CAEの適時開示

6-K 1 form6-k2023.htm 6-K Document

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

Form 6-K

REPORT OF FOREIGN ISSUER PURSUANT TO RULE 13A-16 OR 15D-16 UNDER

THE SECURITIES EXCHANGE ACT OF 1934

For the month of: June 2023 Commission File Number: 1-31402

CAE INC.

(Translation of registrant’s name into English)

8585 Cote de Liesse

Saint-Laurent, Quebec

Canada H4T 1G6

(Address of Principal Executive Offices)

Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F:

Form 20-F ___ Form 40-F X Exhibits 99.1 and 99.2 of this Form 6-K are incorporated by reference as additional exhibits to the registrant’s Registration Statements on Form F-10 (File No.

INCORPORATION BY REFERENCE

333-250113) and Form S-8 (File Nos. 333-97185, 333-155366, 333-213708 and 333-267775).

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

CAE Inc.

Date: June 22, 2023 By: /s/ Mark Hounsell

Name: Mark Hounsell

Title: General Counsel, Chief Compliance Officer and Corporate Secretary

EXHIBIT INDEX

10.1 Omnibus Incentive Plan dated May 31, 2023

99.1 Notice and Management Proxy Circular dated June 15, 2023

99.2(1) Annual Report for the year ended March 31, 2023

(1) The audit report of PricewaterhouseCoopers LLP dated May 31, 2023 on the annual financial statements of the registrant for its fiscal year ended March 31, 2023 that is being furnished as an exhibit to this Report on Form 6-K is the same report that has been prepared in accordance with applicable Quebec professional standards and included with the registrant’s audited annual financial statements that have been filed with Canadian securities regulatory authorities. The audit report contains certain information required by applicable Quebec professional standards that will not be included in the audit report prepared in accordance with applicable U.S. securities laws and the requirement of the Public Company Accounting Oversight Board that will be in the registrant’s annual report on Form 40-F for its fiscal year ended March 31, 2023.

EX-10.1 2 cae2023-form6xkomnibusince.htm EX-10.1 OMNIBUS INCENTIVE PLAN Document

CAE INC.

OMNIBUS INCENTIVE PLAN

Effective as of May 31, 2023

OMNIBUS INCENTIVE PLAN

1. Definitions and Interpretation

1.1 Definitions

As used in this Plan, the following terms have the following meanings unless the context otherwise requires:

“Account” means an account maintained for a Participant on the books of the Company which will be credited with Options, PSUs or RSUs granted to the Participant, as applicable, in accordance with the terms of this Plan;

“Alternative Award” has the meaning ascribed thereto in Section 8.2(b) hereof;

“Associate”, where used to indicate a relationship with a Participant, means (i) any domestic partner of that Participant, and (ii) the spouse of that Participant and that Participant’s children (whether by birth or adoption), as well as that Participant’s relatives and that Participant’s spouse’s relatives, in each case if they share that Participant’s residence;

“Award” means an Option, a PSU and/or an RSU, as applicable, granted to a Participant pursuant to the terms of the Plan and the applicable Grant Agreement;

“Black-Out Period” means a period of time when any securities of the Company may not be traded by certain Persons designated by the Company pursuant to any policies of the Company respecting restrictions on trading which is in effect at that time;

“Board” means the board of directors of the Company or, to the extent the Board has delegated powers or responsibilities to a committee, officer or plan administrator, such committee, officer or plan administrator;

“Business Day” means each day other than a Saturday, Sunday or statutory holiday in Montreal, Quebec, Canada;

“Cash Equivalent” means the amount of money equal to the Market Value multiplied by the number of vested PSUs or RSUs, as applicable, in the Participant’s Account, net of any applicable taxes in accordance with Section 9.2, on the PSU Settlement Date or the RSU Settlement Date, as applicable;

“Cause” has the meaning ascribed thereto in Section 6.2(a) hereof;

“Change of Control” means: (i) any event or circumstance where any Person, any joint actor thereof or any Person acting jointly or in concert therewith, or any combination thereof, acquires beneficial ownership or exercises control or direction, directly or indirectly (whether through a purchase, issuance or exchange of Shares or other voting securities, reorganization, amalgamation, merger, business combination, consolidation or other transaction or series of transactions having similar effect (or a plan of arrangement in connection with any of the foregoing)), other than solely involving the Company and any one or more of its Subsidiaries, of a majority of the Shares or other voting securities of the Company or of any successor or resulting company or other Person; (ii) the sale or other disposition to a Person other than a Subsidiary of the Company of all or substantially all of the Company’s assets; (iii) the Company undergoing a liquidation or dissolution; or (iv) the nominees named in the most recent management information circular of the Company for election to the Board no longer constitute a majority of the members of the Board as a result of or in connection with: (A) a contested election of directors; or (B) a reorganization, amalgamation, merger, business combination, consolidation or other transaction or series of transactions involving the Company or any of its Subsidiaries and another corporation or other entity;

Page 1

“Committee” means the Human Resources Committee of the Board or any other Board committee to which the Board has delegated responsibilities for the purposes of this Plan;

“Company” means CAE Inc. or a successor thereto;

“Disqualifying Disposition” has the meaning ascribed thereto in Section 3.7(d) hereof;

“Dividend Equivalent” means a bookkeeping entry, equivalent in value to a dividend paid on a Share, credited to a Participant’s Account;

“Eligible Participant” means any executive officer, employee and consultant of the Company or any of its Subsidiaries (for so long as such Person holds any such position) and excluding any Person who has received a notice of termination from or given a notice of resignation or retirement to the Company or any of its Subsidiaries; provided, however, that solely with respect to the grant of an Incentive Stock Option, an Eligible Participant must be a key employee (including any executive officer) of the Company or any Subsidiary; for clarity, Non-Employee Directors are not Eligible Participants;

“Employment Agreement” means, with respect to any Participant, any written employment agreement entered into between the Company or a Subsidiary, as applicable, and such Participant;

“Fiscal Year” means the Company’s fiscal year, currently ending March 31;

“Grant Agreement” means an agreement between the Company and a Participant evidencing the grant to such Participant of an Award, including an Option Agreement, a PSU Agreement and an RSU Agreement;

“Incentive Stock Option” means an Option which is intended to meet the requirements of Section 422 of the U.S. Code;

“Insider” means a “reporting insider” as defined in National Instrument 55-104 – Insider Reporting Requirements and Exemptions and includes Associates and affiliates (as such term is defined in Part 1 of the TSX Company Manual) of such “reporting insider”;

“Insider Trading Policy” means the insider trading policy adopted by the Board on February 6, 2020, as may be amended from time to time;

“Long-Term Disability” means a permanent disability due to a medical condition that prevents a Participant, physically or mentally, from executing his or her job and results in an absence from work for a period that exceeds 26 weeks and is expected to be permanent; such medical condition and long-term status requiring, unless otherwise waived by the Vice-President Human Resources on behalf of the Company, certification by an Independent Medical Examiner (as defined in the Company’s “Policy & Procedure On Absenteeism Including Short-Term Disability”, as revised from time to time, or any successor policy thereto) and/or by the Medical Examiner selected by the Company’s Group Insurance Plan Carrier, after such 26 weeks;

Page 2

“Market Value” means at any date when the market value of Shares is to be determined, the VWAP on the TSX (or such other Stock Exchange designated by the Board) for the five (5) Trading Days immediately preceding such date;

“More Than 10% Owner” has the meaning ascribed thereto in Section 3.7(b) hereof;

“Non-Employee Directors” means members of the Board who, at all times while they continue to serve as members of the Board, are not officers or employees of the Company or a Subsidiary;

“Option” means an option that is granted by the Company from time to time to a Participant pursuant to Section 3 hereof, which shall upon exercise entitle the holder thereof to acquire a designated number of Shares from treasury at the Option Price, subject to the terms and conditions of this Plan and the applicable Option Agreement, provided that such Option has not expired prior to being exercised;

“Option Agreement” means an agreement between the Company and a Participant evidencing the grant by the Company of an Option and the terms and conditions thereof;

“Option Grant Date” has the meaning ascribed thereto in Section 3.3(a) hereof;

“Option Price” has the meaning ascribed thereto in Section 3.2 hereof;

“Option Term” has the meaning ascribed thereto in Section 3.4(a) hereof;

“Participant” means an Eligible Participant who has been granted an Award under the Plan;

“Performance Criteria” means specified criteria established by the Committee and set forth in the applicable Grant Agreement, other than the mere continuation of employment or the mere passage of time, the satisfaction of which is a condition for the grant, exercisability, vesting or full enjoyment of an Award;

“Performance Period” means the period determined by the Committee at the time any Award is granted or at any time thereafter during which any Performance Criteria and any other conditions specified by the Committee with respect to such Award are to be measured and by which the vesting of the Award is determined in whole or in part;

“Person” means an individual and includes, where the context so requires, a corporation, company, cooperative, partnership, limited liability company, trust, unincorporated association, entity with juridical personality or governmental authority or body, and pronouns which refer to a Person shall have a similarly extended meaning;

“Plan” means this CAE Inc. Omnibus Incentive Plan, including any amendments or supplements hereto made after its effective date;

“PSU” means a performance share unit that is granted by the Company from time to time to a Participant pursuant to Section 4 hereof which shall upon vesting entitle the holder thereof to receive, at the sole and entire discretion of the Company, a payment in the form of Shares issued from treasury or purchased on the open market, the Cash Equivalent or a combination thereof, subject to the terms and conditions of this Plan and the applicable PSU Agreement, provided that such PSU has not expired before vesting;

Page 3

“PSU Agreement” means an agreement between the Company and a Participant evidencing the grant by the Company of PSUs and the terms and conditions thereof;

“PSU Settlement Date” has the meaning ascribed thereto in Section 4.3(a) hereof;

“Resignation for Good Reason” means, in the context of a Change of Control, the resignation of a Participant following the occurrence of any of the following condition(s), without the prior written consent of the Participant, which condition(s) remain in effect more than thirty (30) days after written notification by the Participant to the Company (such notification to be made within a period not to exceed ninety (90) days from the initial existence of the condition): (i) the requirement that the Participant relocate his or her office or home base to a location that is outside a 100 kilometer radius of his or her office or home base immediately prior to the Change of Control; or (ii) the assignment to the Participant of a set of responsibilities and/or the employment or continued employment of the Participant on terms and conditions that are not the Substantial Equivalent of such Participant’s set of responsibilities and/or terms and conditions of employment in effect immediately prior to the Change of Control;

“Restriction Period” means the applicable restriction period in respect of a particular PSU or RSU, which period, unless otherwise determined by the Committee at the time the PSU or RSU is granted, shall end on the Trading Day preceding December 31 of the calendar year which is three (3) years after the calendar year in which the PSU or RSU was granted, provided that it would not cause the relevant PSU Agreement, the relevant RSU Agreement, the provisions of the Plan pertaining to PSUs or RSUs, as the case may be, or this Plan to be treated as a “salary deferral arrangement” for the purposes of the Tax Act or any provincial or territorial equivalent;

“Retirement Eligibility Date” means, with respect to a Participant: (i) the date at which the Participant has reached the age of 55 with at least five (5) years of service to the Company and its Subsidiaries; or (ii) such other date as may be determined by the Committee from time to time; provided that the Participant gives a three (3) months notice in a case of a resignation where the Participant otherwise meets the criteria of the present definition;

