Document:

<PAGE>

                                                                     EXHIBIT 4.2

PROXY INFORMATION CIRCULAR                                            [CAE LOGO]

NOTICE OF ANNUAL
MEETING OF SHAREHOLDERS
AUGUST 7,2002

Take notice that the Annual Meeting of the Shareholders of CAE Inc. (the
"Corporation") will be held at the International Civil Aviation Organization
Conference Centre, Room 3, 999 University Street, Montreal, Quebec, on
Wednesday, the 7th day of August, 2002, at 11:30 a.m. (Montreal time) for the
following purposes:

(a)  to receive the consolidated financial statements for the year ended
     March 31, 2002, together with the auditors' report thereon;

(b)  to elect directors;

(c)  to appoint auditors and authorize the directors to fix their remuneration;
     and

(d)  to transact such further or other business as may properly come before the
     Meeting or any adjournment thereof.

The specific details of all matters proposed to be put before the Meeting are
set forth in the accompanying Proxy Information Circular.

In addition, the Corporation will announce its first quarter results for
fiscal 2003 at this Meeting.

The Board of Directors has specified that proxies to be used at the Meeting or
any adjournment thereof must be deposited in Toronto with the Corporation or
Computershare Trust Company of Canada, as agent for the Corporation, not later
than 11:30 a.m. (Toronto time) on August 6, 2002.

DATED at Toronto, this 10th day of June 2002.

By Order of the Board,

Paul G. Renaud
Executive Vice President,
Chief Financial Officer and Secretary

Note: If you are unable to be present personally, kindly sign and return the
form of proxy in the enclosed self-addressed envelope.

<PAGE>

TABLE OF CONTENTS

01      Solicitation of Proxies

01      Appointment and Revocation of Proxies

01      Voting of Proxies

01      Voting Shares and Principal Holders Thereof

02      Shareholders Entitled to Vote

02      Election of Directors

04      Appointment of Auditors

04      Statement of Corporate Governance Practices

06      Report on Executive Compensation

10      Executive Compensation

13      Directors' and Officers' Liability Insurance

13      Auditor Independence

13      Shareholder Proposals

13      General Information

<PAGE>

                                            CAE / information circular / page.01

PROXY INFORMATION CIRCULAR

SOLICITATION OF PROXIES
THIS PROXY INFORMATION CIRCULAR (THE "INFORMATION CIRCULAR") IS FURNISHED IN
CONNECTION WITH THE SOLICITATION BY MANAGEMENT OF CAE INC. ("CAE" or the
"Corporation") of proxies to be used at the Annual Meeting of Shareholders of
the Corporation (the "Meeting") to be held at the time and place and for the
purposes set forth in the accompanying notice of the Meeting. It is expected
that the solicitation will be primarily by mail but proxies may also be
solicited personally by the officers and directors of the Corporation at nominal
cost. The cost of solicitation by management will be borne by the Corporation.

APPOINTMENT AND REVOCATION OF PROXIES
The persons named in the enclosed form of proxy are directors of the
Corporation. SHAREHOLDERS DESIRING TO APPOINT SOME OTHER PERSON AS THEIR
REPRESENTATIVE AT THE MEETING MAY DO SO either by striking out the names of the
persons designated in the accompanying form of proxy and inserting such other
person's name in the blank space provided or by completing another proper form
of proxy and, in either case, delivering the completed proxy to the Corporation
at Suite 3060, Royal Bank Plaza, Toronto, Ontario, M5J 2J1, or to Computershare
Trust Company of Canada, 100 University Avenue, 8th Floor, Toronto, Ontario,
M5J 2Y1, not later than 11:30 a.m. (Toronto time) on August 6, 2002.

A proxy given pursuant to this solicitation may be revoked by instrument in
writing executed by the shareholder or by his or her attorney authorized in
writing, and deposited at the registered office of the Corporation, Suite 3060,
Royal Bank Plaza, Toronto, Ontario, M5J 2J1, at any time up to and including the
last business day preceding the day of the Meeting, or any adjournment thereof,
at which the proxy is to be used or with the chairman of such Meeting on the day
of the Meeting, or any adjournment thereof, or in any other manner permitted
by law.

VOTING OF PROXIES
The persons named in the accompanying form of proxy will vote or withhold from
voting the shares in respect of which they have been appointed on any ballot
that may be called for in accordance with the directions of the shareholder as
specified in the proxy. IN THE ABSENCE OF SUCH DIRECTION, SUCHSHARES WILL BE
VOTED: (A) FOR THE ELECTION AS DIRECTORS OF THE PERSONS DESIGNATED IN THIS
INFORMATION CIRCULAR AS NOMINEES FOR SUCH OFFICE; AND (B) FOR THE APPOINTMENT OF
PRICEWATERHOUSECOOPERS LLP, CHARTERED ACCOUNTANTS, AS AUDITORS OF THE
CORPORATION AND FOR THE AUTHORIZATION OF THE DIRECTORS TO FIX THEIR
REMUNERATION.

The enclosed form of proxy confers discretionary authority upon the persons
named therein with respect to amendments or variations to matters identified in
the notice of the Meeting, or other matters that may properly come before the
Meeting. At the time of printing this Information Circular, the management of
the Corporation knows of no such amendments, variations or other matters to come
before the Meeting.

VOTING SHARES AND PRINCIPAL HOLDERS THEREOF
As of the date hereof, there are 219,312,856 outstanding common shares. Each
shareholder is entitled to one vote for each common share as is registered in
his or her name on the list of shareholders which is available for inspection
during usual business hours at Computershare Trust Company of Canada,
100 University Avenue, 8th Floor, Toronto, Ontario, M5J 2Y1, and at the Meeting.
The list of shareholders will be prepared as of June 19, 2002 the date (the
"Record Date") fixed for determining shareholders entitled to receive notice of
the Meeting. If a person has acquired ownership of shares since the Record Date,
the shareholder may establish such ownership and demand, not later than ten
(10) days before the Meeting, that the shareholder's name be included on the
list of shareholders.

To the knowledge of the directors and officers of the Corporation, there are no
persons who beneficially own or exercise control or direction over shares
carrying more than 10% of the voting rights attached to shares of the
Corporation.

<PAGE>

SHAREHOLDERS ENTITLED TO VOTE
Only common shareholders of record at the close of business on the Record Date
are entitled to notice of and to attend the Meeting or any adjournment or
adjournments thereof and to vote thereat unless, after that date, a holder of
record transfers his or her common shares and the transferee, upon producing
properly endorsed certificates evidencing such shares or otherwise establishing
that such person owns such shares, requests, not later than ten (10) days before
the Meeting, that the transferee's name be included in the list of shareholders
entitled to vote, in which case such transferee is entitled to vote such shares
at the Meeting.

ELECTION OF DIRECTORS
Under the articles of the Corporation, the Board of Directors may consist of a
minimum of three (3) and a maximum of twenty-one (21) directors. The directors
are to be elected annually as provided in the Corporation's bylaws. Each
director will hold office until the next annual meeting or until his successor
is duly elected unless his office is earlier vacated in accordance with the
by-laws. In accordance with the by-laws, the Board of Directors has fixed the
number of directors to be elected at the Meeting at thirteen (13).

In the following table is stated the name of each person proposed to be
nominated by management for election as a director, all other positions and
offices with the Corporation and any significant affiliate thereof now held by
him, if any, his principal occupation or employment, the period or periods of
service as a director of the Corporation and the approximate number of common
shares and deferred share units of the Corporation beneficially owned by him or
over which he exercises control or direction as of the date hereof.

<TABLE>
<CAPTION>

                                                                      Became       Number of       Number of
Name                                                                 Director    Common Shares   Deferred Units
---------------------------------------------------------------------------------------------------------------
<S>                                                                     <C>         <C>              <C>
DEREK H. BURNEY, O.C., Toronto, Ontario, is President and Chief         1999        142,439          75,385
Executive Officer of the Corporation and is a member of the
Executive Committee. Mr. Burney is also a director of Shell
Canada Limited. Formerly, Mr. Burney was Chairman and Chief
Executive Officer of Bell Canada International Inc. (1993-October
1999). Prior thereto, he was Canada's Ambassador to the United
States of America from 1989.

JOHN A. (IAN) CRAIG, Ottawa, Ontario, is a business consultant          2000         10,000           4,647
and was formerly Chief Marketing Officer of Nortel Networks
Corporation. Mr.Craig is also a director of Bell Canada Inter-
national Inc., Arris Group Inc. and Williams Communications
Group Inc. Mr. Craig is a member of the Audit Committee.

RICHARD (DICK) J. CURRIE, C.M., Toronto, Ontario, is non-executive      2001              -           2,317
Chairman of BCE Inc. He was formerly President and a director
of George Weston Limited since 1996 and was President and a
director of Loblaw Companies Limited for almost 25 years
until December 2000. Mr. Currie has served as a member of
RJR Nabisco's Advisory Board and on the Advisory Board ofJacob
Suchard (Zurich) and is presently on the Advisory Board of Barry
Callebaut (Zurich). Mr. Currie is Past Chairman of the Richard Ivey
School of Business Administration of The University of Western
Ontario and has served on the Visiting Committee to the Harvard
Business School. Mr. Currie is a member of the Audit Committee.

R. FRASER ELLIOTT, C.M., Q.C., Toronto, Ontario, is a senior            1951      6,532,072               -
partner in the legal firm of Stikeman Elliott (Toronto).
Mr. Elliott is also a director of the Toronto General &
Western Hospital Foundation. Mr. Elliott is a member of
the Executive Committee.
</TABLE>

<PAGE>

                                        CAE  /  information circular  /  page.03

<TABLE>
<CAPTION>

                                                                      Became       Number of       Number of
Name                                                                 Director    Common Shares   Deferred Units
---------------------------------------------------------------------------------------------------------------
<S>                                                                     <C>         <C>              <C>
H. GARFIELD EMERSON, Q.C., Toronto, Ontario, is National Chairman       1992        16,600           7,303
and a senior partner of the legal firm of Fasken Martineau
DuMoulin. Mr. Emerson is also the Chairman of Rogers
Communications Inc., Vice-Chairman of Rogers Wireless
Communications Inc. and a director of Canada Deposit Insurance
Corporation, University of Toronto Asset Management
Corporation and Sunnybrook & Women's Health Sciences Centre.
He was formerly President and Chief Executive Officer of
NM Rothschild & Sons Canada Limited, investment bankers.
Mr. Emerson is a member of the Governance Committee.

