(ii)  | R&D expenditures aggregated to $125.6 million (2008  $113.7 million; 2007  $99.8 million) during the year including amortization of $3.3 million (2008  $2.9 million; 2007  $4.8 million). Of this amount, $91.7 million (2008  $78.1 million; 2007  $80.3 million) was recorded as an expense. The remaining balance has been deferred in different line items on the balance sheet, of which $10.5 million (2008  $16.5 million; 2007  $3.0 million) net of government contributions was recorded as deferred development costs (refer to Note 22 for government contributions recorded against these expenditures).
|(iii) | The Company defers costs incurred during the pre-operating period for all new operations. Capitalization ceases and amortization begins when operations commence. In fiscal 2009, $1.8 million was capitalized (2008  $3.9 million) and an amortization of $2.1 million was taken (2008  $2.0 million; 2007  $3.0 million).                                                                                                                                                                                                                                                                                                

24 | CAE Year-End Financial Results 2009

---



|                                                    |  |                                     |       |   |                              |   |                  |     |       |       |             |                                                |       |            |   |            |     |      |       |   |      
|--------------------------------------------------- |  | ----------------------------------- | ----- | - | ---------------------------- | - | ---------------- | --- | ----- | ----- | ----------- | ---------------------------------------------- | ----- | ---------- | - | ---------- | --- | ---- | ----- | - | -----
|                                                    |  |                                     |       |   |                              |   |                  |     |       |       |             | Notes to the Consolidated Financial Statements
|                                                   
|NOTE 12  DEBT FACILITIES                           |  |                                     |       |   |                              |   |                  |     |       |       |             |                                                |       |            |   |            |     |      |      
|                                                   
|Long-term debt                                      |  |                                     |       |   |                              |   |                  |     |       |       |             |                                                |       |            |   |            |     |      |      
|                                                   
|(amounts in millions)                               |  |                                     |       |   |                              |   |                  |     |       | 2009  |             |                                                |       |            |   |            |     |      | 2008 
|                                                    |  |                                     |       |   | Gross Transaction Debt Basis |   | Net              |     | Gross |       | Transaction |                                                |       | Debt Basis |   | Net       
|                                                    |  |                                     |       |   | Amount                       |   | Costs Adjustment |     | Debt  |       | Amount      |                                                | Costs |            |   | Adjustment |     | Debt
|Recourse debt                                       |  |                                     |       |   |                              |   |                  |     |       |       |             |                                                |       |            |   |            |     |      |      
|(i)                                                 |  | Senior notes (US$60.0 maturing      |       |   |                              |   |                  |     |       |       |             |                                                |       |            |   |            |     |      |       |   |      
|                                                    |  | June 2009 and US$33.0 maturing      |       |   |                              |   |                  |     |       |       |             |                                                |       |            |   |            |     |      |       |   |      
|                                                    |  | June 2012)                          |       | $ | 117.2                        | $ | (0.1             | )   | $     | 5.3   | $           | 122.4                                          | $     | 95.6       | $ | (0.2       | )   | $    | 4.3   | $ | 99.7 
|(ii)                                                |  | Revolving unsecured term credit     |       |   |                              |   |                  |     |       |       |             |                                                |       |            |   |            |     |      |       |   |      
|                                                    |  | facilities, 5 years maturing        |       |   |                              |   |                  |     |       |       |             |                                                |       |            |   |            |     |      |       |   |      
|                                                    |  | July 2010; US$400.0 and 100.0      |       |   |                             |   |                 |     |       |      |             |                                               |       |           |   |           |     |      |      |   |     
|(iii)          Term loans, maturing in May and      |  |                                     |       |   |                              |   |                  |     |       |       |             |                                                |       |            |   |            |     |      |      
|                                                    |  | June 2011 (outstanding as at        |       |   |                              |   |                  |     |       |       |             |                                                |       |            |   |            |     |      |       |   |      
|                                                    |  | March 31, 2009  12.6 and 2.6, as |       |   |                              |   |                  |     |       |       |             |                                                |       |            |   |            |     |      |       |   |      
|                                                    |  | at March 31, 2008  18.3 and 3.6) |       |   | 25.5                         |   |                 |     |       |      |             | 25.5                                           |       | 35.6       |   |           |     |      |      |   | 35.6 
|(iv)                                                |  | Grapevine Industrial Development    |       |   |                              |   |                  |     |       |       |             |                                                |       |            |   |            |     |      |       |   |      
|                                                    |  | Corporation bonds, secured,         |       |   |                              |   |                  |     |       |       |             |                                                |       |            |   |            |     |      |       |   |      
|                                                    |  | maturing in January 2010 and 2013   |       |   |                              |   |                  |     |       |       |             |                                                |       |            |   |            |     |      |       |   |      
|                                                    |  | (US$27.0)                           |       |   | 34.0                         |   |                 |     |       |      |             | 34.0                                           |       | 27.7       |   |           |     |      |      |   | 27.7 
|(v)                                                 |  | Miami Dade County Bonds,            |       |   |                              |   |                  |     |       |       |             |                                                |       |            |   |            |     |      |       |   |      
|                                                    |  | collateralized, maturing in         |       |   |                              |   |                  |     |       |       |             |                                                |       |            |   |            |     |      |       |   |      
|                                                    |  | March 2024 (US$11.0)                |       |   | 13.9                         |   |                 |     |       |      |             | 13.9                                           |       | 11.3       |   |           |     |      |      |   | 11.3 
|(vi)                                                |  | Other debt, with various maturities |       |   |                              |   |                  |     |       |       |             |                                                |       |            |   |            |     |      |       |   |      
|                                                    |  | from April 2010 to March 2016       |       |   | 18.1                         |   |                 |     |       |      |             | 18.1                                           |       | 11.3       |   |           |     |      |      |   | 11.3 
|(vii)         Obligations under capital lease       |  |                                     |       |   |                              |   |                  |     |       |       |             |                                                |       |            |   |            |     |      |      
|                                                    |  | commitments                         |       |   | 26.2                         |   |                 |     |       |      |             | 26.2                                           |       | 8.1        |   |           |     |      |      |   | 8.1  
|Non-recourse debt(1)                                |  |                                     |       |   |                              |   |                  |     |       |       |             |                                                |       |            |   |            |     |      |      
|(viii)        Term loan of £12.7 collateralized,    |  |                                     |       |   |                              |   |                  |     |       |       |             |                                                |       |            |   |            |     |      |      
|                                                    |  | maturing in October 2016            |       |   |                              |   |                  |     |       |       |             |                                                |       |            |   |            |     |      |       |   |      
|                                                    |  | (outstanding as at March 31, 2009  |       |   |                              |   |                  |     |       |       |             |                                                |       |            |   |            |     |      |       |   |      
|                                                    |  | £3.5, as at March 31, 2008  £4.0)  |       |   | 6.4                          |   |                 |     |       |      |             | 6.4                                            |       | 8.2        |   |           |     |      |      |   | 8.2  
|(ix)                                                |  | Term loan maturing in               |       |   |                              |   |                  |     |       |       |             |                                                |       |            |   |            |     |      |       |   |      
|                                                    |  | December 2019 (outstanding as at    |       |   |                              |   |                  |     |       |       |             |                                                |       |            |   |            |     |      |       |   |      
|                                                    |  | March 31, 2009  40.9, as at       |       |   |                              |   |                  |     |       |       |             |                                                |       |            |   |            |     |      |       |   |      
|                                                    |  | March 31, 2008  32.5)             |       |   | 68.4                         |   | (1.2             | )   |       |      |             | 67.2                                           |       | 52.8       |   | (1.3       | )   |      |      |   | 51.5 
|(x)           Term loans with various maturities to |  |                                     |       |   |                              |   |                  |     |       |       |             |                                                |       |            |   |            |     |      |      
|                                                    |  | August 2014 (outstanding as at      |       |   |                              |   |                  |     |       |       |             |                                                |       |            |   |            |     |      |       |   |      
|                                                    |  | March 31, 2009  US$21.7, ¥59.5     |       |   |                              |   |                  |     |       |       |             |                                                |       |            |   |            |     |      |       |   |      
|                                                    |  | and HKD49.0, as at March 31, 2008   |       |   |                              |   |                  |     |       |       |             |                                                |       |            |   |            |     |      |       |   |      
|                                                    |  |  US$18.1, ¥40.7 and HKD nil)       |       |   | 46.3                         |   |                 |     |       |      |             | 46.3                                           |       | 24.4       |   |           |     |      |      |   | 24.4 
|(xi)                                                |  | Term loan maturing in 2014          |       |   |                              |   |                  |     |       |       |             |                                                |       |            |   |            |     |      |       |   |      
|                                                    |  | (outstanding as at March 31, 2009  |       |   |                              |   |                  |     |       |       |             |                                                |       |            |   |            |     |      |       |   |      
|                                                    |  | US$24.8 and £9.6, as at             |       |   |                              |   |                  |     |       |       |             |                                                |       |            |   |            |     |      |       |   |      
|                                                    |  | March 31, 2008  US$25.2 and        |       |   |                              |   |                  |     |       |       |             |                                                |       |            |   |            |     |      |       |   |      
|                                                    |  | £9.9)                               |       |   | 48.6                         |   | (1.8             | )   |       |      |             | 46.8                                           |       | 46.0       |   | (2.3       | )   |      |      |   | 43.7 
|                                                    |  | Term loan maturing in 2018          |       |   |                              |   |                  |     |       |       |             |                                                |       |            |   |            |     |      |       |   |      
|                                                    |  | (outstanding as at March 31, 2009  |       |   |                              |   |                  |     |       |       |             |                                                |       |            |   |            |     |      |       |   |      
|                                                    |  | US$43.2 and £8.5, as at             |       |   |                              |   |                  |     |       |       |             |                                                |       |            |   |            |     |      |       |   |      
|                                                    |  | March 31, 2008  US$43.2 and        |       |   |                              |   |                  |     |       |       |             |                                                |       |            |   |            |     |      |       |   |      
|                                                    |  | £8.5)                               |       |   | 69.6                         |   | (3.0             | )   |       |      |             | 66.6                                           |       | 61.5       |   | (3.2       | )   |      |      |   | 58.3 
|(xii)         Term loan maturing in 2025            |  |                                     |       |   |                              |   |                  |     |       |       |             |                                                |       |            |   |            |     |      |      
|                                                    |  | collateralized, (outstanding as at  |       |   |                              |   |                  |     |       |       |             |                                                |       |            |   |            |     |      |       |   |      
|                                                    |  | March 31, 2009  US$6.0, as at      |       |   |                              |   |                  |     |       |       |             |                                                |       |            |   |            |     |      |       |   |      
|                                                    |  | March 31, 2008  US$ nil)           |       |   | 7.6                          |   | (0.7             | )   |       |      |             | 6.9                                            |       |           |   |           |     |      |      |   |     
|Total long-term debt                                |  | $                                   | 481.8 | $ | (6.8                         | ) | $                | 5.3 | $     | 480.3 | $           | 382.5                                          | $     | (7.0       | ) | $          | 4.3 | $    | 379.8
|Less:                                               |  |                                     |       |   |                              |   |                  |     |       |       |             |                                                |       |            |   |            |     |      |      
|Current portion of long-term debt                   |  |                                     | 122.6 |   | (1.0                         | ) |                  |    |       | 121.6 |             | 27.6                                           |       | (1.0       | ) |            |    |      | 26.6 
|Current portion of capital lease                    |  |                                     | 4.0   |   |                             |   |                  |    |       | 4.0   |             | 0.7                                            |       |           |   |            |    |      | 0.7  
|                                                    |  |                                     |       | $ | 355.2                        | $ | (5.8             | )   | $     | 5.3   | $           | 354.7                                          | $     | 354.2      | $ | (6.0       | )   | $    | 4.3   | $ | 352.5

(1)Non-recourse debt is classified as such when recourse against the debt in a subsidiary is limited to the assets, equity interest and undertaking of such subsidiary.

CAE Year-End Financial Results 2009 | 25

---





| | Notes to the Consolidated Financial Statements
| | ----------------------------------------------

|(i)   | Pursuant to a private placement, the Company borrowed US$93.0 million (2008  US$93.0 million). These unsecured senior notes rank equally with term bank financings with fixed repayment amounts of US$60.0 million in 2009 and US$33.0 million in 2012. Fixed interest is payable semi-annually in June and December at an average rate of 7.6%. 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% on US$33.0 million of the senior notes. The Company has an outstanding interest rate swap contract that replaced a swap contract that had previously been put in place when the debt was raised. The existing swap contract is designated as a fair value hedge of its private placement resulting in changes in LIBOR interest rates. With regards to the outstanding fair value hedge, the gains or losses on the hedged items attributable to the hedged risk are accounted for as an adjustment to the carrying value of the hedged items. For the fair value hedge that was discontinued prior to the transaction date, the carrying amount of the hedged item is adjusted by the remaining balance of any deferred gain or loss on the hedging item. As such, the debt basis adjustment has been recorded with the private placement as an increase to the gross long-term debt amount.
|----- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(ii)  | On July 7, 2005, the Company entered into a revolving credit agreement. This revolving unsecured term credit facility (US$400.0 million and 100.0 million) has a committed term of five years maturing in July 2010. The facility has covenants covering minimum shareholders equity, interest coverage and debt coverage ratios. 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|(iii) | The Company, in association with Iberia Lineas de España, combined their aviation training operations in Spain. The operators financed the acquisition of the simulators from CAE and Iberia through asset-backed financing maturing in May and June 2011.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|      | As part of the lease agreements, should the October 2003 agreement be terminated, CAE and Iberia will be obliged to repurchase the simulators they contributed, in proportion to the fair value of the simulators, for a total amount equal to the outstanding balance under the financing agreement. Quarterly capital repayments are made for the term of the financing. The implicit interest rate is 4.60%. The net book value of the simulators being financed, as at March 31, 2009, is equal to approximately $89.4 million (53.5 million) [2008  $85.0 million (52.3 million)].                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         

|(iv)   | Airport Improvement Revenue Bonds were issued by the Grapevine Industrial Development Corporation, Grapevine, Texas for amounts of US$8.0 million and US$19.0 million, and mature in 2010 and 2013, respectively. The rates are set periodically by the remarketing agent based on market conditions. The rate for bonds maturing in 2010 is set on a weekly basis. The rate for bonds maturing in 2013 is set on an annual basis and is subject to a maximum rate of 10% permissible under current applicable laws.                                                                                                                                                                                   
|------ | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|       | As at March 31, 2009, the combined rate for both series was approximately 3.06% (2008  4.69%). A letter of credit has been issued to support the bonds for the outstanding amount of the loans.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|(v)    | The Miami Dade County Bonds, maturing in March 2024 (US$11.0 million), are collateralized by a simulator. As at March 31, 2009, the applicable floating rate, which is reset weekly, was 3.10%. Also, a letter of credit has been issued to support the bonds for the outstanding amount of the loans.                                                                                                                                                                                                                                                                                                                                                                                                 
|(vi)   | Other debts include an unsecured $35.0 million facility to secure financing for the cost of establishment of an enterprise resource planning (ERP) system, maturing March 2016. A drawdown under the ERP facility can be made only once the costs are incurred, on a quarterly basis, with monthly repayments over a term of seven years beginning at the end of the first month following each quarterly disbursement. Also included is a $0.9 million (0.5 million) loan for one of the Companys flight schools, maturing April 2010. The average interest rates on these borrowings are approximately 6.1%.                                                                                       
|(vii)  | These capital leases relate to the leasing of various equipment, simulators, and a building assumed as a result of our fiscal 2009 acquisitions. The leases have maturities ranging from September 2009 to March 2018, and effective interest rates ranging from 3.98% to 6.09%. The implicit lease rate for the capital lease related to the building was considered below the market rate upon initial recognition on the date of acquisition. Accordingly, this capital lease was initially recorded at a fair market value that was lower than its face value. As the debt will be accreted over time, the full face value of the debt will be repaid upon maturity.                               
|(viii) | The Company arranged project financing, which was refinanced during December 2004 for one of its subsidiaries to finance its MSH program for the MoD in the U.K. The credit facility 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 financing is non-recourse to CAE. Interest on the loans is charged at a rate approximating LIBOR plus 0.85%. The Company has entered into an interest rate swap totalling £3.5 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, 2009 is £35.8 million (2008  £31.2 million).

|(ix) | Term loan, maturing in December 2019, representing CAEs proportionate share of the German NH90 project. The total amount available for the project Company under the facility is 175.5 million. The debt is non-recourse to CAE. The borrowings bear interest at a EURIBOR rate and are currently swapped to a fixed rate of 4.8%.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|---- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(x)  | Term loans representing CAEs proportionate share of term debt for the acquisition of simulators and expansion of the building, on a non-recourse basis, for its joint venture in Zhuhai Xiang Yi Aviation Technology Company Limited. The term debt has been arranged through several financial institutions. Borrowings are denominated in U.S. dollars, Chinese Yuan Renminbi (¥), and Hong Kong dollars (HKD). The U.S. dollar-based borrowings bear interest on a floating rate basis of U.S. LIBOR plus a spread ranging from 0.45% to 1% and have maturities between August 2008 and August 2014. The ¥ based borrowings bear interest at the local rate of interest with final maturities between September 2008 and September 2011. The HKD borrowings bear interest at HKD HIBOR plus a spread of 1.5% with final maturities in April 2009.

26 | CAE Year-End Financial Results 2009

---





|Notes to the Consolidated Financial Statements
|----------------------------------------------

|(xi)  | During fiscal year 2008, the Company obtained senior secured financing for two new civil aviation training centres. As at March 31, 2009, the outstanding aggregate balance amounted to $118.2 million (US$68.0 million and £18.1 million). The drawdown is separated into two tranches with principal and interest. Tranche A is being amortized quarterly beginning in December 2008 with a final maturity of June 2014 and principal and interest of Tranche B being amortized quarterly beginning in July 2014 until final maturity of June 2018. The debt is non-recourse to the Company and is collateralized by the assets of the training centres and is cross-guaranteed and cross-collateralized by the cash-flow generated by the two training centres. The combined coupon rate of the post-swap debt amounts to 8.28%.
|----- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(xii) | During fiscal year 2009, the Company and its partner obtained US$42.1 million of senior collateralized non-recourse financing for the HATSOFF Helicopter Training Private Limited joint venture, a military aviation training centre in Bangalore, India. The debt begins semi-annual amortization in September 2013 with a final maturity of September 2025. After taking into consideration the effect of USD-Indian rupees cross currency swap agreement, the fixed interest rate is 10.35% per annum. As at March 31, 2009, CAEs proportionate share of the drawn amount was US$6.0 million.                                                                                                                                                                                                                                  

Payments required in each of the next five fiscal years to meet the retirement provisions of the long-term debt and face values of capital leases are as follows:

|                                                                         |   |                |   |               |   |      
|------------------------------------------------------------------------ | - | -------------- | - | ------------- | - | -----
|(amounts in millions)                                                    |   | Long-term debt |   | Capital lease |   | Total
|2010                                                                     | $ | 122.6          | $ | 4.0           | $ | 126.6
|2011                                                                     |   | 32.9           |   | 10.3          |   | 43.2 
|2012                                                                     |   | 27.3           |   | 1.9           |   | 29.2 
|2013                                                                     |   | 89.8           |   | 1.9           |   | 91.7 
|2014                                                                     |   | 35.9           |   | 2.0           |   | 37.9 
|Thereafter                                                               |   | 147.1          |   | 7.3           |   | 154.4
|                                                                         | $ | 455.6          | $ | 27.4          | $ | 483.0
|                                                                        
|As at March 31, 2009, CAE is in compliance with its financial covenants. |   |                |   |              

Short-term debt

The Company has an unsecured and uncommitted bank line of credit available in euros totalling $5.0 million (2008  $4.9 million; 2007  $4.6 million), none of which is used as at March 31, 2009 (2008  Nil). The line of credit bears interest at a euro base rate.

|                                                     |   |      |   |   |      |   |   |      |  
|---------------------------------------------------- | - | ---- | - | - | ---- | - | - | ---- | -
|Interest expense, net                                |   |      |   |   |      |   |   |      |  
|Details of interest expense (income) are as follows: |   |      |   |   |      |   |   |      |  
|                                                    
|(amounts in millions)                                |   | 2009 |   |   | 2008 |   |   | 2007 |  
|Long-term debt interest expense                      | $ | 26.9 |   | $ | 23.9 |   | $ | 18.5 |  
|Amortization of deferred financing costs and other   |   | 3.2  |   |   | 2.7  |   |   | 2.3  |  
|Interest capitalized                                 |   | (5.9 | ) |   | (4.7 | ) |   | (4.1 | )
|Interest on long-term debt                           | $ | 24.2 |   | $ | 21.9 |   | $ | 16.7 |  
|Interest income                                      | $ | (2.6 | ) | $ | (3.0 | ) | $ | (4.8 | )
|Other interest income, net                           |   | (1.4 | ) |   | (1.4 | ) |   | (1.3 | )
|Interest income, net                                 | $ | (4.0 | ) | $ | (4.4 | ) | $ | (6.1 | )
|Interest expense, net                                | $ | 20.2 |   | $ | 17.5 |   | $ | 10.6 |  

The Companys interest income is mainly a result of interest revenue on cash on hand and advances to CVS. CVS is an entity that owns simulators and other equipment used to train U.K. Ministry of Defence pilots at the Companys Benson Air Force Base training centre. The Company owns a minority shareholding of 12% in CVS.

|                                                         |   |       |   |      
|-------------------------------------------------------- | - | ----- | - | -----
|NOTE 13  DEFERRED GAINS AND OTHER LONG-TERM LIABILITIES |   |       |   |      
|                                                        
|(amounts in millions)                                    |   | 2009  |   | 2008 
|Deferred gains on sale and leasebacks(i)                 | $ | 52.8  | $ | 63.3 
|Deferred revenue                                         |   | 31.6  |   | 21.3 
|Deferred gains                                           |   | 5.8   |   | 8.1  
|Employee benefits obligation (Note 23)                   |   | 32.5  |   | 29.2 
|Non-controlling interest(ii)                             |   | 20.8  |   | 20.2 
|Long-term payable to Investissement Québec               |   |      |   | 0.7  
|Long-term derivative liabilities                         |   | 20.4  |   | 9.1  
|LTI RSU/DSU compensation obligation                      |   | 17.1  |   | 22.0 
|Other                                                    |   | 4.6   |   | 11.0 
|                                                         | $ | 185.6 | $ | 184.9

|(i)  | The related amortization for the year amounted to $4.4 million (2008  $3.8 million; 2007  $4.0 million).                          
|---- | ------------------------------------------------------------------------------------------------------------------------------------
|(ii) | Non-controlling interest of 23% in Military CAE Aircrew Training Centre, 20% of the civil training centres in Madrid and 10% in AAE.