“RSU” means a restricted share unit that is granted by the Company from time to time to a Participant pursuant to Section 5 hereof which shall upon vesting entitle the holder thereof to receive, at the sole and entire discretion of the Company, a payment in the form of Shares issued from treasury or purchased on the open market, the Cash Equivalent or a combination thereof, subject to the terms and conditions of this Plan and the applicable RSU Agreement, provided that such RSU has not expired before vesting;

“RSU Agreement” means an agreement between the Company and a Participant evidencing the grant by the Company of RSUs and the terms and conditions thereof;

“RSU Settlement Date” has the meaning ascribed thereto in Section 5.3(a) hereof;

“Share Compensation Arrangement” means a stock option, stock option plan, employee stock purchase plan, long-term incentive plan or any other compensation or incentive mechanism involving the issuance or potential issuance of Shares to one or more full-time employees, officers, consultants or Insiders of the Company or a Subsidiary; “Shares” means the common shares in the capital of the Company or, in the event of any reclassification of such common shares, the shares in the capital of the Person resulting from such reclassification;

Page 4

“Share Unit Vesting Determination Date” means the date on which the Committee determines if the vesting conditions with respect to PSUs or RSUs (including any applicable Performance Criteria) have been met, and as a result, establishes the number of PSUs or RSUs, as applicable, that become vested, if any. Unless otherwise determined by the Committee, the Share Unit Vesting Determination Date shall be on a date following the end of the applicable Performance Period, if any, but no later than the last day of the applicable Restriction Period;

“Stock Exchange” means the TSX (or such other stock exchange designated by the Board) or, if the Shares are not or are no longer listed or posted for trading on such stock exchange at a particular date, any other stock exchange on which the majority of the trading volume and value of the Shares are listed or posted for trading;

“Subsidiary” means, unless otherwise determined by the Committee, a corporation, company or partnership that is controlled, directly or indirectly, by the Company;

“Substantial Equivalent” means, with respect to a Participant: (i) a set of responsibilities that are: (A) commensurate with such Participant’s professional training and experience; and (B) in all material respects, equivalent to or better than the set of responsibilities of such Participant; and (ii) terms and conditions of employment that: (A) include an annual base salary rate and annual cash incentive compensation opportunity that are each equal to or greater than such Participant’s annual base salary rate and annual cash incentive compensation opportunity (not including a reduction in compensation outcome as a result of performance conditions not being met); (B) include overall additional compensation and benefits that are substantially equivalent to or better than the additional compensation and benefits of the Participant; and (C) are otherwise substantially equivalent to or better than the terms and conditions of employment of such Participant;

“Tax Act” means the Income Tax Act (Canada) and the regulations thereunder, as amended from time to time;

“Termination Date” means: (i) in the event of a Participant’s resignation, retirement or death the date on which such Participant ceases to be an executive officer, employee or consultant of the Company or a Subsidiary; (ii) in the event of a termination of a Participant’s employment following a Long-Term Disability, the date on which the Participant meets the definition of Long-Term Disability set forth above; (iii) in the event of the termination of the Participant’s employment with the Company or a Subsidiary, or position as executive officer or consultant of the Company or a Subsidiary, the effective date of the termination as specified in the notice of termination provided to the Participant by the Company or the Subsidiary, as the case may be; or (iv) in the event a Participant is an executive officer, employee or consultant of a Subsidiary, the time at which the Subsidiary ceases to qualify as such under this Plan;

“Trading Day” means a Business Day on which a sale of Shares occurred on the TSX (or such other Stock Exchange designated by the Board);

“TSX” means the Toronto Stock Exchange; “U.S.

Page 5

Code” the United States Internal Revenue Code of 1986, as amended from time to time, and any reference to a particular section of that code shall include references to regulations and rulings thereunder and to successor provisions;

“U.S. Taxpayer” means a Participant who is a U.S. citizen, U.S. permanent resident or a Participant whose Award(s) under this Plan would be otherwise subject to U.S. taxation under the U.S. Code; such Participant will be considered a U.S. Taxpayer solely with respect to such Award(s); and

“VWAP” means the volume weighted average trading price of the Shares, calculated by dividing the total value by the total volume of Shares traded for the relevant period.

1.2 Interpretation

(a) Whenever the Board, the Committee or its delegate is to exercise discretion or authority in the administration of the terms and conditions of this Plan, the term “discretion” or “authority” means the sole and absolute discretion of the Board, the Committee or its delegate.

(b) The division of this Plan into Sections and other subdivisions and the insertion of headings are for convenient reference only and do not affect the interpretation of this Plan.

(c) In this Plan, words importing the singular shall include the plural, and vice versa and words importing any gender include any other gender.

(d) If any action may be taken within, or any right or obligation is to expire at the end of, a period of days under this Plan, then the first day of the period is not counted, but the day of its expiry is counted.

2. Purpose and Administration of the Plan

2.1 Purpose of the Plan

The Plan is intended to enhance the ability of the Company and its Subsidiaries to attract, retain or motivate capable Persons to advance their business strategy and to promote a greater alignment of interests between such Persons and the shareholders of the Company and its Subsidiaries.

2.2 Implementation and Administration of the Plan

(a) The Plan shall be administered and interpreted by the Committee or, if the Committee by resolution so decides, by an officer or plan administrator appointed by the Committee. If such officer or plan administrator is appointed for this purpose, references to the “Committee” herein will be deemed references to such officer or plan administrator, to the fullest extent permitted by law and standards of Stock Exchanges, as determined by the Committee. Nothing contained herein shall prevent the Board from exercising such powers as may be exercised by the Committee or from adopting other or additional Share Compensation Arrangements or other compensation arrangements from time to time, subject to any required approval.

(b) Subject to Section 8 hereof and any applicable rules of a Stock Exchange, the Committee may, from time to time, adopt, amend and rescind rules and regulations or vary the terms of this Plan and/or any Award hereunder for carrying out the provisions and purposes of the Plan and/or to address tax or other requirements of any applicable jurisdiction.

Page 6

(c) Subject to the provisions herein, the Committee is authorized, in its sole discretion, to make such determinations under, and such interpretations of, and take such steps and actions in connection with, the proper administration and operations of the Plan as it may deem necessary or advisable. The interpretation, administration, construction and application of the Plan and any provisions hereof made by the Committee, or by any officer or plan administrator to which the Committee delegated authority to perform such functions, shall be final and binding on the Company, its Subsidiaries and all Eligible Participants.

(d) In the event that an Award is granted or a Grant Agreement is executed which does not conform in all particulars with the provisions of the Plan, or purports to grant Awards on terms different from those set out in the Plan, the Award or the grant of such Award shall not be in any way void or invalidated, but the Award so granted will be adjusted to become, in all respects, in conformity with the Plan.

(e) No member of the Board or any Person acting pursuant to authority delegated by the Board or the Committee hereunder shall be liable for any action or determination taken or made in good faith in the administration, interpretation, construction or application of the Plan or any Award granted hereunder. Members of the Board, and any Person acting at the direction or on behalf of the Board or Committee, shall, to the extent permitted by law, be fully indemnified and protected by the Company with respect to any such action or determination.

(f) The Plan shall not in any way fetter, limit, obligate, restrict or constrain the Board with regard to the allotment or issuance of any Shares or any other securities in the capital of the Company. For greater clarity, the Company shall not by virtue of this Plan be in any way restricted from declaring and paying stock dividends, repurchasing Shares or any other securities in its share capital, or varying or amending its share capital or corporate structure.

2.3 Participation in the Plan

(a) The Company makes no representation or warranty as to the future market value of the Shares or with respect to any income tax matters affecting any Participant resulting from the grant, vesting or settlement of an Award, the exercise of an Option or resulting from any transactions in the Shares or any other event affecting the Awards. With respect to any fluctuations in the market price of the Shares, neither the Company, nor any of its directors, officers, employees, shareholders or agents shall be liable for anything done or omitted to be done by such Person or any other Person with respect to the price, time, quantity or other conditions and circumstances of the issuance of Shares hereunder, or in any other manner related to the Plan. For greater certainty, no amount will be paid to, or in respect of, a Participant under the Plan or pursuant to any other arrangement, and no additional Awards will be granted to such Participant to compensate for a downward fluctuation in the price of the Shares, nor will any other form of benefit be conferred upon, or in respect of, a Participant for such purpose. The Company and its Subsidiaries do not assume responsibility for the income or other tax consequences resulting to any Participant and each Participant is advised to consult with his or her own legal and/or tax advisors regarding the tax consequences and risks associated with each Award granted to such Participant.

Page 7

(b) Participants (and their legal representatives and the liquidator, executor or administrator, as the case may be, of their respective estate) shall have no legal or equitable right, claim, or interest in any specific property or asset of the Company or any of its Subsidiaries. No asset of the Company or any of its Subsidiaries shall be held in any way as collateral security for the fulfillment of the obligations of the Company or any of its Subsidiaries under this Plan. Unless otherwise determined by the Board, this Plan shall be an unfunded obligation of the Company and its Subsidiaries (as applicable). To the extent any Participant or his or her estate holds any rights by virtue of a grant of Awards under this Plan, such rights (unless otherwise determined by the Board) shall be general unsecured obligations and shall not be greater than the rights of an unsecured creditor of the Company.

(c) Unless otherwise determined by the Committee, the Company shall not offer financial assistance to any Participant in regards to the exercise, vesting or payment of any Award granted under this Plan.

2.4 Shares Available for Issuance

(a) The total number of Shares available for issuance under the Plan shall be 10,000,000, subject to any adjustment in accordance with Section 8.

(b) No Award that can be settled in Shares issued from treasury may be granted if such grant would have the effect of causing the total number of Shares underlying Awards made under this Plan to exceed the above-noted number of Shares reserved for issuance under this Plan, unless such grant is conditional upon ratification by holders of Shares, in accordance with applicable laws or relevant Stock Exchange or regulatory requirements. For greater certainty, Section 2.4(a) shall not limit the Company’s ability to issue Awards that are payable other than in Shares issued from treasury. Shares will not be deemed to have been issued pursuant to the Plan with respect to any portion of an Award that is settled in cash. The Committee may also cause Shares used to satisfy the settlement of PSUs or RSUs granted under the Plan to be purchased on the open market instead of granted from treasury.

(c) If an outstanding Award (or a portion thereof) under this Plan that can be settled in Shares issued from treasury expires or is forfeited, surrendered, cancelled or otherwise terminated for any reason without having been exercised or settled in full, if such Award (or portion thereof) is settled in cash or in Shares purchased on the open market instead of being settled in Shares issued from treasury, or if Shares acquired pursuant to such Award (or portion thereof) are forfeited, the Shares that have not been issued pursuant to such Award (or portion thereof), if any, will again be available for issuance under the Plan.

(d) No fractional Shares shall be issued upon the exercise of any Award granted under the Plan and, accordingly, if a Participant would otherwise become entitled to a fractional Share upon the exercise of such Award, or from an adjustment permitted by the terms of this Plan, such Participant shall only have the right to receive the next lowest whole number of Shares, and no payment or other adjustment will be made with respect to the fractional interest so disregarded.

(e) For the purposes of Section 2.4(a), Shares issuable in reliance upon an exemption from the rules of a Stock Exchange applicable to security-based compensation arrangements used as an inducement to persons or entities not previously employed by and not previously an Insider of the Company shall not be included in the determination of the maximum number of Shares issuable under the Plan set out in Section 2.4(a), it being understood that, notwithstanding the foregoing, such security-based compensation arrangements can be made otherwise subject to the terms and conditions prescribed under this Plan.