ANTHONY S. FELL, Toronto, Ontario, is Chairman of RBC Dominion          2000       200,000           5,770
Securities Limited. Mr. Fell is also a director of BCE Inc., a director
of Munich Reinsurance Company of Canada, a director of Loblaw
Companies Limited, Chairman of the Board of Trustees of
University Health Network, and a Governor of the Duke of
Edinburgh's Award Program in Canada. Mr. Fell is the Chairman
of the Governance Committee.

THE HONOURABLE JAMES A. GRANT, P.C., Q.C., Montreal, Quebec, is a       1991        10,000          2,714
partner in the legal firm of Stikeman Elliott (Montreal). Mr. Grant
is a director of Canadian Imperial Bank of Commerce, Shire
Pharmaceuticals Group plc and various charitable and social
organizations. Mr. Grant is a member of the Compensation
Committee and the Executive Committee.

JAMES F. HANKINSON, Toronto, Ontario, is a business consultant          1995         4,018           8,334
and was formerly President and Chief Executive Officer of New
Brunswick Power Corporation. He is also a director of Maple Leaf
Foods Inc. Mr. Hankinson is the Chairman of the Audit Committee.

E. RANDOLPH (RANDY) JAYNE II, Tysons Corner, Virginia, is a Senior      2001             -           2,213
Partner in Heidrick & Struggles  International,  Inc., an executive
search firm (1996-present)  and is a Founder and the Global Managing
Partner of that firm's Semiconductor, Hardware and Systems Specialty
Practice. Prior to this, he served as a senior  executive in
McDonnell Douglas Corporation and an officer in the
U.S. Air National Guard (1987-1996). Mr. Jayne is a member of
the Compensation Committee.

JAMES W. MCCUTCHEON, Q.C., Toronto, Ontario, is Counsel to the          1979       100,292               -
law firm of McCarthy Tetrault. Mr. McCutcheon is a director of
Dominion of Canada General Insurance Company, E-L Financial
Corporation, Empire Life Insurance Company (Chairman
1991-1997), Guardian Capital Group Limited and Noranda Inc.
Mr. McCutcheon is a member of the Audit Committee.

GEORGE K. PETTY, San Luis Obispo, California, is a business con         1996         4,011           8,723
sultant and was formerly President and Chief Executive Officer of
BCT.Telus Corporation, a Canadian telecommunication and infor
mation services company. Mr. Petty is the Chairman of the
Compensation Committee.
</TABLE>

<PAGE>
<TABLE>
<CAPTION>

                                                                      Became       Number of       Number of
Name                                                                 Director    Common Shares   Deferred Units
---------------------------------------------------------------------------------------------------------------
<S>                                                                     <C>         <C>              <C>
LAWRENCE N. STEVENSON, Toronto, Ontario, is President & Chief           1998           4,038         7,371
Executive Officer of Pathfinder Capital Inc., an investment and
venture capital firm. Mr. Stevenson was formerly Chief Executive
Officer of Chapters and Chapters Online Inc. Mr. Stevenson is
also a director of SNC-Lavalin Group Inc. and Sobeys Inc.
Mr. Stevenson is a member of the Governance Committee.

LYNTON R. WILSON, O.C., Oakville, Ontario, is Chairman of the           1997       2,276,167         7,898
Board of the Corporation, Chairman of the Executive Committee
and is a member of the Compensation and the Governance
Committees. Mr. Wilson is the Chairman of Nortel Networks
Corporation and is also a director of DaimlerChrysler AG.
</TABLE>

IF ANY OF THE ABOVE NOMINEES IS FOR ANY REASON UNAVAILABLE TO SERVE AS A
DIRECTOR, PROXIES IN FAVOUR OF MANAGEMENT WILL BE VOTED FOR ANOTHER NOMINEE, IN
THEIR DISCRETION, UNLESS THE SHAREHOLDER HAS SPECIFIED IN THE PROXY THAT HIS OR
HER SHARES ARE TO BE VOTED FOR ANOTHER NOMINEE OR ARE TO BE WITHHELD FROM VOTING
IN THE ELECTION OF DIRECTORS.

APPOINTMENT OF AUDITORS
Unless contrary instructions are indicated on the proxy, each proxy received by
management will be voted in favour of the appointment of PricewaterhouseCoopers
LLP ("PwC") as auditors of the Corporation to hold office until the next annual
meeting of shareholders at a remuneration to be fixed by the directors. PwC was
first appointed as auditors of the Corporation in 1991.

STATEMENT OF CORPORATE GOVERNANCE PRACTICES

[The information contained in this section has been intentionally omitted
from this exhibit.]

<PAGE>

                                            CAE / information circular / page.05

[The information contained in this section has been intentionally omitted
from this exhibit.]

<PAGE>

[The information contained in this section has been intentionally omitted
from this exhibit.]

REPORT ON EXECUTIVE COMPENSATION

[The information contained in this section has been intentionally omitted
from this exhibit.]

<PAGE>

                                            CAE / information circular / page.07

[The information contained in this section has been intentionally omitted
from this exhibit.]

<PAGE>

[The information contained in this section has been intentionally omitted
from this exhibit.]

DETERMINATION OF THE PRESIDENT AND CHIEF EXECUTIVE OFFICER'S COMPENSATION

[The information contained in this section has been intentionally omitted
from this exhibit.]

<PAGE>

[The information contained in this section has been intentionally omitted
from this exhibit.]

<PAGE>

EXECUTIVE COMPENSATION

SUMMARY COMPENSATION TABLE
The following table provides a summary of compensation earned during each of the
last three fiscal years by the Chief Executive Officer and the four most highly
compensated policy-making executives who served as executive officers of the
Corporation or its subsidiaries at March 31, 2002 (collectively, "Named
Executive Officers"). Specific aspects of this compensation are dealt with in
further detail in the following table:

<TABLE>
<CAPTION>
                                                  Annual Compensation(1)           Long-Term Compensation
------------------------------------------------------------------------------------------------------------------------
                                                                             Awards          Payouts
------------------------------------------------------------------------------------------------------------------------
                                                                           Securities        Three-Year
                                                                             Under             Growth        All Other
                                                  Salary      Bonus(2)   Options Granted     Achievement  Compensation(3)
Name and Principal Position         Year            ($)          ($)           (#)           Plan Bonus         ($)
------------------------------------------------------------------------------------------------------------------------
<S>                                 <C>           <C>          <C>           <C>              <C>              <C>
D.H. BURNEY                         2002          625,000      720,000       376,000          430,200          10,575
President and                       2001          525,000      678,900       200,000                -           8,447
Chief Executive Officer             2000          230,0004     294,000       400,000                -           1,431

P.G. RENAUD
Executive Vice President,           2002          270,000      152,100       100,000          172,100           7,564
Chief Financial Officer             2001          250,000      184,700       128,000                -           6,568
and Secretary                       2000          225,000      156,300       132,000                -           1,953

D.W. CAMPBELL
Executive Vice President,           2002          255,000      183,600        60,000          138,600           6,918
Military Simulation                 2001          147,8265     81,700        120,000                -           4,568
& Training                          2000          -            -                   -                -               -

G.R. FREDERICK
Executive Vice President,           2002          250,100      124,100        60,000          138,800           4,148
Finance, Civil Simulation           2001          250,198      135,500        70,000                -        160,3497
& Training                          20006         210,000      110,600       100,000                -           1,946

J. LENYO                            20026         289,600      143,400        14,500           87,200          17,200
President,                          2001          -            -                   -                -               -
CAE USA Inc.8                       2000          -            -                   -                -               -
</TABLE>

1    The value of annual perquisites and benefits for each of the Named
     Executive Officers did not exceed the lesser of $50,000 or 10% of the total
     annual salary and bonuses and is not reported herein with the exception of
     G.R. Frederick whose salary includes cost of living adjustments in the
     amount of $20,100 (2002) and $30,198 (2001).

2    Three of the Named Executive Officers elected under the Deferred Share Unit
     Plan to receive a portion of their 2001 bonus in the form of deferred share
     units as set out in the following table. Deferred share units were issued
     on the basis of the average closing board lot sale price per share of the
     CAEcommon shares on TheToronto Stock Exchange during the last ten (10) days
     on which the common shares traded prior to June 1, 2001. The units granted
     on June 1, 2001, and the units held as at March 31, 2002 have been adjusted
     for the July 9, 2001 stock dividend.

<TABLE>
<CAPTION>
                                                  Units Granted on    Total Units Held on  Aggregate Unit Value
                         Amount Deferred            May 14, 2001        March 31, 2002       on March 31, 2002
Name                           ($)                        (#)                 (#)                  ($)
---------------------------------------------------------------------------------------------------------------
<S>                           <C>                       <C>                  <C>                  <C>
D.H. Burney                   407,340                   30,331               75,385               883,510
P.G. Renaud                    64,700                    4,818               10,392               121,789
G.R. Frederick                 45,000                    3,351                8,940               104,775
</TABLE>

3    Amounts quoted represent premiums paid by the Corporation for group term
     life insurance and, beginning in fiscal 2001, amounts paid in respect of
     the Named Executive Officer's participation in the CAE Employee Stock
     Purchase Plan, unless otherwise indicated. Under the CAE Employee Stock
     Purchase Plan introduced on April 1, 2000, employees, including executive
     officers, are eligible to make a contribution towards the purchase of CAE
     common shares of up to 10% of their base salary. Under the plan, the
     Corporation made a matching contribution on the first $500 contributed and
     contributes $1 for every $3 on additional employee contributions, to a
     maximum of 2% of the employee's base salary.
4    D.H. Burney was appointed President and Chief Executive Officer effective
     October 1, 1999 and this amount reflects 6 months of salary.
5    D.W. Campbell was appointed Executive Vice President, Military Simulation
     and Training effective August 21, 2000 and this amount reflects
     approximately 8 months of salary.
6    The dollar values for fiscal 2000 and 2002 reflect the Canadian dollar
     equivalent of US dollar compensation. The US dollar values were translated
     at the average rate of exchange in effect during the fiscal year. The rate
     of exchange used to translate one US dollar into one Canadian dollar were
     -fiscal 2000 $1.4711, fiscal 2002 $1.5655.
7    This amount includes $157,927 paid to G.R. Frederick pursuant to the
     Special Performance Unit Plan for his services as President of CAE Railway
     Technologies and Services.
8    CAE acquired BAE SYSTEMS Flight Simulation and Training Inc. located in
     Tampa, Florida on April 3, 2001 and subsequently renamed the company CAE
     USA Inc. J. Lenyo was appointed President of CAE USA Inc. on June 22, 2001.