CAE Year-End Financial Results 2009 | 27

---



Notes to the Consolidated Financial Statements

NOTE 14  INCOME TAXES

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

|                                                                                                                         |   |       |   |   |       |   |       |   |       |       |   |       |  
|------------------------------------------------------------------------------------------------------------------------ | - | ----- | - | - | ----- | - | ----- | - | ----- | ----- | - | ----- | -
|(amounts in millions except for income tax rates)                                                                        |   | 2009  |   |   |       |   | 2008  |   |       |       |   | 2007  |  
|Earnings before income taxes and discontinued operations                                                                 | $ | 283.4 |   | $ | 234.0 |   |       |   | $     | 178.8 |  
|Canadian statutory income tax rates                                                                                      |   | 30.92 |   |   | %     |   | 31.80 |   | %     |       |   | 32.08 | %
|Income taxes at Canadian statutory rates                                                                                 | $ | 87.6  |   | $ | 74.4  |   |       |   | $     | 57.4  |  
|Difference between Canadian statutory rates and those applicable to foreign                                              |   |       |   |   |       |   |       |   |       |       |   |       |  
|subsidiaries                                                                                                             |   | (7.3  | ) |   |       |   | (5.5  | ) |       |       |   | (2.8  | )
|Losses not tax effected                                                                                                  |   | 5.0   |   |   |       |   | 4.1   |   |       |       |   | 0.3   |  
|Tax benefit of operating losses not previously recognized                                                                |   | (0.3  | ) |   |       |   | (1.8  | ) |       |       |   | (2.3  | )
|Non-taxable capital gain                                                                                                 |   | (0.8  | ) |   |       |   | (0.2  | ) |       |       |   | (0.6  | )
|Non-deductible items                                                                                                     |   | 2.0   |   |   |       |   | 5.0   |   |       |       |   | 2.4   |  
|Prior years tax adjustments and assessments                                                                             |   | 1.5   |   |   |       |   | (2.0  | ) |       |       |   | (1.0  | )
|Impact of change in income tax rates on future income taxes                                                              |   | (0.6  | ) |   |       |   | (2.4  | ) |       |       |   | (1.2  | )
|Non-taxable research and development tax credits                                                                         |   | (1.0  | ) |   |       |   | (0.9  | ) |       |       |   | (0.8  | )
|Other tax benefit not previously recognized                                                                              |   | (3.0  | ) |   |       |   | (2.5  | ) |       |       |   | (3.2  | )
|Other                                                                                                                    |   | (0.2  | ) |   |       |   | 1.0   |   |       |       |   | 1.5   |  
|Total income tax expense                                                                                                 | $ | 82.9  |   | $ | 69.2  |   |       |   | $     | 49.7  |  
|                                                                                                                        
|Significant components of the provision for the income tax expense attributable to continuing operations are as follows: |   |       |   |  
|                                                                                                                        
|(amounts in millions)                                                                                                    |   | 2009  |   |   |       |   | 2008  |   |       |       |   | 2007  |  
|Current income tax expense                                                                                               | $ | 74.9  |   | $ | 42.8  |   |       |   | $     | 63.9  |  
|Future income tax expense (recovery)                                                                                     |   |       |   |   |       |   |       |   |       |       |   |       |  
|Tax benefit of operating losses not previously recognized                                                                |   | (0.3  | ) |   |       |   | (1.8  | ) |       |       |   | (2.3  | )
|Impact of change in income tax rates on the future income taxes                                                          |   | (0.6  | ) |   |       |   | (2.4  | ) |       |       |   | (1.2  | )
|Other tax benefit not previously recognized                                                                              |   | (3.0  | ) |   |       |   | (2.5  | ) |       |       |   | (3.2  | )
|Change related to temporary differences                                                                                  |   | 11.9  |   |   |       |   | 33.1  |   |       |       |   | (7.5  | )
|Total income tax expense                                                                                                 | $ | 82.9  |   | $ | 69.2  |   |       |   | $     | 49.7  |  
|                                                                                                                        
|The tax effects of temporary differences that give rise to future tax liabilities and assets are as follows:             |   |       |   |   |       |   |       |  
|                                                                                                                        
|(amounts in millions)                                                                                                    |   |       |   |   |       |   |       |   | 2009  |       |   | 2008  |  
|Future income tax assets                                                                                                 |   |       |   |   |       |   |       |   |       |       |   |       |  
|Non-capital loss carryforwards                                                                                           |   |       |   |   |       | $ | 42.8  |   | $     | 39.0  |  
|Capital loss carryforwards                                                                                               |   |       |   |   |       |   |       |   | 2.0   |       |   | 2.4   |  
|Intangible assets                                                                                                        |   |       |   |   |       |   |       |   | 9.4   |       |   | 11.7  |  
|Amounts not currently deductible                                                                                         |   |       |   |   |       |   |       |   | 21.3  |       |   | 20.0  |  
|Deferred revenues                                                                                                        |   |       |   |   |       |   |       |   | 9.9   |       |   | 10.7  |  
|Tax benefit carryover                                                                                                    |   |       |   |   |       |   |       |   | 6.0   |       |   | 4.6   |  
|Unclaimed research and development expenditures                                                                          |   |       |   |   |       |   |       |   | 4.5   |       |   | 3.9   |  
|Other                                                                                                                    |   |       |   |   |       |   |       |   | 3.4   |       |   |      |  
|                                                                                                                         |   |       |   |   |       | $ | 99.3  |   | $     | 92.3  |  
|Valuation allowance                                                                                                      |   |       |   |   |       |   |       |   | (21.4 | )     |   | (20.6 | )
|                                                                                                                         |   |       |   |   |       | $ | 77.9  |   | $     | 71.7  |  
|Future income tax liabilities                                                                                            |   |       |   |   |       |   |       |   |       |       |   |       |  
|Investment tax credits                                                                                                   |   |       |   |   |       | $ | (15.5 | ) | $     | (18.3 | )
|Property, plant and equipment                                                                                            |   |       |   |   |       |   |       |   | (29.2 | )     |   | (13.9 | )
|Percentage-of-completion versus completed contract                                                                       |   |       |   |   |       |   |       |   | (2.1  | )     |   | (8.8  | )
|Deferred research and development expenses                                                                               |   |       |   |   |       |   |       |   | (0.7  | )     |   | (0.2  | )
|Other                                                                                                                    |   |       |   |   |       |   |       |   |      |       |   | (0.1  | )
|                                                                                                                         |   |       |   |   |       | $ | (47.5 | ) | $     | (41.3 | )
|Net future income tax assets                                                                                             |   |       |   |   |       | $ | 30.4  |   | $     | 30.4  |  
|Net current future income tax asset                                                                                      |   |       |   |   |       | $ | 5.3   |   | $     | 14.1  |  
|Net non-current future income tax asset                                                                                  |   |       |   |   |       |   |       |   | 86.0  |       |   | 64.3  |  
|Net current future income tax liability                                                                                  |   |       |   |   |       |   |       |   | (20.9 | )     |   | (16.8 | )
|Net non-current future income tax liability                                                                              |   |       |   |   |       |   |       |   | (40.0 | )     |   | (31.2 | )
|                                                                                                                         |   |       |   |   |       | $ | 30.4  |   | $     | 30.4  |  

28 | CAE Year-End Financial Results 2009

---





|Notes to the Consolidated Financial Statements
|----------------------------------------------

As at March 31, 2009, the Company has accumulated non-capital losses carried forward relating to operations in Canada for approximately $17.3 million. For financial reporting purposes, a net future income tax asset of $5.1 million has been recognized in respect of these loss carryforwards.

As at March 31, 2009, the Company has accumulated non-capital losses carried forward relating to operations in the United States for approximately $11.7 million (US$9.3 million). For financial reporting purposes, a net future income tax asset of $2.6 million (US$2.1 million) has been recognized in respect of these loss carryforwards.

The Company has accumulated non-capital tax losses carried forward relating to its operations in other countries of approximately $107.4 million. For financial reporting purposes, a net future income tax asset of $22.9 million has been recognized.

The Company also has accumulated capital losses carried forward relating to operations in the United States for approximately $5.8 million (US$4.6 million). For financial reporting purposes, no future income tax asset was recognized, as a full valuation allowance was taken.

|                                                                  |                     |     |                       |      
|----------------------------------------------------------------- | ------------------- | --- | --------------------- | -----
|The non-capital losses for income tax purposes expire as follows: |                     |     |                       |      
|                                                                 
|(amounts in millions)                                             |                     |     |                       |      
|Expiry date                                                       | United States (US$) |     | Other Countries (CA$)
|2010                                                              | US$                 |    | $                     | 3.7  
|2013                                                              |                     | 5.4 |                       |     
|2015                                                              |                     |    |                       | 0.6  
|2020  2029                                                       |                     | 3.9 |                       | 18.8 
|No expiry date                                                    |                     |    |                       | 101.6
|                                                                  | US$                 | 9.3 | $                     | 124.7

The valuation allowance principally relates to loss carryforward benefits where realization is not likely due to a history of losses, and to the uncertainty of sufficient taxable earnings in the future, together with time limitations in the tax legislation giving rise to the potential benefit. In 2009, $3.3 million (2008  $4.3 million) of the valuation allowance balance was reversed based on the assessment of the Company that it is more likely than not that the future income tax benefits will be realized.

NOTE 15  CAPITAL STOCKCapital stock

Authorized

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

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

|                                               |             |      |        |             |      |        |             |      |       
|---------------------------------------------- | ----------- | ---- | ------ | ----------- | ---- | ------ | ----------- | ---- | ------
|(amounts in millions, except number of shares) |             | 2009 |        |             | 2008 |        |             | 2007
|                                               | Number      |      | Stated | Number      |      | Stated | Number      |      | Stated
|                                               | of Shares   |      | Value  | of Shares   |      | Value  | of Shares   |      | Value 
|Balance at beginning of year                   | 253,969,836 | $    | 418.9  | 251,960,449 | $    | 401.7  | 250,702,430 | $    | 389.0 
|Shares issued(a)                               |            |      |       | 169,851     |      | 0.8    |            |      |      
|Stock options exercised                        | 1,077,200   |      | 9.3    | 1,814,095   |      | 13.9   | 1,236,895   |      | 10.0  
|Transfer of contributed surplus                |             |      |        |             |      |        |             |      |       
|upon exercise of stock options                 |            |      | 1.0    |            |      | 2.2    |            |      | 2.5   
|Stock dividends                                | 99,407      |      | 1.0    | 25,441      |      | 0.3    | 21,124      |      | 0.2   
|Balance at end of year                         | 255,146,443 | $    | 430.2  | 253,969,836 | $    | 418.9  | 251,960,449 | $    | 401.7 

|(a) | On November 30, 2007, the Company issued 169,851 common shares at a price of $4.71 per share for the fourth and final tranche payment for the purchase of CAE Professional Services (Canada) Inc.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The following is a reconciliation of the denominators for the basic and diluted earnings per share computations:

|                                                               |             |             |            
|-------------------------------------------------------------- | ----------- | ----------- | -----------
|                                                               | 2009        | 2008        | 2007       
|Weighted average number of common shares outstanding  Basic   | 254,756,989 | 253,406,176 | 251,110,476
|Effect of dilutive stock options                               | 201,817     | 1,160,474   | 1,894,730  
|Weighted average number of common shares outstanding  Diluted | 254,958,806 | 254,566,650 | 253,005,206

Options to acquire 1,992,880 common shares (2008  1,144,704; 2007  1,397,200) have been excluded from the above calculation since their inclusion would have had an anti-dilutive effect.

CAE Year-End Financial Results 2009 | 29

---





|Notes to the Consolidated Financial StatementsNOTE 16  STOCK-BASED COMPENSATION PLANSEmployee 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 to be equivalent to 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, 2009, a total of 15,047,696 common shares remained authorized for issuance under the Employee Stock Option Plan (ESOP). The options are exercisable during a period not to exceed six years, and are not exercisable during the first 12 months after the date of the grant. The right to exercise all of the options vests over a period of four years of continuous employment from the grant date. 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.

|                                                                                          |            |   |   |             |                     |                     |   |          |           |             |   |          |      
|----------------------------------------------------------------------------------------- | ---------- | - | - | ----------- | ------------------- | ------------------- | - | -------- | --------- | ----------- | - | -------- | -----
|A reconciliation of the outstanding options is as follows:                                |            |   |   |             |                     |                     |   |          |           |             |   |         
|                                                                                         
|Years ended March 31                                                                      |            |   |   | 2009        |                     |                     |   |          | 2008      |             |   |          | 2007 
|                                                                                          |            |   |   | Weighted    |                     |                     |   | Weighted |           |             |   | Weighted
|                                                                                          |            |   |   | Average     |                     |                     |   | Average  |           |             |   | Average 
|                                                                                          | Number     |   |   | Exercise    | Number              |                     |   | Exercise | Number    |             |   | Exercise
|                                                                                          | of Options |   |   | Price       | of Options          |                     |   |          | Price     | of Options  |   |          | Price
|Options outstanding at beginning of year                                                  | 4,602,374  |   | $ | 9.00        | 5,441,915           |                     | $ | 7.57     | 6,347,235 |             | $ | 7.66    
|Granted                                                                                   | 829,600    |   |   | 13.09       | 1,167,588           |                     |   |          | 14.06     | 647,700     |   |          | 9.13 
|Exercised                                                                                 | (1,077,200 | ) |   | 8.62        | (1,814,095          | )                   |   |          | 7.66      | (1,236,895  | ) |          | 8.07 
|Forfeited                                                                                 | (79,574    | ) |   | 7.56        | (47,034             | )                   |   |          | 9.57      | (316,125    | ) |          | 10.60
|Expired                                                                                   | (64,050    | ) |   | 12.73       | (146,000            | )                   |   |          | 12.59     |            |   |          |     
|Options outstanding at end of year                                                        | 4,211,150  |   | $ | 9.87        | 4,602,374           |                     | $ | 9.00     | 5,441,915 |             | $ | 7.57    
|Options exercisable at end of year                                                        | 1,959,690  |   | $ | 6.76        | 2,543,545           |                     | $ | 7.26     | 2,986,135 |             | $ | 8.58    
|                                                                                         
|The following table summarizes information about the Companys ESOP as at March 31, 2009: |            |   |   |             |                    
|                                                                                         
|Range of exercise prices                                                                  |            |   |   |             | Options Outstanding | Options Exercisable
|                                                                                          |            |   |   |             | Weighted            |                     |   |          |           |             |   |          |      
|                                                                                          |            |   |   |             | Average             |                     |   | Weighted |           |             |   | Weighted
|                                                                                          |            |   |   |             | Remaining           |                     |   | Average  |           |             |   | Average 
|                                                                                          |            |   |   | Number      | Contractual         |                     |   | Exercise | Number    |             |   | Exercise
|                                                                                          |            |   |   | Outstanding | Life (Years)        |                     |   |          | Price     | Exercisable |   |          | Price
|$4.08 to $6.03                                                                            |            |   |   | 1,178,170   | 1.35                |                     | $ | 5.42     | 1,057,145 |             | $ | 5.37    
|$6.19 to $9.12                                                                            |            |   |   | 1,040,100   | 2.15                |                     |   |          | 7.69      | 735,050     |   |          | 7.11 
|$10.31 to $14.10                                                                          |            |   |   | 1,992,880   | 4.59                |                     |   |          | 13.64     | 167,495     |   |          | 13.96
|Total                                                                                     |            |   |   | 4,211,150   | 3.08                |                     | $ | 9.87     | 1,959,690 |             | $ | 6.76    

For the year ended March 31, 2009, compensation cost for CAEs stock options was recognized in consolidated net earnings with a corresponding credit of $2.8 million (fiscal 2008  $4.8 million; fiscal 2007  $2.6 million) to contributed surplus using the fair value method of accounting for awards that were granted since 2004.

|                                                                                                        |   |         |   |   |         |   |   |         |  
|------------------------------------------------------------------------------------------------------- | - | ------- | - | - | ------- | - | - | ------- | -
|The assumptions used for purposes of the option calculations outlined in this note are presented below: |   |         |   |   |         |   |  
|                                                                                                       
|                                                                                                        |   | 2009    |   |   | 2008    |   |   | 2007    |  
|Assumptions used in the Black-Scholes options pricing model:                                            |   |         |   |   |         |   |   |         |  
|Dividend yield                                                                                          |   | 0.90    | % |   | 0.28    | % |   | 0.44    | %
|Expected volatility                                                                                     |   | 29.3    | % |   | 33.0    | % |   | 45.0    | %
|Risk-free interest rate                                                                                 |   | 3.50    | % |   | 4.64    | % |   | 4.38    | %
|Expected option term                                                                                    |   | 4 years |   |   | 4 years |   |   | 4 years |  
|Weighted average fair value of options granted                                                          | $ | 3.62    |   | $ | 4.57    |   | $ | 3.57    |  

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 lump-sum payment plus employer contributions. The ESPP allows employees to contribute up to 18% of their annual base salary. The Company and its participating subsidiaries match the first $500 employee contribution and contribute $1 for every $2 on additional employee contributions, up to a maximum of 3% of the employees base salary. The plan provides for tax deferral of employee and employer contributions through a Registered Retirement Saving Plan (RRSP) and Deferred Profit Sharing Plan (DPSP). Common shares of the Company are purchased by the ESPP trustee on behalf of the participants on the open market, through the facilities of the TSX. The Company recorded compensation expense in the amount of $4.3 million (2008  $3.9 million; 2007  $3.1 million) in respect of employer contributions under the Plan.

30 | CAE Year-End Financial Results 2009

---





|Notes to the Consolidated Financial Statements
|----------------------------------------------

Deferred Share Unit Plan

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 enhance the Companys ability to promote a greater alignment of interests between executives and the shareholders of the Company. A deferred share unit is equal in value to one common share of the Company. The units are issued on the basis of the average closing board lot sale price per share of CAE common shares on the 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. Deferred share units 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.

In fiscal 2000, the Company adopted 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 not 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 part or all of his or her retainer and attendance fees. The terms of the plan are essentially identical to the key executive DSU Plan except that 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 long-term liability inDeferred gains and other long-term liabilitiesin the Companys consolidated balance sheet. The recovery recorded in fiscal 2009 was $0.9 million (2008  $0.1 million expense; 2007  $2.0 million expense).

|                                                          |         |   |         |  
|--------------------------------------------------------- | ------- | - | ------- | -
|The following table summarizes the DSU units outstanding: |         |   |         |  
|                                                         
|Years ended March 31                                      | 2009    |   | 2008    |  
|DSUs outstanding at beginning of year                     | 405,680 |   | 425,092 |  
|Units granted                                             | 80,410  |   | 42,599  |  
|Units cancelled                                           |        |   | (127    | )
|Units redeemed                                            | (22,526 | ) | (63,128 | )
|Dividends paid in units                                   | 5,728   |   | 1,244   |  
|DSUs outstanding at end of year                           | 469,292 |   | 405,680 |  

Long-Term Incentive (LTI)  Deferred Share Unit Plans

All CAE Long-Term Incentive Deferred Share Unit Plans (LTI-DSU) are intended to enhance the Companys ability to promote a greater alignment of interests between executives and shareholders of the Company. LTI-DSUs are granted to executives and senior management of the Company. A LTI-DSU is equal in value to one common share at a specific date. The LTI-DSU are also entitled to dividend equivalents payable in additional units in an amount equal to dividends paid on CAE common shares. With the exception of the fiscal year 2004 plan which precludes the redemption of vested DSUs upon the participants voluntary resignation, eligible participants are entitled to receive a cash payment equivalent to the fair market value of the number of vested DSUs held upon any termination of employment. Upon termination of employment for reasons of 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.

Fiscal year 2004 plan

The fiscal year 2004 plan stipulates that granted units vest equally over four years. All the units issued under that Plan are now vested. The recovery recorded in fiscal 2009 was $0.6 million (2008  $0.1 million expense; 2007  $0.2 million expense).

Fiscal year 2005 plan

The fiscal year 2005 plan replaced the fiscal year 2004 plan for succeeding years. The Plan stipulates that granted units vest equally over five years and that following a take-over bid, all unvested units vest immediately. The recovery recorded in fiscal 2009 was $0.9 million (2008  $3.2 million expense; 2007  $7.5 million expense).