Page 8

2.5 Limits with Respect to Insiders

(a) The maximum number of Shares issuable from treasury to any one Person shall not exceed five percent (5%) of the Shares issued and outstanding from time to time (calculated on a non-diluted basis).

(b) The maximum number of Shares issuable from treasury to Eligible Participants who are Insiders, at any time, under this Plan and any other proposed or established Share Compensation Arrangement, shall not exceed ten percent (10%) of the Shares issued and outstanding (calculated on a non-diluted basis).

(c) The maximum number of Shares issued from treasury to Eligible Participants who are Insiders, within any one-year period, under this Plan and any other proposed or established Share Compensation Arrangement, shall not exceed ten percent (10%) of the Shares issued and outstanding (calculated on a non-diluted basis).

2.6 Granting of Awards

(a) Any Award granted under the Plan shall be subject to the requirement that, if at any time counsel to the Company shall determine that the listing, registration or qualification of the Shares subject to such Award, if applicable, upon any applicable laws or relevant Stock Exchange or regulatory requirements, or the consent or approval of any Stock Exchange or any governmental or regulatory body, is necessary as a condition of, or in connection with, the grant of such Awards or the exercise of any Option or the issuance or purchase of Shares thereunder, if applicable, such Award may not be accepted or exercised in whole or in part unless such listing, registration, qualification, consent or approval shall have been effected or obtained on conditions acceptable to the Board. Nothing herein shall be deemed to require the Company to apply for or to obtain such listing, registration, qualification, consent or approval.

(b) The Company may require, as a condition to the exercise of an Award or the delivery of Shares under an Award, such representations or agreements as counsel for the Company may consider appropriate to avoid violation of the U.S. Securities Act of 1933, as amended, or any applicable state or non-U.S. securities law. Any Shares required to be issued to Participants under the Plan will be evidenced in such manner as the Board may deem appropriate, including book-entry registration or delivery of share certificates. In the event that the Board determines that share certificates will be issued to Participants under the Plan, the Board may require that certificates evidencing Shares issued under the Plan bear an appropriate legend reflecting any restriction on transfer applicable to such Shares, and the Company may hold the share certificates pending lapse of the applicable restrictions.

3. Options

3.1 Nature of Options

An Option is a right granted by the Company from time to time to a Participant entitling such Participant to acquire a designated number of Shares from treasury at the Option Price, subject to the provisions hereof and the provisions of the applicable Option Agreement.

Page 9

For the avoidance of doubt, no Dividend Equivalents shall be granted in connection with an Option.

3.2 Option Awards

Subject to the provisions set forth in this Plan and any shareholder or regulatory approval which may be required, the Committee shall, from time to time, by resolution, in its sole discretion, (i) designate the Eligible Participants who may receive Options under the Plan, (ii) fix the number of Options, if any, to be granted to each Eligible Participant and the date or dates on which such Options shall be granted, (iii) determine the price per Share to be payable upon the exercise of each such Option (the “Option Price”), the relevant vesting provisions (including Performance Criteria, if applicable), the Option Term, the date(s) and the manner in which Options may be exercised during the Option Term and all other option conditions, the whole subject to the terms and conditions prescribed in this Plan or in the applicable Option Agreement, and any applicable rules of a Stock Exchange. Grants of Options to each Eligible Participant shall be reflected in such Participant’s Account.

3.3 Option Price

(a) The Option Price for Shares that are the subject of any Option shall be determined and approved by the Committee, but shall not be less than the Market Value of such Shares on the grant date of an Option (the “Option Grant Date”).

(b) Options shall be granted on an Option Grant Date which shall be determined by the Committee. The Option Grant Date shall not be before the sixth (6th) Trading Day following the day on which the Committee approves the grant of such Option. Should the Option Grant Date fall within a Black-Out Period or within five (5) Trading Days after the end of a Black-Out Period, then the Option Grant Date shall be deemed to be the later of the sixth (6th) Trading Day following the end of such Black-Out Period or the sixth (6th) Trading Day following the day on which the Committee approved the grant.

3.4 Option Term

(a) The Committee shall determine, at the time of granting an Option, the period during which the Option is exercisable, which shall not be more than ten (10) years from the Option Grant Date (the “Option Term”). Unless otherwise determined by the Committee, all unexercised Options shall be cancelled at the expiry of such Option Term.

(b) Notwithstanding any other provision herein, should the expiration date for an Option fall within a Black-Out Period or within nine (9) Trading Days following the end of a Black-Out Period, such expiration date shall be automatically extended without any further act or formality to that date which is the tenth (10th) Trading Day after the end of the Black-Out Period, such tenth (10th) Trading Day to be considered the expiration date for such Option for all purposes under the Plan. The provisions of this Section 3.4(b) shall not apply to an Incentive Stock Option.

3.5 Exercise of Options

Prior to expiration or earlier termination in accordance with the Plan and the applicable Option Agreement, each Option shall be exercisable at such time or times and/or pursuant to the achievement of such Performance Criteria and/or other vesting conditions as the Committee may determine in its sole discretion at the time of granting the particular Option. For the avoidance of doubt, any exercise of Options by a Participant shall be made in accordance with the Company’s Insider Trading Policy.

Page 10

3.6 Method of Exercise and Payment of Option Price

(a) Subject to the provisions of the Plan and the applicable Option Agreement, an Option granted under the Plan shall be exercisable (from time to time as provided in Section 3.5 hereof) by a Participant (or by the liquidator, executor or administrator, as the case may be, of the estate of such Participant) by giving notice in such manner as the Company may from time to time designate, which notice shall specify the number of Shares in respect of which the Option is being exercised and shall, unless a cashless exercise is chosen pursuant to Section 3.6(b), be accompanied by full payment, by wire transfer, certified cheque, bank draft or any other form of payment deemed acceptable by the Company, of the Option Price for the number of Shares specified therein and, as required by Section 9.2, the amount necessary to satisfy any withholding tax obligations of the Company or any Subsidiary, as applicable.

(b) In the event of a cashless exercise, as permitted by the Committee, in lieu of payment in the manner specified in Section 3.6(a), a Participant may authorize a third-party broker to: (i) pay on his or her behalf the Option Price for the number of Shares in respect of which the Option is exercised, (ii) sell such portion of the Shares received upon exercise of the Option which is sufficient to cover such Option Price and the amount necessary to satisfy any withholding tax obligations of the Company or any Subsidiary as required by Section 9.2, and (iii) remit to the Company or such Subsidiary, as applicable, the portion of the proceeds sufficient to cover such withholding tax obligations.

(c) Upon the exercise of any Option and subject to Section 3.6(b), the Company shall, as soon as practicable after such exercise, forthwith cause the transfer agent and registrar of the Shares either to:

(i) deliver to the Participant (or to the liquidator, executor or administrator, as the case may be, of the estate of such Participant) a certificate in the name of the Participant representing in the aggregate such number of Shares as the Participant (or the liquidator, executor or administrator, as the case may be, of the estate of such Participant) shall have then paid for and as are specified in the Participant’s notice of exercise; or

(ii) in the case of Shares issued in uncertificated form, cause the issuance of the aggregate number of Shares as the Participant (or the liquidator, executor or administrator, as the case may be, of the estate of such Participant) shall have then paid for and as are specified in the Participant’s notice of exercise, to be evidenced by a book position on the register of the shareholders of the Company to be maintained by the transfer agent and registrar of the Shares.

(d) With the prior written consent of the Committee (which may be withheld for any reason), a Participant may elect to exercise an Option in whole or in part and, in lieu of receiving Shares, authorize a third-party broker to sell such number of Shares as would otherwise be received under Section 3.6(c) above and remit to the Participant the sale proceeds.

Page 11

3.7 Grant of Incentive Stock Options

At the time of the grant of any Option to a U.S. Taxpayer, the Committee may in its discretion designate that such Option shall be made subject to additional restrictions to permit it to qualify as an Incentive Stock Option. The maximum number of Shares available for issuance in respect of granted Incentive Stock Options under the Plan shall be such number of Shares reserved under Section 2.4(a) above.

Any Option designated as an Incentive Stock Option:

(a) shall be granted only to a key employee of the Company or a Subsidiary Corporation (as defined in Section 424(f) of the U.S. Code);

(b) shall have an Option Price of not less than 100% of the Market Value of a Share on the date the Incentive Stock Option is granted, and, if granted to an employee who owns capital stock (including stock treated as owned under Section 424(d) of the U.S. Code) possessing more than 10% of the total combined voting power of all classes of capital stock of the Company or any Subsidiary Corporation (a “More Than 10% Owner”), have an Option Price not less than 110% of the Market Value of a Share on the Option Grant Date;

(c) shall have an Option Term of not more than ten (10) years (five (5) years if the Eligible Participant is a More Than 10% Owner) from the Option Grant Date, and shall be subject to earlier termination as provided herein or in the applicable Option Agreement;

(d) shall require the Eligible Participant (or other valid holder) to notify the Company of any disposition of any Shares delivered pursuant to the exercise of the Incentive Stock Option under the circumstances described in Section 421(b) of the U.S. Code (relating to holding periods and certain disqualifying dispositions) (“Disqualifying Disposition”) within ten (10) days of such a Disqualifying Disposition;

(e) shall by its terms not be assignable or transferable other than by will or the laws of descent and distribution and may be exercised, during the Participant’s lifetime, only by the Participant; provided, however, that the Participant may, to the extent provided in the Plan in any manner specified by the Committee, designate in writing a beneficiary to exercise his or her Incentive Stock Option after the Participant’s death;

(f) shall, if such Option nevertheless fails to meet the foregoing requirements, or otherwise fails to meet the requirements of Section 422 of the U.S. Code for an Incentive Stock Option, be treated for all purposes of this Plan, except as otherwise provided in Sections 3.7(d) and (e) above, as an Option that is not an Incentive Stock Option; and

(g) No Incentive Stock Option may be granted under the Plan on or after the tenth anniversary of the date the Plan was adopted by the Board unless reapproved by the shareholders of the Company.

To the extent that the aggregate fair market value of Shares with respect to which Incentive Stock Options first become exercisable by an eligible holder of such options in any calendar year exceeds $100,000, taking into account both Shares subject to Incentive Stock Options under the Plan and Shares subject to incentive stock options under all other plans of the Company, such Options shall be treated as non-qualified stock options. For this purpose, the “fair market value” of the Shares subject to such Options shall be determined as of the date the Options were granted as provided in Section 422 of the U.S. Code. In reducing the number of Options treated as incentive stock options to meet the $100,000 limit, the most recently granted Options shall be reduced first.

Page 12

To the extent a reduction of simultaneously granted Options is necessary to meet the $100,000 limit, the Committee may, in the manner and to the extent permitted by law, designate which Shares are to be treated as shares acquired pursuant to the exercise of an incentive stock option.

3.8 Option Agreements

All Options shall be evidenced by an Option Agreement, in such form not inconsistent with the Plan as the Committee may from time to time determine. The Option Agreement shall contain such terms and conditions that may be considered necessary in order for the Options to comply with any applicable provisions contained in any income tax laws or any other laws in force in any country or jurisdiction of which the Participant may from time to time be a resident or citizen or the rules of any regulatory body, including any relevant Stock Exchange, having jurisdiction over the Company.