<PAGE>

                                            CAE / information circular / page.11

OPTION GRANTS DURING THE MOST RECENTLY COMPLETED FINANCIAL YEAR
The following table sets forth grants of stock options during the financial year
ended March 31, 2002 to Named Executive Officers.

<TABLE>
<CAPTION>
                                                                                   Market Value of
                                                                                      Securities
                                                                                     Underlying
                         Securities Under   % of Total Options      Exercise or    Options on the
                        Options Granted(1)  Granted to Employees    Base Price      Date of Grant
Name                            (#)          in Financial Year      ($/Security)    ($/Security)        Expiration Date
-----------------------------------------------------------------------------------------------------------------------
<S>                           <C>                 <C>                 <C>             <C>                       <C>
D.H. Burney                   376,000             22.14%              $ 12.225        $ 12.225             June 1, 2007
P.G. Renaud                   100,000              5.89%              $ 12.225        $ 12.225             June 1, 2007
D.W. Campbell                  60,000              3.53%              $ 12.225        $ 12.225             June 1, 2007
G.R. Frederick                 60,000              3.53%              $ 12.225        $ 12.225             June 1, 2007
J. Lenyo(2)                    14,500              0.85%              $ 14.160        $ 14.160           August 1, 2007
</TABLE>

1    Options were granted on May 14, 2001 to purchase common shares of the
     Corporation at an exercise price of $12.225 per share, which was equal to
     the closing price of the common shares on The Toronto Stock Exchange on the
     trading day immediately prior to the day the options were issued. The
     options vest over a period of 4 years commencing 1 year subsequent to the
     date of the grant. Options granted and the exercise price are adjusted for
     the July 9, 2001 stock dividend.

2    J. Lenyo was appointed President of CAE USA Inc. on June 22, 2001. Options
     were granted to him on July 10, 2001 to purchase common shares of the
     Corporation at $14.16 per share, which was equal to the closing price of
     the common shares on The Toronto Stock Exchange on the trading day
     immediately prior to the day the options were issued. The options vest over
     a period of 4 years commencing 1 year subsequent to the date of the grant.
     Options granted and the exercise price are adjusted for the July 9, 2001
     stock dividend.

AGGREGATED OPTION EXERCISES DURING THE MOST RECENTLY COMPLETED FINANCIAL YEAR
AND FINANCIAL YEAR-END OPTION VALUES

<TABLE>
<CAPTION>
                                                       Unexercised Options at   Value of Unexercised In-the-Money
                     Securities                           March 31, 2002(1)        Options at March 31, 2002(2)
                      Acquired     Aggregate Value              (#)                            ($)
                     on Exercise      Realized       ------------------------------------------------------------
Name                     (#)            ($)          Exercisable   Unexercisable  Exercisable    Unexercisable
-----------------------------------------------------------------------------------------------------------------
<S>                    <C>              <C>             <C>            <C>         <C>              <C>
D.H. Burney            16,000           96,000          164,000        726,000     1,122,180        2,284,500
P.G. Renaud           128,000          783,260          170,000        282,000       970,050        1,087,290
D.W. Campbell               -                -           30,000        150,000        75,600          226,800
G.R. Frederick         32,500          193,025           45,000        165,000       289,338          654,163
J. Lenyo                    -                -                -         14,500             -                -
</TABLE>

1    Options were granted on (i) November 11, 1996 at an option exercise price
     of $5.25 per share; (ii) November 10, 1997 at an option exercise price of
     $5.70 per share; (iii) May 11, 1998 at an option exercise price of
     $6.425 per share; (iv) May 11, 1999 at an option exercise price of
     $4.225 per share; (v) October 1, 1999 at an option exercise price of
     $4.10 per share; (vi) May 8, 2000 at an option exercise price of $6.65 per
     share; (vii) August 21, 2000 at an option exercise price of $9.20 per
     share, (viii) May 14, 2001 at an option exercise price of $12.225 per
     share and (ix) July 10, 2001 at an option exercise price of $14.16 per
     share. These options vest over a period of 4 years commencing 1 year
     subsequent to the date of the grant and, in each case, are exercisable
     until the sixth year following the date of the grant. Share prices are
     adjusted for the July 9, 2001 stock dividend.

2    The closing price of CAE Inc. common shares on The Toronto Stock Exchange
     on March 28, 2002 was $11.72.

PENSION BENEFITS
The Named Executive Officers are members of a non-contributory defined benefit
pension plan and a supplementary executive retirement arrangement. The pensions
payable under these arrangements are based on "average annual earnings" where
"average annual earnings" is calculated on the basis of the 60 highest paid
consecutive months of salary and short-term incentives.

The supplementary executive retirement arrangement for the Named Executive
Officers provides a pension benefit upon normal retirement at age 65 so that the
total pensions payable under these arrangements will result in an annual pension
equal to 2% of "average annual earnings" for each year of pensionable service,
assuming no limitation on the amount paid from a registered pension plan imposed
by Canadian tax legislation. D.H. Burney's pensionable service is calculated as
1.5 times his continuous service.

The Corporation is obligated to fund or provide security to ensure payments
under the supplementary executive retirement arrangement upon retirement of the
executive. The Corporation has elected to provide security by facilitating the
acquisition of letters of credit by a trust fund established for those
executives who had retired on or before March 31, 2002.

<PAGE>

The following table shows estimated annual pension benefits upon retirement at
age 65 to Named Executive Officers covered by these pension arrangements at
specified average earnings.

EXECUTIVE OFFICER PENSION PLAN TABLE

<TABLE>
<CAPTION>
                                                      Years of Service(1)
                         ---------------------------------------------------------------------
Remuneration ($)          15             20              25               30             35
----------------------------------------------------------------------------------------------
<S>                      <C>            <C>             <C>              <C>           <C>
150,000                  45,000         60,000          75,000           90,000        105,000
175,000                  53,000         70,000          88,000          105,000        123,000
200,000                  60,000         80,000         100,000          120,000        140,000
225,000                  68,000         90,000         113,000          135,000        158,000
250,000                  75,000        100,000         125,000          150,000        175,000
300,000                  90,000        120,000         150,000          180,000        210,000
400,000                 120,000        160,000         200,000          240,000        280,000
500,000                 150,000        200,000         250,000          300,000        350,000
600,000                 180,000        240,000         300,000          360,000        420,000
700,000                 210,000        280,000         350,000          420,000        490,000
</TABLE>

1    Estimated annual pension benefits based on 2% of remuneration multiplied by
     years of service.

The credited years of pensionable service as at March 31, 2002 for the Named
Executive Officers who are members of the executive pension plan and
supplementary executive retirement arrangement are:

<TABLE>
<CAPTION>
                              Credited Years of
                              Pensionable Service
-------------------------------------------------
<S>                                <C>
D.H. Burney                        3.75 years
P.G. Renaud                       10.25 years
D.W. Campbell                      1.58 years
G.R. Frederick                    13.25 years
</TABLE>

AGREEMENTS WITH EXECUTIVE OFFICERS
The Corporation is a party to agreements with seven executive officers, four of
whom are Named Executive Officers, pursuant to which such executives are
entitled to termination of employment benefits following a change of control of
the Corporation where either (i) the executive's employment is expressly or
impliedly terminated without cause within two years following the change of
control or (ii) the executive elects to resign employment within a window period
of 60 days, one year following the change of control. In such case, the
executive is entitled to 24 months (36 months in the case of the President and
Chief Executive Officer) of annual compensation (payable as a lump sum),
credited service for the purposes of any pension or retirement income plans and
extension of the exercise period for stock options within parameters consistent
with the foregoing.

A change of control for the above purposes is defined to include any event as a
result of or following which any person beneficially owns or exercises control
or direction over voting securities carrying 35% or more of the votes attached
to all outstanding voting securities of the Corporation; certain events which
result in a change in the majority of the Board of Directors; and a sale of
assets to an unaffiliated party at a price greater than or equal to 50% of the
Corporation's market capitalization.

COMPENSATION OF DIRECTORS
Directors of the Corporation receive an annual retainer fee of $20,000 and an
attendance fee of $1,000 per meeting of the board, except for the Chairman and
the President and Chief Executive Officer. The meeting attendance fee applied to
all committee meetings of the board. In addition, each committee member received
an annual committee retainer fee of $3,000. The Chairman of each committee was
also paid an additional $1,000 for each committee meeting attended. L.R. Wilson
receives $10,833 per month in compensation and regular attendance fees for
serving as the Chairman of the Board. Directors are reimbursed out of pocket
expenses incurred in attending meetings.

The Corporation has taken steps to align more closely the interests of its
directors with those of its shareholders. Under the Deferred Share Unit Plan for
Non-Employee Directors adopted in fiscal 2000 a non-employee director holding
less than 10,000 common shares and/or units under the Deferred Unit Plan of the
Corporation (adjusted for the effect of the July 9, 2001 stock dividend)
receives the retainer and attendance fees in the form of deferred share units. A
non-employee director holding at least 10,000 common shares may elect to
participate in the plan in respect of part or all of his or her retainer and
attendance fees. A deferred share unit is equal in value to one common share of
the Corporation and accrues dividend equivalents payable in additional units in
an amount equal to dividends paid on outstanding CAE common shares. Deferred
share units mature upon the termination of service, whereupon a director is
entitled to receive the fair market value of the equivalent number of common
shares, net of withholdings, in cash.

<PAGE>

                                            CAE / information circular / page.13

DIRECTORS' AND OFFICERS' LIABILITY INSURANCE
The Corporation maintains directors' and officers' liability insurance for its
directors and officers as well as those of its subsidiaries as a group. The
yearly coverage limit of such insurance is $25,000,000 for each occurrence and
for the policy period, subject to a corporate deductible of $250,000 per claim.
TheCorporation paid a premium of $46,275 in fiscal 2002 with respect to the
one-year period July 1, 2001 to July 1, 2002.

AUDITOR INDEPENDENCE
PricewaterhouseCoopers LLP ("PwC") are the auditors of the Corporation. PwC
provides tax, financial advisory and other non-audit services to the Corporation
and its subsidiaries. The Audit Committee of the Corporation's Board of
Directors has considered and concluded that the provision of the non-audit
services by PwC is compatible with maintaining PwC's independence.

Audit Fees
PwC billed the Corporation and its subsidiaries $1,303,000 for the audit of the
annual financial statements of the Corporation for the fiscal year ended March
31, 2002.