Since fiscal 2004, the Company entered into equity swap agreements to reduce its earnings exposure to the fluctuations in its share price (refer to Note 18).

|                                                              |                       |   |                       |   |          |   |         |  
|------------------------------------------------------------- | --------------------- | - | --------------------- | - | -------- | - | ------- | -
|The following table summarizes the LTI-DSU units outstanding: |                       |   |                       |   |          |   |         |  
|                                                             
|                                                              | Fiscal Year 2005 Plan |   | Fiscal Year 2004 Plan |  
|Years ended March 31                                          | 2009                  |   | 2008                  |   | 2009     |   | 2008    |  
|LTI-DSUs outstanding at beginning of year                     | 1,824,762             |   | 1,392,653             |   | 517,702  |   | 548,097 |  
|Units granted                                                 | 269,806               |   | 481,577               |   |         |   |        |  
|Units cancelled                                               | (6,305                | ) | (27,115               | ) | (14,543  | ) | (5,161  | )
|Units redeemed                                                | (97,013               | ) | (27,760               | ) | (101,861 | ) | (26,863 | )
|Dividends paid in units                                       | 27,919                |   | 5,407                 |   | 5,768    |   | 1,629   |  
|LTI-DSUs outstanding at end of year                           | 2,019,169             |   | 1,824,762             |   | 407,066  |   | 517,702 |  

CAE Year-End Financial Results 2009 | 31

---





|Notes to the Consolidated Financial StatementsLong-Term Incentive  Restricted Share Unit PlansFiscal year 2005 plan
|--------------------------------------------------------------------------------------------------------------------

In May 2004, the Company adopted a Long-Term Incentive Performance Based Restricted Shares Unit Plan (LTI-RSU) for its executives and senior management. The LTI-RSU is intended 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-RSU is a stock-based performance plan.

LTI-RSUs granted pursuant to this plan vest after three years from their grant date. LTI-RSUs vest as follows:

|(i)  | 100% of the units, if CAE shares have appreciated at least 33% (10% annual compounded growth) during the timeframe;                  
|---- | -------------------------------------------------------------------------------------------------------------------------------------
|(ii) | 50% of the units, if CAE shares have appreciated at least 24% (7.5% annual compounded growth) but less than 33% during the timeframe.

No LTI-RSUs vest if the market value of the common shares has appreciated less than 24% during the specified timeframe. In addition, no proportional vesting occurs for any appreciation between 24% and 33% during the specified timeframe. Participants subject to loss of employment, other than voluntarily or for cause, are entitled to conditional pro-rata vesting. The recovery recorded in fiscal 2009 was $1.3 million (2008  $3.1 million expense; 2007  $12.1 million expense).

Fiscal year 2008 plan

In May 2007, the Company amended the fiscal year 2005 plan for fiscal 2008 and subsequent years. The LTI-RSU plan is intended 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-RSU plan is a stock-based performance plan.

LTI-RSUs granted pursuant to the revised plan vest after three years from their grant date. LTI-RSUs vest 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. For 2009 fiscal year grants, this represents a target of 7% (2008  8%) of compound annual growth over the three-year 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 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 expense recorded in fiscal 2009 was $0.4 million (2008  $0.5 million).

|                                                              |                       |   |                       |   |           |   |           |  
|------------------------------------------------------------- | --------------------- | - | --------------------- | - | --------- | - | --------- | -
|The following table summarizes the LTI-RSU units outstanding: |                       |   |                       |   |           |   |           |  
|                                                             
|                                                              | Fiscal Year 2008 Plan |   | Fiscal Year 2005 Plan |  
|Years ended March 31                                          | 2009                  |   | 2008                  |   | 2009      |   | 2008      |  
|LTI-RSUs outstanding at beginning of year                     | 340,974               |   |                      |   | 1,065,710 |   | 2,009,666 |  
|Units granted                                                 | 427,711               |   | 352,258               |   |          |   |          |  
|Units cancelled                                               | (6,303                | ) | (11,284               | ) | (14,349   | ) | (17,708   | )
|Units redeemed                                                |                      |   |                      |   | (562,734  | ) | (926,248  | )
|Dividends paid in units                                       |                      |   |                      |   |          |   |          |  
|LTI-RSUs outstanding at end of year                           | 762,382               |   | 340,974               |   | 488,627   |   | 1,065,710 |  



|NOTE 17  CAPITAL MANAGEMENTThe Companys objectives when managing capital are threefold:
|-----------------------------------------------------------------------------------------

|(i)   | Optimize the use of debt in relation to 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 sets the amount of capital in proportion to risk. The Company manages the 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 adjusted net debt to capital ratio. This ratio is calculated as adjusted net debt divided by the sum of the adjusted net debt and equity. Adjusted net debt is calculated as total debt (as presented in the consolidated balance sheet and including non-recourse debt) added to the present value of operating leases (held off balance sheet) less cash and cash equivalents. Equity comprises all components of shareholders equity (i.e. capital stock, contributed surplus, retained earnings and accumulated other comprehensive loss).

32 | CAE Year-End Financial Results 2009

---





|Notes to the Consolidated Financial Statements
|----------------------------------------------

The level of debt versus equity in the capital structure will be maintained at levels appropriate for a given economic cycle and according to the Companys growth strategy relative to the different business segments and is therefore adjusted over time to appropriate levels ensuring the achievement of the objectives as stated above. The ratios are as follows:

|                                                                |   |         |   |   |        |  
|--------------------------------------------------------------- | - | ------- | - | - | ------ | -
|As at March 31                                                  |   |         |   |   |        |  
|(amounts in millions)                                           |   | 2009    |   |   | 2008   |  
|Total long-term debt                                            | $ | 480.3   |   | $ | 379.8  |  
|Add: Present value of operating leases (held off balance sheet) |   | 215.0   |   |   | 200.2  |  
|Less: Cash and cash equivalents                                 |   | (195.2  | ) |   | (255.7 | )
|Adjusted net debt                                               | $ | 500.1   |   | $ | 324.3  |  
|Shareholders equity                                            | $ | 1,205.1 |   | $ | 948.5  |  
|Adjusted net debt : shareholders equity                        |   | 29:71   |   |   | 25:75  |  

The increase in the adjusted net debt to equity ratio during fiscal 2009 resulted primarily from the increase in net debt that occurred as a result of foreign exchange variations, cash used for the acquisition of Sabena Flight Academy, other general corporate and working capital purposes.

In the first quarter of fiscal 2009, the Board of Directors approved an increase in the dividend per share to $0.03 from $0.01.

The Company has certain debt agreements which require the maintenance of a certain level of capital. As at March 31, 2009, the Company is compliant with all its capital maintenance covenants.

NOTE 18  FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENTFair value of financial instruments

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 fair value of a financial instrument is determined by reference to the available market information at the balance sheet 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 the valuation model, the Company primarily uses external, readily observable market inputs. Assumptions or inputs that are not based on observable market data are used when external data is not available. Fair value calculations represent the Companys best estimates of market conditions on a given date. Considering the variability of the factors used in determining fair value and the volume of financial instruments, the fair values presented below may not be indicative of the amounts the Company could realize in the current market environment or by immediate settlement of the instruments.

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

|(i)   | Cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities are valued at their carrying amounts on the balance sheet, which represent an appropriate estimate of their fair values due to their short-term maturities;                                                                                                                                                                                                                                                                                                                                                                                                                                     
|----- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(ii)  | Capital leases are valued using the discounted cash flow method;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|(iii) | The fair value of long-term debt, the long-term obligation and long-term 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 the Companys 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, adjusted for counterparty credit risk. Assumptions are based on market conditions prevailing at each balance sheet date. Derivative instruments reflect the estimated amounts that the Company would receive or pay to settle the contracts at the balance sheet date;
|(v)   | The fair value of available-for-sale investments which do not have readily available market value is estimated using a discounted cash flow model, which includes some assumptions that are not supportable by observable market prices or rates.                                                                                                                                                                                                                                                                                                                                                                                                                                        

Counterparty credit risk and the Companys own credit risk have been taken into account in estimating the fair value of all financial assets and financial liabilities, including derivatives.

CAE Year-End Financial Results 2009 | 33

---



|                                                                                        |      |       |         |     |            |          |         |             |       |       |       |       |                |       |           
|--------------------------------------------------------------------------------------- | ---- | ----- | ------- | --- | ---------- | -------- | ------- | ----------- | ----- | ----- | ----- | ----- | -------------- | ----- | ----------
|Notes to the Consolidated Financial Statements                                          |      |       |         |     |            |          |         |             |       |       |       |      
|                                                                                       
|The carrying values and fair values of financial instruments, by class, are as follows: |      |       |         |     |            |         
|                                                                                       
|As at March 31, 2009                                                                    |      |       |         |     |            |          |         |             |       |       |       |       |                |       |           
|(amounts in millions)                                                                   |      |       |         |     |            |          |         |             |       |       |       |       |                |       |           
|                                                                                        |      |       |         |     |            |          |         |             |       |       |       |       | Carrying Value |       | Fair Value
|                                                                                        | Held | -for- |         |     | Available- |          | Loans & |             |       |       |       |      
|                                                                                        |      |       | Trading |     |            | for-Sale |         | Receivables |       |       | Total |       |               
|Financial assets                                                                        |      |       |         |     |            |          |         |             |       |       |       |       |                |       |           
|Cash and cash equivalents                                                               | $    | 195.2 |         |     | $         |          |         | $          |       | $     | 195.2 | $     | 195.2         
|Accounts receivable(a)                                                                  |      |       |        |     |            |         |         |             |       | 270.0 | (b)   |       | 270.0          |       | 270.0     
|Other assets(a)                                                                         |      |       | 15.7    | (c) |            | 0.8      | (d)     |             |       | 20.5  | (e)   |       | 37.0           |       | 38.4      
|Derivative assets                                                                       |      |       | 16.6    | (f) |            |         |         |             |       |      |       |       | 16.6           |       | 16.6      
|                                                                                        | $    | 227.5 |         | $   | 0.8        |          | $       | 290.5       |       | $     | 518.8 | $     | 520.2         
|                                                                                       
|                                                                                        |      |       |         |     |            |          |         |             |       |       |       |       | Carrying Value |       | Fair Value
|                                                                                        |      |       |         |     |            |          |         |             |       | Other |       |       |                |       |           
|                                                                                        |      |       |         |     | Held       | -for-    |         | Financial   |       |       |       |       |               
|                                                                                        |      |       |         |     |            | Trading  |         | Liabilities |       |       | Total |       |               
|Financial liabilities                                                                   |      |       |         |     |            |          |         |             |       |       |       |       |                |       |           
|Accounts payable and accrued liabilities(a)                                             |      |       |         | $  |            | $        | 416.6   | (g)         | $     | 416.6 | $     | 416.6
|Total long-term debt                                                                    |      |       |         |     |            |         |         |             |       | 481.8 | (h)   |       | 481.8          |       | 471.9     
|Deferred gains and other long-term liabilities(a)                                       |      |       |        |     |            |          | 0.3     | (i)         |       | 0.3   |       | 0.3  
|Derivative liabilities                                                                  |      |       |         |     |            | 17.2     | (f)     |             |       |      |       |       | 17.2           |       | 17.2      
|                                                                                        |      |       |         |     | $          | 17.2     |         | $           | 898.7 |       | $     | 915.9 | $              | 906.0

|(a) | Excludes derivative financial instruments that have been presented separately.                                                                                                                                                 
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(b) | Includes trade receivables, accrued receivables and certain other receivables.                                                                                                                                                 
|(c) | Includes restricted cash.                                                                                                                                                                                                      
|(d) | Represents the Companys investment in CVS.                                                                                                                                                                                    
|(e) | Includes long-term receivables and advances.                                                                                                                                                                                   
|(f) | Includes embedded derivatives accounted for separately from the host contract, including derivatives not designated in a hedging relationship, but excluding derivatives that are designated and effective hedging instruments.
|(g) | Includes trade accounts payable, accrued liabilities, interest payable and certain payroll-related liabilities.                                                                                                                
|(h) | Excludes transaction costs and debt basis adjustments.                                                                                                                                                                         
|(i) | Includes a long-term payable that meets the definition of a financial liability.                                                                                                                                               

34 | CAE Year-End Financial Results 2009

---



|                                                  |      |       |         |            |      |          |       |       |                                                |       |       |                |       |           
|------------------------------------------------- | ---- | ----- | ------- | ---------- | ---- | -------- | ----- | ----- | ---------------------------------------------- | ----- | ----- | -------------- | ----- | ----------
|                                                  |      |       |         |            |      |          |       |       | Notes to the Consolidated Financial Statements
|                                                 
|                                                 
|As at March 31, 2008                              |      |       |         |            |      |          |       |       |                                                |       |       |                |       |           
|(amounts in millions)                             |      |       |         |            |      |          |       |       |                                                |       |       |                |       |           
|                                                  |      |       |         |            |      |          |       |       |                                                |       |       | Carrying Value |       | Fair Value
|                                                  | Held | -for- |         | Available- |      | Loans &  |       |       |                                                |       |      
|                                                  |      |       | Trading |            |      | for-Sale |       |       | Receivables                                    |       |       | Total          |       |           
|Financial assets                                  |      |       |         |            |      |          |       |       |                                                |       |       |                |       |           
|Cash and cash equivalents                         | $    | 255.7 |         |            | $   |          |       | $    |                                                | $     | 255.7 | $              | 255.7
|Accounts receivable(a)                            |      |       |        |            |      |         |       |       | 205.5                                          | (b)   |       | 205.5          |       | 205.5     
|Other assets(a)                                   |      |       | 8.6     | (c)        |      | 0.8      | (d)   |       | 23.0                                           | (e)   |       | 32.4           |       | 32.4      
|Derivative assets                                 |      |       | 12.0    | (f)        |      |         |       |       |                                               |       |       | 12.0           |       | 12.0      
|                                                  | $    | 276.3 |         | $          | 0.8  |          | $     | 228.5 |                                                | $     | 505.6 | $              | 505.6
|                                                 
|                                                 
|                                                  |      |       |         |            |      |          |       |       |                                                |       |       | Carrying Value |       | Fair Value
|                                                  |      |       |         |            |      |          |       |       | Other                                          |       |       |                |       |           
|                                                  |      |       |         |            | Held | -for-    |       |       | Financial                                      |       |       |                |       |           
|                                                  |      |       |         |            |      | Trading  |       |       | Liabilities                                    |       |       | Total          |       |           
|Financial liabilities                             |      |       |         |            |      |          |       |       |                                                |       |       |                |       |           
|Accounts payable and accrued liabilities(a)       |      |       |         | $         |      | $        | 345.5 | (g)   | $                                              | 345.5 | $     | 345.5         
|Total long-term debt                              |      |       |         |            |      |         |       |       | 382.5                                          | (h)   |       | 382.5          |       | 389.3     
|Deferred gains and other long-term liabilities(a) |      |       |         |           |      |          | 0.5   | (i)   |                                                | 0.5   |       | 0.5           
|Derivative liabilities                            |      |       |         |            |      | 16.9     | (f)   |       |                                               |       |       | 16.9           |       | 16.9      
|                                                 
|                                                  |      |       |         |            | $    | 16.9     |       | $     | 728.5                                          |       | $     | 745.4          | $     | 752.2     

|(a) | Excludes derivative financial instruments that have been presented separately.                                                                                                                                                 
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(b) | Includes trade receivables, accrued receivables and certain other receivables.                                                                                                                                                 
|(c) | Includes restricted cash.                                                                                                                                                                                                      
|(d) | Represents the Companys investment in CVS.                                                                                                                                                                                    
|(e) | Includes long-term receivables and advances.                                                                                                                                                                                   
|(f) | Includes embedded derivatives accounted for separately from the host contract, including derivatives not designated in a hedging relationship, but excluding derivatives that are designated and effective hedging instruments.
|(g) | Includes trade accounts payable, accrued liabilities, interest payable and certain payroll-related liabilities.                                                                                                                
|(h) | Excludes transaction costs and debt basis adjustments.                                                                                                                                                                         
|(i) | Includes a long-term payable that meets the definition of a financial liability.                                                                                                                                               

The Company did not elect to voluntarily designate any financial instruments as held-for-trading; moreover, there have not been any changes to the classification of the financial instruments since March 31, 2008.

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 at March 31, 2009, the aggregate carrying value of these pledged financial assets amounted to $85.3 million (2008  $70.7 million).

CAE Year-End Financial Results 2009 | 35

---





|Notes to the Consolidated Financial StatementsFinancial risk management
|-----------------------------------------------------------------------

Due to the nature of the activities that the company carries out and as a result of holding financial instruments, the Company is primarily exposed to credit risk, liquidity risk and market risk, especially foreign currency risk and interest rate risk.

Derivative instruments are utilized by the Company to manage market risk against the volatility in foreign exchange rates, interest rates and stock-based compensation in order to minimize their impact on the Companys results and financial position. The Companys policy is not to utilize any derivative financial instruments for trading or speculative purposes. 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 forecasted transactions. To some extent, the Company uses non-derivative financial liabilities to hedge foreign currency exchange rate risk exposures.

The following table distinguishes carrying values of derivative financial instruments and non-derivative financial liabilities between those designated and those not designated as effective hedging as at March 31:

|                                                          |   |        |   |             |   |        |   |            
|--------------------------------------------------------- | - | ------ | - | ----------- | - | ------ | - | -----------
|(amounts in millions)                                     |   |        |   | 2009        |   |        |   | 2008       
|                                                         
|                                                          |   | Assets |   | Liabilities |   | Assets |   | Liabilities
|Derivative financial instruments designated as fair       |   |        |   |             |   |        |   |            
|value hedges                                              |   |        |   |             |   |        |   |            
|Interest rate swap agreements                             | $ | 2.5    |   | $          | $ | 1.3    |   | $         
|Derivative financial instruments designated as cash       |   |        |   |             |   |        |   |            
|flow hedges                                               |   |        |   |             |   |        |   |            
|Forward foreign currency contracts                        | $ | 22.7   | $ | 25.1        | $ | 13.7   | $ | 12.8       
|Embedded foreign currency derivatives                     |   |       |   | 1.3         |   |       |   |           
|Foreign currency swap agreements                          |   | 9.5    |   |            |   | 1.6    |   | 0.1        
|Interest rate swap agreements                             |   |       |   | 12.9        |   | 2.3    |   | 4.3        
|                                                          | $ | 32.2   | $ | 39.3        | $ | 17.6   | $ | 17.2       
|Derivative financial instruments classified as held      |   |        |   |             |   |        |   |            
|for-trading                                               |   |        |   |             |   |        |   |            
|Forward foreign currency contracts                        | $ | 2.4    | $ | 14.0        | $ | 8.6    | $ | 3.4        
|Embedded foreign currency derivatives                     |   | 12.8   |   | 3.2         |   | 3.4    |   | 12.1       
|Equity swap agreement                                     |   | 1.4    |   |            |   |       |   | 1.4        
|                                                          | $ | 16.6   | $ | 17.2        | $ | 12.0   | $ | 16.9       
|Total derivative financial instruments                    | $ | 51.3   | $ | 56.5        | $ | 30.9   | $ | 34.1       
|Non-derivative financial liabilities designated as        |   |        |   |             |   |        |   |            
|hedges of net investments of self-sustaining foreign      |   |        |   |             |   |        |   |            
|operations                                                |   |        |   |             |   |        |   |            
|Total long-term debt(a)                                   |   | $     | $ | 41.6        |   | $     | $ | 33.9       
|Other non-derivative financial liabilities                |   |        |   |             |   |        |   |            
|Accounts payable and accrued liabilities                  |   |       |   | 416.6       |   |       |   | 345.5      
|Total long-term debt(a)                                   |   |       |   | 440.2       |   |       |   | 348.6      
|Deferred gains and other long-term liabilities            |   |       |   | 0.3         |   |       |   | 0.5        
|Total non-derivative financial liabilities                |   | $     | $ | 898.7       |   | $     | $ | 728.5      
|Total derivative financial instruments and non-           |   |        |   |             |   |        |   |            
|derivative financial liabilities                          | $ | 51.3   | $ | 955.2       | $ | 30.9   | $ | 762.6      
|(a)Excludes transaction costs and debt basis adjustments. |   |        |   |             |   |        |   |            

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, in relation to financial instruments. The Company is exposed to credit risk on its account receivables 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 instrument assets.

Credit risks arising from the Companys normal commercial activities are independently managed and controlled by its four segments, specifically in regards to customer credit risk. Trade accounts receivable are recognized initially at fair value and subsequently measured at amortized cost less allowance for doubtful accounts. 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 (refer to Note 6). The carrying amount of the trade accounts receivable is reduced through the use of an allowance account and the amount of any increase to the allowance is recognized in earnings. 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 earnings.

36 | CAE Year-End Financial Results 2009

---





|Notes to the Consolidated Financial Statements
|----------------------------------------------

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 deposits on 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 accounts receivable are not concentrated to any specific customers but rather are 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 to a third-party for cash consideration on a non-recourse basis. 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 syndicate of major Japanese, 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 entered 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 it trades derivative financial instruments with. These agreements make it possible to apply full netting of the gross amounts of the market price assessments, when one of the contracting parties 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 the previous financial instrument tables represent the maximum exposure to credit risk for each respective financial asset as at the relevant dates. In addition, an amount of $34.7 million as at March 31, 2009 (2008  $18.9 million) represents the maximum exposure to credit risk for derivatives that are designated and effective hedging instruments.

Liquidity risk

Liquidity risk is defined as the potential that the Company cannot meet a demand for cash or meet its obligations as they become due.