4. Performance Share Units

4.1 PSU Awards

(a) Subject to the provisions set forth herein and any shareholder or regulatory approval which may be required, the Committee may, from time to time, in its sole discretion: (i) designate the Eligible Participants who may receive PSUs under the Plan, (ii) fix the number of PSUs, if any, to be granted to each Eligible Participant and the date or dates on which such PSUs shall be granted, (iii) determine the relevant conditions and vesting provisions (including the applicable Performance Period and Performance Criteria) and the Restriction Period of such PSUs, the whole subject to the terms and conditions prescribed in this Plan and in the applicable PSU Agreement.

(b) Unless otherwise determined by the Committee, the date of grant of PSUs shall not be before the sixth (6th) Trading Day following the day on which the Committee approves the grant of PSUs. Should the date of grant fall within a Black-Out Period or within five (5) Trading Days after the end of a Black-Out Period, then the date of grant shall be deemed to be the later of the sixth (6th) Trading Day following the end of such Black-Out Period or the sixth (6th) Trading Day following the day on which the Committee approved the grant.

(c) Subject to the vesting and other conditions and provisions set forth herein and in the applicable PSU Agreement (including the applicable Performance Period and Performance Criteria), each PSU awarded to a Participant who is not a U.S. Taxpayer shall entitle the Participant to receive, if or to the extent the vesting conditions (including the Performance Criteria) for such PSU have been met, at the sole and entire discretion of the Committee, and no later than the last day of the applicable Restriction Period: (i) a Share (issued from treasury or purchased on the open market), (ii) the Cash Equivalent, or (iii) a combination thereof, as the case may be.

(d) Subject to the vesting and other conditions and provisions set forth herein and in the applicable PSU Agreement (including the applicable Performance Period and Performance Criteria), each PSU awarded to a Participant who is a U.S. Taxpayer shall entitle the Participant to receive, if or to the extent the vesting conditions (including the Performance Criteria) for such PSU have been met, at the sole and entire discretion of the Committee: (i) a Share (issued from treasury or purchased on the open market), (ii) the Cash Equivalent, or (iii) a combination thereof, as the case may be. Such Shares, Cash Equivalent or a combination thereof shall be received, if applicable, no later than the last Trading Day preceding December 31 of the calendar year in which such U.S. Taxpayer’s rights to the PSUs vest so that such PSU and the payment thereunder are exempt from the requirements of Section 409A of the U.S. Code under the “short-term deferral” exception described in U.S. Treasury Regulation § 1.409A-1(b)(4), and all such grants of PSUs to U.S. Taxpayers shall be interpreted and administered accordingly.

Page 13

(e) For the avoidance of doubt, no Dividend Equivalents shall be granted in connection with a PSU.

4.2 Vesting of PSUs

(a) Subject to the terms of this Plan and the applicable PSU Agreement, after the applicable Performance Period has ended, the holder of PSUs shall be entitled to receive payout on the value and number of PSUs determined by the Committee as a function of the extent to which the corresponding Performance Criteria have been achieved and any multiplier related to such Performance Criteria. After the Committee has determined that the Performance Criteria relating to PSUs credited to a Participant’s Account with respect to a Performance Period have been achieved and any related multiplier has been applied, as applicable, such PSUs shall vest and be paid in accordance with Section 4.3.

(b) Unless otherwise determined by the Committee, all PSUs credited to a Participant’s Account with respect to a Performance Period, in respect of which the Performance Criteria have not been achieved, shall automatically be forfeited and be cancelled effective the last day of the applicable Performance Period.

4.3 Settlement of PSUs

(a) Except as otherwise provided in a PSU Agreement or any other provision of this Plan or this Section 4.3(a), all vested PSUs shall be settled as soon as practicable following the applicable Share Unit Vesting Determination Date but in all cases prior to the last day of the Restriction Period. The applicable settlement date in respect of a particular PSU shall be determined by the Committee (the “PSU Settlement Date”). The PSU Settlement Date shall not fall within a Black-Out Period or within five (5) Trading Days after the end of a Black-Out Period, unless the last day of the Restriction Period falls within this period. Notwithstanding the preceding provisions of this Section 4.3(a), the PSUs granted to a U.S. Taxpayer shall not be settled later than the last Trading Day preceding December 31 of the calendar year in which such U.S. Taxpayer’s rights to the PSUs vest as provided in Section 4.1(d). Following the receipt of such settlement, the PSUs so settled shall be of no value whatsoever and shall be cancelled and removed from the Participant’s Account.

(b) The Company, in its sole discretion, may settle (or cause a Subsidiary to settle), vested PSUs, by providing a Participant (or the liquidator, executor or administrator, as the case may be, of the estate of the Participant) with:

(i) in the case of settlement of PSUs for their Cash Equivalent, delivery of cash to the Participant representing the Cash Equivalent, through wire transfer, cheque or any other form of payment deemed acceptable by the Committee;

(ii) in the case of settlement of PSUs for Shares, delivery of Shares issued from treasury and/or purchased on the Participant’s behalf on the open market; or

Page 14

(iii) in the case of settlement of the PSUs for a combination of Shares and the Cash Equivalent, a combination of (i) and (ii) above.

Notwithstanding the preceding provisions of this Section 4.3(b), Participants employed by certain Subsidiaries or in certain foreign jurisdictions, as designated by the Committee, shall be paid in such manner as set forth in Section 4.3(b)(i) above.

4.4 Determination of Amounts

(a) For purposes of determining the Cash Equivalent of PSUs to be paid pursuant to Section 4.3, such calculation will be made as of the PSU Settlement Date based on the Market Value on such date multiplied by the number of vested PSUs in the Participant’s Account, net of any applicable taxes in accordance with Section 9.2.

(b) For the purposes of determining the number of Shares to be issued or delivered to a Participant upon settlement of PSUs pursuant to Section 4.3, such calculation will be made as of the PSU Settlement Date based on the whole number of Shares corresponding to the vested PSUs recorded in the Participant’s Account, net of the whole number of Shares to be sold to satisfy any applicable taxes in accordance with Section 9.2.

4.5 PSU Agreements

All PSUs shall be evidenced by a PSU Agreement, in such form not inconsistent with the Plan as the Committee may from time to time determine. The PSU Agreement shall contain such terms that may be considered necessary in order that the PSUs will comply with any provisions respecting performance share units in the income tax laws or any other laws in force in any country or jurisdiction of which the Participant may from time to time be a resident or citizen or the rules of any regulatory body, including any relevant Stock Exchange, having jurisdiction over the Company.

5. Restricted Share Units

5.1 RSU Awards

(a) Subject to the provisions set forth herein and any shareholder or regulatory approval which may be required, the Committee may, from time to time, in its sole discretion: (i) designate the Eligible Participants who may receive RSUs under the Plan, (ii) fix the number of RSUs, if any, to be granted to each Eligible Participant and the date or dates on which such RSUs shall be granted, (iii) determine the relevant conditions and vesting provisions and the Restriction Period of such RSUs, the whole subject to the terms and conditions prescribed in this Plan and in the applicable RSU Agreement.

(b) Unless otherwise determined by the Committee, the date of grant of RSUs shall not be before the sixth (6th) Trading Day following the day on which the Committee approves the grant of RSUs. Should the date of grant fall within a Black-Out Period or within five (5) Trading Days after the end of a Black-Out Period, then the date of grant shall be deemed to be the later of the sixth (6th) Trading Day following the end of such Black-Out Period or the sixth (6th) Trading Day following the day on which the Committee approved the grant.

(c) Subject to the vesting and other conditions and provisions set forth herein and in the applicable RSU Agreement, each RSU awarded to a Participant who is not a U.S. Taxpayer shall entitle the Participant to receive, if or to the extent the vesting conditions for such RSU have been met, at the sole and entire discretion of the Committee, and no later than the last day of the applicable Restriction Period: (i) a Share (issued from treasury or purchased on the open market), (ii) the Cash Equivalent, or (iii) a combination thereof, as the case may be.

Page 15

(d) Subject to the vesting and other conditions and provisions set forth herein and in the applicable RSU Agreement, each RSU awarded to a Participant who is a U.S. Taxpayer shall entitle the Participant to receive, if or to the extent the vesting conditions for such RSU have been met, at the sole and entire discretion of the Committee: (i) a Share (issued from treasury or purchased on the open market), (ii) the Cash Equivalent, or (iii) a combination thereof, as the case may be. Such Shares, Cash Equivalent or a combination thereof shall be received, if applicable, no later than the last Trading Day preceding December 31 of the calendar year in which such U.S. Taxpayer’s rights to the RSUs vest so that such RSU and the payment thereunder are exempt from the requirements of Section 409A of the U.S. Code under the “short-term deferral” exception described in U.S. Treasury Regulation § 1.409A-1(b)(4), and all such grants of RSUs to U.S. Taxpayers shall be interpreted and administered accordingly.

(e) For the avoidance of doubt, no Dividend Equivalents shall be granted in connection with an RSU.

5.2 Vesting of RSUs

(a) Subject to the terms of this Plan and the applicable RSU Agreement, after the applicable vesting period has ended, the holder of RSUs shall be entitled to receive payout on the value and number of RSUs, determined by the Committee as a function of the extent to which the corresponding vesting criteria have been achieved. After the Committee has determined that the vesting criteria relating to RSUs credited to a Participant’s Account have been achieved, as applicable, such RSUs shall vest and be paid in accordance with Section 5.3.

(b) Unless otherwise determined by the Committee, all RSUs credited to a Participant’s Account in respect of which the vesting criteria have not been achieved, shall automatically be forfeited and be cancelled on the last day of the applicable vesting period.

5.3 Settlement of RSUs

(a) Except as otherwise provided in a RSU Agreement or any other provision of this Plan or this Section 5.3(a), all vested RSUs shall be settled as soon as practicable following the applicable Share Unit Vesting Determination Date but in all cases prior to the last day of the Restriction Period. The applicable settlement date in respect of a particular RSU shall be determined by the Committee (the “RSU Settlement Date”). The RSU Settlement Date shall not fall within a Black-Out Period or within five (5) Trading Days after the end of a Black-Out Period, unless the last day of the Restriction Period falls within this period. Notwithstanding the preceding provisions of this Section 5.3(a), the RSUs granted to a U.S. Taxpayer shall not be settled later than the last Trading Day preceding December 31 of the calendar year in which such U.S. Taxpayer’s rights to the RSUs vest as provided in Section 5.1(d). Following the receipt of such settlement, the RSUs so settled shall be of no value whatsoever and shall be cancelled and removed from the Participant’s Account.

Page 16

(b) The Company, in its sole discretion, may settle (or cause a Subsidiary to settle), vested RSUs, by providing a Participant (or the liquidator, executor or administrator, as the case may be, of the estate of the Participant) with:

(i) in the case of settlement of RSUs for their Cash Equivalent, delivery of cash to the Participant representing the Cash Equivalent, through wire transfer, cheque or any other form of payment deemed acceptable by the Committee;

(ii) in the case of settlement of RSUs for Shares, delivery of Shares issued from treasury and/or purchased on the Participant’s behalf on the open market; or

(iii) in the case of settlement of the RSUs for a combination of Shares and the Cash Equivalent, a combination of (i) and (ii) above.

Notwithstanding the preceding provisions of this Section 5.3(b), Participants employed by certain Subsidiaries or in certain foreign jurisdictions, as designated by the Committee, shall be paid in such manner as set forth in Section 5.3(b)(i) above.

5.4 Determination of Amounts

(a) For purposes of determining the Cash Equivalent of RSUs to be paid pursuant to Section 5.3, such calculation will be made as of the RSU Settlement Date based on the Market Value on such date multiplied by the number of vested RSUs in the Participant’s Account, net of any applicable taxes in accordance with Section 9.2.