All Other Fees In the fiscal year ended March 31, 2002, PwC invoiced the
Corporation $292,000 for the audits of the Closing Date Balance Sheets in
connection with the acquisitions of BAE SYSTEMS Flight Simulation and Training
Inc., Valmarine AS and Schreiner Aviation and Training B.V. In addition, PwC
invoiced the Corporation $633,000 for the audit of the consolidated operations
of CAE's fiber screening business and for procedures performed in connection
with the initial public offering of an income trust that acquired that business.
CAE's proportionate share of billings from PwC to FAST Training Services, a
company equally owned by CAE and Alenia Marconi Systems, for financial advisory
services amounted to $1,307,000 with respect to the award of the Astute Class
Submarine Programme.

Other billings from PwC in the fiscal year ended March 31, 2002 include,
$70,000 for the audit of the Corporation's registered pension plans, $803,000
for consultation and review of income tax matters and $545,000 for
other matters.

SHAREHOLDER PROPOSALS
To propose any matter for a vote by the shareholders at the Corporation's 2003
annual meeting, a shareholder must send a proposal to the Executive Vice
President, Chief Financial Officer and Secretary at the registered office of the
Corporation, P.O. Box 30, Suite 3060, Royal Bank Plaza, Toronto, Ontario,
M5J 2J1 no later than May 9, 2003. The Corporation may omit any proposal from
its proxy circular and annual meeting for a number of reasons under applicable
Canadian corporate law, including receipt of the proposal by the Corporation
subsequent to the deadline noted above.

GENERAL INFORMATION
The Corporation shall provide to any person or company, upon request to the
Executive Vice President, Chief Financial Officer and Secretary of the
Corporation:

(a)  one copy of the latest annual information form of the Corporation together
     with one copy of any document or the pertinent pages of any document
     incorporated by reference therein;

(b)  one copy of the comparative financial statements of the Corporation for its
     most recently completed financial year, together with the accompanying
     report of the auditors and one copy of any interim financial statements of
     the Corporation subsequent to the financial statements, for its most
     recently completed financial year; and

(c)  one copy of this Information Circular.

The information contained in this Information Circular is given as of the 10th
day of June, 2002. The contents and the sending of this Information Circular
have been approved by the directors of the Corporation.

DATED at Toronto, this 10th day of June, 2002.

Paul G. Renaud
Executive Vice President,
Chief Financial Officer and Secretary

<PAGE>

[CAE LOGO]
SIMULATION AND BEYOND<PAGE>
                                                                 EXHIBIT 4.3

                                         MANAGEMENT AND AUDITORS' REPORTS     27

MANAGEMENT AND AUDITORS' REPORTS

MANAGEMENT REPORT
Management is responsible for the integrity and objectivity of the information
contained in this annual report and for the consistency between the financial
statements and other financial and operating data contained elsewhere in the
report. The accompanying financial statements have been prepared by management
in accordance with accounting principles generally accepted in Canada, using
policies and procedures established by management, and reflect the Company's
financial position, results of operations and cash flow.
     Management has established and maintains a system of internal controls
which is designed to provide reasonable assurance that assets are safeguarded
from loss or unauthorized use and that financial information is reliable and
accurate. The Company also maintains an internal audit function that evaluates
and formally reports to management and the Audit Committee on the adequacy and
effectiveness of internal controls.
     The financial statements have been examined by external auditors appointed
by the shareholders. Their examination provides an independent view as to
management's discharge of its responsibilities insofar as they relate to the
fairness of reported operating results and financial condition. They obtain an
understanding of the Company's accounting systems and procedures and conduct
such tests and related procedures as they deem necessary to arrive at an opinion
on the fairness of the financial statements.
     Ultimate responsibility to the shareholders for the financial statements
rests with the Board of Directors. An Audit Committee is appointed by the Board
to review the financial statements in detail and to report to the Directors
prior to such statements being approved for publication. The Audit Committee
meets regularly with management, the internal auditors and the external auditors
to discuss their evaluation of internal accounting controls, audit results and
the quality of financial reporting. The external auditors have free access to
the Audit Committee, without management's presence, to discuss the results of
their audit.

[SIGNATURE: D.H. BURNEY]                  [SIGNATURE: P.G. RENAUD]

D.H. Burney                               P.G. Renaud
President and Chief Executive             Executive Vice President,
Officer                                   Chief Financial Officer and Secretary

AUDITORS' REPORT TO THE SHAREHOLDERS OF CAE INC.
We have audited the Consolidated Balance Sheets of CAE Inc. as at March 31, 2002
and 2001, and the Consolidated Statements of Earnings, Retained Earnings and
Cash Flow for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
     We conducted our audits in accordance with Canadian generally accepted
auditing standards. Those standards require that we plan and perform an audit to
obtain reasonable assurance whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation.
     In our opinion, these consolidated financial statements present fairly, in
all material respects, the financial position of the Company as at March 31,
2002 and 2001, and the results of its operations and cash flows for the years
then ended in accordance with Canadian generally accepted accounting principles.

[SIGNATURE: PricewaterhouseCoopers LLP]

Chartered Accountants
Montreal, Canada, May 8, 2002

<PAGE>
28                                                                   CAE AR 2002

CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
as at march 31 (amounts in millions of dollars)                2002          2001
---------------------------------------------------------------------------------
<S>                                                      <C>           <C>
ASSETS
Current assets
     Cash                                                $     88.8    $    156.8
     Short-term investments                                    21.3         122.8
     Accounts receivable (note 4)                             378.2         245.6
     Inventories (note 5)                                     130.9          99.4
     Prepaid expenses                                           9.9           8.6
     Income taxes recoverable                                  15.8           8.2
     Future income taxes (note 14)                             28.9          15.4
---------------------------------------------------------------------------------
                                                              673.8         656.8
Assets of discontinued operations (note 3)                    123.8         370.9
Property, plant and equipment, net (note 6)                   838.5         227.2
Future income taxes (note 14)                                  71.3          15.9
Intangible assets (note 7)                                    163.4            --
Goodwill (note 8)                                             375.5          18.5
Other assets (note 9)                                         138.5          82.8
---------------------------------------------------------------------------------
                                                         $  2,384.8    $  1,372.1
---------------------------------------------------------------------------------
---------------------------------------------------------------------------------

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
     Accounts payable and accrued liabilities            $    420.5    $    315.0
     Deposits on contracts                                    189.1         175.9
     Long-term debt due within one year                        37.5           2.3
     Future income taxes (note 14)                             50.4          14.5
---------------------------------------------------------------------------------
                                                              697.5         507.7
Liabilities of discontinued operations (note 3)                40.5         106.6
Long-term debt (note 10)                                      889.0         263.0
Long-term liabilities                                          73.7          20.7
Future income taxes (note 14)                                  65.6          10.0
---------------------------------------------------------------------------------
                                                            1,766.3         908.0
---------------------------------------------------------------------------------
SHAREHOLDERS' EQUITY
Capital stock (note 11)                                       186.8         159.4
Retained earnings                                             446.8         321.2
Currency translation adjustment                               (15.1)        (16.5)
---------------------------------------------------------------------------------
                                                              618.5         464.1
---------------------------------------------------------------------------------
                                                         $  2,384.8    $  1,372.1
---------------------------------------------------------------------------------
---------------------------------------------------------------------------------
</TABLE>
Contingencies (note 16)

Approved by the Board:

               [SIGNATURE: D.H. BURNEY]             [SIGNATURE: L.R. WILSON]

               D.H. Burney                          L.R. Wilson
               Director                             Director

<PAGE>
                                        CONSOLIDATED FINANCIAL STATEMENTS     29

CONSOLIDATED STATEMENTS OF EARNINGS

<TABLE>
<CAPTION>
years ended march 31
(amounts in millions, except per share amounts)                  2002        2001
---------------------------------------------------------------------------------
<S>                                                       <C>          <C>
Revenue
     Civil Simulation and Training                        $     545.2  $    481.5
     Military Simulation and Marine Controls                    581.3       409.9
---------------------------------------------------------------------------------
                                                          $   1,126.5  $    891.4
---------------------------------------------------------------------------------
---------------------------------------------------------------------------------
Operating earnings
     Civil Simulation and Training                        $     152.3  $    117.0
     Military Simulation and Marine Controls                     90.0        34.9
---------------------------------------------------------------------------------
Earnings from continuing operations
  before interest and income taxes                              242.3       151.9
Interest expense (income), net (note 10A (xi))                   22.7       (6.3)
---------------------------------------------------------------------------------
Earnings from continuing operations before income taxes         219.6       158.2
Income taxes (note 14)                                           70.3        53.0
---------------------------------------------------------------------------------
Earnings from continuing operations                             149.3       105.2
Results of discontinued operations (note 3)                       1.3         2.9
---------------------------------------------------------------------------------
---------------------------------------------------------------------------------
Net earnings                                              $     150.6  $    108.1
---------------------------------------------------------------------------------
---------------------------------------------------------------------------------
Earnings and diluted earnings per share
  from continuing operations                              $      0.69  $     0.49
---------------------------------------------------------------------------------
---------------------------------------------------------------------------------
Net earnings and diluted net earnings per share           $      0.69  $     0.50
---------------------------------------------------------------------------------
---------------------------------------------------------------------------------
Average number of shares outstanding                            217.6       215.7
---------------------------------------------------------------------------------
---------------------------------------------------------------------------------
</TABLE>

CONSOLIDATED STATEMENTS OF RETAINED EARNINGS

<TABLE>
<CAPTION>
years ended march 31 (amounts in millions of dollars)             2002       2001
---------------------------------------------------------------------------------
<S>                                                           <C>        <C>
Retained earnings at beginning of year                        $  321.2   $  241.9
Adjustment for changes in accounting policies (note 1)              --       (6.0)
Excess of common share purchase price over
  amount charged to capital stock                                   --       (1.2)
Net earnings                                                     150.6      108.1
Dividends                                                        (25.0)     (21.6)
---------------------------------------------------------------------------------
Retained earnings at end of year                              $  446.8   $  321.2
---------------------------------------------------------------------------------
---------------------------------------------------------------------------------
</TABLE>