The Company manages this risk by establishing detailed cash forecasts, as well as long-term operating and strategic plans. The management of consolidated liquidity requires a constant monitoring of expected cash inflows and outflows which is achieved through a detailed 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 indebtedness. 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 revolving unsecured term-credit facilities of US$400.0 million and 100.0 million. As well, the Company has an agreement to sell certain of its accounts receivable up to $50 million. The Company also constantly monitors any financing opportunities to optimize its capital structure and maintain appropriate financial flexibility.

The following table presents a maturity analysis, from the consolidated balance sheet date to the contractual maturity date, of the Companys financial liabilities based on expected cash flows. 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, 2009            |   | Carrying |   | Contractual |   |   | 0-12   |   |   | 13-24  |   |   | 25-36  |   |   | 37-48  |   |   | 49-60  |   |   |            |  
|(amounts in millions)           |   | Amount   |   | Cash Flows  |   |   | Months |   |   | Months |   |   | Months |   |   | Months |   |   | Months |   |   | Thereafter |  
|Accounts payable and accrued    |   |          |   |             |   |   |        |   |   |        |   |   |        |   |   |        |   |   |        |   |   |            |  
|liabilities(a,f)                | $ | 416.6    | $ | 416.6       |   | $ | 416.6  |   |   | $     |   |   | $     |   |   | $     |   |   | $     |   |   | $         |  
|Forward foreign currency        |   |          |   |             |   |   |        |   |   |        |   |   |        |   |   |        |   |   |        |   |   |            |  
|contracts(b)                    |   | 14.0     |   |             |   |   |        |   |   |        |   |   |        |   |   |        |   |   |        |   |   |            |  
|Outflow                         |   |          |   | 693.8       |   |   | 561.5  |   |   | 102.7  |   |   | 15.5   |   |   | 4.0    |   |   | 10.1   |   |   |           |  
|Inflow                          |   |          |   | (678.5      | ) |   | (555.9 | ) |   | (96.0  | ) |   | (13.8  | ) |   | (3.6   | ) |   | (9.2   | ) |   |           |  
|Total long-term debt(c)         |   | 481.8    |   | 584.3       |   |   | 145.2  |   |   | 59.8   |   |   | 45.2   |   |   | 104.0  |   |   | 48.1   |   |   | 182.0      |  
|Swap derivatives on total long- |   |          |   |             |   |   |        |   |   |        |   |   |        |   |   |        |   |   |        |   |   |            |  
|term debt(d)                    |   | 0.9      |   |             |   |   |        |   |   |        |   |   |        |   |   |        |   |   |        |   |   |            |  
|Outflow                         |   |          |   | 113.5       |   |   | 8.8    |   |   | 10.3   |   |   | 12.7   |   |   | 11.8   |   |   | 12.7   |   |   | 57.2       |  
|Inflow                          |   |          |   | (106.5      | ) |   | (6.6   | ) |   | (7.7   | ) |   | (11.1  | ) |   | (11.0  | ) |   | (11.6  | ) |   | (58.5      | )
|Deferred gains and other long-  |   |          |   |             |   |   |        |   |   |        |   |   |        |   |   |        |   |   |        |   |   |            |  
|term liabilities(e,f)           |   | 0.3      |   | 0.3         |   |   |       |   |   | 0.1    |   |   | 0.2    |   |   |       |   |   |       |   |   |           |  
|                                | $ | 913.6    | $ | 1,023.5     |   | $ | 569.6  |   | $ | 69.2   |   | $ | 48.7   |   | $ | 105.2  |   | $ | 50.1   |   | $ | 180.7      |  

|(a) | Includes trade accounts payable, accrued liabilities, interest payable and certain payroll-related liabilities.                                                                                                                                               
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(b) | 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.
|(c) | Contractual cash flows include contractual interest and principal payments related to debt obligations.                                                                                                                                                       
|(d) | Includes interest rate swaps and foreign currency swap contracts either designated as cash flow hedges or as fair value hedges of long-term debt presented as derivative liabilities or derivative assets.                                                    
|(e) | Includes certain other long-term liabilities.                                                                                                                                                                                                                 
|(f) | Excludes derivative financial liabilities which have been presented separately.                                                                                                                                                                               

CAE Year-End Financial Results 2009 | 37

---





|Notes to the Consolidated Financial StatementsMarket risk
|---------------------------------------------------------

Market 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 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 the fluctuations in foreign exchange rates. The Company is exposed to foreign currency rate variability primarily in relation to certain sale commitments, expected purchase transactions and debt denominated in a foreign currency. As well, its foreign operations are essentially self-sustaining and these foreign operations functional currencies are other than the Canadian dollar (in particular the U.S. dollar [USD], euro [] and British pounds [GBP or £]). The Companys related exposure to the foreign currency rates is primarily through cash and cash equivalents and other working capital elements of these foreign operations.

The segments also mitigate foreign currency risks by transacting, 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 balance sheet items. The Company applies hedge accounting for a significant portion of forecasted transactions and firm commitments denominated in foreign currencies, designated as cash flow hedges.

As at March 31, 2009, the Company entered into forward foreign currency contracts totalling $708.9 million (buy contracts for $95.6 million and sell contracts for $613.3 million) mainly to reduce the risk of variability of future cash flows resulting from forecasted transactions and firm sales commitments, forecasted sales transactions and debt denominated in foreign currencies. To some extent, the Company also enters into forward foreign currency contracts offering economic hedging without being eligible to apply hedge accounting of embedded foreign currency derivatives that mainly result from firm sales commitments denominated in U.S. dollars with European-based companies, Australian-based companies and certain Asian-based companies.

|                                                                                                |   |           |         |   |           |        
|----------------------------------------------------------------------------------------------- | - | --------- | ------- | - | --------- | -------
|The consolidated forward foreign currency contracts outstanding were as follows as at March 31: |   |           |        
|                                                                                               
|(amounts in millions, except average rate)                                                      |   |           | 2009    |   |           | 2008   
|                                                                                                |   | Notional  | Average |   | Notional  | Average
|Currencies (sold/bought)                                                                        |   | Amount(1) | Rate    |   | Amount(1) | Rate   
|USD/CDN                                                                                         |   |           |         |   |           |        
|Less than 1 year                                                                                | $ | 356.1     | 0.84    | $ | 268.7     | 0.97   
|Between 1 and 3 years                                                                           |   | 83.8      | 0.87    |   | 62.8      | 0.95   
|Between 3 and 5 years                                                                           |   | 13.8      | 0.90    |   | 5.8       | 0.92   
|USD/AUD                                                                                         |   |           |         |   |           |        
|Less than 1 year                                                                                |   |          |        |   | 0.2       | 0.88   
|CDN/EUR                                                                                         |   |           |         |   |           |        
|Less than 1 year                                                                                |   |          |        |   | 17.6      | 1.46   
|EUR/CDN                                                                                         |   |           |         |   |           |        
|Less than 1 year                                                                                |   | 78.9      | 0.63    |   | 84.5      | 0.67   
|Between 1 and 3 years                                                                           |   | 22.9      | 0.66    |   | 23.1      | 0.66   
|Between 3 and 5 years                                                                           |   | 0.8       | 0.66    |   | 0.7       | 0.66   
|EUR/AUD                                                                                         |   |           |         |   |           |        
|Less than 1 year                                                                                |   | 1.1       | 0.57    |   | 2.7       | 0.58   
|Between 1 and 3 years                                                                           |   |          |        |   | 0.9       | 0.57   
|GBP/CDN                                                                                         |   |           |         |   |           |        
|Less than 1 year                                                                                |   | 39.3      | 0.50    |   | 4.1       | 0.49   
|Between 1 and 3 years                                                                           |   | 10.9      | 0.53    |   | 38.9      | 0.50   
|AUD/CDN                                                                                         |   |           |         |   |           |        
|Less than 1 year                                                                                |   | 1.1       | 1.18    |   |          |       
|USD/GBP                                                                                         |   |           |         |   |           |        
|Less than 1 year                                                                                |   | 2.3       | 1.75    |   |          |       
|Between 1 and 3 years                                                                           |   | 2.3       | 1.72    |   |          |       
|CDN/USD                                                                                         |   |           |         |   |           |        
|Less than 1 year                                                                                |   | 95.6      | 1.02    |   | 76.0      | 0.97   
|Between 1 and 3 years                                                                           |   |          |        |   | 64.0      | 0.97   
|Total                                                                                           | $ | 708.9     |         | $ | 650.0     |        
|Effect of master netting agreement                                                              |   | 219.9     |         |   | 187.6     |        
|Net outstanding amount                                                                          | $ | 928.8     |         | $ | 837.6     |        

(1)Exchange rates as at the end of the respective fiscal year were used to translate amounts in foreign currencies.

The Company has entered into foreign currency swap agreements related to its senior collateralized financing, obtained in 2008, to convert a portion of the USD-denominated debt into GBP to finance its civil aviation training centre in the United Kingdom. The Company designates two USD to GBP foreign currency swap agreements, as cash flow hedges, with outstanding notional amounts, of $4.9 million (£2.7 million) (2008  $5.7 million [£2.8 million]) and $15.3 million (£8.5 million) (2008  $17.3 million [£8.5 million]), respectively, amortized in accordance with the repayment schedule of the debt until June 2014 and June 2018 respectively.

The Companys foreign currency hedging programs are typically unaffected by changes in market conditions, as related derivative financial instruments are generally held-to-maturity, consistent with the objective to fix currency rates on the hedged item.

38 | CAE Year-End Financial Results 2009

---





|Notes to the Consolidated Financial Statements
|----------------------------------------------

During fiscal year 2009, 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 loss of $2.2 million (2008  gain of $0.9 million) was recorded in earnings.

Also, a net loss of $0.4 million (2008  net gain of $0.9 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 net earnings.

The estimated net amount before tax of existing losses reported in accumulated other comprehensive loss that is expected to be materialized during the next 12 months is $26.6 million. Future fluctuation in market rate (foreign exchange rate and/or interest rate) will impact the reclassified amount.

Foreign currency sensitivity analysis

The following table shows the Companys exposure to foreign exchange risk and pre-tax effects on net earnings and OCI as a result of a reasonably possible strengthening of 5% in the relevant foreign currency against the Canadian dollar for the year ended March 31, 2009. This analysis assumes all other variables remain constant.

|                                                  |   |          |   |   |       |   |   |          |   |   |      |   |   |          |   |   |      |  
|------------------------------------------------- | - | -------- | - | - | ----- | - | - | -------- | - | - | ---- | - | - | -------- | - | - | ---- | -
|(amounts in millions)                             |   | USD      |   |   |       |   |   |  GBP    |   |   |      |  
|                                                  |   | Net      |   |   |       |   |   | Net      |   |   |      |   |   | Net      |   |   |      |  
|As at March 31, 2009                              |   | Earnings |   |   | OCI   |   |   | Earnings |   |   | OCI  |   |   | Earnings |   |   | OCI  |  
|Financial assets                                  |   |          |   |   |       |   |   |          |   |   |      |   |   |          |   |   |      |  
|Cash and cash equivalents                         | $ | 0.6      |   |   | $    |   | $ | 0.1      |   |   | $   |   | $ | 0.7      |   |   | $   |  
|Accounts receivable(a)                            |   | 6.8      |   |   |      |   |   | 1.3      |   |   | 0.1  |   |   | 0.1      |   |   |     |  
|Derivative assets(b)                              |   | 5.1      |   |   | 4.5   |   |   |         |   |   | (0.3 | ) |   | (0.2     | ) |   | (1.9 | )
|Financial liabilities                             |   |          |   |   |       |   |   |          |   |   |      |   |   |          |   |   |      |  
|Accounts payable and other accrued liabilities(c) |   | (8.2     | ) |   |      |   |   | (2.7     | ) |   |     |   |   | (0.3     | ) |   |     |  
|Total long-term debt                              |   | (1.4     | ) |   | (5.6  | ) |   |         |   |   |     |   |   |         |   |   |     |  
|Derivative liabilities(b)                         |   | (4.2     | ) |   | (16.7 | ) |   | (0.2     | ) |   | (4.5 | ) |   |         |   |   | (0.2 | )
|Total                                             | $ | (1.3     | ) | $ | (17.8 | ) | $ | (1.5     | ) | $ | (4.7 | ) | $ | 0.3      |   | $ | (2.1 | )

|(a) | Includes trade receivables, accrued receivables and certain other receivables, but excludes derivative financial instrument assets which have been presented separately.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(b) | Includes forward foreign currency contracts, foreign currency swap contracts and embedded foreign currency derivatives.                                                 
|(c) | Includes trade accounts payable, accrued liabilities, interest payable and certain payroll-related liabilities.                                                         
|A   | reasonably possible weakening of 5% in the relevant foreign currency against the Canadian dollar would have an opposite impact on                                       



|pre-tax consolidated net earnings 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 the 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 also has a floating rate debt through an unhedged bank borrowing, a specific fair value hedge and other asset-specific floating rate debt. 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 on interest rate swap agreements.

As at March 31, 2009, the Company has entered into eight interest rate swap agreements with five different financial institutions to mitigate these risks for a total notional value of $165.1 million.

One agreement, with a notional value of $41.6 million (US$33.0 million), has converted fixed interest rate debt into a floating interest rate debt whereby the Company pays the equivalent of a three-month LIBOR borrowing rate, plus 3.6%, and receives a fixed interest rate of 7.76% up to June 2012. The Company designated this interest rate swap contract as a fair value hedge.

Also, during fiscal 2009, the Company entered into a cross currency swap agreement in connection with a senior secured non-recourse financing obtained to finance a military aviation training centre in India. This cross currency 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 corresponding to the underlying loan until March 2020. When fully drawn, the swap notional will be US$42.1 million (INR 2,185.0 million). The outstanding notional amount, as at March 31, 2009, was $7.7 million (INR 311.4 million).

CAE Year-End Financial Results 2009 | 39

---



Notes to the Consolidated Financial Statements

During fiscal year 2008, the Company obtained senior collateralized financing for an amount of $107.5 million for two new civil aviation training centres. The drawdown to March 31, 2009 was for the full amount (US$45.6 million and £29.3 million [2008 US$45.7 million and £29.6 million]) after taking into consideration the effect of foreign exchange swap arrangements entered in relation to this financing transaction. The Company designated the following interest rate swap contracts as cash flow hedges:

|(i)  | Two USD-denominated floating-to-fixed swaps with notional amounts of $5.4 million (US$4.3 million) (2008  $4.5 million [US$4.4 million]) and $16.5 million (US$13.1 million) (2008  $13.4 million [US$13.0 million]) amortizing in accordance with the repayment schedule of the debt until June 2014 and June 2018, respectively. The Company pays a weighted average fixed interest rate of 8.09%;
|---- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(ii) | Two GBP-denominated floating-to-fixed swaps with notional amounts of $5.0 million (£2.7 million) (2008  $5.7 million [£2.8 million]) and $15.3 million (£8.5 million) (2008  $17.3 million [£8.5 million]) amortizing in accordance with the repayment schedule of the debt until June 2014 and June 2018, respectively. The Company pays a weighted average fixed interest rate of 8.39%.          

The remaining contracts, which are designated as cash flow hedges, convert a floating interest rate debt into a fixed rate for a notional value of $73.6 million, whereby the Company will receive quarterly LIBOR and pay fixed interest payments as follows:

|(i)  | Amortizing based on a repayment schedule of the debt until October 2016 on $6.3 million (£3.5 million), the Company will pay quarterly fixed annual interest rates of 6.31%;
|---- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(ii) | Accreting swap based on a borrowing schedule until December 2019 on $67.3 million (40.3 million), the Company will pay a semi-annual fixed annual interest rate of 4.78%.  

After considering these swap agreements, as at March 31, 2009, 72% (2008  72%) 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-to-maturity to ensure 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 the Companys consolidated net income and other comprehensive income.

Stock-based compensation cost

Since March 2004, the Company entered into equity swap agreements with two major Canadian financial institutions to reduce its cash and net earnings 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 a 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 swap partly offsets movements in the Companys share price impacting the cost of the DSU and LTI-DSU programs and is reset monthly. As at March 31, 2009, the equity swap agreements covered 2,155,000 common shares of the Company.

Hedge of self-sustaining foreign operations

The Company has designated a portion of its senior notes totalling US$33.0 million as at March 31, 2009 (2008  US$33.0 million) as a hedge of self-sustaining foreign operations and is being used to hedge the Companys exposure to foreign exchange risk on these investments. Gains or losses on the translation of the designated portion of its senior notes are recognized in other comprehensive income to offset any foreign exchange gains or losses on translation of financial statements of self-sustaining foreign operations. During the third quarter of fiscal 2008, US$60.0 million of senior notes, maturing in June 2009, was de-designated as a hedge of self-sustaining foreign operations. Accordingly, from the de-designation date, the change in carrying value of this portion of the senior notes as a result of change in foreign currency is recorded in earnings. However, a highly effective cash flow hedge was obtained to cover the interest payments and final maturity of this debt.

R&D obligation from a government agency

The repayable contribution that the Company will begin receiving in fiscal 2010 via the Government of Canadas participation in Project Falcon (refer to Note 22) will be recognized as an interest-bearing long-term obligation from a government agency.

The measurement of the accounting liability recognized to repay to the lender will be discounted using the prevailing market rates of interest 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 fair value of the long-term obligation and the discounted value of the long-term obligation will be accounted for as government assistance and in accordance with the Companys current accounting policy regarding government cost sharing (refer to Note 1).

Letters of credit and guarantees

As at March 31, 2009, the Company had outstanding letters of credit and performance guarantees in the amount of $115.7 million (2008  $108.9 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 our 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 CAE and at the satisfaction of the customer. 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 operating lease obligation provides credit support for the benefit of the owner participant in the September 30, 2003 sale and leaseback transaction

40 | CAE Year-End Financial Results 2009

---



|                                                                     |   |                                                |   |      
|-------------------------------------------------------------------- | - | ---------------------------------------------- | - | -----
|                                                                     |   | Notes to the Consolidated Financial Statements
|                                                                    
|and varies according to the payment schedule of the lease agreement. |   |                                                |   |      
|                                                                    
|(amounts in millions)                                                |   | 2009                                           |   | 2008 
|Advance payment                                                      | $ | 61.5                                           | $ | 48.9 
|Contract performance                                                 |   | 10.1                                           |   | 4.7  
|Operating lease obligation                                           |   | 29.7                                           |   | 24.2 
|Simulator deployment obligation                                      |   | 5.0                                            |   | 20.8 
|Other                                                                |   | 9.4                                            |   | 10.3 
|Total                                                                | $ | 115.7                                          | $ | 108.9

All of the advance payment guarantees were issued under the EDC PSG account.

Residual value guarantees  sale and leaseback transactions

Following 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 $13.1 million (2008  $17.4 million), of which $8.2 million matures in 2020 and $4.9 million in 2023. Of this amount, as at March 31, 2009, $13.1 million is recorded as a deferred gain (2008  $17.4 million).

Indemnifications

In certain instances when CAE sells businesses, the Company 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 defenses, 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, results of operations or cash flows.

|                                                            |   |       |      |   |       |       |   |       |      | 
|----------------------------------------------------------- | - | ----- | ---- | - | ----- | ----- | - | ----- | ---- | 
|NOTE 19  SUPPLEMENTARY CASH FLOWS AND EARNINGS INFORMATION |   |       |      |   |       |       |   |      
|                                                           
|(amounts in millions)                                       |   | 2009  |      |   | 2008  |       |   | 2007  |     
|Cash provided by (used in) non-cash working capital:        |   |       |      |   |       |       |   |       |      | 
|Accounts receivable                                         | $ | 14.7  |      | $ | 8.5   |       | $ | (39.2 | )   
|Inventories                                                 |   | (74.6 | )    |   | (20.9 | )     |   | (14.8 | )   
|Prepaid expenses                                            |   |       | 3.0  |   |       | (8.7  | ) |       | 4.0  | 
|Income taxes recoverable                                    |   |       | 18.7 |   |       | (18.6 | ) |       | 20.2 | 
|Accounts payable and accrued liabilities                    |   | (41.2 | )    |   | 4.4   |       |   | 22.5  |     
|Deposits on contracts                                       |   | (15.2 | )    |   | 19.6  |       |   | 27.5  |     
|Changes in non-cash working capital                         | $ | (94.6 | )    | $ | (15.7 | )     | $ | 20.2  |     
|Supplemental cash flow disclosure:                          |   |       |      |   |       |       |   |       |      | 
|Interest paid                                               | $ | 24.6  |      | $ | 24.0  |       | $ | 17.1  |     
|Income taxes paid (received)                                | $ | 14.4  |      | $ | 28.0  |       | $ | (1.4  | )   
|Supplemental statements of earnings disclosure:             |   |       |      |   |       |       |   |       |      | 
|Foreign exchange gains (losses) on financial instruments    |   |       |      |   |       |       |   |       |      | 
|recognized in earnings:                                     |   |       |      |   |       |       |   |       |      | 
|Loans and receivables                                       | $ | 17.5  |      | $ | (29.5 | )     | $ | 1.4   |     
|Financial assets and financial liabilities required to be   |   |       |      |   |       |       |   |       |      | 
|classified as held-for-trading                              |   |       | (5.0 | ) |       | 17.3  |   |       | 6.0  | 
|Other financial liabilities                                 |   | (13.4 | )    |   | 24.8  |       |   | (4.5  | )   
|Foreign exchange (loss) gain                                | $ | (0.9  | )    | $ | 12.6  |       | $ | 2.9   |     

NOTE 20  CONTINGENCIES

In the normal course of operations, the Company is party to a number of lawsuits, claims and contingencies. Accruals are made in instances where it is probable that liabilities have been incurred and where such liabilities can be reasonably estimated. Although it is possible that liabilities may be incurred in instances for which no accruals have been made, the Company does not believe that the ultimate outcome of these matters will have a material impact on its consolidated financial position.