(b) For the purposes of determining the number of Shares to be issued or delivered to a Participant upon settlement of RSUs pursuant to Section 5.3, such calculation will be made as of the RSU Settlement Date based on the whole number of Shares corresponding to the vested RSUs recorded in the Participant’s Account, net of the whole number of Shares to be sold to satisfy any applicable taxes in accordance with Section 9.2.

5.5 RSU Agreements

All RSUs shall be evidenced by an RSU Agreement, in such form not inconsistent with the Plan as the Committee may from time to time determine. The RSU Agreement shall contain such terms that may be considered necessary in order that the RSUs will comply with any provisions respecting restricted share units in the income tax laws or any other laws in force in any country or jurisdiction of which the Participant may from time to time be a resident or citizen or the rules of any regulatory body, including any relevant Stock Exchange, having jurisdiction over the Company.

6. General Conditions

6.1 General Conditions Applicable to Awards

Each Award, as applicable, shall be subject to the following conditions:

(a) Employment. Notwithstanding any express or implied term of this Plan to the contrary, the granting of an Award pursuant to the Plan shall in no way be construed as a guarantee by the Company or a Subsidiary to the Participant of employment or another service relationship with the Company or a Subsidiary. The granting of an Award to a Participant shall not impose upon the Company or a Subsidiary any obligation to retain the Participant in its employ or service in any capacity. Nothing contained in this Plan or in any Award granted under this Plan shall interfere in any way with the rights of the Company or any of its Subsidiaries in connection with the employment, retention or termination of any such Participant. The loss of existing or potential profit in Shares underlying Awards granted under this Plan shall not constitute an element of damages in the event of termination of a Participant’s employment or service in any office or otherwise.

Page 17

(b) Grant of Awards. Eligibility to participate in this Plan does not confer upon any Eligible Participant any right to be granted Awards pursuant to this Plan. Granting Awards to any Eligible Participant does not confer upon any Eligible Participant the right to receive nor preclude such Eligible Participant from receiving any additional Awards at any time. The extent to which any Eligible Participant is entitled to be granted Awards pursuant to this Plan will be determined in the sole discretion of the Committee. Participation in the Plan shall be entirely voluntary and any decision not to participate shall not affect an Eligible Participant’s relationship or employment with the Company or any Subsidiary.

(c) Rights as a Shareholder. Neither the Participant nor such Participant’s personal representatives or legatees shall have any rights whatsoever as shareholder in respect of any Shares underlying such Participant’s Awards by reason of the grant of such Awards until such Awards have been duly exercised or have vested, as applicable, and settled and Shares have been issued or purchased on the open market, as applicable.

(d) Awards Not Transferrable. Except as specifically provided in a Grant Agreement approved by the Committee, each Award granted under the Plan is personal to the Participant and shall not be assignable or transferable by the Participant, whether voluntarily or by operation of law, except by will or by the laws of succession. No Award granted hereunder shall be pledged, hypothecated, charged, transferred, monetized, securitized, assigned or otherwise encumbered or disposed of on pain of nullity.

(e) Participant’s Entitlement. Except as otherwise provided in this Plan or unless the Committee permits otherwise, upon any Subsidiary ceasing to qualify as such, Awards previously granted under this Plan that, at the time of such change, are held by a Person who is an executive officer, employee or consultant of such Subsidiary and not of the Company itself, shall be subjected to the rules applicable in the context of a termination without Cause pursuant to Section 6.2, subject to the Participant having reached the Retirement Eligibility Date, in which case the rules applicable in the context of a retirement shall apply.

(f) No Other Employee Benefits. The amount or value deemed to be received by a Participant as a result of the exercise or settlement of an Award or as a result of the sale of a Share received or purchased upon the exercise or settlement of an Award will not constitute compensation with respect to which any other employee benefits of that Participant are determined including benefits under any bonus, pension, profit-sharing, insurance and salary continuation plan, except as otherwise specifically determined by the Committee or provided under the express terms of such other plan, nor will it be a basis to calculate any amount of termination or severance after the Participant’s Termination Date. In the event that the employment of the Participant is terminated by the Company (or any of its Subsidiaries) either with or without Cause, and with or without reasonable notice, the Participant shall have no rights to any particular grants which have been made to him or her other than as set forth in the Plan, the applicable Grant Agreement or in any other separate agreement between the Company (or any of its Subsidiaries) and the Participant, and the Participant will not be entitled to recover damages nor to be paid any benefits or to recover any compensation which the Participant would or may otherwise have been entitled to under the Plan if the Participant had remained actively employed by the Company (or any of its Subsidiaries). This Plan document and the applicable Grant Agreements represent the entire agreement between the Participant and the Company with respect to any and all matters described therein. Neither the Participant nor the Company relies upon or regards as material, any representations or any writing that has not been incorporated into the Plan or the Grant Agreements or made part of the Plan or Grant Agreements, subject to the terms and conditions of any applicable Employment Agreement.

Page 18

6.2 General Conditions Applicable on Termination

Unless otherwise determined by the Committee, each Award shall be subject to the following conditions, as applicable:

(a) Termination for Cause. Upon a Participant ceasing to be an Eligible Participant for Cause, all Awards granted to such Participant, whether vested or unvested on the Termination Date, will be forfeited. For the purposes of the Plan, the determination by the Committee that the Participant was discharged for Cause shall be binding on the Participant. “Cause” shall include a breach of CAE’s Code of Business Conduct or other CAE policy, failure to perform specified and required duties after a written warning, serious misconduct or negligence of, among other things, a professional, ethical or legal nature, or moral turpitude.

(b) Resignation. Upon a Participant ceasing to be an Eligible Participant as a result of his or her resignation from the Company or a Subsidiary:

(i) all unvested PSUs, RSUs and/or Options granted to such Participant will be forfeited on the Termination Date;

(ii) all PSUs and RSUs granted to such Participant and vested pursuant to Section 4.2 and Section 5.2 on the Termination Date will be settled (based on the vesting terms, including, if applicable, achievement of Performance Criteria, as determined in the final and sole discretion of the Committee) as soon as possible; and

(iii) all Options vested on the Termination Date will remain exercisable until the earlier of: (A) thirty (30) days following the Termination Date; and (B) the expiry date of the Options, after which time all such Options will expire. For greater certainty, if, following a Participant’s resignation from the Company or a Subsidiary, the end of the thirty (30) day period during which Options may be exercised should fall within a Black-Out Period or within nine (9) Trading Days following the end of a Black-Out Period, the provisions of Section 3.4(b) shall apply to extend the end of such period to the tenth (10th) Trading Day following the end of such Black-Out Period.

(c) Retirement. Notwithstanding Sections 6.2(b), (d) and (e), upon a Participant ceasing to be an Eligible Participant after having reached the Retirement Eligibility Date:

(i) all unvested PSUs and/or RSUs granted to such Participant will continue to vest, as determined by the Committee, and will be settled on the PSU Settlement Date or RSU Settlement Date, as applicable, based on their vesting terms, including, if applicable, achievement of Performance Criteria, as determined in the final and sole discretion of the Committee; provided that this clause (i), as it relates to RSUs, shall not apply to Participants subject to tax under the U.S. Code with respect to a termination of employment as a result of retirement;

Page 19

(ii) all unvested Options granted to such Participant will continue to vest in accordance with the terms of this Plan and the Participant’s Option Agreement. Once vested, such Options may only be exercised until the earlier of: (A) ninety (90) days following their vesting; and (B) the expiry date of the Options, after which time all unvested Options will automatically expire. For greater certainty, if, following a Participant’s retirement from the Company or a Subsidiary, the end of the ninety (90) day period during which Options may be exercised should fall within a Black-Out Period or within nine (9) Trading Days following the end of a Black-Out Period, the provisions of Section 3.4(b) shall apply to extend the end of such period to the tenth (10th) Trading Day following the end of such Black-Out Period;

(iii) all PSUs and RSUs granted to such Participant and vested pursuant to Section 4.2 and Section 5.2 on the Termination Date will be settled (based on the vesting terms, including, if applicable, achievement of Performance Criteria, as determined in the final and sole discretion of the Committee) as soon as possible; and

(iv) all Options granted to such Participant and vested on the Termination Date will remain exercisable until their expiry date, after which time all such Options will automatically expire.

(d) Death or Long-Term Disability. Upon a Participant’s termination of employment as a result of death or following a Long-Term Disability:

(i) all unvested PSUs and/or RSUs granted to the Participant will fully vest at target on the Termination Date and be settled as soon as possible (regardless of vesting terms including, if applicable, achievement of Performance Criteria);

(ii) all unvested Options granted to such Participant will vest on the Termination Date and may only be exercised until the earlier of: (A) six (6) months following the Termination Date; and (B) the expiry date of the Options, after which time all unvested Options will automatically expire;

(iv) all Options granted to such Participant and vested on the Termination Date will remain exercisable until the earlier: of (A) six (6) months following the Termination Date; and (B) the expiry date of the Options, after which time all such Options will automatically expire.

For greater certainty, if, following a Participant’s death or Long-Term Disability, the end of the six (6) month period during which Options may be exercised should fall within a Black-Out Period or within nine (9) Trading Days following the end of a Black-Out Period, the provisions of Section 3.4(b) shall apply to extend the end of such period to the tenth (10th) Trading Day following the end of such Black-Out Period.

Page 20

Upon the death or incapacity of a Participant, the Participant’s rights, if any, shall only be exercisable by the administrator, executor or liquidator of the Participant’s estate, as the case may be.

(e) Termination without Cause. Upon termination of a Participant’s employment without Cause:

(i) the Committee may, in its sole discretion, determine that a portion of the unvested PSUs and/or RSUs granted to such Participant, pro-rated to the number of Fiscal Years completed since their grant, will immediately vest on the Termination Date and be settled (based on their vesting terms, including, if applicable, achievement of Performance Criteria, up to the Termination Date, as determined in the final and sole discretion of the Committee);

(ii) all unvested Options granted to such Participant will be forfeited on the Termination Date;

(iv) all Options granted to such Participant and vested on the Termination Date will remain exercisable until the earlier of: (A) ninety (90) days following the Termination Date; and (B) the expiry date of the Options, after which time all such Options will automatically expire. For greater certainty, if, following a Participant’s termination without Cause, the end of the ninety (90) day period during which Options may be exercised should fall within a Black-Out Period or within nine (9) Trading Days following the end of a Black-Out Period, the provisions of Section 3.4(b) shall apply to extend the end of such period to the tenth (10th) Trading Day following the end of such Black-Out Period.

(f) Rights of Participant. The rights of a Participant pursuant to the above paragraphs are the only rights to which the Participant (or his or her estate) is entitled on a termination of employment with respect to such Participant’s Options, PSUs and RSUs.

(g) Unvested Awards. Other than as provided herein, if any portion of an Award has not vested by the Termination Date, that portion of such Award shall be forfeited.

(h) Death following Retirement. Notwithstanding the foregoing, unless otherwise determined by the Committee, the provisions of Section 6.2(d) relating to termination of employment as a result of death shall apply mutatis mutandis in the event a Participant dies following Retirement, to the extent the Participant still had entitlements under Section 6.2(c) at the time of his or her death. In such an event, and for the purposes of Section 6.2(d), the Termination Date shall be presumed to be the date of death.

7. Compliance with U.S. Tax Laws

The provisions of this Section 7 shall apply solely to Participants who are subject to taxation under the U.S. Code at the time of grant of the Award.