<PAGE>
30                                                                   CAE AR 2002

CONSOLIDATED STATEMENTS OF CASH FLOW

<TABLE>
<CAPTION>
years ended march 31 (amounts in millions of dollars)                  2002       2001
--------------------------------------------------------------------------------------
<S>                                                                <C>        <C>
OPERATING ACTIVITIES
Earnings from continuing operations                                $  149.3   $  105.2
Adjustments to reconcile earnings to cash flows
  from operating activities:
     Amortization                                                      43.1       19.1
     Future income taxes                                                7.5       (7.7)
     Investment tax credit                                            (19.0)     (22.5)
     Other                                                             (0.2)     (13.5)
     Decrease (increase) in non-cash working capital (note 15)         (7.6)      79.1
--------------------------------------------------------------------------------------
NET CASH PROVIDED BY CONTINUING OPERATING ACTIVITIES                  173.1      159.7
--------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Purchase of businesses (note 2)                                      (757.6)        --
Proceeds from disposal of businesses (note 3)                         187.1        5.7
Short-term investments                                                101.5      (51.7)
Capital expenditures                                                 (249.6)     (76.3)
Proceeds from sale and leaseback of assets                             42.6         --
Deferred development costs                                            (31.1)     (13.7)
Deferred pre-operating costs                                          (15.1)      (4.2)
Other assets                                                          (33.0)      (7.8)
--------------------------------------------------------------------------------------
NET CASH USED IN CONTINUING INVESTING ACTIVITIES                     (755.2)    (148.0)
--------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Proceeds from long-term debt                                          755.8         --
Repayments of long-term debt                                         (195.6)     (16.2)
Dividends paid                                                        (24.8)     (21.2)
Purchase of capital stock                                                --       (1.3)
Common stock issuance                                                   6.1        6.9
Other                                                                  (2.3)      (3.0)
--------------------------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN) CONTINUING
  FINANCING ACTIVITIES                                                539.2      (34.8)
NET CASH (USED IN) PROVIDED BY DISCONTINUED ACTIVITIES (note 3)       (24.5)      10.4
EFFECT OF FOREIGN EXCHANGE RATE CHANGES ON CASH                        (0.6)       6.0
--------------------------------------------------------------------------------------
NET DECREASE IN CASH                                                  (68.0)      (6.7)
CASH AT BEGINNING OF YEAR                                             156.8      163.5
--------------------------------------------------------------------------------------
CASH AT END OF YEAR                                                $   88.8   $  156.8
--------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------
</TABLE>

<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                                    31

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

years ended march 31, 2002 and 2001 (amounts in millions of dollars)

01  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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

NATURE OF OPERATIONS
CAE designs and provides simulation equipment and services and develops
integrated training solutions for the military, commercial airlines, business
aircraft operators, aircraft manufacturers and marine vessel operators.
     CAE's flight simulators replicate aircraft performance in normal and
abnormal operations and a comprehensive set of environmental conditions,
utilizing visual systems with an extensive database of airports, other landing
areas and flying environments and motion and sound cues to create a fully
immersive training environment. The Company offers a full range of flight
training devices based on the same software used in its simulators. CAE is
developing a global network of training centres in locations around the world.
     The Company also provides simulators and training services for sea and
land-based activities and supplies marine automation systems for military and
civil applications. CAE's marine control systems monitor and control propulsion,
electrical steering, ancillary, auxiliary and damage control systems.

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

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

<PAGE>
32                                                                   CAE AR 2002

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

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

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

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

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

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

BUSINESS COMBINATIONS, GOODWILL AND INTANGIBLE ASSETS
During the first quarter of 2002, the Company adopted the Canadian Institute of
Chartered Accountants (CICA) Handbook Section 1581, Business Combinations, which
requires all business combinations to be accounted for using the purchase
method. In addition, any goodwill and intangible assets with indefinite useful
lives acquired in a business combination are to be accounted for under CICA
Handbook Section 3062, Goodwill and Other Intangible Assets. This section
requires that goodwill and intangible assets with indefinite useful lives not be
amortized. Their fair value is to be assessed annually and, if necessary,
written down for any impairment. (See note 8 for the impact of the adoption of
the new standard.)
     Goodwill represents the cost of investments in subsidiaries in excess of
the fair value of the net identifiable assets acquired. Goodwill for
acquisitions made prior to fiscal 2002 was amortized up to March 31, 2001, using
the straight-line method over 40 years.
     Intangible assets are recorded at their allocated cost at the date of
acquisition of the related operating companies. Amortization is provided for all
intangible assets on a straight-line basis over their estimated useful lives.
Useful lives are estimated as follows:

<TABLE>
<CAPTION>
                                                                        Weighted
                                                                         Average
                                              Amortization          Amortization
                                                    Period                Period
--------------------------------------------------------------------------------
<S>                                         <C>                             <C>
Trade names                                 20 to 25 years                    20
Backlog and contractrual agreements          1 to 10 years                     6
Customer relationships                      20 to 25 years                    24
Other                                       10 to 20 years                    11
--------------------------------------------------------------------------------
</TABLE>

<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                                    33

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

FOREIGN CURRENCY TRANSLATION
Assets and liabilities denominated in currencies other than Canadian dollars are
translated at exchange rates in effect at the balance sheet date. Revenue and
expense items are translated at average rates of exchange for the year.
Translation gains or losses are included in the determination of earnings,
except for gains or losses arising on translation of accounts of foreign
subsidiaries considered self-sustaining and gains or losses arising from the
translation of foreign currency debt that has been designated as a hedge of the
net investment in subsidiaries, which are deferred as a separate component of
shareholders' equity.
     Gains or losses arising from the translation of foreign currency debt not
designated as a hedge of the net investment in subsidiaries are deferred,
included in other assets and amortized on a straight-line basis over the term of
the debt.
     Effective April 1, 2002, the Company will no longer amortize the exchange
gains or losses arising on the translation of long-term foreign currency
denominated items, in accordance with a recent amendment to CICA Handbook
Section 1650 on Foreign Currency Translation. The exchange gains or losses
arising on translation will be included in earnings as incurred. At March 31,
2002, the unamortized exchange loss relating to the existing long-term foreign
currency items amounted to $9.2 million (2001 - $7.6 million). This standard
will be applied retroactively and consequently, prior years' financial
statements will be restated through a charge to fiscal 2002 earnings of $1.1
million (2001 - $2.0 million), net of $0.5 million (2001 - $1.0 million) in
taxes, and a charge to fiscal 2001 opening retained earnings of $3.3 million,
net of $1.3 million of taxes.

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

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

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

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

<PAGE>
34                                                                   CAE AR 2002

     Investment tax credits arising from research and development are deducted
from the related costs and are accordingly included in the determination of
earnings in the same year as the related costs. Investment tax credits arising
from the acquisition of property, plant and equipment and deferred development
costs are deducted from the cost of those assets with amortization calculated on
the net amount.
     On April 1, 2000, CAE adopted the recommendations of the Canadian Institute
of Chartered Accountants (CICA) Handbook section 3465, Income Taxes, which
replaced the deferral method with the liability method of tax allocation. CAE
applied the new recommendations retroactively without restating prior years. The
cumulative effect of adopting the new recommendations as at April 1, 2000, was
to increase net future income tax assets by $12.8 million, increase net future
income tax liabilities by $27.0 million, increase other assets by $30.8 million,
reduce income taxes recoverable by $18.3 million, reduce net assets of
discontinued operations by $2.8 million and reduce retained earnings by $4.3
million.

PENSIONS
The Company accrues its obligations under employee pension plans and the related
costs, net of plan assets. The cost of pensions is actuarially determined using
the projected benefits method pro rated on service, expected plan investment
performance, salary escalation and retirement ages of employees. For the purpose
of calculating the expected return on plan assets, those assets are valued at
fair market value.
     The excess of the net actuarial gain (loss) over 10% of the greater of the
benefit obligation and the fair value of plan assets is amortized over the
remaining service period of active employees.
     On April 1, 2000, CAE adopted the recommendations of the CICA Handbook
section 3461, Employee Future Benefits, which changed the accounting for
pensions and other types of employee future benefits. The new recommendation was
adopted retroactively through an adjustment to retained earnings and prior year
results have not been restated. As a result, a liability for employee future
benefits of $1.7 million was recorded and a corresponding charge to retained
earnings was taken.

STOCK-BASED COMPENSATION PLANS
The Company's stock-based compensation plans consist of an Employee Stock Option
Plan (ESOP), an Employee Stock Purchase Plan (ESPP) and Deferred Share Unit
(DSU) plans for directors and key executives which are described in note 12. No
compensation expense is recognized for the ESOP when stock options are issued to
employees. Consideration paid by employees on the exercise of stock options is
credited to capital stock. A compensation expense is recognized for the
Company's portion of the contributions made under the ESPP and for amounts due
under the DSU plans.
     The CICA has issued a new standard on the measurement of stock options and
other stock-based compensation for fiscal years beginning on or after January 1,
2002. This standard applies to awards granted after January 1, 2002, and is to
be applied prospectively. The Company will not change the method currently used
to account for stock options granted to employees, but will provide the required
pro forma disclosures on the impact of the fair value method, which produces
estimated compensation charges. Stock compensation arrangements that can be
settled in cash will continue to be recognized as compensation expense.

DERIVATIVE FINANCIAL INSTRUMENTS
The Company enters into forward, swap and option contracts to manage its
exposure to fluctuations in interest rates and foreign exchange rates. These
derivative financial instruments are effective in meeting the risk reduction
objectives of the Company by generating offsetting cash flows related to the
underlying position in respect of amount and timing. CAE does not hold or issue
derivative financial instruments for trading purposes.

<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                                    35

     The foreign currency risk associated with purchase and sale commitments
denominated in a foreign currency is hedged through a combination of forward
contracts and options. The foreign currency gains and losses on these contracts
are not recognized in the consolidated financial statements until the underlying
firm commitment is recorded in earnings. At that time, the gains or the losses
on such derivatives are recorded in earnings as an adjustment to the underlying
transaction. Premiums paid with respect to options are deferred and charged to
net earnings over the contract period.
     Interest rate swap contracts are designated as hedges of the interest rate
of certain financial instruments. The interest payments relating to swap
contracts are recorded in net earnings over the life of the underlying
transaction on an accrual basis as an adjustment to interest income or interest
expense.
     Beginning in fiscal 2004, the Company will adopt the new CICA accounting
guideline which establishes certain conditions for when hedge accounting may be
applied. The Company is studying the new guideline but has not yet determined
its impact.