CAE Year-End Financial Results 2009 | 41

---



Notes to the Consolidated Financial Statements

NOTE 21  COMMITMENTS

Significant contractual purchase obligations and future minimum lease payments under operating leases are as follows:

|                      |   |      |   |      |   |       |   |      |   |      
|--------------------- | - | ---- | - | ---- | - | ----- | - | ---- | - | -----
|Years ending March 31 |   |      |   |      |   |       |   |      |   |      
|(amounts in millions) |   | SP/C |   | SP/M |   | TS/C  |   | TS/M |   | Total
|2010                  | $ | 3.1  | $ | 6.1  | $ | 40.6  | $ | 17.8 | $ | 67.6 
|2011                  |   | 2.4  |   | 4.7  |   | 41.0  |   | 17.4 |   | 65.5 
|2012                  |   | 2.4  |   | 3.0  |   | 47.8  |   | 15.4 |   | 68.6 
|2013                  |   | 2.3  |   | 2.2  |   | 40.3  |   | 9.8  |   | 54.6 
|2014                  |   |     |   | 0.1  |   | 36.1  |   | 4.9  |   | 41.1 
|Thereafter            |   | 0.3  |   | 0.3  |   | 123.7 |   | 16.1 |   | 140.4
|                      | $ | 10.5 | $ | 16.4 | $ | 329.5 | $ | 81.4 | $ | 437.8

As at March 31, 2009, included in the total contractual purchase obligations and future minimum lease payments under operating leases is an amount of $74.5 million (March 31, 2008  $103.3 million; March 31, 2007  $136.0 million) designated as commitments to CVS.

Of the total $437.8 million disclosed as being commitments as at March 31, 2009, $27.9 million represent contractual purchase obligations.

NOTE 22  GOVERNMENT COST-SHARING

The Company has signed agreements with various governments whereby the latter shares in the cost, based on expenditures incurred by the Company, of certain R&D programs for modelling and services, visual systems and advanced flight simulation technology for civil applications and networked simulation for military applications.

The following table provides information regarding contributions recognized and amounts not yet received for Project Phoenix, the R&D program announced by the Company during fiscal 2006, in which the Government of Canada agreed to contribute approximately 30% ($189 million) of the value of CAEs R&D program and in which, during fiscal 2007, the Government of Québec agreed to participate in the form of a contribution of up to $31.5 million:

|                                                       |   |       |   |   |       |  
|------------------------------------------------------ | - | ----- | - | - | ----- | -
|(amounts in millions)                                  |   | 2009  |   |   | 2008  |  
|Outstanding contribution receivable, beginning of year | $ | 24.2  |   | $ | 18.4  |  
|Contributions                                          |   | 64.8  |   |   | 62.4  |  
|Payments received                                      |   | (65.7 | ) |   | (56.6 | )
|Outstanding contribution receivable, end of year       | $ | 23.3  |   | $ | 24.2  |  

In addition to the Project Phoenix program, the Company has also signed previous R&D agreements with the Government of Canada, in order to share in a portion of the specific costs incurred by the Company on previous R&D programs. The following table provides contributions recognized and aggregate royalty expenditures recognized from both Project Phoenix and previous programs:

|                                             |   |      |   |      |   |     
|-------------------------------------------- | - | ---- | - | ---- | - | ----
|(amounts in millions)                        |   | 2009 |   | 2008 |   | 2007
|Contributions credited to capitalized costs: |   |      |   |      |   |     
|Project Phoenix                              | $ | 15.1 | $ | 20.3 | $ | 7.1 
|Contributions credited to income:            |   |      |   |      |   |     
|Project Phoenix                              |   | 49.7 |   | 42.1 |   | 45.0
|Total contributions:                         |   |      |   |      |   |     
|Project Phoenix                              | $ | 64.8 | $ | 62.4 | $ | 52.1
|Royalty expenses:                            |   |      |   |      |   |     
|Project Phoenix                              |   | $   |   | $   |   | $  
|Previous programs                            |   | 10.1 |   | 8.8  |   | 7.5 

The cumulative contributions recognized by the Company, since their respective inceptions, for all current government cost-sharing programs still active as at March 31, 2009 amount to $277.1 million. The cumulative sum of royalty expenses recognized by the Company since their respective inceptions, for all current government cost-sharing programs still active as at March 31, 2009, amounts to $42.1 million.

Project Falcon

On March 31, 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 current modelling 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 has 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.

42 | CAE Year-End Financial Results 2009

---





|Notes to the Consolidated Financial Statements
|----------------------------------------------

The participation from the Government of Canada is unconditionally repayable and will be accounted for as a long-term obligation repayable over 15 years. The repayments will begin only after Project Falcon is completed. As at March 31, 2009, the Company has not received any amount from the government in relation to Project Falcon.

NOTE 23  EMPLOYEE FUTURE BENEFITSDefined future benefits

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 pension plan for employees in the Netherlands and in the United Kingdom that provides benefits based on similar provisions.

In addition, the Company maintains a supplemental arrangement plan in Canada and two in Germany (CAE Elektronik GmbH plan and CAE Beyss GmbH plan [Beyss]) to provide defined benefits. These supplemental arrangements are the sole obligation of the Company, and there is no requirement to fund it. However, the Company is obligated to pay the benefits when they become due. Under the Canadian supplemental arrangement, once the designated employee retires from the Company, the Company is required to secure the obligation for that employee. As at March 31, 2009, the Company has issued letters of credit totalling $22.5 million (2008  $23.1 million) to secure these obligations under the Canadian supplemental arrangement.

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 2007, the Company closed some of its training centres in Europe, resulting in a curtailment gain of $0.9 million.

In fiscal 2009, the Company temporarily amended its early retirement provisions, resulting in additional past service costs of $3.0 million to defer and amortize on a straight-line basis over the average remaining service period of active employees at the date of the amendment.

The changes in pension obligations, in fair value of assets and the financial position of the funded pension plans are as follows:

|                                      |   |          |   |   |         |   |   |       |   |   |          |   |   |         |   |   |       |  
|------------------------------------- | - | -------- | - | - | ------- | - | - | ----- | - | - | -------- | - | - | ------- | - | - | ----- | -
|(amounts in millions)                 |   |          |   |   |         |   |   | 2009  |   |   |          |   |   |         |   |   | 2008  |  
|                                      |   | Canadian |   |   | Foreign |   |   | Total |   |   | Canadian |   |   | Foreign |   |   | Total |  
|Pension obligations at beginning      |   |          |   |   |         |   |   |       |   |   |          |   |   |         |   |   |       |  
|of year                               | $ | 193.9    |   | $ | 25.3    |   | $ | 219.2 |   | $ | 191.7    |   | $ | 21.9    |   | $ | 213.6 |  
|Current service cost                  |   | 6.6      |   |   | 0.5     |   |   | 7.1   |   |   | 6.0      |   |   | 0.6     |   |   | 6.6   |  
|Interest cost                         |   | 10.7     |   |   | 1.5     |   |   | 12.2  |   |   | 10.0     |   |   | 1.0     |   |   | 11.0  |  
|Employee contributions                |   | 2.3      |   |   | 0.3     |   |   | 2.6   |   |   | 2.2      |   |   | 0.3     |   |   | 2.5   |  
|Pension benefits paid                 |   | (10.1    | ) |   | (0.3    | ) |   | (10.4 | ) |   | (10.2    | ) |   | (0.3    | ) |   | (10.5 | )
|Plan amendments                       |   | 2.4      |   |   | 0.6     |   |   | 3.0   |   |   |         |   |   |        |   |   |      |  
|Actuarial (gain) loss                 |   | (51.9    | ) |   | (2.3    | ) |   | (54.2 | ) |   | (5.8     | ) |   | 1.2     |   |   | (4.6  | )
|Foreign exchange                      |   |         |   |   | 0.2     |   |   | 0.2   |   |   |         |   |   | 0.6     |   |   | 0.6   |  
|Pension obligation at end of year     | $ | 153.9    |   | $ | 25.8    |   | $ | 179.7 |   | $ | 193.9    |   | $ | 25.3    |   | $ | 219.2 |  
|Fair value of plan assets at          |   |          |   |   |         |   |   |       |   |   |          |   |   |         |   |   |       |  
|beginning of year                     | $ | 168.6    |   | $ | 23.9    |   | $ | 192.5 |   | $ | 163.1    |   | $ | 23.3    |   | $ | 186.4 |  
|Actual return on plan assets          |   | (24.8    | ) |   | (2.2    | ) |   | (27.0 | ) |   | 4.2      |   |   | 0.1     |   |   | 4.3   |  
|Pension benefits paid                 |   | (10.1    | ) |   | (0.3    | ) |   | (10.4 | ) |   | (10.2    | ) |   | (0.3    | ) |   | (10.5 | )
|Employee contributions                |   | 2.3      |   |   | 0.3     |   |   | 2.6   |   |   | 2.2      |   |   | 0.3     |   |   | 2.5   |  
|Employer contributions                |   | 9.5      |   |   | 1.0     |   |   | 10.5  |   |   | 9.3      |   |   |        |   |   | 9.3   |  
|Foreign exchange                      |   |         |   |   | 0.1     |   |   | 0.1   |   |   |         |   |   | 0.5     |   |   | 0.5   |  
|Fair value of plan assets             |   |          |   |   |         |   |   |       |   |   |          |   |   |         |   |   |       |  
|at end of year                        | $ | 145.5    |   | $ | 22.8    |   | $ | 168.3 |   | $ | 168.6    |   | $ | 23.9    |   | $ | 192.5 |  
|Financial position  plan deficit     | $ | (8.4     | ) | $ | (3.0    | ) | $ | (11.4 | ) | $ | (25.3    | ) | $ | (1.4    | ) | $ | (26.7 | )
|Unrecognized net actuarial loss       |   | 29.3     |   |   | 2.8     |   |   | 32.1  |   |   | 46.0     |   |   | 1.4     |   |   | 47.4  |  
|Unamortized past service cost         |   | 6.5      |   |   | 0.6     |   |   | 7.1   |   |   | 4.6      |   |   |        |   |   | 4.6   |  
|Amount recognized at end of year      | $ | 27.4     |   | $ | 0.4     |   | $ | 27.8  |   | $ | 25.3     |   |   | $      |   | $ | 25.3  |  
|Amount recognized in:                 |   |          |   |   |         |   |   |       |   |   |          |   |   |         |   |   |       |  
|Other assets (Note 11)                | $ | 27.4     |   | $ | 1.0     |   | $ | 28.4  |   | $ | 25.3     |   | $ | 0.6     |   | $ | 25.9  |  
|Other long-term liabilities (Note 13) |   |         |   |   | (0.6    | ) |   | (0.6  | ) |   |         |   |   | (0.6    | ) |   | (0.6  | )
|                                      | $ | 27.4     |   | $ | 0.4     |   | $ | 27.8  |   | $ | 25.3     |   |   | $      |   | $ | 25.3  |  

CAE Year-End Financial Results 2009 | 43

---



Notes to the Consolidated Financial Statements

Included in the above pension obligation and fair value of plan assets at the end of the year are the following amounts in respect of plans that are in deficit (the two Canadian funded plans and the United Kingdom and Netherlands plan [since fiscal 2008]).

|                                                                                                              |   |          |   |      |      |         |       |       |      |       |       |       |          |       |      |         |       |      |       |       |  
|------------------------------------------------------------------------------------------------------------- | - | -------- | - | ---- | ---- | ------- | ----- | ----- | ---- | ----- | ----- | ----- | -------- | ----- | ---- | ------- | ----- | ---- | ----- | ----- | -
|(amounts in millions)                                                                                         |   |          |   |      |      |         |       |       |      | 2009  |       |       |          |       |      |         |       |      |       | 2008  |  
|                                                                                                              |   | Canadian |   |      |      | Foreign |       |       |      | Total |       |       | Canadian |       |      | Foreign |       |      | Total |      
|Pension obligations at end of year                                                                            | $ | 153.9    |   | $    | 25.8 |         | $     | 179.7 |      | $     | 193.9 |       | $        | 25.3  |      | $       | 219.2 |     
|Fair value of plan assets at end of                                                                           |   |          |   |      |      |         |       |       |      |       |       |       |          |       |      |         |       |      |       |       |  
|year                                                                                                          |   | 145.5    |   |      |      | 22.8    |       |       |      | 168.3 |       |       |          | 168.6 |      |         | 23.9  |      |       | 192.5 |  
|Financial position  plan deficit                                                                             | $ | (8.4     | ) | $    | (3.0 | )       | $     | (11.4 | )    | $     | (25.3 | )     | $        | (1.4  | )    | $       | (26.7 | )   
|                                                                                                             
|The change in pension obligations related to the supplemental arrangements are as follows:                    |   |          |   |      |      |         |       |      
|                                                                                                             
|(amounts in millions)                                                                                         |   |          |   |      |      |         |       |       |      | 2009  |       |       |          |       |      |         |       |      |       | 2008  |  
|                                                                                                              |   | Canadian |   |      |      | Foreign |       |       |      | Total |       |       | Canadian |       |      | Foreign |       |      | Total |      
|Pension obligation                                                                                            |   |          |   |      |      |         |       |       |      |       |       |       |          |       |      |         |       |      |       |       |  
|at beginning of year                                                                                          | $ | 27.7     |   | $    | 10.2 |         | $     | 37.9  |      | $     | 23.8  |       | $        | 9.8   |      | $       | 33.6  |     
|Current service cost                                                                                          |   | 2.1      |   |      |      | 0.2     |       |       |      | 2.3   |       |       |          | 1.6   |      |         | 0.2   |      |       | 1.8   |  
|Interest cost                                                                                                 |   | 1.5      |   |      |      | 0.5     |       |       |      | 2.0   |       |       |          | 1.3   |      |         | 0.4   |      |       | 1.7   |  
|Pension benefits paid                                                                                         |   | (1.3     | ) |      |      | (0.6    | )     |       |      | (1.9  | )     |       |          | (1.3  | )    |         | (0.5  | )    |       | (1.8  | )
|Actuarial (gain) loss                                                                                         |   | (1.3     | ) |      |      | (0.8    | )     |       |      | (2.1  | )     |       |          | 2.3   |      |         | (0.2  | )    |       | 2.1   |  
|Foreign exchange variation                                                                                    |   |         |   |      |      | 0.3     |       |       |      | 0.3   |       |       |          |      |      |         | 0.5   |      |       | 0.5   |  
|Pension obligation at end of year                                                                             | $ | 28.7     |   | $    | 9.8  |         | $     | 38.5  |      | $     | 27.7  |       | $        | 10.2  |      | $       | 37.9  |     
|Financial position  plan deficit                                                                             | $ | (28.7    | ) | $    | (9.8 | )       | $     | (38.5 | )    | $     | (27.7 | )     | $        | (10.2 | )    | $       | (37.9 | )   
|Unrecognized net actuarial loss                                                                               |   | 6.2      |   |      |      | 0.4     |       |       |      | 6.6   |       |       |          | 7.9   |      |         | 1.4   |      |       | 9.3   |  
|Amount recognized in other                                                                                    |   |          |   |      |      |         |       |       |      |       |       |       |          |       |      |         |       |      |       |       |  
|long-term liabilities (Note 13)                                                                               | $ | (22.5    | ) | $    | (9.4 | )       | $     | (31.9 | )    | $     | (19.8 | )     | $        | (8.8  | )    | $       | (28.6 | )   
|                                                                                                             
|The net pension cost for funded pension plans for the years ended March 31 included the following components: |   |          |   |     
|                                                                                                             
|(amounts in millions)                                                                                         |   |          |   |      |      |         |       |       |      |       |       |       |          | 2009  |      |         | 2008  |      |       | 2007  |  
|Current service cost                                                                                          |   |          |   |      |      |         |       |       |      |       |       | $     | 7.1      |       | $    | 6.6     |       | $    | 6.8   |      
|Interest cost on pension obligations                                                                          |   |          |   |      |      |         |       |       |      |       |       |       |          | 12.2  |      |         | 11.0  |      |       | 10.0  |  
|Actual return on plan assets                                                                                  |   |          |   |      |      |         |       |       |      |       |       |       |          | 27.0  |      |         | (4.3  | )    |       | (19.2 | )
|Actuarial (gain) loss on benefit obligations                                                                  |   |          |   |      |      |         |       |       |      |       |       | (54.2 | )        |       | (4.6 | )       |       | 10.0 |      
|Plan amendments                                                                                               |   |          |   |      |      |         |       |       |      |       |       |       |          | 3.0   |      |         |      |      |       |      |  
|Pension cost before adjustments to recognize the long-term nature of plans                                    |   |          | $ | (4.9 | )    | $       | 8.7   |       | $    | 7.6   |      
|Adjustments to recognize the long-term nature of plans:                                                       |   |          |   |      |      |         |       |       |      |       |       |       |          |       |      |        
|Difference between expected and actual return on plan assets                                                  |   |          |   |      |      | $       | (40.4 | )     | $    | (8.2  | )     | $     | 8.1      |      
|Difference between actuarial (gain) loss recognized for the year and actual                                   |   |          |   |      |      |         |       |       |      |       |      
|actuarial (gain) loss on benefit obligations for the year                                                     |   |          |   |      |      |         |       |       | 55.7 |       |       | 6.4   |          |       | (7.4 | )      
|Difference between amortization of past service cost for the year and actual                                  |   |          |   |      |      |         |       |       |      |       |      
|plan amendments for the year                                                                                  |   |          |   |      |      |         |       |       |      |       |       |       |          | (2.5  | )    |         | 0.5   |      |       | 0.5   |  
|Total adjustment                                                                                              |   |          |   |      |      |         |       |       |      |       |       | $     | 12.8     |       | $    | (1.3    | )     | $    | 1.2   |      
|Net pension cost                                                                                              |   |          |   |      |      |         |       |       |      |       |       | $     | 7.9      |       | $    | 7.4     |       | $    | 8.8   |      
|Curtailment                                                                                                   |   |          |   |      |      |         |       |       |      |       |       |       |          |      |      |         |      |      |       | (0.9  | )
|Net pension cost including curtailment                                                                        |   |          |   |      |      |         |       |       |      |       |       | $     | 7.9      |       | $    | 7.4     |       | $    | 7.9   |      
|                                                                                                             
|The following components are combinations of the items presented above:                                       |   |          |   |      |      |         |       |       |      |       |       |      
|                                                                                                             
|(amounts in millions)                                                                                         |   |          |   |      |      |         |       |       |      |       |       |       |          | 2009  |      |         | 2008  |      |       | 2007  |  
|Expected return on plan assets                                                                                |   |          |   |      |      |         |       |       |      |       |       | $     | (13.4    | )     | $    | (12.5   | )     | $    | (11.1 | )    
|Amortization of net actuarial loss                                                                            |   |          |   |      |      |         |       |       |      |       |       |       |          | 1.5   |      |         | 1.8   |      |       | 2.6   |  
|Amortization of past service costs                                                                            |   |          |   |      |      |         |       |       |      |       |       |       |          | 0.5   |      |         | 0.5   |      |       | 0.5   |  

44 | CAE Year-End Financial Results 2009

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|                                                                                   |   |                                                |   |   |      |   |   |      |  
|---------------------------------------------------------------------------------- | - | ---------------------------------------------- | - | - | ---- | - | - | ---- | -
|                                                                                   |   | Notes to the Consolidated Financial Statements |  
|                                                                                  
|With respect to the supplemental arrangements, the net pension cost is as follows: |   |                                                |   |   |      |   |   |      |  
|                                                                                  
|(amounts in millions)                                                              |   | 2009                                           |   |   | 2008 |   |   | 2007 |  
|Current service cost                                                               | $ | 2.3                                            |   | $ | 1.8  |   | $ | 1.5  |  
|Interest cost on pension obligations                                               |   | 2.0                                            |   |   | 1.7  |   |   | 1.5  |  
|Actuarial (gain) loss on benefit obligations                                       |   | (2.1                                           | ) |   | 2.1  |   |   | 1.0  |  
|Pension cost before adjustments to recognize the long-term nature of plans         |   | 2.2                                            |   |   | 5.6  |   |   | 4.0  |  
|Adjustments to recognize the long-term nature of plans:                            |   |                                                |   |   |      |   |   |      |  
|Difference between actuarial (gain) loss recognized for the year and actual        |   |                                                |   |   |      |   |   |      |  
|actuarial (gain) loss on benefit obligations for the year                          |   | 2.7                                            |   |   | (1.8 | ) |   | (0.6 | )
|Net pension cost                                                                   | $ | 4.9                                            |   | $ | 3.8  |   | $ | 3.4  |  
|                                                                                  
|The following component is a combination of the items presented above:             |   |                                                |   |   |      |   |   |      |  
|                                                                                  
|(amounts in millions)                                                              |   | 2009                                           |   |   | 2008 |   |   | 2007 |  
|Amortization of net actuarial loss                                                 | $ | 0.6                                            |   | $ | 0.3  |   | $ | 0.4  |  

Additional information on Canadian-funded pension plan assets  weighted average asset allocations by asset category are as follows:

|                        |                                                |   |                   |  
|----------------------- | ---------------------------------------------- | - | ----------------- | -
|                        | Allocation of Plan Assets at Measurement Dates |  
|Asset category          | December 31, 2008                              |   | December 31, 2007 |  
|Equity securities       | 55                                             | % | 62                | %
|Fixed-income securities | 45                                             | % | 38                | %
|Total                   | 100                                            | % | 100               | %

The target allocation percentage for equity securities is 63%, which includes a mix of Canadian, U.S. and international equities, and is 37% for fixed-income securities, which must be rated BBB or higher. Individual asset classes are allowed to fluctuate slightly and are rebalanced regularly. CAE, through its fund managers, is responsible for investing the assets so as to achieve return in line with underlying market indexes. During the year, in response to volatility in the equity markets, management decided to reduce its exposure in the equity markets by investing the regular monthly contributions in short-term fixed income securities. Also, the reduction in equity values contributed to the change in mix of asset classes over the year.