7.1 Special Provisions Related to Section 409A of the U.S. Code

Page 21

(a) General. It is intended that the payments and benefits provided under this Plan and any Award shall be exempt from the application of the requirements of Section 409A of the U.S. Code. The Plan and all Grant Agreements shall be construed in a manner that effects such intent. Nevertheless, the tax treatment of the benefits provided under the Plan or any Award is not warranted or guaranteed. Neither the Company, its Subsidiaries nor their respective directors, officers, employees or advisers (other than in his or her capacity as a Participant) shall be held liable for any taxes, interest, penalties or other monetary amounts owed by any Participant or other taxpayer as a result of the Plan or any Award.

(b) Deemed Modifications of Awards. If the Committee determines that an Award, Grant Agreement, payment, distribution, transaction, or any other action or arrangement contemplated by the provisions of the Plan would, if undertaken, cause a U.S. Taxpayer to become subject to additional taxes under Section 409A of the U.S. Code, then unless the Committee specifically provides otherwise, such Award, Grant Agreement, payment, distribution, transaction or other action or arrangement shall not be given effect to the extent it causes such result and the related provisions of the Plan and Grant Agreement will be deemed modified, or, if necessary, suspended in order to comply with the requirements of Section 409A of the U.S. Code to the extent determined appropriate by the Committee, in each case without the consent of or notice to the U.S. Taxpayer.

8. Adjustments and Amendments

8.1 Adjustment to Shares Subject to Outstanding Awards

At any time after the grant of an Award to a Participant and prior to the expiration of the term of such Award or the forfeiture or cancellation of such Award, in the event of: (i) any subdivision of the Shares into a greater number of Shares, (ii) any consolidation of Shares into a lesser number of Shares, (iii) any reclassification, reorganization or other change affecting the Shares, (iv) any merger, amalgamation or consolidation of the Company with or into another corporation, (v) any distribution to all holders of Shares or other securities in the capital of the Company, of cash, evidences of indebtedness or other assets of the Company (excluding an ordinary course dividend in cash or shares, but including for greater certainty shares or equity interests in a Subsidiary or business unit of the Company or one of its Subsidiaries or sale proceeds of the disposition of such a Subsidiary or business unit), or (vi) any transaction or change having a similar effect, then the Board shall in its sole discretion, subject to the required approval of a Stock Exchange (if any), determine the appropriate adjustments or substitutions to be made in such circumstances in order to maintain the economic rights of the Participant in respect of such Award in connection with such occurrence or change, including:

(a) adjustments to the Option Price without any change in the total price applicable to the unexercised portion of any Options granted under the Plan;

(b) adjustments to the number of Shares to which the Participant is entitled upon exercise or settlement of such Award;

(d) adjustments to the number or kind of Shares reserved for issuance pursuant to the Plan.

Notwithstanding the foregoing, no such adjustment shall be authorized with respect to any Options held by Participants who are U.S. taxpayers to the extent that such adjustment would cause the Option (determined as if all such Options were Incentive Stock Options whether or not so designated) to violate Section 424(a) of the U.S. Code or would otherwise subject any Participant to taxation under Section 409A of the U.S. Code.

Page 22

8.2 Change of Control

Notwithstanding anything to the contrary in this Plan, in the context of a Change of Control:

(a) all Awards granted to a Participant will be converted into or substituted by Alternative Awards, to the extent possible, and Options, PSUs and/or RSUs which are not converted into or substituted by an Alternative Award shall vest and, in the case of Options, become exercisable in full immediately prior to the consummation of the transaction constituting the Change of Control.

(b) For the purposes of this Plan, an “Alternative Award” must, in the opinion of the Board:

(i) be based on shares that are traded on an established Canadian or U.S. securities market;

(ii) provide the Participant (or each Participant in a class of Participants) with rights and entitlements substantially equivalent to or better than the rights, terms and conditions applicable to the Participant’s Options, PSUs and/or RSUs, as applicable, including, but not limited to, an identical or better exercise or vesting schedule and identical or better timing and methods of payment; and

(iii) have substantially equivalent economic value to the Participant’s Options, PSUs and/or RSUs, as applicable (determined as at the time of the Change of Control).

(c) If Alternative Awards are available and a Participant is terminated without Cause or submits a Resignation for Good Reason within twenty-four (24) calendar months after a Change of Control, all outstanding Alternative Awards which are not then exercisable shall vest and Alternative Awards in which Options were converted will become exercisable in full upon such termination or resignation. Alternative Awards in which PSUs and/or RSUs were converted will be settled as soon as possible after vesting. Alternative Awards in which Options were converted will remain exercisable until the earlier of: (i) one (1) year after the termination or resignation; and (ii) the original expiry date of the Options, after which time all such Alternative Awards will expire.

8.3 Amendment and Discontinuance of the Plan

(a) The Board may suspend or terminate the Plan at any time, or from time to time amend or revise the terms of the Plan or any granted Awards without the consent of the Participants, provided that such suspension, termination, amendment or revision shall:

(i) not materially adversely alter or impair the rights of any Participant, without the consent of such Participant, except as permitted by the provisions of the Plan;

(ii) be in compliance with applicable law and with the prior approval, if required, of the shareholders of the Company, a Stock Exchange or any other regulatory body having authority over the Company; and

(iii) be subject to shareholder approval, where required by law or the requirements of a Stock Exchange, provided that the Board may, from time to time, in its absolute discretion and without approval of the shareholders of the Company make the following amendments:

Page 23

a. amend any terms and conditions relating to grants of Awards, including the terms relating to the eligibility for and limitations or conditions on participation in the Plan (other than to allow Non-Employee Directors to be eligible for awards of Options under the Plan), the amount and payment of the Option Price (other than a reduction thereof) or the vesting, exercise, expiry (other than an extension of the expiry date except if due to a Black-Out Period) and adjustments of Awards pursuant to Section 8.1;

b. make changes that are necessary or desirable to comply with applicable laws, rules or regulations of any regulatory authorities having jurisdiction or any relevant Stock Exchange;

c. correct or rectify any ambiguity, defective provision, error or omission in the Plan or make amendments of a “housekeeping” nature;

d. amend any terms relating to the administration of the Plan; and

e. make any other amendment that does not require shareholder approval by virtue of the Plan, applicable laws, rules or regulations of any regulatory authorities having jurisdiction or any relevant Stock Exchange.

(b) Notwithstanding Section 8.3(a), the Board shall be required to obtain shareholder approval to make the following amendments:

(i) increase the maximum number of Shares issuable under the Plan, except in the case of an adjustment pursuant to Section 8.1;

(ii) increase the number of Shares that are issuable or that may be issued to Insiders or to any one Participant under the Plan, except in the case of an adjustment pursuant to Section 8.1 hereof;

(iii) allow Non-Employee Directors to be eligible for awards of Options under the Plan;

(iv) permit any Award granted under the Plan to be transferable or assignable other than by will or pursuant to succession laws;

(v) reduce the Option Price of an Option after the Option has been granted to a Participant or cancel any Option and substitute such Option by a new Option with a reduced Option Price granted to the same Participant, except in the case of an adjustment pursuant to Section 8.1 hereof;

(vi) extend the term of an Option beyond the original expiry date, except in case of an extension due to a Black-Out Period;

(vii) add any form of financial assistance and any amendment to a financial assistance provisions in the Plan which is more favourable to Participants; and

(viii) amend any provisions to the amendment provisions of the Plan.

Page 24

In making any amendment as described above, the Company shall not contravene any requirements, norms, laws and regulations of the TSX or of any regulatory authorities.

(c) Without limiting the extent of the foregoing, the Board may, by resolution, advance the date on which any Award may be exercised or payable or, subject to applicable regulatory provisions, including any rules of a Stock Exchange, extend the expiration date of any Award, in the manner to be set forth in such resolution, provided that the period during which an Option is exercisable or a PSU or RSU remains outstanding does not exceed: (i) in the case of Options, ten (10) years from the Option Grant Date subject to an extension due to a Black-Out Period, and (ii) in the case of PSUs and RSUs, the last day of the Restriction Period in respect of such PSUs and RSUs. The Board shall not, in the event of any such advancement or extension, be under any obligation to advance or extend the date on or by which any Option may be exercised or any PSU or RSU may remain outstanding with respect to any other Participant.

9. Miscellaneous

9.1 Use of an Administrator and Trustee

The Committee may in its sole discretion appoint from time to time one or more entities to act as administrator or trustee to administer the Awards granted under the Plan and to act as trustee to hold and administer the assets that may be held in respect of Awards granted under the Plan, the whole in accordance with the terms and conditions determined by the Committee in its sole discretion. The Company and the administrator will maintain Accounts showing the number of Awards granted to each Participant under the Plan.

9.2 Tax Withholding and Deduction

Notwithstanding any other provision of this Plan, when required by applicable law, delivery of Shares or payments (including, for greater certainty, payments of Cash Equivalent) to a Participant (or to the liquidator, executor or administrator, as the case may be, of the estate of such Participant) under the Plan shall be made net of applicable taxes and social security and other source deductions. If the event giving rise to the withholding obligation involves an issuance or delivery of Shares, then, the withholding obligation may be satisfied, in a manner satisfactory to the Company, by:

(a) having the Participant elect to have the appropriate number of such Shares sold by the Company, the Company’s transfer agent and registrar or any trustee appointed by the Company pursuant to Section 9.1 hereof, on behalf of and as agent for the Participant as soon as permissible and practicable, with the proceeds of such sale being delivered to the Company or the Subsidiary employing the Participant, as applicable, which will in turn remit such amounts to the appropriate governmental authorities;

(b) withholding from any compensation otherwise payable to the Participant;

(d) any other mechanism as may be required or appropriate to conform with applicable tax and other rules.

Page 25

9.3 Clawback

(a) Incentive compensation awarded to a Participant may become forfeited and such Participant may have to reimburse all or a portion of the incentive compensation paid or awarded to such Participant under this Plan, to the extent required by applicable laws, rules or regulations of any regulatory authorities having jurisdiction or any relevant Stock Exchange or by any clawback policy adopted by the Company from time to time.

(b) Each Participant, by accepting or being deemed to have accepted an Award under the Plan, agrees to cooperate fully with the Committee, and to cause any and all permitted transferees and/or successors of the Participant to cooperate fully with the Committee, to effectuate any forfeiture or reimbursement required hereunder. Neither the Board nor the Company nor any other Person, other than the Participant and his or her permitted transferees and/or successors, if any, will be responsible for any adverse tax or other consequences to a Participant or his or her permitted transferees and/or successors, if any, that may arise in connection with this Section 9.3.

9.4 Securities Law Compliance

(a) The Plan (including any amendments to it), the terms of the grant of any Award under the Plan, the grant of any Award and the exercise of any Options, and the Company’s obligation to sell and deliver Shares in respect of any Awards, shall be subject to all applicable federal, provincial, state and foreign laws, rules and regulations, requirements of a Stock Exchange and to such approvals by any regulatory or governmental agency as may, as determined by the Company, be required. The Company shall not be obliged by any provision of the Plan or the grant of any Award hereunder to issue, sell or deliver Shares or to settle Awards in violation of such laws, rules and regulations or any condition of such approvals.

(b) No Awards shall be granted, and no Shares shall be issued, sold or delivered hereunder, where such grant, issue, sale or delivery would require registration of the Plan or of the Shares under the securities laws of any foreign jurisdiction (other than the United States) or the filing of any prospectus for the qualification of same thereunder (other than the United States), and any purported grant of any Award or purported issue or sale of Shares hereunder in violation of this provision shall be void.