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

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

02  BUSINESS ACQUISITIONS

During the fiscal year, CAE completed four strategic acquisitions, two of which
accelerated CAE's move into aviation training, one which significantly improved
the Company's access to the US defence market and one which provided immediate
entry into the commercial marine control systems market.
     On April 2, 2001, the Company acquired all of the issued and outstanding
shares of BAE SYSTEMS Flight Simulation and Training Inc. located in Tampa,
Florida, for a total cash consideration of US$76 million. The business has a
well-established position in the US defence market for the manufacture of
transport and helicopter simulation equipment and has significant training and
support service activities for both civil and military markets.
     On August 1, 2001, the Company acquired all of the issued and outstanding
shares of Valmarine AS of Norway, for a cash consideration of NOK238.6 million
and a CAE share issuance of NOK125.4 million, based on the average closing price
of CAE's shares for the 10 days prior to August 1st. Valmarine is the global
leader for marine control systems for the commercial market. The purchase price
is subject to adjustment based on the future performance of the business.
Contingent consideration up to a maximum of NOK58 million will be recognized as
an additional cost of the purchase when the contingency is resolved.
     On August 24, 2001, the Company acquired all of the issued and outstanding
shares of the Netherland-based Schreiner Aviation Training B.V. for a total cash
consideration of Euro 193.4 million. The business provides simulator and
ground-school civil aviation training.

<PAGE>
36                                                                   CAE AR 2002

     On December 31, 2001, the Company acquired all of the issued and
outstanding shares of SimuFlite Training International Inc. (SimuFlite), based
in Dallas, Texas, for a total cash consideration of US$210.9 million. In
addition, property, plant and equipment in the amount of US$54 million were sold
to the vendor and leased back. SimuFlite is the world's second largest provider
of business aviation training.
     These acquisitions were accounted for under the purchase method and their
operating results have been included from the respective acquisition dates.

The net assets acquired are summarized as follows:

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

The net assets of Schreiner, SimuFlite and approximately 10% of the net assets
of BAE SYSTEMS are included in the Civil Simulation and Training segment. The
balance of the net assets of BAE SYSTEMS and Valmarine are included in the
Military Simulation and Marine Controls segment. The goodwill on the SimuFlite
acquisition is the sole deductible goodwill for tax purposes.
     The allocation of the purchase price is based on management's estimate of
the fair value of assets acquired and liabilities assumed. Allocation of the
purchase price involves a number of estimates as well as gathering of
information over a number of months. This estimation process will be completed
in the next six months and accordingly there may be some changes to the goodwill
and intangibles values presented for Valmarine as well as adjustments to
SimuFlite arising from the finalization of amounts with the seller.

03   DISCONTINUED OPERATIONS

On December 18, 2001, the Board of Directors approved a plan to divest its
Forestry Systems. As a result of the planned divestiture, the results of
operations for the Forestry Systems have been reported separately in the
Consolidated Statements of Earnings together with its Cleaning Technologies
businesses, (together the "Discontinued Operations"). Previously reported
financial statements have been restated and interest expense has been allocated
to the Discontinued Operations based on their share of the Company's net assets.
     On February 28, 2002, the Company completed the sale of two of CAE's
Cleaning Technologies operations. The Company sold CAE Ransohoff Inc., of
Cincinnati, Ohio, and CAE Ultrasonics Inc., of Jamestown, New York, to the
former management of these operations for a total consideration of US$21.4
million, comprised of US$9.2 million cash, a holdback of US$1.6 million payable
within 120 days of closing subject to completing an audit of the closing date
financial position, and the balance in long-term subordinated notes, with senior
debt financing. On February 2, 2000, the Board of Directors approved a plan to
divest its Cleaning Technologies business. The remaining net assets of the
Cleaning Technologies operations were written down to their estimated realizable
values as at March 31, 2002.

<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                                    37

     On March 28, 2002, CAE completed the sale of its fibre screening business
to the Advanced Fiber Technologies Income Fund (AFT) for cash proceeds of $162.0
million.
     The remaining Discontinued Operations are expected to be sold within the
next six months.

Summarized financial information for the Discontinued Operations is as follows:

<TABLE>
<CAPTION>
                                                                                2002        2001
------------------------------------------------------------------------------------------------
<S>                                                                        <C>         <C>
Revenue
     Cleaning Technologies                                                 $    86.5   $   119.5
     Forestry Systems                                                          193.5       300.0
------------------------------------------------------------------------------------------------
                                                                           $   280.0   $   419.5
------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------
Net earnings from Forestry Systems prior to measurement date,
  net of tax (2002 - $4.0; 2001 - $14.9)                                   $     8.5   $    29.5
Net gain from Forestry Systems after measurement date net of tax
  (2002 - $15.2)                                                                17.9          --
Net loss from Cleaning Technologies, after measurement date, net of tax
  recovery (2002 - $7.3; 2001 - $18.9)                                         (25.1)      (26.6)
------------------------------------------------------------------------------------------------
Net earnings from discontinued operations                                  $     1.3   $     2.9
------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------
</TABLE>

<TABLE>
<CAPTION>
                                                                                2002        2001
------------------------------------------------------------------------------------------------
<S>                                                                        <C>         <C>
Net cash (used in) provided by operating activities                        $   (15.9)  $    23.6
Net cash used in investing activities                                           (4.7)      (11.1)
Net cash used in financing activities                                           (3.9)       (2.1)
------------------------------------------------------------------------------------------------
Net cash (used in) provided by discontinued operations                     $   (24.5)  $    10.4
------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------
</TABLE>

<TABLE>
<CAPTION>
                                                              2002                      2001
--------------------------------------------------------------------------------------------
                                            FORESTRY      CLEANING    Forestry      Cleaning
                                             SYSTEMS  TECHNOLOGIES     Systems  Technologies
--------------------------------------------------------------------------------------------
<S>                                         <C>       <C>             <C>       <C>
Current assets                              $   40.8      $   20.8    $   79.6      $   82.7
Property, plant and equipment, net              15.7           5.4        50.5          16.6
Goodwill                                        30.2           9.2       122.5          17.4
Other assets                                     0.6           1.1         0.7           0.9
--------------------------------------------------------------------------------------------
                                                87.3          36.5       253.3         117.6
--------------------------------------------------------------------------------------------
Assets of discontinued operations                         $  123.8                  $  370.9
--------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------

Current liabilities                             26.4          13.7        71.1          26.1
Other liabilities                                0.4            --         9.2           0.2
--------------------------------------------------------------------------------------------
                                            $   26.8      $   13.7    $   80.3      $   26.3
--------------------------------------------------------------------------------------------
Liabilities of discontinued operations                    $   40.5                  $  106.6
--------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------
</TABLE>

04  ACCOUNTS RECEIVABLE

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

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

05  INVENTORIES

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

<PAGE>
38                                                                   CAE AR 2002

06  PROPERTY, PLANT AND EQUIPMENT

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

07  INTANGIBLE ASSETS

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

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

Details of intangible assets by business segment is as follows:

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

08  GOODWILL

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

<TABLE>
<CAPTION>
(amounts in millions except per share amount)                        2002           2001
----------------------------------------------------------------------------------------
<S>                                                             <C>            <C>
Reported net earnings                                           $   150.6      $   108.1
Add back goodwill amortization                                         --            5.1
----------------------------------------------------------------------------------------
Adjusted net earnings                                           $   150.6      $   113.2
----------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------
Reported net earnings and diluted net earnings per share        $    0.69      $    0.50
Add back goodwill amortization                                        --            0.02
----------------------------------------------------------------------------------------
Adjusted net earnings and diluted net earnings per share        $    0.69      $    0.52
----------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------
</TABLE>

<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                                    39

The continuity of goodwill by business segment is as follows:

<TABLE>
<CAPTION>
                                            2002                         2001
-----------------------------------------------------------------------------
                                        MILITARY                     Military
                            CIVIL     SIMULATION         Civil     Simulation
                       SIMULATION     AND MARINE    Simulation     and Marine
                     AND TRAINING       CONTROLS  and Training       Controls
-----------------------------------------------------------------------------
<S>                  <C>              <C>         <C>              <C>
Beginning balance        $     --       $   18.5       $    --        $  22.2
Additions                   219.0          134.7            --             --
Amortization                   --             --            --           (0.6)
Foreign exchange             (1.2)           4.5            --           (3.1)
-----------------------------------------------------------------------------
Ending balance           $  217.8       $  157.7       $    --        $  18.5
-----------------------------------------------------------------------------
Total goodwill                          $  375.5                      $  18.5
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
</TABLE>

09  OTHER ASSETS

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

(i)  Investment tax credits are available to reduce future federal income taxes
     payable in Canada.
(ii) The Company led a consortium which was contracted by the UK Ministry of
     Defence (MoD) to design, construct, manage, finance and operate an
     integrated simulator based aircrew training facility for the Medium Support
     Helicopter fleet of the Royal Air Force. The contract covers a 40-year
     period, which can be terminated by the MoD after 20 years, in 2018.
          In connection with the contract, the Company has established a
     subsidiary, CAE Aircrew Training Plc (Aircrew), of which it owns 74% with
     the balance held by the other consortium partners. This subsidiary has
     leased the land from the MoD, has built the facility and operates the
     training centre, and has been consolidated with the accounts of the
     Company.
          In addition, the Company has a minority shareholding of 11% in, and
     has advanced funds to, CVS Leasing Ltd. (CVS), a company established to
     acquire the simulators and other equipment that are leased to Aircrew. CVS
     obtained project financing which amounts to (pound)79 million at March 31,
     2002, and expires in October 2015. This financing is secured solely by the
     assets of CVS with no recourse to CAE.
(iii) Research and development expenditures aggregated $104.7 million during the
     year (2001 - $104.9 million). The Company has received government
     assistance of $15.8 million during the year (2001 - $3.5 million), of
     which $9.5 million (2001 - nil) was recorded against deferred costs
     incurred to develop new products.