Netherlands Pension Plan assets are invested through an insurance company, and the asset allocation is approximately 78% (2008 75%) in fixed income, 22% (2008  24%) in equities and nil% (2008  1%) in cash.

The asset allocation for the United Kingdom Pension Plan assets is approximately 52% (2008  64%) in equities, 48% (2008  27%) in fixed income and nil% (2008  9%) in cash.

|                                                                                   |   |          |   |             |   |          |   |             
|---------------------------------------------------------------------------------- | - | -------- | - | ----------- | - | -------- | - | ------------
|Additional information on employer contributions:                                  |   |          |   |             |   |          |   |             
|                                                                                   |   |          |   |             |   |          |   | Supplemental
|(amounts in millions)                                                              |   |          |   | Funded Plan |   |          |   | Arrangements
|                                                                                   |   | Canadian |   | Foreign     |   | Canadian |   | Foreign     
|Actual contribution  fiscal 2008                                                  | $ | 9.3      |   | $          | $ | 1.3      | $ | 0.5         
|Actual contribution  fiscal 2009                                                  |   | 9.5      |   | 1.0         |   | 1.3      |   | 0.6         
|Expected contribution  fiscal 2010 (unaudited)                                    |   | 10.6     |   | 1.1         |   | 1.5      |   | 0.6         
|                                                                                  
|Additional information about benefit payments expected to be paid in future years: |   |          |   |             |   |         
|Years ending March 31                                                              |   |          |   |             |   |          |   | Supplemental
|(amounts in millions  unaudited)                                                  |   |          |   | Funded Plan |   |          |   | Arrangements
|                                                                                   |   | Canadian |   | Foreign     |   | Canadian |   | Foreign     
|2010                                                                               | $ | 10.8     | $ | 0.4         | $ | 1.5      | $ | 0.6         
|2011                                                                               |   | 11.5     |   | 0.5         |   | 2.2      |   | 0.6         
|2012                                                                               |   | 12.4     |   | 0.8         |   | 2.2      |   | 0.6         
|2013                                                                               |   | 13.4     |   | 0.8         |   | 2.3      |   | 0.6         
|2014                                                                               |   | 14.4     |   | 1.1         |   | 2.3      |   | 0.6         
|2015  2019                                                                        |   | 89.0     |   | 6.6         |   | 12.8     |   | 3.5         

CAE Year-End Financial Results 2009 | 45

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|                                               |          |   |         |   |          |   |         |  
|---------------------------------------------- | -------- | - | ------- | - | -------- | - | ------- | -
|Notes to the Consolidated Financial Statements |          |   |         |   |          |   |         |  
|                                              
|Significant assumptions (weighted average):    |          |   |         |   |          |   |         |  
|                                              
|                                               |          |   | 2009    |   |          |   | 2008    |  
|                                               | Canadian |   | Foreign |   | Canadian |   | Foreign |  
|Pension obligations as of March 31:            |          |   |         |   |          |   |         |  
|Discount rate                                  | 7.50     | % | 5.64    | % | 5.50     | % | 5.40    | %
|Compensation rate increases                    | 3.50     | % | 1.85    | % | 3.50     | % | 1.80    | %
|Net pension cost:                              |          |   |         |   |          |   |         |  
|Expected return on plan assets                 | 7.00     | % | 5.65    | % | 7.00     | % | 5.50    | %
|Discount rate                                  | 5.50     | % | 5.40    | % | 5.25     | % | 4.70    | %
|Compensation rate increases                    | 3.50     | % | 1.80    | % | 3.50     | % | 1.90    | %

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.

The Company measures its benefit obligations and fair value of plan assets for accounting purposes on December 31 of each year.

The most recent actuarial valuation of the pension plans for funding purposes was on September 30, 2007 for the Canadian employee funded plans. The next required valuation will be on December 31, 2009 for both funded plans.

An actuarial valuation of the funded United Kingdom plan is made every three years on March 31. The last actuarial valuation was filed on March 31, 2009.

The most recent actuarial valuation of the pension plans for funding purposes was on December 31, 2008 for the Netherlands employee funded plan. The next required valuation will be on December 31, 2009.

Defined contribution plans

The Company maintains an Employee Stock Purchase Plan (ESPP) to enable Company employees and its participating subsidiaries to acquire CAE common shares through regular payroll deductions plus employer contributions. The Plan allows employees to contribute up to 18% of their annual base salary. The Company and its participating subsidiaries match the first $500 employee contribution and contribute $1 of every $2 on additional employee contributions, up to a maximum of 3% of the employees base salary. Refer to Note 16 for further details and compensation expense recorded during the period.

All of the Companys U.S. employees may participate in defined contribution saving plans. These plans are subject to U.S. federal tax limitations and provide for voluntary employee salary deduction contributions. The formula for the Companys defined contribution plans are based on a percentage of salary. The Companys 2009 contribution was $3.7 million (2008  $2.9 million, 2007 $2.1 million).

In addition, the Company offered defined contribution pension plans to employees of some of its subsidiaries for which the formula is based on a percentage of salary. The Companys 2009 contribution was $0.5 million (2008  $0.1 million, 2007  $0.1 million).

46 | CAE Year-End Financial Results 2009

---





|Notes to the Consolidated Financial Statements
|----------------------------------------------

NOTE 24  VARIABLE INTEREST ENTITIES

The following table summarizes the total assets and total liabilities by segment of the significant variable interest entities (VIEs) in which the Company has a variable interest as at March 31:

|                                                            |   |        |   |             |   |        |   |            
|----------------------------------------------------------- | - | ------ | - | ----------- | - | ------ | - | -----------
|(amounts in millions)                                       |   |        |   | 2009        |   |        |   | 2008       
|                                                            |   | Assets |   | Liabilities |   | Assets |   | Liabilities
|Training and Services/Civil:                                |   |        |   |             |   |        |   |            
|Sale and leaseback structures                               |   |        |   |             |   |        |   |            
|Air Canada Training Centre  Fiscal 2000                    | $ | 12.6   | $ | 12.6        | $ | 13.3   | $ | 13.3       
|Emirates-CAE Flight Training Centre  Fiscal 2002(1)        |   |       |   |            |   | 11.9   |   | 11.9       
|Toronto Training Centre  Fiscal 2002                       |   | 10.9   |   | 10.9        |   | 11.4   |   | 11.4       
|Denver/Dallas  Fiscal 2003                                 |   | 49.4   |   | 49.4        |   | 51.8   |   | 51.8       
|SimuFlite  Fiscal 2004                                     |   | 70.5   |   | 70.5        |   | 73.6   |   | 73.6       
|Assets and liabilities of non-consolidated VIEs subject to  |   |        |   |             |   |        |   |            
|disclosure                                                  | $ | 143.4  | $ | 143.4       | $ | 162.0  | $ | 162.0      
|Training and Services/Military:                             |   |        |   |             |   |        |   |            
|Sale and leaseback structures                               |   |        |   |             |   |        |   |            
|Aircrew Training Centre  Fiscal 1998                       | $ | 65.7   | $ | 50.0        | $ | 65.6   | $ | 48.5       
|Consolidated assets and liabilities before allowing for its |   |        |   |             |   |        |   |            
|classification as a VIE and the Company being the primary   |   |        |   |             |   |        |   |            
|beneficiary                                                 | $ | 65.7   | $ | 50.0        | $ | 65.6   | $ | 48.5       
|Simulation Products/Military:                               |   |        |   |             |   |        |   |            
|Partnership arrangements                                    |   |        |   |             |   |        |   |            
|Eurofighter Simulation Systems  Fiscal 1999                | $ | 80.2   | $ | 75.0        | $ | 112.4  | $ | 108.0      
|Assets and liabilities of non-consolidated VIEs subject to  |   |        |   |             |   |        |   |            
|disclosure                                                  | $ | 80.2   | $ | 75.0        | $ | 112.4  | $ | 108.0      

(1)During fiscal 2009, the Company has exercised an option to purchase the asset thereby eliminating its variable interest in regards to this arrangement.

The liabilities recognized as a result of consolidating this VIE do not represent additional claims on the Companys general assets; rather, they represent claims against the specific assets of the consolidated VIE. Conversely, assets recognized as a result of consolidating this VIE do not represent additional assets that could be used to satisfy claims against the Companys general assets. Additionally, the consolidation of this VIE did not result in any change in the underlying tax, legal or credit exposure of the Company.

Sale and leaseback structures

A key element of CAEs finance strategy to support the investment in its civil and military training and services business is the sale and leaseback of certain full-flight simulators (FFSs) installed in the Companys global network of training centres. This provides CAE with a cost-effective long-term source of fixed-cost financing. A sale and leaseback structure arrangement can be executed only after the FFS has achieved certification by regulatory authorities (i.e. the simulator is installed and is available to customers for training). The sale and leaseback structures are typically structured as leases with an owner participant.

The Company has entered into sale and leaseback arrangements with special purpose entities (SPEs). These arrangements relate to simulators used in the Companys training centres for the military and civil aviation segments. These leases expire at various dates up to 2023, with the exception of one in 2037. Typically, the Company has the option to purchase the equipment at a specific time during the lease terms at a specific purchase price. Some leases include renewal options at the end of the term. In some cases, the Company has provided guarantees for the residual value of the equipment at the expiry date of the leases or at the date the Company exercises its purchase option. Collaterized long-term debt and third-party equity investors who, in certain cases, benefit from tax incentives finance these SPEs. The equipment serves as collateral for the long-term debt of the SPEs.

The Companys variable interests in these SPEs are solely through fixed purchase price options and residual value guarantees, except for one case where it is in the form of equity and subordinated loan. In another case, the Company also provides administrative services to the SPE in return for a market fee.

The Company concluded that some of these SPEs are VIEs. At the end of fiscal 2009 and 2008, the Company is the primary beneficiary for one of them. The assets and liabilities of this VIE are fully consolidated into the Companys consolidated financial statements as at March 31, 2009 and March 31, 2008 before allowing for its classification as a VIE and the Company being the primary beneficiary.

For all of the other SPEs that are VIEs, the Company is not the primary beneficiary and consolidation is not appropriate under AcG-15. As at March 31, 2009, the Companys maximum potential exposure to losses relating to these non-consolidated SPEs was $48.1 million ($42.0 million in 2008).

CAE Year-End Financial Results 2009 | 47

---





|Notes to the Consolidated Financial StatementsPartnership arrangements
|----------------------------------------------------------------------

The Company entered into partnership arrangements to provide manufactured military simulation products as well as training and services for both the military and civil segments.

The Companys involvement with entities, in connection with these partnership arrangements, is mainly through investments in their equity and/or in subordinated loans and through manufacturing and long-term training service contracts. The Company concluded that certain of these entities are VIEs, but the Company is not the primary beneficiary. Accordingly, these entities have not been consolidated. The Company continues to account for these investments under the equity method, recording its share of the net earnings or loss based on the terms of the partnership arrangements. As at March 31, 2009 and 2008, the Companys maximum off-balance sheet exposure to losses related to these non-consolidated VIEs, other than from its contractual obligations, was not material.

NOTE 25  OPERATING SEGMENTS AND GEOGRAPHIC INFORMATION

The Company elected to organize its businesses based principally on products and services as follows:

|(i)   | Simulation Products/Civil  Designs, manufactures and supplies civil flight simulators, training devices and visual systems;                                
|----- | ------------------------------------------------------------------------------------------------------------------------------------------------------------
|(ii)  | Simulation Products/Military  Designs, manufactures and supplies advanced military training equipment and software tools for air forces, armies and navies;
|(iii) | Training & Services/Civil  Provides business and commercial aviation training for all flight and ground personnel and all associated services;             
|(iv)  | Training & Services/Military  Supplies turnkey training services, support services, systems maintenance and modelling and simulation solutions.            

Results by segment

The profitability measure employed by the Company for making decisions about allocating resources to segments and assessing segment performance is earnings before other income (expense), interest, income taxes and discontinued operations (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 Simulation Products/Civil segment to the Training & Services/Civil 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 made based on a proportion of each segments cost of sales.

|                              |   |                     |   |                     |   |       |   |       |   |       |       |       |           |       |         |           |       |   |       | 
|----------------------------- | - | ------------------- | - | ------------------- | - | ----- | - | ----- | - | ----- | ----- | ----- | --------- | ----- | ------- | --------- | ----- | - | ----- | 
|(amounts in millions)         |   | Simulation Products |   | Training & Services |   |       |   |       |   |       | Total |      
|                              |   | 2009                |   | 2008                |   | 2007  |   | 2009  |   | 2008  |       | 2007  |           | 2009  |         |           | 2008  |   | 2007  | 
|Civil                         |   |                     |   |                     |   |       |   |       |   |       |       |       |           |       |         |           |       |   |       | 
|External revenue              | $ | 477.5               | $ | 435.3               | $ | 348.1 | $ | 460.5 | $ | 382.1 | $     | 336.9 | $         | 938.0 |         | $         | 817.4 | $ | 685.0 | 
|Segment operating income      |   | 92.1                |   | 94.9                |   | 60.4  |   | 85.1  |   | 73.5  |       | 64.3  |           | 177.2 |         |           | 168.4 |   | 124.7 | 
|Depreciation and amortization |   |                     |   |                     |   |       |   |       |   |       |       |       |           |       |         |           |       |   |       | 
|Property, plant and equipment |   | 4.8                 |   | 4.7                 |   | 5.2   |   | 54.8  |   | 44.5  |       | 39.5  |           | 59.6  |         |           | 49.2  |   | 44.7  | 
|Intangible and other assets   |   | 2.0                 |   | 2.2                 |   | 4.2   |   | 9.3   |   | 7.5   |       | 6.0   |           | 11.3  |         |           | 9.7   |   | 10.2  | 
|Capital expenditures          |   | 5.6                 |   | 4.6                 |   | 14.4  |   | 168.9 |   | 161.8 |       | 108.1 |           | 174.5 |         |           | 166.4 |   | 122.5 | 
|Military                      |   |                     |   |                     |   |       |   |       |   |       |       |       |           |       |         |           |       |   |       | 
|External revenue              | $ | 483.5               | $ | 383.7               | $ | 357.5 | $ | 240.7 | $ | 222.5 | $     | 208.2 | $         | 724.2 |         | $         | 606.2 | $ | 565.7 | 
|Segment operating income      |   | 87.7                |   | 51.7                |   | 39.1  |   | 38.7  |   | 31.4  |       | 33.7  |           | 126.4 |         |           | 83.1  |   | 72.8  | 
|Depreciation and amortization |   |                     |   |                     |   |       |   |       |   |       |       |       |           |       |         |           |       |   |       | 
|Property, plant and equipment |   | 6.0                 |   | 6.0                 |   | 6.0   |   | 5.7   |   | 5.4   |       | 4.3   |           | 11.7  |         |           | 11.4  |   | 10.3  | 
|Intangible and other assets   |   | 5.4                 |   | 4.5                 |   | 3.0   |   | 3.0   |   | 2.7   |       | 2.6   |           | 8.4   |         |           | 7.2   |   | 5.6   | 
|Capital expenditures          |   | 6.5                 |   | 7.3                 |   | 5.5   |   | 22.7  |   | 15.8  |       | 30.1  |           | 29.2  |         |           | 23.1  |   | 35.6  | 
|Total                         |   |                     |   |                     |   |       |   |       |   |       |       |       |           |       |         |           |       |   |       | 
|External revenue              | $ | 961.0               | $ | 819.0               | $ | 705.6 | $ | 701.2 | $ | 604.6 | $     | 545.1 | $ 1,662.2 | $     | 1,423.6 | $ 1,250.7
|Segment operating income      |   | 179.8               |   | 146.6               |   | 99.5  |   | 123.8 |   | 104.9 |       | 98.0  |           | 303.6 |         |           | 251.5 |   | 197.5 | 
|Depreciation and amortization |   |                     |   |                     |   |       |   |       |   |       |       |       |           |       |         |           |       |   |       | 
|Property, plant and equipment |   | 10.8                |   | 10.7                |   | 11.2  |   | 60.5  |   | 49.9  |       | 43.8  |           | 71.3  |         |           | 60.6  |   | 55.0  | 
|Intangible and other assets   |   | 7.4                 |   | 6.7                 |   | 7.2   |   | 12.3  |   | 10.2  |       | 8.6   |           | 19.7  |         |           | 16.9  |   | 15.8  | 
|Capital expenditures          |   | 12.1                |   | 11.9                |   | 19.9  |   | 191.6 |   | 177.6 |       | 138.2 |           | 203.7 |         |           | 189.5 |   | 158.1 | 

48 | CAE Year-End Financial Results 2009

---





|Notes to the Consolidated Financial Statements
|----------------------------------------------

Earnings before interest and income taxes

The following table provides reconciliation between total Segment Operating Income and earnings before interest and income taxes:

|                                                      |   |       |   |       |   |       |  
|----------------------------------------------------- | - | ----- | - | ----- | - | ----- | -
|(amounts in millions)                                 |   | 2009  |   | 2008  |   | 2007  |  
|Total segment operating income                        | $ | 303.6 | $ | 251.5 | $ | 197.5 |  
|Restructuring charge                                  |   |      |   |      |   | (1.2  | )
|Other costs associated with the restructuring plan(a) |   |      |   |      |   | (6.9  | )
|Earnings before interest and income taxes             | $ | 303.6 | $ | 251.5 | $ | 189.4 |  

|(a) | In the past, the Company incurred costs, which were excluded from the determination of segment operating income, related to the re-engineering of the Companys business processes including a component associated with the first phase of the deployment of the ERP system. As at April 1, 2007, the costs related to the first phase of the ERP deployment have ended. Current costs associated with additional phases of the deployment of the ERP system are not considered restructuring costs and are included in the determination of segment operating income.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Assets employed by segment

The Company uses assets employed to assess resources allocated to each segment. Assets employed include accounts receivable, inventories, prepaid expenses, property, plant and equipment, goodwill, intangible assets and other assets. Assets employed exclude cash, income tax accounts and assets of certain non-operating subsidiaries.

|                                       |   |         |   |        
|-------------------------------------- | - | ------- | - | -------
|(amounts in millions)                  |   | 2009    |   | 2008   
|Simulation Products/Civil              | $ | 257.3   | $ | 208.3  
|Simulation Products/Military           |   | 400.1   |   | 302.8  
|Training & Services/Civil              |   | 1,366.7 |   | 1,067.6
|Training & Services/Military           |   | 260.7   |   | 219.8  
|Total assets employed                  | $ | 2,284.8 | $ | 1,798.5
|Assets not included in assets employed | $ | 391.3   | $ | 454.7  
|Total assets                           | $ | 2,676.1 | $ | 2,253.2

Geographic information

The Company markets its products and services in over 20 countries. Sales are attributed to countries based on the location of customers.

|                                                              |   |         |   |         |   |        
|------------------------------------------------------------- | - | ------- | - | ------- | - | -------
|(amounts in millions)                                         |   | 2009    |   | 2008    |   | 2007   
|Revenue from external customers                               |   |         |   |         |   |        
|Canada                                                        | $ | 93.8    | $ | 98.4    | $ | 137.5  
|United States                                                 |   | 561.2   |   | 468.9   |   | 398.6  
|United Kingdom                                                |   | 124.0   |   | 102.2   |   | 98.1   
|Germany                                                       |   | 203.8   |   | 162.6   |   | 153.3  
|Netherlands                                                   |   | 87.5    |   | 98.0    |   | 92.4   
|Other European countries                                      |   | 174.3   |   | 145.5   |   | 127.1  
|China                                                         |   | 86.3    |   | 71.1    |   | 56.3   
|United Arab Emirates                                          |   | 69.3    |   | 53.3    |   | 52.5   
|Other Asian countries                                         |   | 117.7   |   | 81.8    |   | 70.8   
|Australia                                                     |   | 79.2    |   | 78.1    |   | 33.1   
|Other countries                                               |   | 65.1    |   | 63.7    |   | 31.0   
|                                                              | $ | 1,662.2 | $ | 1,423.6 | $ | 1,250.7
|                                                             
|(amounts in millions)                                         |   | 2009    |   |         |   | 2008   
|Property, plant and equipment, goodwill and intangible assets |   |         |   |         |   |        
|Canada                                                        | $ | 210.7   |   |         | $ | 205.9  
|United States                                                 |   | 422.2   |   |         |   | 297.2  
|South America                                                 |   | 76.1    |   |         |   | 66.1   
|United Kingdom                                                |   | 164.1   |   |         |   | 166.3  
|Spain                                                         |   | 95.8    |   |         |   | 95.4   
|Germany                                                       |   | 81.1    |   |         |   | 67.2   
|Belgium                                                       |   | 91.6    |   |         |   | 27.1   
|Netherlands                                                   |   | 129.2   |   |         |   | 134.0  
|Other European countries                                      |   | 43.7    |   |         |   | 34.2   
|United Arab Emirates                                          |   | 85.0    |   |         |   | 63.6   
|Other Asian countries                                         |   | 126.3   |   |         |   | 54.3   
|Other countries                                               |   | 12.8    |   |         |   | 13.0   
|                                                              | $ | 1,538.6 |   |         | $ | 1,224.3