(c) The Company shall have no obligation to issue any Shares pursuant to this Plan unless upon official notice of issuance, such Shares shall have been duly listed with a Stock Exchange. The Company cannot guarantee that the Shares will be listed or quoted on a Stock Exchange. Shares issued, sold or delivered to Participants under the Plan may be subject to limitations on sale or resale under applicable securities laws.

(d) If Shares cannot be issued or delivered to a Participant upon the exercise or settlement of an Award due to legal or regulatory restrictions, the obligation of the Company to issue or deliver such Shares shall terminate. Any funds paid to the Company in connection with the exercise or settlement of such Award will be returned to the applicable Participant as soon as practicable.

9.5 Reorganization of the Company

Page 26

The existence of any Awards shall not affect in any way the right or power of the Company or its shareholders to make or authorize any adjustment, reclassification, recapitalization, reorganization or other change in the Company’s capital structure or its business, or any amalgamation, combination, merger or consolidation involving the Company or to create or issue any bonds, debentures, shares or other securities of the Company or the rights and conditions attaching thereto or to affect the dissolution or liquidation of the Company or any sale or transfer of all or any part of its assets or business, or any other corporate act or proceeding, whether of a similar nature or otherwise.

9.6 International Participants

With respect to Participants who reside or work outside Canada and the United States, the Committee may, in its sole discretion, amend, or otherwise modify, without shareholder approval, the terms of the Plan or Awards with respect to such Participants in order to conform such terms with the provisions of local law, and the Committee may, where appropriate, establish one or more sub-plans to reflect such amended or otherwise modified provisions.

9.7 Governing Laws

The Plan and all matters to which reference is made herein shall be governed by and interpreted in accordance with the laws of the Province of Quebec and the laws of Canada applicable thereto and without recourse to conflict of laws rules. The courts of the judicial district of Montreal, Province of Quebec, and appellate courts therefrom, shall be the sole and exclusive forum for any action or proceeding asserting a claim relating to this Plan.

9.8 Severability

The invalidity or unenforceability of any provision of the Plan shall not affect the validity or enforceability of any other provision and any invalid or unenforceable provision shall be severed from the Plan.

9.9 Currency

Unless otherwise specifically determined by the Committee, all Awards and payments pursuant to such grants shall be determined in Canadian currency. The Committee shall determine, in its discretion, whether and to the extent any payments made pursuant to an Award shall be made in local currency, as opposed to Canadian dollars. In the event payments are made in local currency, the Committee may determine, in its discretion, the method and rate of converting the payment into local currency.

9.10 Effective Date of the Plan

The Plan was adopted by the Board on May 31, 2023, and is effective as of that date.

Page 27

EX-99.1 3 caeproxy2023.htm EX-99.1 NOTICE AND MANAGEMENT PROXY CIRCULAR Document

Table of Contents

Letter to the Shareholders from the Chair of the Board and the President and CEO i

Company overview ii

Proxy Circular Summary v

About CAE vii

Useful Information xii

Notice of 2023 Annual and Special Shareholders’ Meeting xiii

Section 1 About Voting Your Shares 1

Section 2 Business of the Meeting 6

Section 3 About the Nominated Directors 12

Section 4 Corporate Governance 30

Section 5 Board Committee Reports 42

Section 6 Director Compensation 56

Section 7 Executive Compensation 61

Compensation Discussion and Analysis 63

Executive Summary 64

Shareholder Engagement 69

Compensation Philosophy 70

Executive Compensation programs 72

FY2023 Compensation Outcome 83

FY2023 NEO’S Individual Performance 89

Compensation Governance 94

Alignment of Compensation and Performance 101

Compensation of our Named Executive Officers 104

Summary Compensation Table 104

Outstanding Share-Based awards and option-based awards 106

Incentive Plan Awards – Value vested or earned during the year 107

Pension Arrangements 108

Termination and Change of Control Benefits 109

| CAE INC. | 2023 | Management Proxy Circular

Section 8 Other Important Information 113

Appendix A – Board of Directors’ Charter 115

Appendix B – Non-IFRS and Other Financial Measures 119

Appendix C – Summary of the Employee Stock Option Plan 127

Appendix D – Summary of the Omnibus Incentive Plan 132

| CAE INC. | 2023 | Management Proxy Circular

Letter to the Shareholders
from the Chair of the Board
and the President and CEO

Dear fellow Shareholders,

It is our pleasure to invite you to attend CAE’s 2023 Annual and Special Shareholders’ Meeting. Over the course of FY2023, CAE drove solid financial performance and sales growth through the successful delivery of our technology ambitions, culminating in a consistent, sequential improvement of our overall consolidated financial position throughout the period. CAE’s digital transformation and expansion into new markets and business verticals have propelled us forward in our journey to becoming a more resilient and profitable company better positioned to capitalize on the increasing demand for our products and services.

Reflecting the rapidly increasing importance of sustainability matters to the industry, stakeholders and the organization, we began the implementation of our updated five-year strategy and roadmap, resulting in meaningful steps taken this year to increase the awareness of our sustainable development commitment, further promote the integration of related criteria in policies and business processes and expand the scope quality of our reporting to better address stakeholder expectations.

We will once again hold our Meeting in virtual format only via live webcast available at https://web.lumiagm.com/460290549. Shareholders are encouraged to cast their vote in advance by proxy and participate from any geographic location in real time through a web-based platform or by telephone. We believe this is an important step to enhancing accessibility to our annual meeting for all of our Shareholders and reducing the carbon footprint of our activities.

As in prior years, important matters affecting our Company will be considered at the Meeting. We will, as always, review CAE’s financial position, including business operations and the increased value delivered to Shareholders. We will also respond to your comments and questions. Whether or not you plan to attend the Meeting, we encourage you to review the enclosed information, consider the resolutions put forth by the Board and vote your Shares. This Circular gives you details about all the items for consideration and how to vote. It also contains profiles of the nominated Directors, information on the auditors, and sections on the Board committees and CAE corporate governance practices.

In March of 2023, CAE wrapped up a year of celebrations marking 75 years of being at the forefront of innovation, continually finding new ways to incorporate the latest technology into our products and services to solve the issues that the world faces today. Working as One CAE, we have always had an innovative spirit, and our intentions going forward will be to continue harnessing emerging technologies. We have our fingers on the pulse of technology and use big data to move training from analog to digital, from subjective to objective, and from reactive to predictive. We hope you will join us on this journey.

We thank you for your continued confidence in and support of CAE and look forward to hearing from you at this year’s Meeting.



			Alan N. MacGibbon, P.C., O.C. Chair of the Board						Marc Parent, C.M. President and Chief Executive Officer

i | CAE INC. | 2023 | Management Proxy Circular ii | CAE INC. | 2023 | Management Proxy Circular

iii | CAE INC. | 2023 | Management Proxy Circular iv | CAE INC. | 2023 | Management Proxy Circular

Proxy Circular Summary

This summary highlights some of the important information you will find in this Management Proxy Circular (“Circular”). These highlights do not contain all the information that you should consider, and you should read this entire Circular before voting your Shares.

Shareholder Voting Matters


Voting Matter	Board Vote Recommendation	Page Reference for More Information
Election of 13 Directors	FOR each nominee	7
Appointing PricewaterhouseCoopers LLP (PwC) as Auditors	FOR	9
Advisory Vote on Executive Compensation	FOR	10
Approving CAE’s Omnibus Incentive Plan and Ratifying Conditional Grants	FOR	11

v | CAE INC. | 2023 | Management Proxy Circular Review this Proxy Circular and Vote in One of the Following Ways

Voting by Proxy is the Easiest Way

Below are the different ways in which you can give your voting instructions, details of which are found in the enclosed proxy form or your voting instruction form, as applicable. Please also refer to Section 1 – About Voting Your Shares for more information on the voting methods available to you:

by mail: sign, date and return your proxy form in the envelope provided.

by telephone: call the telephone number on your proxy form.

on the Internet: visit the website listed on your proxy form.

by appointing another person to attend and vote at the Meeting online on your behalf.

Voting Online at the Meeting

Log in online at https://web.lumiagm.com/460290549 and follow the steps listed in the Section “Attending and Participating.”

vi | CAE INC. | 2023 | Management Proxy Circular At CAE, we equip people in critical roles with the expertise and solutions to create a safer world.

About CAE

Who We Are

As a technology company, we digitalize the physical world, deploying software-based simulation training and critical operations support solutions. Above all else, we empower pilots, cabin crew, airlines, defence and security forces and healthcare practitioners to perform at their best every day and when the stakes are the highest. Around the globe, we are everywhere customers need us to be with more than 13,000 employees in approximately 250 sites and training locations in over 40 countries. CAE represents more than 75 years of industry firsts—the highest fidelity flight, mission and medical simulators and training programs powered by digital technologies.

We embed sustainability in everything we do. Today and tomorrow, we’ll make sure our customers are ready for the moments that matter.

Founded in 1947 and headquartered in Montreal, Canada, CAE has built an excellent reputation and long-standing customer relationships based on experience, strong technical capabilities, a highly trained workforce and global reach.

Our Mission

Our mission is to lead at the frontier of digital immersion with high-tech training and operational support solutions to make the world a safer place.

Our Vision

Our vision is to be the worldwide partner of choice in civil aviation, defense and security, and healthcare by revolutionizing our customers’ training and critical operations with digitally immersive solutions to elevate safety, efficiency and readiness.

Our Operations

Each of our business units leverage their unique capabilities and drives cross-company collaboration to achieve our long-term goals. We provide digitally immersive training and operational support solutions to three markets globally:

Civil Aviation: The civil aviation market includes major commercial airlines, regional airlines, business aircraft operators, civil helicopter operators, aircraft manufacturers, third-party training centres, flight training organizations, maintenance repair and overhaul organizations (MRO) and aircraft finance leasing companies. We provide comprehensive training solutions for flight, cabin, maintenance and ground personnel in commercial, business and helicopter aviation, a complete range of flight simulation training devices, ab initio pilot training and crew sourcing services, as well as aircraft flight operations solutions.

Defense & Security: The defence and security market includes defence forces, OEMs, government agencies and public safety organizations worldwide. We are a platform-independent training and simulation solutions provider, preparing global defence and security forces for the mission ahead.

Healthcare: The healthcare market includes hospital and university simulation centres, medical and nursing schools, paramedic organizations, defence forces, medical societies, public health agencies and OEMs. We offer healthcare students and clinical professionals integrated physical, digital and virtual education and training solutions, including interventional and imaging simulations, curricula, mixed-reality and digital learning, audiovisual debriefing solutions, centre management platforms and patient simulators.

vii | CAE INC. | 2023 | Management Proxy Circular

Our Strategy

CAE’s Four Strategic Pillars

Efficient Growth

Our business features a high degree of recurring revenues due to the underlying characteristics of our technology-enabled and software-based solutions as well as regulatory requirements across our markets. We seek to maximize the benefits of our strong competitive position to deliver premium growth and improving profitability through a focus on operational rigour, cost optimization, capital efficiency, and a disciplined approach to pursuing both organic and inorganic growth.

Revolutionizing Training and Critical Operations

We are a global thought leader in the application of training, digital immersion, critical operations, and modelling and simulation technologies. We seek to use data-driven applications and advanced analytics to produce measurable and demonstrated outcomes in our markets. The efficacy of our technology solutions enables customized, collaborative, and multi-domain offerings. Furthermore, our technologies are deployed with a focus on driving sustainability.