<PAGE>
40                                                                   CAE AR 2002

10  DEBT FACILITIES

    A. LONG-TERM DEBT

<TABLE>
<CAPTION>
                                                                        2002          2001
------------------------------------------------------------------------------------------
<S>                                                                 <C>           <C>
Senior notes (i)                                                    $  192.1      $  190.4
Revolving unsecured term credit facilities,
   5-years maturing April 2006, US$350.0 (ii)
   (outstanding March 31, 2002 - $25.0 and US$139.0)                   246.4            --
   5-years maturing April 2006, Euro100.0 (2001 - DM65.0) (ii)            --          46.1
   18 months, maturing June 2003 (US$200.0) (iii)
   (outstanding March 31, 2002 - US$174.0)                             277.3            --
Term loan of US$36.4, secured, maturing in 2009 (iv)                    58.0            --
Term loan of (pound)12.7, secured, maturing in 2015 (v)                 25.9          26.8
Grapevine Industrial Development Corporation bonds, secured,
   (US$8.0 and US$19.0), maturing in 2010 and 2013 (vi)                 43.1            --
Secured loans (US$5.8 and RMB29.0) (vii)                                14.3            --
Unsecured loans (US$8.6 and (pound)9.2) (viii)                          34.4            --
Obligations under capital lease commitments (ix)                        35.0           2.0
------------------------------------------------------------------------------------------
                                                                       926.5         265.3
Less: Long-term debt due within one year                                37.5           2.3
------------------------------------------------------------------------------------------
                                                                    $  889.0      $  263.0
------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------
</TABLE>

(i)  Pursuant to a private placement with certain investors, the Company
     borrowed US$108.0 million and $20.0 million. These unsecured senior notes
     rank equally with the term bank financing with fixed repayment amounts in
     2005, 2007, 2009 and 2012. Fixed interest at an average rate of 7.5% is
     payable semi-annually in June and December. The Company has entered into
     interest rate swap agreements converting the initial fixed interest rate
     into a 3-month BA borrowing plus 1.05% on $52.5 million of the senior
     notes.
(ii) These facilities are unsecured and the interest rate payable is based on
     LIBOR (BAs) or EURIBOR plus 0.50%. The Company has entered into interest
     rate swap agreements to fix the rate. Of this amount, $205 million is fixed
     until February 2003 with an average rate of 2.72%, and $35 million has been
     fixed until April 2006 at a rate of 4.97%. The average interest rate for
     the period ended March 31, 2002, is 5.2% (2001 - 4.6%).
(iii) The revolving credit facility of US$200 million expires in June 2003. The
     facility is unsecured and the interest rate payable is based on LIBOR plus
     0.50%.
(iv) The Company arranged project financing for its training centre in Sao
     Paulo, Brazil. This term loan is secured by the assets of the training
     centre and $15.6 million in restricted cash and is repayable semi-annually
     until April 30, 2009. Interest on the loan is charged at a rate
     approximating 7.7%.
(v)  The Company arranged project financing for one of its subsidiaries to
     finance the Company's Medium Support Helicopter program for the MoD in the
     United Kingdom. The credit facility includes a term loan that is secured by
     the project assets of the subsidiary and is repayable over 18 years to
     October 1, 2015. The facility also includes a standby loan of
     (pound)4.0 million and a working capital loan of (pound)1.0 million, both
     maturing in October 2015. Interest on the loans is charged at a rate
     approximating LIBOR plus 1%. The Company has entered into interest rate
     swaps totalling (pound)10.3 million fixing the interest rate at
     approximately 6.82% (note 9(ii)).
(vi) Airport Improvement Revenue Bonds issued by Grapevine Industrial
     Development Corporation, Grapevine, Texas, for amounts of US$8.0 million
     and US$19.0 million and maturing respectively in 2010 and 2013. The Bonds
     are secured by real property improvements, fixtures and specified
     simulation equipment. The rate is the lesser of the lawful rate and 80% of
     the 91-day T-Bill rate, which approximates 2.83% for the period ended March
     31, 2002.
(vii) Secured loans consist of a US$5.8 million loan secured by property, plant
     and equipment expiring in June 2002 with interest payable based on
     commercial paper (USA) plus 1% and a loan of RMB29 million expiring in
     December 2011 with interest at 6.83%.

<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                                    41

(viii) Unsecured loans consists of a US$8.6 million loan expiring in 2002 with
     interest rate payable based on LIBOR plus 0.90% and a loan of (pound)9.2
     million expiring from September 2004 to March 2030 with interest at an
     average rate of 5.6%.
(ix) The effective interest rate on obligations under capital leases was
     approximately 5.3% (2001 - 5.2%).
(x)  Payments required in each of the next five years to meet the retirement
     provisions of the long-term debt are as follows:

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

(xi) Details of net interest expense (income) are as follows:

<TABLE>
<CAPTION>
                                                               2002        2001
--------------------------------------------------------------------------------
<S>                                                          <C>        <C>
Interest expense (income)                                    $ 30.2     $  (2.3)
Allocation of interest expense to discontinued operations      (3.6)       (4.0)
Interest capitalized                                           (3.9)         --
--------------------------------------------------------------------------------
Interest expense (income) as reported                        $ 22.7     $  (6.3)
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
</TABLE>

B. SHORT-TERM DEBT
The Company has unused unsecured bank lines of credit available in various
currencies totalling $57.8 million (2001 - $85 million). The effective rate on
the short-term borrowings was 5.6% (2001 - 8.4%).
      Certain of the Company's debt instruments include customary positive and
negative covenants which include interest coverage, leverage ratios, and
restrictions on the sale of assets. The Company is in compliance with its debt
covenants.

11  CAPITAL STOCK

(i)  The Company's articles of incorporation authorize the issuance of an
     unlimited number of preferred shares, issuable in series, and an unlimited
     number of common shares. To date, the Company has not issued any preferred
     shares.
(ii) A reconciliation of the issued and outstanding common shares of the Company
     is as follows:

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

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

42                                                                  CAE AR 2002

     (b) During the first quarter of fiscal 2001 the Company purchased
         206,000 common shares on the Toronto Stock Exchange under its normal
         course issuer bid. The Company has purchased 8,877,000 common shares
         since the inception of the program on June 21, 1999. Shares purchased
         by the Company were cancelled. The bid expired on June 20, 2000.
     (c) The Company has an amended and restated shareholder protection rights
         plan agreement whereby one right has been issued for each outstanding
         common share of the Company. The rights remain attached to the shares
         and are not exercisable until the occurrence of certain designated
         events. Upon the occurrence of such an event, the right entitles a
         shareholder of the Company to acquire additional common shares from
         treasury at half their market value. The rights expire on the date
         immediately after the Company's Annual Meeting of Shareholders to be
         held in 2003, unless terminated at an earlier date by the Board of
         Directors.
     (d) On June 20, 2001, the Board of Directors declared a 100% stock dividend
         in respect of the common shares in the capital of the Company,
         effectively achieving a two-for-one split of CAE's outstanding common
         shares. The stock dividend was payable to shareholders of record at the
         close of business on July 9, 2001 ("Record Date"), on the basis of one
         additional share for each common share held as of the Record Date.
         CAE's common shares commenced trading on a split basis on July 5, 2001,
         on the Toronto Stock Exchange. The Company ascribed no monetary value
         to the stock dividend. The number of shares and options, the option
         exercise prices and the net earnings and diluted net earnings per share
         have been restated retroactively to reflect the stock dividend.
     (e) The following is a reconciliation of the denominators for the basic and
         diluted earnings per share computations:

<TABLE>
<CAPTION>
                                                                         2002                 2001
--------------------------------------------------------------------------------------------------
<S>                                                              <C>                  <C>
Weighted average number of common shares outstanding
     - Basic                                                      217,592,039          215,666,346
Effect of dilutive stock options                                    2,544,722            2,570,454
--------------------------------------------------------------------------------------------------
Weighted average number of common shares outstanding
     - Diluted                                                    220,136,761          218,236,800
--------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------
</TABLE>

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

12   STOCK-BASED COMPENSATION PLANS

     EMPLOYEE STOCK OPTION PLAN
     Under the long-term incentive program of the Company, options may be
     granted to officers and other key employees of the Company and its
     subsidiaries to purchase common shares of the Company at a subscription
     price of 100% of market value. Market value is determined as the closing
     price of the common shares on the Toronto Stock Exchange on the last day of
     trading prior to the effective date of the grant.
          At March 31, 2002, a total of 12,462,822 common shares remained
     authorized for issuance under the Plan. The options are exercisable during
     a period not to exceed six years and are not exercisable during the first
     12 months after the date of the grant. The right to exercise all of the
     options accrues over a period of four years of continuous employment.
     However, if there is a change of control of the Company, the options become
     immediately exercisable. Options are adjusted proportionately for any stock
     dividends or stock splits attributed to the common shares of the Company.

<PAGE>
                              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS     43

     A reconciliation of the outstanding options is as follows:

     <TABLE>
     <CAPTION>

     as at March 31 (note 11(d))                                            2002                             2001
     ------------------------------------------------------------------------------------------------------------
                                                                        WEIGHTED                         Weighted
                                                         NUMBER          AVERAGE         Number           Average
                                                     OF OPTIONS         EXERCISE     of Options          Exercise
                                                                           PRICE                            Price
     ------------------------------------------------------------------------------------------------------------
     <S>                                              <C>               <C>           <C>                <C>
     Options outstanding at beginning of year         5,114,350         $   5.70      5,479,326          $   4.96
     Granted                                          1,698,012         $  12.19      2,018,400          $   6.84
     Exercised                                       (1,118,400)        $   5.41     (1,413,076)         $   4.90
     Forfeited/Expired                                 (694,884)        $   7.63       (970,300)         $   5.06
     ------------------------------------------------------------------------------------------------------------
     Options outstanding at end of year               4,999,078         $   7.70      5,114,350          $   5.70
     ------------------------------------------------------------------------------------------------------------
     ------------------------------------------------------------------------------------------------------------
     Options exercisable at end of year               1,417,878         $   5.70      1,268,500          $   5.34
     ------------------------------------------------------------------------------------------------------------
     ------------------------------------------------------------------------------------------------------------
     </TABLE>

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

     <TABLE>
     <CAPTION>

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

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

     DEFERRED SHARE UNIT PLAN
     Effective May 1, 2000, the Company adopted a DSU plan for key executives
     whereby an executive may elect to receive any cash incentive compensation
     in the form of deferred share units. The Plan is intended to enhance the
     Company's ability to promote a greater alignment of interests between such
     key executives and the shareholders of the Company. A deferred share unit
     is equal in value to one common share of the Company. The units are issued
     on the basis of the average closing board lot sale price per share of CAE
     common shares on the Toronto Stock Exchange during the last 10 days on
     which such shares traded prior to the date of issue. The units also accrue
     dividend equivalents payable in additional units in an amount equal to
     dividends paid on CAE common shares. Deferred share units mature upon
     termination of employment, whereupon a key executive is entitled to receive
     the fair market value of the equivalent number of common shares, net of
     withholdings, in cash.
          In fiscal 2000, the Company adopted a DSU plan for non-employee
     directors. A non-employee director holding less than 10,000 common shares
     of the Company receives the Board retainer and attendance fees in the form
     of deferred share units. A non-employee

<PAGE>

44                                                                  CAE AR 2002

     director holding at least 10,000 common shares may elect to participate
     in the Plan in respect of part or all of his or her retainer and attendance
     fees. The terms of the Plan are essentially identical to the key executive
     DSU plan except that the share price used to value the deferred share unit
     is based on the closing price per share of CAE common shares on the Toronto
     Stock Exchange on the day preceding the last business day of March, June,
     September and December.
          The Company records the cost of the DSU plans as compensation expense.
     As at March 31, 2002, 194,581 units were outstanding at a value of $2.3
     million (2001 - 53,220 units at a value of $1.3 million).