CAE Year-End Financial Results 2009 | 49

---



Notes to the Consolidated Financial Statements

NOTE 26  DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES

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

As required by the United States Securities and Exchange Commission (SEC), the effect of these principal differences on the Companys consolidated financial statements is described and quantified as follows:

|                                                                          |       |   |       |   |   |       |   |   |       |  
|------------------------------------------------------------------------- | ----- | - | ----- | - | - | ----- | - | - | ----- | -
|Reconciliation of consolidated net earnings in Canadian GAAP to U.S. GAAP |       |   |       |   |   |       |   |   |      
|                                                                         
|(amounts in millions, except per share amounts)                           | Notes |   | 2009  |   |   | 2008  |   |   | 2007  |  
|Net earnings in accordance with Canadian GAAP                             |       | $ | 199.4 |   | $ | 152.7 |   | $ | 127.4 |  
|Results of discontinued operations in accordance with Canadian GAAP       |       |   | (1.1  | ) |   | (12.1 | ) |   | (1.7  | )
|Earnings from continuing operations in accordance with Canadian GAAP      |       | $ | 200.5 |   | $ | 164.8 |   | $ | 129.1 |  
|Deferred development costs excluding amortization                         | A     |   | (5.7  | ) |   | 1.8   |   |   | (3.4  | )
|Amortization of deferred development costs                                | A     |   | 3.3   |   |   | 2.9   |   |   | 4.8   |  
|Deferred pre-operating costs excluding amortization                       | B     |   | 0.1   |   |   | (2.9  | ) |   | (6.9  | )
|Amortization of pre-operating costs                                       | B     |   | 2.1   |   |   | 2.0   |   |   | 3.0   |  
|Financial instruments                                                     | C     |   | (7.8  | ) |   | 6.2   |   |   | 7.0   |  
|Reduction of the net investment in self-sustaining operations             | E     |   | (1.9  | ) |   |      |   |   |      |  
|Defined benefit and other post-retirement benefit plans                   | F     |   | 0.2   |   |   |      |   |   |      |  
|Stock-based compensation                                                  | H     |   | (2.2  | ) |   | (5.9  | ) |   | 5.2   |  
|Future income tax relating to the above adjustments                       |       |   | 1.1   |   |   | (5.9  | ) |   | (2.9  | )
|Earnings from continuing operations  U.S. GAAP                           |       | $ | 189.7 |   | $ | 163.0 |   | $ | 135.9 |  
|Results from discontinued operations in accordance with U.S. GAAP         |       |   | (1.1  | ) |   | (12.1 | ) |   | (1.7  | )
|Net earnings in accordance with U.S. GAAP                                 |       | $ | 188.6 |   | $ | 150.9 |   | $ | 134.2 |  
|Basic and diluted earnings per share from continuing operations in        |       |   |       |   |   |       |   |   |       |  
|accordance with U.S. GAAP                                                 |       | $ | 0.75  |   | $ | 0.64  |   | $ | 0.54  |  
|Basic and diluted results per share from discontinued operations in       |       |   |       |   |   |       |   |   |       |  
|accordance with U.S. GAAP                                                 |       | $ | (0.01 | ) | $ | (0.05 | ) | $ | (0.01 | )
|Basic and diluted net earnings per share in accordance with U.S. GAAP     |       | $ | 0.74  |   | $ | 0.59  |   | $ | 0.53  |  
|Dividends per common share                                                |       | $ | 0.12  |   | $ | 0.04  |   | $ | 0.04  |  
|Weighted average number of common shares outstanding (Basic)              |       |   | 254.8 |   |   | 253.4 |   |   | 251.1 |  
|Weighted average number of common shares outstanding (Diluted)            |       |   | 255.0 |   |   | 254.6 |   |   | 253.0 |  

50 | CAE Year-End Financial Results 2009

---



|                                                                                             |                                                |   |         |   |   |        |   |   |        |  
|-------------------------------------------------------------------------------------------- | ---------------------------------------------- | - | ------- | - | - | ------ | - | - | ------ | -
|                                                                                             | Notes to the Consolidated Financial Statements |  
|                                                                                            
|Consolidated statements of comprehensive income in accordance with U.S. GAAP                 |                                                |   |         |   |   |        |  
|                                                                                            
|(amounts in millions)                                                                        | Notes                                          |   | 2009    |   |   | 2008   |   |   | 2007   |  
|Net earnings in accordance with U.S. GAAP                                                    |                                                | $ | 188.6   |   | $ | 150.9  |   | $ | 134.2  |  
|Other comprehensive income (loss)                                                            |                                                |   |         |   |   |        |   |   |        |  
|Available-for-sale financial asset                                                           |                                                |   |         |   |   |        |   |   |        |  
|Net change in fair value on available-for-sale financial asset                               | C                                              | $ | (0.6    | ) |   | $     |   |   | $     |  
|Income tax adjustment                                                                        | C                                              |   | 0.1     |   |   |       |   |   |       |  
|                                                                                             |                                                | $ | (0.5    | ) |   | $     |   |   | $     |  
|Defined benefit and other post-retirement benefit plans                                      |                                                |   |         |   |   |        |   |   |        |  
|Net change in actuarial gains or losses                                                      | F                                              | $ | 19.0    |   | $ | (5.9   | ) |   | $     |  
|Change in accumulated minimum pension liability                                              | F                                              |   |        |   |   |       |   |   | 17.0   |  
|Reclassifications to income                                                                  | F                                              |   | 2.6     |   |   | 2.7    |   |   |       |  
|Income tax adjustment                                                                        | F                                              |   | (6.6    | ) |   | (0.5   | ) |   | (5.3   | )
|                                                                                             |                                                | $ | 15.0    |   | $ | (3.7   | ) | $ | 11.7   |  
|Foreign currency translation adjustment                                                      |                                                |   |         |   |   |        |   |   |        |  
|Net foreign exchange gains (losses) on translation of financial statements of                |                                                |   |         |   |   |        |   |   |        |  
|self-sustaining foreign operations                                                           | B,F                                            | $ | 114.4   |   | $ | (50.2  | ) | $ | 26.1   |  
|Net change in (losses) gains of certain long-term debt denominated in                        |                                                |   |         |   |   |        |   |   |        |  
|foreign currency and designated as hedges on net investments on                              |                                                |   |         |   |   |        |   |   |        |  
|self-sustaining foreign operations                                                           |                                                |   | (7.7    | ) |   | 15.7   |   |   | 1.5    |  
|Income tax adjustment                                                                        | E                                              |   | (1.4    | ) |   | (0.6   | ) |   | (0.1   | )
|                                                                                             |                                                | $ | 105.3   |   | $ | (35.1  | ) | $ | 27.5   |  
|Total other comprehensive income (loss) in accordance with U.S. GAAP                         |                                                | $ | 119.8   |   | $ | (38.8  | ) | $ | 39.2   |  
|Comprehensive income in accordance with U.S. GAAP                                            |                                                | $ | 308.4   |   | $ | 112.1  |   | $ | 173.4  |  
|                                                                                            
|Consolidated statements of accumulated other comprehensive loss in accordance with U.S. GAAP |                                                |   |         |  
|                                                                                            
|(amounts in millions)                                                                        | Notes                                          |   | 2009    |   |   | 2008   |   |   | 2007   |  
|Accumulated other comprehensive loss in accordance with                                      |                                                |   |         |   |   |        |   |   |        |  
|U.S. GAAP, beginning of year                                                                 |                                                | $ | (154.6  | ) | $ | (115.8 | ) | $ | (122.0 | )
|Other comprehensive income (loss) in accordance with U.S. GAAP                               |                                                |   | 119.8   |   |   | (38.8  | ) |   | 39.2   |  
|Available-for-sale financial asset, net of tax expense of $0.3 million (2008                |                                                |   |         |   |   |        |   |   |        |  
|$nil; 2007  $nil)                                                                           | C                                              |   | 1.5     |   |   |       |   |   |       |  
|Unrecognized actuarial gains and losses and past service costs on defined                    |                                                |   |         |   |   |        |   |   |        |  
|benefit pension plan, net of tax recovery                                                    |                                                |   |         |   |   |        |   |   |        |  
|of $nil (2008  $nil; 2007  $14.9)                                                          | F                                              |   |        |   |   |       |   |   | (33.0  | )
|Accumulated other comprehensive loss in accordance with                                      |                                                |   |         |   |   |        |   |   |        |  
|U.S. GAAP, end of year                                                                       |                                                | $ | (33.3   | ) | $ | (154.6 | ) | $ | (115.8 | )
|                                                                                            
|Reconciliation of consolidated shareholders equity in Canadian GAAP to U.S. GAAP            |                                                |   |         |   |   |        |  
|                                                                                            
|(amounts in millions)                                                                        | Notes                                          |   | 2009    |   |   | 2008   |   |   | 2007   |  
|Shareholders equity in accordance with Canadian GAAP                                        |                                                | $ | 1,205.1 |   | $ | 948.5  |   | $ | 829.9  |  
|Deferred development costs,                                                                  |                                                |   |         |   |   |        |   |   |        |  
|net of tax recovery of $6.4 (2008  $6.3; 2007  $12.7)                                      | A                                              |   | (16.0   | ) |   | (13.7  | ) |   | (12.0  | )
|Deferred pre-operating costs,                                                                |                                                |   |         |   |   |        |   |   |        |  
|net of tax recovery of $2.6 (2008  $3.1; 2007  $3.6)                                       | B                                              |   | (8.3    | ) |   | (10.0  | ) |   | (8.6   | )
|Financial instruments,                                                                       |                                                |   |         |   |   |        |   |   |        |  
|net of tax expense of $9.8 (2008  tax recovery of $0.1;                                     |                                                |   |         |   |   |        |   |   |        |  
|2007  tax recovery of $5.5)                                                                 | C                                              |   | 22.6    |   |   | 0.7    |   |   | (12.9  | )
|Foreign currency translation adjustment                                                      | B,F                                            |   | 1.1     |   |   |       |   |   |       |  
|Defined benefit and other post-retirement benefit plans,                                     |                                                |   |         |   |   |        |   |   |        |  
|net of tax recovery of $11.6 (2008  $17.5; 2007  $18.0)                                    | F                                              |   | (30.7   | ) |   | (43.7  | ) |   | (40.0  | )
|Stock-based compensation,                                                                    |                                                |   |         |   |   |        |   |   |        |  
|net of tax expense of $0.5 (2008  $1.0; 2007  $3.3)                                        | H                                              |   | 1.0     |   |   | 2.1    |   |   | 7.0    |  
|Shareholders equity in accordance with U.S. GAAP                                            |                                                | $ | 1,174.8 |   | $ | 883.9  |   | $ | 763.4  |  

CAE Year-End Financial Results 2009 | 51

---



|                                                         |                 |   |          |         |   |         |         |   |          |         |   |         |         |  
|-------------------------------------------------------- | --------------- | - | -------- | ------- | - | ------- | ------- | - | -------- | ------- | - | ------- | ------- | -
|Notes to the Consolidated Financial Statements           |                 |   |          |         |   |         |         |   |          |         |   |         |        
|                                                        
|Consolidated balance sheets in accordance with U.S. GAAP |                 |   |          |         |   |         |         |   |          |         |  
|                                                        
|(amounts in millions)                                    | Notes           |   |          |         |   |         | 2009    |   |          |         |   |         | 2008    |  
|                                                         |                 |   | Canadian |         |   | U.S.    |         |   | Canadian |         |   | U.S.    |        
|                                                         | I               |   |          | GAAP    |   |         | GAAP    |   |          | GAAP    |   |         | GAAP    |  
|Assets                                                   |                 |   |          |         |   |         |         |   |          |         |   |         |         |  
|Current assets                                           |                 |   |          |         |   |         |         |   |          |         |   |         |         |  
|Cash and cash equivalents                                |                 | $ | 195.2    |         | $ | 195.2   |         | $ | 255.7    |         | $ | 255.7   |        
|Accounts receivable                                      | C               |   |          | 290.2   |   |         | 289.1   |   |          | 237.8   |   |         | 238.3   |  
|Derivative instruments                                   | C               |   |          | 32.2    |   |         | 50.5    |   |          | 17.2    |   |         | 19.0    |  
|Inventories                                              | C               |   |          | 334.2   |   |         | 334.8   |   |          | 229.9   |   |         | 229.9   |  
|Prepaid expenses                                         |                 |   |          | 31.3    |   |         | 31.3    |   |          | 32.7    |   |         | 32.7    |  
|Income taxes recoverable                                 |                 |   |          | 11.5    |   |         | 11.5    |   |          | 39.0    |   |         | 39.0    |  
|Future income taxes                                      | B,C             |   |          | 5.3     |   |         | 5.3     |   |          | 14.1    |   |         | 14.2    |  
|                                                         |                 | $ | 899.9    |         | $ | 917.7   |         | $ | 826.4    |         | $ | 828.8   |        
|Property, plant and equipment, net                       | C               |   |          | 1,302.4 |   |         | 1,305.7 |   |          | 1,046.8 |   |         | 1,046.8 |  
|Future income taxes                                      | A,B,C,F,H       |   |          | 86.0    |   |         | 90.3    |   |          | 64.3    |   |         | 71.0    |  
|Derivative instruments                                   | C               |   |          | 19.1    |   |         | 24.9    |   |          | 13.7    |   |         | 14.9    |  
|Intangible assets                                        |                 |   |          | 77.1    |   |         | 77.1    |   |          | 62.0    |   |         | 62.0    |  
|Goodwill                                                 |                 |   |          | 159.1   |   |         | 159.1   |   |          | 115.5   |   |         | 115.5   |  
|Other assets                                             | A,B,C,F         |   |          | 132.5   |   |         | 79.5    |   |          | 124.5   |   |         | 72.9    |  
|                                                         |                 | $ | 2,676.1  |         | $ | 2,654.3 |         | $ | 2,253.2  |         | $ | 2,211.9 |        
|                                                        
|Liabilities and shareholders equity                     |                 |   |          |         |   |         |         |   |          |         |   |         |         |  
|Current liabilities                                      |                 |   |          |         |   |         |         |   |          |         |   |         |         |  
|Accounts payable and accrued liabilities                 | F,H             | $ | 504.3    |         | $ | 506.5   |         | $ | 457.7    |         | $ | 458.4   |        
|Deposits on contracts                                    | C               |   |          | 203.8   |   |         | 196.4   |   |          | 209.3   |   |         | 210.2   |  
|Derivative instruments                                   | C               |   |          | 36.1    |   |         | 42.5    |   |          | 25.0    |   |         | 29.9    |  
|Current portion of long-term debt                        | C               |   |          | 125.6   |   |         | 126.6   |   |          | 27.3    |   |         | 28.3    |  
|Future income taxes                                      | A,C,H           |   |          | 20.9    |   |         | 26.7    |   |          | 16.8    |   |         | 13.1    |  
|                                                         |                 | $ | 890.7    |         | $ | 898.7   |         | $ | 736.1    |         | $ | 739.9   |        
|Long-term debt                                           | C               |   |          | 354.7   |   |         | 355.2   |   |          | 352.5   |   |         | 354.2   |  
|Deferred gains and other long-term liabilities           | B,C,F,H         |   |          | 165.2   |   |         | 174.9   |   |          | 175.8   |   |         | 206.5   |  
|Derivative instruments                                   | C               |   |          | 20.4    |   |         | 22.5    |   |          | 9.1     |   |         | 11.7    |  
|Future income taxes                                      | A,B,C,F,H       |   |          | 40.0    |   |         | 28.2    |   |          | 31.2    |   |         | 15.7    |  
|                                                         |                 | $ | 1,471.0  |         | $ | 1,479.5 |         | $ | 1,304.7  |         | $ | 1,328.0 |        
|Shareholders equity                                     |                 |   |          |         |   |         |         |   |          |         |   |         |         |  
|Capital stock                                            | D,G             | $ | 430.2    |         | $ | 674.4   |         | $ | 418.9    |         | $ | 663.1   |        
|Contributed surplus                                      | H               |   |          | 10.1    |   |         | 10.0    |   |          | 8.3     |   |         | 7.6     |  
|Retained earnings                                        | A,B,C,D,E,F,G,H |   |          | 813.3   |   |         | 523.7   |   |          | 644.5   |   |         | 367.8   |  
|Accumulated other comprehensive loss                     | B,C,E,F         |   |          | (48.5   | ) |         | (33.3   | ) |          | (123.2  | ) |         | (154.6  | )
|                                                         |                 | $ | 1,205.1  |         | $ | 1,174.8 |         | $ | 948.5    |         | $ | 883.9   |        
|                                                         |                 | $ | 2,676.1  |         | $ | 2,654.3 |         | $ | 2,253.2  |         | $ | 2,211.9 |        

52 | CAE Year-End Financial Results 2009

---





|Notes to the Consolidated Financial Statements
|----------------------------------------------

Reconciliation of consolidated statements of cash flows in Canadian GAAP to U.S. GAAP

|                                                                                            |   |        |       |   |        |       |   |        |      |  
|------------------------------------------------------------------------------------------- | - | ------ | ----- | - | ------ | ----- | - | ------ | ---- | -
|The reconciliation of cash flows under Canadian GAAP to conform to U.S. GAAP is as follows: |   |        |       |   |        |       |  
|                                                                                           
|(amounts in millions)                                                                       |   | Notes  | 2009  |   |        | 2008  |   |        | 2007 |  
|Net cash provided by operating activities in accordance with Canadian                       |   |        |       |   |        |       |   |        |      |  
|GAAP                                                                                        | $ | 195.5  |       | $ | 260.9  |       | $ | 239.3  |     
|Deferred development costs                                                                  |   | A      | (10.5 | ) |        | (16.5 | ) |        | (3.0 | )
|Deferred pre-operating costs                                                                |   | B      | (1.8  | ) |        | (3.9  | ) |        | (5.9 | )
|Net cash provided by operating activities in accordance with                                |   |        |       |   |        |       |   |        |      |  
|U.S. GAAP                                                                                   | $ | 183.2  |       | $ | 240.5  |       | $ | 230.4  |     
|Net cash used in investing activities in accordance with                                    |   |        |       |   |        |       |   |        |      |  
|Canadian GAAP                                                                               | $ | (262.5 | )     | $ | (257.2 | )     | $ | (178.1 | )   
|Deferred development costs                                                                  |   | A      | 10.5  |   |        | 16.5  |   |        | 3.0  |  
|Deferred pre-operating costs                                                                |   | B      | 1.8   |   |        | 3.9   |   |        | 5.9  |  
|Net cash used in investing activities in accordance with                                    |   |        |       |   |        |       |   |        |      |  
|U.S. GAAP                                                                                   | $ | (250.2 | )     | $ | (236.8 | )     | $ | (169.2 | )   
|Net cash (used in) provided by financing activities in accordance with                      |   |        |       |   |        |       |   |        |      |  
|U.S. GAAP                                                                                   | $ | (11.2  | )     | $ | 101.9  |       | $ | 3.5    |     



|Reconciliation items
|--------------------



|A) Deferred development costsUnder U.S. GAAP, development costs are expensed as incurred. Under Canadian GAAP, certain development costs arecapitalized and amortized over their estimated useful lives if they meet the criteria for deferral.B) Deferred pre-operating costsUnder U.S. GAAP, pre-operating costs are expensed as incurred. Under Canadian GAAP, the amounts are deferred andamortized over five years based on the expected period and pattern of benefit of the deferred expenditures.C) Financial instrumentsPrior to April 1, 2007Foreign currency derivativesUnder Canadian GAAP, the Companys derivatives, not used for speculative purposes and that did not qualify for hedgeaccounting were carried at fair value on the consolidated balance sheet, with changes in fair value recognized into earnings.There was no difference in accounting between Canadian GAAP and U.S. GAAP in respect to these derivatives.The derivatives embedded within host contracts were not separately accounted for and the Companys derivatives that qualifiedand had been designated as part of a hedging relationship were off-balance sheet items. The Company recognized the gains andlosses on foreign currency derivatives entered into for hedging purposes in income concurrently with the recognition of thetransactions being hedged.For U.S. GAAP, the Company recognized all of its derivatives, including embedded derivatives in host contracts, on theconsolidated balance sheet at fair value with realized and unrealized gains and losses resulting from the change in fair value ofderivatives recognized in earnings as the gains and losses arose and not concurrently with the recognition of the transactionsbeing hedged.Interest rate swapUnder Canadian GAAP, the interest payments relating to interest rate swaps were recorded in net earnings over the life of theunderlying transaction on an accrual basis as an adjustment to interest income or interest expense. Also the deferred gain on interestrate swaps was amortized against the interest expense of the relevant long-term debt over the remaining terms of the swaps.Under U.S. GAAP, the interest rate swaps were recorded on the consolidated balance sheet at fair value with changes in fairvalue recognized in earnings. The Company did not apply the optional hedge accounting provisions of Statement of FinancialAccounting Standards (SFAS) 133,Accounting for Derivative Instruments and Hedging Activities,SFAS 138,Accounting forCertain Derivative Instruments and Hedging Activities  an amendment of SFAS 133and SFAS 149,Amendment of Statement133 on Derivative Instruments and Hedging Activities. As a result, the amortization of the deferred gain and the remainingunamortized amount on interest rate swaps under Canadian GAAP is reversed for the purposes of U.S. GAAP.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

CAE Year-End Financial Results 2009 | 53

---





|Notes to the Consolidated Financial StatementsEffective April 1, 2007
|---------------------------------------------------------------------

The Company adopted CICA Handbook Section 3855,Financial Instruments Recognition and Measurement, which requires the Company to recognize all of its derivative instruments (whether designated in hedging relationships or not, or embedded within hybrid instruments) at fair value on the consolidated balance sheet.

Under Canadian GAAP, the accounting for changes in fair value (i.e. gains and losses) of derivatives instruments depends on whether it has been designated and qualifies as part of a hedging relationship.

Cash flow hedges

For strategies designated as cash flow hedges, the effective portion of the changes in the fair value of the derivative is accumulated in Other Comprehensive Income (OCI) until the variability in the cash flow being hedged is recognized in earnings in future accounting periods. For cash flow hedges, if a derivative instrument is designated as a hedge and meets the criteria for hedge effectiveness, earnings offset is available, but only to the extent that the hedge is effective. The ineffective portion of cash flow hedges is recorded in earnings in the current period.

Under U.S. GAAP, realized and unrealized gains and losses resulting from the change in fair value of derivatives that qualify and have been designated as part of a hedging relationship are recognized in earnings as the gains and losses arise and not concurrently with the recognition of the transactions being hedged, as the Company has not chosen to apply the optional hedge accounting provisions of SFAS 133, 138 and 149 for cash flow hedges. As such, all amounts accumulated in OCI under Canadian GAAP are reversed into earnings and retained earnings for U.S. GAAP purposes.

Fair value hedges

The Company has an outstanding interest rate swap contract that replaced a swap contract that had previously been put in place when the private placement was raised. The existing swap contract is designated as a fair value hedge of its private placement resulting from changes in LIBOR interest rates. With regards to the outstanding fair value hedge, the gains or losses on the hedged items attributable to the hedged risk are accounted for as an adjustment to the carrying value of the hedged items. For the fair value hedge that was discontinued prior to the transaction date, the carrying amount of the hedged item is adjusted by the remaining balance of any deferred gain or loss on the hedging item. As such, the debt basis adjustment has been recorded with the private placement as an increase to the gross long-term debt amount.

Under U.S. GAAP, the interest rate swap is recorded on the consolidated balance sheet at fair value with changes in fair value recognized in earnings. The Company did not apply the optional hedge accounting provisions of SFAS 133, 138 and 149 for fair value hedges. As a result, the debt basis adjustment has been recorded in earnings for U.S. GAAP purposes.

Embedded foreign currency derivatives

Under Canadian GAAP, the Company elects to record, as a single contract, an embedded foreign currency derivative in a host contract that is not a financial instrument, provided:

|(i)   | it is not leveraged;                                                                                                                                                                                                                                                                                                     
|----- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(ii)  | it does not contain an option feature; and                                                                                                                                                                                                                                                                               
|(iii) | it requires payments denominated in a currency that is commonly used in contracts to purchase or sell non-financial items in the economic environment in which the transaction takes place (for example, a relatively stable and liquid currency that is commonly used in local business transactions or external trade).

This policy choice is not permitted under U.S. GAAP. U.S. GAAP requires the embedded derivative to be bifurcated from the host contract, unless the currency is the functional currency of one of the substantial parties to the contract or is the routinely denominated currency for that particular good or service.

Transaction costs

Since April 1, 2007, under Canadian GAAP, the Company elected to record transaction costs with the asset or liability to which they are associated thereby reclassifying deferred financing costs fromother assetsto long-term debt. Under U.S. GAAP, transaction costs are recorded as deferred financing costs presented inother assets.

Effective April 1, 2008

Fair value measurement

The Company adopted SFAS 157,Fair Value Measurements, on April 1, 2008. The new standard includes a definition of fair value as well as a framework for measuring fair value. In February 2008, FASB issued SFAS 157-2,Effective Date of FASB Statement No. 157, delaying the effective date of SFAS 157 for non-financial assets and non-financial liabilities, except for items that are recognized or disclosed at fair value in the financial statements on a recurring basis until fiscal years beginning after November 15, 2008.

Under Canadian GAAP, the Company measures its available-for-sale financial asset at cost as no readily available market value exists according to Section 3855,Financial Instruments  Recognition and Measurement. Under U.S. GAAP, SFAS 157-3,

Determining the Fair Value of a Financial Asset When the Market for That Asset Is Not Active, provides guidance to determine the fair value when a market value is not readily available.

54 | CAE Year-End Financial Results 2009

---





|Notes to the Consolidated Financial Statements
|----------------------------------------------

|   |                                                                                                                                        
|-- | ---------------------------------------------------------------------------------------------------------------------------------------
|D) | Reduction in stated capital                                                                                                            
|   | On July 7, 1994, the Company applied a portion of its deficit as a reduction of its stated capital in the amount of $249.3 million.    
|   | Under U.S. GAAP, the reduction of stated capital would not be permitted.                                                               
|  
|E) | Foreign currency translation adjustment                                                                                                
|   | In fiscal 2009, the Company transferred to consolidated earnings a gain of $1.8 million, net of tax expense of $0.1 million as a       
|   | result of reductions in net investments in self-sustaining foreign operations. Under U.S. GAAP, the reduction in currency              
|   | translation adjustment account for this transaction is not permitted.                                                                  
|  
|F) | Defined benefit and other post-retirement benefit plans                                                                                
|   | Until the application of SFAS 158,Employers Accounting for Defined Benefit Pension and Other Post Retirement Plans  an               
|   | amendment of FAS Statements No. 87, 88, 106 and 132(R), the provisions under U.S. GAAP of SFAS 87,Employers                           
|   | Accounting for Pensions, required that if the accumulated benefit obligation exceeds the market value of plan assets, a minimum        
|   | pension liability for the excess is recognized to the extent that the liability recorded in the consolidated balance sheet is less than
|   | the minimum liability. Any portion of the additional liability that relates to unrecognized past service costs is recognized as an     
|   | intangible asset while the remainder is charged to comprehensive income. The concept of an additional minimum liability does           
|   | not currently exist under Canadian GAAP.                                                                                               
|  
|   | As at March 31, 2007, the Company prospectively adopted SFAS 158. Under this statement, the over-funded or under-funded                
|   | status of a defined benefit pension and other post-retirement benefit plans is recognized as an asset or liability on the              
|   | consolidated balance sheet. Any unrecognized actuarial gains or losses, prior service cost or credits and unrecognized net             
|   | transitional assets or obligations are recognized as a component of accumulated other comprehensive income. This concept               
|   | does not currently exist under Canadian GAAP.                                                                                          
|  
|   | Under Canadian GAAP, plan assets and obligations measured as at the date of the annual financial statements or not more than           
|   | three months prior to that date. The Company measures its plan assets and obligations on December 31 of each year. Under               
|   | U.S. GAAP, SFAS 158 requires defined benefit plan assets and obligations to be measured as at the year end balance sheet               
|   | date, March 31 of each year.                                                                                                           
|  
|G) | Share issue costs                                                                                                                      
|   | Under Canadian GAAP, costs related to share issuance can be presented in retained earnings, net of taxes. In fiscal 2004, the          
|   | Company included share issued costs of $5.1 million into its retained earnings. Under U.S. GAAP, these costs were recorded as          
|   | a reduction of capital stock.                                                                                                          
|  
|H) | Stock-based compensation                                                                                                               
|   | Under Canadian GAAP, the Company has adopted Emerging Issues Committee (EIC)-162,Stock-Based Compensation for                          
|   | Employees Eligible to Retire Before the Vesting Date, in the third quarter of fiscal 2007, with restatement of prior periods. Under    
|   | U.S. GAAP, the Company adopted SFAS No. 123R,Share-Based Payment (revised 2004), on April 1, 2006, which has the same                  
|   | requirements as EIC-162 under Canadian GAAP except that SFAS 123R is to be applied prospectively from April 1, 2006 to new             
|   | option awards that have retirement eligibility provisions. The nominal vesting period approach is continued for any option awards      
|   | granted prior to adopting SFAS 123R and for the remaining portion of unvested outstanding options. Consequently, this creates a        
|   | discrepancy in the compensation expense reported in each year.                                                                         
|  
|I) | Accounting for joint ventures                                                                                                          
|   | U.S. GAAP requires the Companys investments in joint ventures to be accounted for using the equity method. However, under             
|   | an accommodation of the SEC, accounting for joint ventures need not to be reconciled from Canadian to U.S. GAAP. The                   
|   | different accounting treatment affects only display and classification and not earnings or shareholders equity.                       
|  
|J) | Investment tax credits                                                                                                                 
|   | Under Canadian GAAP, the Company records its ITCs arising from research and development activities on a net basis against              
|   | the costs to which they relate. Under U.S. GAAP, when the Company recognizes its federal ITCs into earnings, the credit is             
|   | reflected as a reduction of tax expense.                                                                                               



|Change in accounting policiesDefined benefit pension and other post-retirement plans
|------------------------------------------------------------------------------------

In September 2006, the FASB issued SFAS 158. The recognition requirement of SFAS 158 was adopted as at March 31, 2007 as required per SFAS 158. However, in regards to the measurement requirement which requires to measure defined benefit plan assets and obligations as of the year-end balance sheet date, this was adopted in fiscal year 2009.

As a result, the Company recorded a reduction of $2.1 million, net of tax recovery of $0.8 million to retained earnings representing the net periodic benefit cost for the period between January 1, 2008 and March 31, 2008.

Fair value measurements

On April 1, 2008, the Company adopted SFAS No. 157,Fair Value Measurements. This statement defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles and expands disclosures about fair value measurements. This statement applies under other accounting pronouncements that require or permit fair value measurements. The standard is effective for fiscal periods beginning after November 15, 2007 and was applied prospectively, except for certain financial instruments where it had to be applied retrospectively as a cumulative-effect adjustment to the balance of opening retained earnings in the year of adoption.

CAE Year-End Financial Results 2009 | 55

---



Notes to the Consolidated Financial Statements

At the same time, the Company adopted Staff Position (FSP) SFAS 157-1:Application of FASB Statement No. 157 to FASB Statement No. 13 and Other Accounting Pronouncements That Address Fair Value Measurements for Purposes of Lease Clarification or Measurement under Statement 13. This FSP amends SFAS 157 to exclude SFAS 13,Accounting for Leases, and other accounting pronouncements that address fair value measurements for purposes of lease classification or measurement under Statement 13. However, this scope exception does not apply to assets acquired and liabilities assumed in a business combination that are required to be measured at fair value under SFAS 141,Business Combinations, or No. 141 (revised 2007),Business Combinations, regardless of whether those assets and liabilities are related to leases.

In October 2008, FASB issued FSP SFAS 157-3,Determining the Fair Value of a Financial Asset When the Market for That Asset Is Not Active, which clarifies the application of SFAS-157 in an inactive market and provides an example to illustrate key considerations in determining the fair value of a financial asset when the market for that financial asset is not active.

As a result, the Company recorded an increase in Accumulated other comprehensive income of $1.5 million, net of tax expense of $0.3 million representing the change in fair value at April 1, 2008.

The fair value option for financial assets and financial liabilities

On April 1, 2008, the Company adopted SFAS No. 159,The Fair Value Option for Financial Assets and Financial Liabilities, including an amendment of SFAS 115,Accounting for Certain Investments in Debt and Equity Securities. This statement permits entities to choose to measure many financial instruments and certain other items at fair value. The objective is to improve financial reporting by providing entities with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. This statement is expected to expand the use of fair value measurement. This statement is effective as of the beginning of the first fiscal year that begins after November 15, 2007. This statement should not be applied retrospectively to fiscal years beginning prior to the effective date, except as permitted under certain circumstances if adopted earlier. The Company has not chosen to use the fair value option. This new standard did not have any impact on the Companys consolidated financial statements.

Offsetting of amounts related to certain contracts

On April 1, 2008, the Company adopted FSP FIN 39-1,Amendment of FASB Interpretation No. 39, Offsetting of Amounts Related to Certain Contracts. This FSP replaces the terms conditional contracts and exchange contracts with the term derivative instruments as defined in SFAS 133,Accounting for Derivative Instruments and Hedging Activities. It also permits a reporting entity to offset fair value amounts recognized for the right to reclaim cash collateral or the obligation to return cash collateral against fair value amounts recognized for derivative instruments executed with the same counterparty under the same master netting arrangement that have been offset in accordance with the related accounting literature. This staff position is effective for fiscal years beginning after November 15, 2007 although early application is permitted. This staff position should be applied retrospectively as a change in accounting principle for all financial statements presented. This new standard did not have any impact on the Companys consolidated financial statements.

Future changes to accounting standards

Fair value measurements

In February 2008, the FASB issued FSP FAS 157-2:Effective Date of FASB Statement No. 157. This FSP delays the effective date of SFAS 157 for non-financial assets and non-financial liabilities, except for items that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually) to fiscal years beginning after November 15, 2008. The Company is currently evaluating the impact of this standard on its consolidated financial statements.

Business combination and non-controlling interests in consolidated financial statements

In December 2007, FASB issued SFAS No. 141(R),Business Combinations, and No. 160,Non-controlling Interests in Consolidated Financial Statements. These statements require a greater number of acquired assets and assumed liabilities to be measured at fair value as at the acquisition date. As well, liabilities related to contingent consideration should be remeasured to fair value at each subsequent reporting period. In addition, an acquirer should expense all acquisition-related costs in the pre-acquisition period. Finally, non-controlling interests in subsidiaries should initially be measured at fair value and classified as a separate component of equity. These statements shall be applied prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. For business combinations in which the acquisition date was before the effective date of this statement, the acquirer shall apply the requirements of Statement 109,Accounting for Income Taxes, as amended by this statement, prospectively.

56 | CAE Year-End Financial Results 2009

---



|                                          |           |       |          |       |       |       |                                                |   |       |       |   |       |          |   |       |       |  
|----------------------------------------- | --------- | ----- | -------- | ----- | ----- | ----- | ---------------------------------------------- | - | ----- | ----- | - | ----- | -------- | - | ----- | ----- | -
|                                          |           |       |          |       |       |       | Notes to the Consolidated Financial Statements |  
|                                         
|Additional U.S. GAAP disclosures          |           |       |          |       |       |       |                                                |   |       |       |   |       |          |   |       |      
|i) Statements of earnings                 |           |       |          |       |       |       |                                                |   |       |       |   |       |          |   |       |       |  
|                                         
|                                         
|(amounts in millions)                     | Notes     |       |          |       | 2009  |       |                                                |   |       | 2008  |   |       |          |   |       | 2007  |  
|                                          |           |       | Canadian |       | U.S.  |       | Canadian                                       |   |       | U.S.  |   |       | Canadian |   |       | U.S.  |  
|                                          | I         |       | GAAP     |       | GAAP  |       | GAAP                                           |   |       | GAAP  |   |       | GAAP     |   |       | GAAP  |  
|Revenues from sales of                    |           |       |          |       |       |       |                                                |   |       |       |   |       |          |   |       |       |  
|simulators(a)                             | C         | $     | 961.0    | $     | 969.0 | $     | 819.0                                          |   | $     | 813.7 |   | $     | 705.6    |   | $     | 699.0 |  
|Revenues from sales of training           |           |       |          |       |       |       |                                                |   |       |       |   |       |          |   |       |       |  
|and services(a)                           | C         | $     | 701.2    | $     | 701.9 | $     | 604.6                                          |   | $     | 604.6 |   | $     | 545.1    |   | $     | 545.4 |  
|Cost of sales from simulators(b)A,B,C,F,J | $         | 668.6 | $        | 684.4 | $     | 572.2 |                                                | $ | 575.5 |       | $ | 507.8 |          | $ | 509.9 |      
|Cost of sales from training and           |           |       |          |       |       |       |                                                |   |       |       |   |       |          |   |       |       |  
|services(b)                               | A,B,C,F,J | $     | 422.6    | $     | 423.8 | $     | 359.9                                          |   | $     | 362.6 |   | $     | 308.8    |   | $     | 317.3 |  
|Rental expenses                           |           | $     | 72.4     | $     | 72.4  | $     | 66.1                                           |   | $     | 66.1  |   | $     | 72.6     |   | $     | 72.6  |  
|Selling, general                          |           |       |          |       |       |       |                                                |   |       |       |   |       |          |   |       |       |  
|and administrative expenses               | H         | $     | 194.1    | $     | 196.3 | $     | 186.5                                          |   | $     | 192.4 |   | $     | 166.9    |   | $     | 161.7 |  
|Foreign exchange loss (gain)              | C,E       | $     | 0.9      | $     | 6.7   | $     | (12.6                                          | ) | $     | (26.1 | ) | $     | (2.9     | ) | $     | (15.4 | )
|Interest expense, net                     | C         | $     | 20.2     | $     | 26.9  | $     | 17.5                                           |   | $     | 19.6  |   | $     | 10.6     |   | $     | 9.8   |  

|(a) | Taxes assessed by government authorities that are directly imposed on revenue-producing transactions between the Company and customers are excluded from revenue.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------
|(b) | Includes research and development expenses.                                                                                                                      
|ii) | Balance sheet                                                                                                                                                    

Accounts payable and accrued liabilities on a U.S. GAAP basis are presented as follows:

|                                                                                                            |   |       |       |   |       |       |       |       |       | 
|----------------------------------------------------------------------------------------------------------- | - | ----- | ----- | - | ----- | ----- | ----- | ----- | ----- | 
|(amounts in millions)                                                                                       |   |       |       |   |       |       | 2009  |       | 2008  | 
|Accounts payable trade                                                                                      |   |       |       |   | $     | 257.0 | $     | 180.4 |      
|Contract liabilities                                                                                        |   |       |       |   |       |       | 62.4  |       | 77.9  | 
|Income tax payable                                                                                          |   |       |       |   |       |       | 8.1   |       | 8.0   | 
|Other accrued liabilities                                                                                   |   |       |       |   |       |       | 179.0 |       | 192.1 | 
|Accounts payable and accrued liabilities                                                                    |   |       |       |   | $     | 506.5 | $     | 458.4 |      
|                                                                                                           
|Accounts receivable from governments amounted to $90.9 million as of March 31, 2009 (2008  $77.2 million). |   |       |       |  
|                                                                                                           
|iii) Income taxes                                                                                           |   |       |       |   |       |       |       |       |       | 
|The components of earnings before income taxes on a Canadian GAAP basis are as follows:                     |   |       |       |   |       |       |       |      
|                                                                                                           
|(amounts in millions)                                                                                       |   |       | 2009  |   |       |       | 2008  |       | 2007  | 
|Earnings before income taxes                                                                                |   |       |       |   |       |       |       |       |       | 
|Canada                                                                                                      | $ | 155.9 |       | $ | 147.2 | $     | 38.8  |      
|Other countries                                                                                             |   |       | 127.5 |   |       |       | 86.8  |       | 140.0 | 
|                                                                                                            | $ | 283.4 |       | $ | 234.0 | $     | 178.8 |      
|Current income taxes                                                                                        |   |       |       |   |       |       |       |       |       | 
|Canada                                                                                                      | $ | 65.2  |       | $ | 30.8  | $     | 53.8  |      
|Other countries                                                                                             |   |       | 9.7   |   |       |       | 12.0  |       | 10.1  | 
|                                                                                                            | $ | 74.9  |       | $ | 42.8  | $     | 63.9  |      
|Future income taxes                                                                                         |   |       |       |   |       |       |       |       |       | 
|Canada                                                                                                      | $ | (17.7 | )     | $ | 19.9  | $     | (41.2 | )    
|Other countries                                                                                             |   |       | 25.7  |   |       |       | 6.5   |       | 27.0  | 
|                                                                                                            | $ | 8.0   |       | $ | 26.4  | $     | (14.2 | )    
|Total income tax expense                                                                                    | $ | 82.9  |       | $ | 69.2  | $     | 49.7  |      

CAE Year-End Financial Results 2009 | 57

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|Notes to the Consolidated Financial Statementsiv) Product warranty costs
|------------------------------------------------------------------------

The Company has warranty obligations in connection with the sale of its civil and military simulators. The original warranty period is usually for a two-year period. The cost incurred to provide for these warranty obligations are estimated and recorded as an accrued liability at the time revenue is recognized. The Company estimates its warranty cost for a given product based on past experience. The change in the Companys accrued warranty liability both on a Canadian and U.S. GAAP basis, is as follows:

|                                                  |   |      |   |   |      |  
|------------------------------------------------- | - | ---- | - | - | ---- | -
|(amounts in millions)                             |   | 2009 |   |   | 2008 |  
|Accrued warranty liability at beginning of year   | $ | 12.6 |   | $ | 10.7 |  
|Warranty settlements during the year              |   | (5.9 | ) |   | (5.9 | )
|Warranty provisions                               |   | 9.1  |   |   | 7.5  |  
|Adjustments for changes in estimates              |   | 0.3  |   |   | 0.3  |  
|Accrued warranty liability at the end of the year | $ | 16.1 |   | $ | 12.6 |  

NOTE 27  COMPARATIVE FINANCIAL STATEMENTS

The comparative consolidated financial statements have been reclassified from statements previously presented to conform to the presentation adopted in the current year.

NOTE 28  SUBSEQUENT EVENTSxwave

During the second quarter of fiscal year 2009, the Company signed an asset purchase agreement to acquire Bell Aliants Defence, Security and Aerospace business unit which currently operates under the xwave brand. As at March 31, 2009, this transaction was not yet closed and the Company has not consolidated xwave. The acquisition closed on May 1, 2009.

Restructuring

On May 14, 2009, the Company introduced actions required to size the company to current and expected market conditions. The actions will be concentrated in two phases  the first of which is already underway. Overall, we will be laying off 700 employees: 380 in the coming weeks and the balance in the fall. All employees affected will be advised in the coming days. Approximately 600 out of the 700 employees affected are based in Montreal where we produce our civil simulators, the rest are based in our other locations around the world. The impact for both phases will be recorded in the first quarter of fiscal year 2010.

58 | CAE Year-End Financial Results 2009

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