13   FINANCIAL INSTRUMENTS

     FOREIGN CURRENCY RISK
     The fair value of the forward foreign exchange contracts is represented by
     the estimated amounts that the Company would receive or pay to settle the
     contracts at the balance sheet date, taking into account the unrealized
     gain or loss. The Company entered into forward foreign exchange contracts
     totalling $144.1 million (buy contracts $42.3 million and sell contracts
     $101.8 million). The total unrealized loss as of March 31, 2002, is $0.9
     million (on buy contracts of $0.5 million and sell contracts of $0.4
     million). Unrealized gains or losses on outstanding forward contracts are
     not recognized in the statements of earnings until maturity of the
     contracts.
          The Company entered into cross currency rate swap contracts maturing
     on December 13, 2002 in respect of certain inter-company loan transactions.
     The Company receives interest, calculated semi-annually on a notional
     balance of US$21 million and $30 million, at a weighted average interest
     rate of LIBOR plus 3.6% (effective rate of 5.5%) and BA plus 0.4%
     (effective rate of 2.6%). The Company pays interest calculated
     semi-annually on notional balances ofEuro 16.5 million, SEK27.4 million and
     US$20.7 million at weighted average interest rates of EURIBOR plus 3.4%
     (effective rate of 6.65%), STIBOR plus 2.9% (effective rate of 6.82%) and
     LIBOR plus 0.5% (effective rate of 2.4%).

     CREDIT RISK
     The Company is exposed to credit risk on billed and unbilled accounts
     receivable. However, its customers are primarily established companies with
     good credit ratings or government agencies, factors that minimize the risk.
     In addition, the Company typically receives substantial non-refundable
     deposits on contracts.
          The Company is exposed to credit risk in the event of non-performance
     by counter-parties to its derivative financial instruments, but does not
     expect non-performance by any of the counterparties. The counterparties for
     financial instruments are major, highly rated financial institutions.

     INTEREST RATE EXPOSURE
     The Company is exposed to the volatility of interest rates on its long-term
     debt. As at March 31, 2002, the Company has entered into seven interest
     rate swap agreements with three different financial institutions to
     mitigate these risks for a total notional value of $334.1 million. One
     agreement, with a notional value of $52.6 million (US$33 million), has
     converted fixed interest rate debt into floating whereby the Company pays
     the BA rate plus 1.05% quarterly and receives a fixed interest rate of
     7.76% up to June 2012. The remaining six contracts are converting floating
     interest rate debt into fixed for a notional value of $281.5 million
     whereby the Company will receive quarterly LIBOR and pay fixed interest
     payments as follows:
     o  Until February 2003 on two contracts totalling $205.6 million (US$129
        million), the Company will pay annually a fixed interest rate of 2.72%;

<PAGE>
                              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS     45

     o  Until April 2006 on $35 million, the Company will pay quarterly a
        fixed interest rate of 4.97%;
     o  Until September 2005 on $17.5 million (US$11 million), the Company
        will pay monthly a fixed annual interest rate of 4.95%;
     o  Until October 2011 on two contracts totalling $23.4 million
        ((pound)10.3 million), the Company will pay quarterly a fixed annual
        interest rate of 6.82%.
     After taking into consideration these swap agreements, as at March 31,
     2002, 55% of the long-term debt bears fixed interest rates.

     FAIR VALUE OF FINANCIAL INSTRUMENTS
     The following methods and assumptions have been used to estimate the fair
     value of the financial instruments:
     o  Cash and short-term investments, accounts receivable, accounts payable
        and accrued liabilities are valued at their carrying amounts on the
        balance sheet, which represent an appropriate estimate of their fair
        values due to their near-term maturities.
     o  Capital leases are valued using the discounted cash flow method.
     o  Long-term debt value is estimated based on discounted cash flows using
        current interest rates for debt with similar terms and remaining
        maturities.
     o  Interest rate and currency swap contracts reflect the present value of
        the potential gain or loss if settlement were to take place on
        March 31, 2002.

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

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

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

14   INCOME TAXES

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

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

<PAGE>

46                                                                  CAE AR 2002

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

     <TABLE>
     <CAPTION>

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

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

     <TABLE>
     <CAPTION>

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

     As of March 31, 2002, the Company has accumulated non-capital tax losses
     carried forward relating to operations in the United States for an amount
     of approximately US$147.8 million. The losses for income tax purposes
     expire in the years 2005 through 2013. For financial reporting purposes a
     future tax asset of US$26.9 million has been recognized in respect of these
     loss carryforwards.
          The Company has accumulated non-capital tax losses carried forward
     relating to its operations in other countries of approximately $64 million.
     These losses can be carried forward without time limitation. For financial
     reporting purposes a future tax asset of $9.2 million has been recognized.
          The valuation allowance relates principally to loss carryforward
     benefits where realization is not likely due to a history of loss
     carryforwards and to the uncertainty of sufficient taxable earnings in the
     future, together with time limitations in the tax legislation giving rise
     to the potential benefit. In 2002, $21.8 million (2001 - $13.7 million) of
     the valuation allowance balance was reversed when it became more likely
     than not that benefits would be realized.

15   SUPPLEMENTARY CASH FLOW INFORMATION

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

     <TABLE>
     <CAPTION>
                                                                                        2002       2001
     --------------------------------------------------------------------------------------------------
     <S>                                                                            <C>        <C>
     Accounts receivable                                                             $ (50.4)    $ 21.8
     Inventories                                                                       (23.8)     (45.7)
     Prepaid expenses                                                                    1.9        5.9
     Income taxes recoverable                                                           36.9       49.7
     Accounts payable and accrued liabilities                                           27.9       71.0
     Deposits on contracts                                                              (0.1)     (23.6)
     --------------------------------------------------------------------------------------------------
                                                                                     $  (7.6)    $ 79.1
     --------------------------------------------------------------------------------------------------
     --------------------------------------------------------------------------------------------------
     Interest paid                                                                   $  25.3     $ 20.6
     Income taxes paid                                                               $  14.3     $  8.8
     Amortization of other assets                                                    $   3.2     $    -
     --------------------------------------------------------------------------------------------------
     </TABLE>

<PAGE>
                              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS     47

16   CONTINGENCIES

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

17   GOVERNMENT COST SHARING

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

18   OPERATING LEASE COMMITMENTS

     Future minimum lease payments under operating leases, the most significant
     of which relate to the Medium Support Helicopter contract with the UK MoD
     as described in Note9(ii), are as follows:

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

19   PENSIONS

     The Company has defined benefit plans that provide benefits based on length
     of service and final average earnings. The Company has an obligation to
     ensure that there are sufficient funds in the plans to pay the benefits
     earned.
          Contributions reflect actuarial assumptions concerning future
     investment returns, salary projections and future service benefits. Plan
     assets are represented primarily by Canadian and foreign equities and
     government and corporate bonds.

<PAGE>

48                                                                  CAE AR 2002

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

     <TABLE>
     <CAPTION>

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

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

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

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

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

20   BUSINESS SEGMENTS

     The Company's significant business segments include:
     (i) Civil Simulation and Training - a world-leading supplier of civil
         flight simulators and visual systems, and a provider of business and
         civil aviation training.
    (ii) Military Simulation and Marine Controls - a premier supplier of
         military flight and land-based simulators, visual and training systems.
         The segment also supplies marine controls and training systems.
         Each operating segment is led by a senior executive and offers
     different products and uses different technology and marketing strategies.
     The Company evaluates performance based on operating earnings before
     interest and income taxes and uses capital employed

<PAGE>
                              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS     49

     to assess resources allocated to each segment. Capital employed includes
     accounts receivable, inventories, prepaid expenses, property, plant and
     equipment, goodwill, intangible assets and other assets less accounts
     payable and accrued liabilities, deposits on contracts and contingent
     consideration due to acquisitions included in other long-term liabilities.
         Financial information on the Company's operating segments is shown in
     the following table:

<TABLE>
<CAPTION>

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

     Total assets by segment
          Civil Simulation and Training                                       $1,380.9   $  348.5
          Military Simulation and Marine Controls                                609.7      319.0
     --------------------------------------------------------------------------------------------
     --------------------------------------------------------------------------------------------

     Capital expenditures
          Civil Simulation and Training                                       $  216.7   $   72.9
          Military Simulation and Marine Controls                                 32.9        3.4
     --------------------------------------------------------------------------------------------
                                                                              $  249.6   $   76.3
     --------------------------------------------------------------------------------------------
     --------------------------------------------------------------------------------------------
     Amortization of property, plant and equipment
          Civil Simulation and Training                                       $   24.4   $    9.3
          Military Simulation and Marine Controls                                 12.5        9.2
     --------------------------------------------------------------------------------------------
                                                                              $   36.9   $   18.5
     --------------------------------------------------------------------------------------------
     --------------------------------------------------------------------------------------------
     Amortization of goodwill
          Civil Simulation and Training                                       $      -   $      -
          Military Simulation and Marine Controls                                    -        0.6
     --------------------------------------------------------------------------------------------
                                                                              $      -   $    0.6
     --------------------------------------------------------------------------------------------
     --------------------------------------------------------------------------------------------

     GEOGRAPHIC SEGMENTS
                                                                                  2002       2001
     --------------------------------------------------------------------------------------------
     Revenue from external customers based on their location
          Canada                                                              $  102.7    $ 109.8
          US                                                                     347.0      268.7
          Great Britain                                                          127.4      141.9
          Germany                                                                 91.2      101.2
          Other European countries                                               173.8      128.1
          Other countries                                                        284.4      141.7
     --------------------------------------------------------------------------------------------
                                                                              $1,126.5    $ 891.4
     --------------------------------------------------------------------------------------------
     --------------------------------------------------------------------------------------------
     Property, plant and equipment and goodwill
          Canada                                                              $  126.6    $  95.7
          US                                                                     500.7        6.2
          Europe                                                                 435.5       79.6
          Other countries                                                        151.2       64.2
     --------------------------------------------------------------------------------------------
                                                                              $1,214.0    $ 245.7
     --------------------------------------------------------------------------------------------
     --------------------------------------------------------------------------------------------
</TABLE>

21   COMPARATIVE FINANCIAL STATEMENTS

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

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