Technology and Market Leadership

We have a long rich and long-dated history of innovation and delivering state-of-the-art technology solutions that define the forefront of the industries we operate in. As a result, we constantly seek new ways to enhance the performance of our customers by fostering a culture of continuous improvement and innovation. This drives technology leadership, deeper customer partnerships, and new customer development, enabling us to capitalize on the ample headroom in our large, growing addressable markets.

Skills & Culture

Our core One CAE values are innovation, integrity, empowerment, and excellence. We employ these values across a diverse global team to drive a unique social impact. We seek to create an employee experience and environment that values teamwork, professional growth, and engagement. As a result, our employees across the globe share a passion to prepare our customers for the moments that matter.

viii | CAE INC. | 2023 | Management Proxy Circular

Executive Compensation Highlights

- Executive short term incentive payout based on a corporate performance factor of 62% recognizing CAE’s strategic plan, performance and financial objectives in FY2023

- 76% payout factor for Performance Share Units that vested in FY2023 (with a performance measurement period from FY2021 to FY2023)


Our Executive Compensation Best Practices
Minimum threshold levels of corporate performance to be met to allow for payments under the annual and long-term incentives
Caps on annual bonuses and Performance Share Units (“PSU”) payout factors
Balanced mix of short, medium and long-term compensation
Pensionable earnings based on actual years served
Change of control severance limited to two times salary and bonuses
Clawback policy
Minimum share ownership and option profit retention guidelines
Anti-hedging policy
Post-employment holding for CEO NEW
Double trigger vesting in case of change of control NEW

ix | CAE INC. | 2023 | Management Proxy Circular The following table shows some of the ways CAE continues to adhere to the highest standards in corporate governance.

Governance Highlights


Our Corporate Governance Best Practices
Number of Director nominees			13
Number of non-employee Independent Director nominees			12/13
Board Committee members (including the Governance Committee, which is responsible for recommending new Directors to join the Board) are all independent.
Average age of Director nominees			62
Annual election of Directors
Other Board commitments and interlocks policy
Separate Chair and CEO roles
Director tenure and age term limits
Share ownership requirements for Directors and executives
Board orientation/education program
Number of Board meetings held during FY2023			10
Number of financial experts on the Audit Committee			2
Code of Business Conduct
Annual advisory vote on executive compensation
Formal Board and Committee evaluation processes
No dual-class shares
Diversity targets on the Board and in executive officer positions
Enterprise risk management oversight including ESG matters

x | CAE INC. | 2023 | Management Proxy Circular

Our Director Nominees


Name	Age	Director Since	Position	Independent	Committee Memberships	Board and Committee Attendance FY2023	Other Public Boards
Ayman Antoun	57	2022	Corporate Director	YES	HRC	100%	N/A
Margaret S. (Peg) Billson	61	2015	Corporate Director	YES	GC (Chair), HRC	100%	1
Sophie Brochu1	60	N/A	Corporate Director	YES	N/A	N/A	1
Elise Eberwein	58	2022	Corporate Director	YES	Audit, HRC	100%	N/A
Marianne Harrison	59	2019	Corporate Director	YES	Audit (Chair), GC	94%	N/A
Alan N. MacGibbon	67	2015	Corporate Director	YES	N/A	93%	1
Mary Lou Maher2	63	2021	Corporate Director	YES	Audit, HRC	100%	2
François Olivier	58	2017	Corporate Director	YES	Audit, GC	100%	1
Marc Parent	62	2008	President and CEO, CAE	NO	N/A	100%	1
Gen. David G. Perkins, USA (Ret.)	65	2020	Corporate Director	YES	HRC, GC	100%	1
Michael E. Roach	71	2017	Corporate Director	YES	Audit, GC	100%	1
Patrick M. Shanahan	61	2022	Corporate Director	YES	Audit, GC	100%	2
Andrew J. Stevens	66	2013	Corporate Director	YES	HRC, GC	95%	N/A

1. Ms. Brochu does not currently serve as Director on the Board of CAE and will become a Director following her election at the Meeting.

2. Ms. Maher will succeed Hon. Michael M. Fortier as the Chair of the HRC after the end of the Meeting.

xi | CAE INC. | 2023 | Management Proxy Circular

Useful Information

Certain Defined Terms


In this document, referred to as this “Circular”, the terms “you” and “your” refer to the Shareholder, while “we”, “us”, “our”, “Company” and “CAE” refer to CAE Inc. and where applicable, its subsidiaries.

Currency, Exchange Rates and Share Prices


All amounts referred to in this Circular are presented in Canadian dollars, unless otherwise stated. In a number of instances in this Circular, including with respect to calculation of the in-the-money value of stock options denominated in Canadian dollars, information based on our Share price has been calculated on the basis of the Canadian dollar.

Non-IFRS and Other Financial Measures


This document includes non-IFRS financial measures, non-IFRS ratios, capital management measures and supplementary financial measures. These measures are not standardized financial measures prescribed under IFRS and therefore should not be confused with, or used as an alternative for, performance measures calculated according to IFRS. Furthermore, these measures should not be compared with similarly titled measures provided or used by other issuers. Management believes that these measures provide additional insight into our operating performance and trends and facilitate comparisons across reporting periods. Definitions of all non-IFRS and other financial measures are provided in Appendix B of this document to give the reader a better understanding of the indicators used by management. In addition, when applicable, this document may include a quantitative reconciliation of the non-IFRS and other financial measures to the most directly comparable measure under IFRS. Refer to Appendix B of this document for references where these reconciliations are provided.

Information Currencys


The information in this Circular is current as of June 15, 2023 unless otherwise stated.

xii | CAE INC. | 2023 | Management Proxy Circular Notice of 2023 Annual and Special Shareholders’ Meeting


What the Meeting is About		You have the Right to Vote
1	Receive CAE Consolidated Financial Statements and the auditors’ report for the fiscal year ended March 31, 2023;	As a holder of record of common shares of CAE (“Shares”) at the close of business on June 22, 2023, you are entitled to receive notice of and vote at the Meeting. You are asked to consider and to vote your Shares on items 2 to 5 and any other items that may properly come before the Meeting or any adjournment. If you are unable to attend the Meeting online and want to ensure that your Shares are voted, please submit your votes by proxy as described under “How to Vote Your Shares” in the accompanying Circular. To be valid, our transfer agent, Computershare Trust Company of Canada, must receive your proxy by 11:00 a.m. (Eastern Time) on August 4, 2023. If the Meeting is adjourned or postponed, Computershare must receive your proxy no later than 24 hours (excluding Saturdays, Sundays and holidays) prior to any such adjournment or postponement. Accompanying this Notice of Annual and Special Meeting is the Circular, which contains more information on the matters to be addressed at the Meeting.
2	Elect Directors who will serve until the end of the next annual Shareholders' meeting;
3	Reappoint PricewaterhouseCoopers LLP as our auditors who will serve until the end of the next annual Shareholders' meeting and to authorize the Company’s Board to fix the auditors’ remuneration
4	Vote, in an advisory, non-binding manner, on CAE’s approach to executive compensation described in this Circular;
5	Approve CAE’s Omnibus Incentive Plan and ratify conditional grants; and
6	Transact any other business that may properly come before the Meeting.


When Wednesday, August 9, 2023 at 11:00 a.m. (ET)			Where The meeting will be held online at https://web.lumiagm.com/460290549

xiii | CAE INC. | 2023 | Management Proxy Circular Our Meeting will be held in virtual-only format, which will be conducted via live webcast.

Attending and Participating

Shareholders will have an equal opportunity to participate in real time and vote at the Meeting online through a web-based platform regardless of their geographic location.

Participating in the Meeting online allows registered Shareholders and duly appointed Proxyholders, including non-registered (beneficial) Shareholders who have appointed themselves or another person as a Proxyholder, to participate at the Meeting and ask questions, all in real time. Registered Shareholders and duly appointed Proxyholders can vote at the appropriate time during the Meeting. Voting will be conducted by virtual ballot.

Guests, including non-registered Shareholders who have not duly appointed themselves or another person as a Proxyholder, can log in to the Meeting as set out below. Guests will be able to participate in the Meeting but cannot vote.

To access the Meeting, follow the instructions below, as applicable to you:

1. Log in online at https://web.lumiagm.com/460290549. The platform is compatible with all major browsers except for Internet Explorer.

2. Click “I have a Login” and then enter your Control Number (see below) and Password “CAE2023” (note the password is case sensitive); OR

3. Click “I am a guest” and then complete the online form.

In order to find the 15-digit Control Number to access the Meeting:

— Registered Shareholders: The control number located on the form of proxy or in the email notification you received is your Control Number.

— Proxyholders: Duly appointed Proxyholders, including non- registered (beneficial) Shareholders that have appointed themselves or another person as a Proxyholder, will receive the Control Number from Computershare by e-mail after the proxy voting deadline has passed.

If you attend the Meeting online, it is important that you are connected to the Internet at all times during the Meeting in order to vote when balloting commences. It is your responsibility to ensure connectivity for the duration of the Meeting. You should allow ample time to check into the Meeting online and complete the related procedure. For additional details on accessing and participating in the Meeting online from your tablet, smartphone or computer, please see the Virtual AGM User Guide provided by Computershare and accompanying this proxy circular.

Notice-and-Access

As part of an effort to reduce environmental impacts of excessive printing, and to save postage costs, CAE is opting to use the “Notice-and-Access” provisions of Canadian securities rules.

The “Notice-and-Access” provisions allow Canadian companies to post electronic versions of Shareholder meeting materials in lieu of mailing physical copies of such documents to Shareholder. Shareholders will instead only receive a paper notification with information on how they may obtain a copy of the meeting materials electronically or request a paper copy (Notification). Shareholders who have already signed up for electronic delivery of Shareholder materials will continue to receive them by email.

Non-registered Shareholder who have not objected to their intermediary disclosing certain ownership information about themselves to CAE are referred to as “NOBOs”. The non-registered Shareholder who have objected to their intermediary disclosing ownership information about themselves to CAE are referred to as “OBOs”. CAE has distributed the Notification in connection with the Meeting to intermediaries and clearing agencies for onward distribution to non-registered Shareholder. CAE will not be paying for intermediaries to deliver to OBOs (who have not otherwise waived their right to receive proxy-related materials) copies of proxy related materials and related documents (including the Notification). Accordingly, an OBO will not receive copies of proxy-related materials and related documents unless the OBO’s intermediary assumes the costs of delivery.

How to Access Meeting Materials

- On Computershare Investor Services Inc.’s (“Computershare”) website: www.envisionreports.com/CAE2023e

- On SEDAR: www.sedar.com

- On CAE’s website: www.cae.com/investors/financial-reports/

Shareholders are reminded to read the Circular and other Meeting materials carefully before voting their Shares.

xiv | CAE INC. | 2023 | Management Proxy Circular How to Request a Paper Copy of the Meeting Materials

Before the Meeting

If your name appears on a Share certificate, you are considered as a “registered Shareholder”. You may request paper copies of the Meeting materials at no cost to you by calling Computershare toll-free, within North America at 1-866-962-0498 or direct, from outside of North America, at 514-982-8716 and entering your control number as indicated on your form of proxy.

If your Shares are listed in an account statement provided to you by an intermediary, you are considered as a “non-registered Shareholder”. You may request paper copies of the Meeting materials from Broadridge at no cost to you up to one year from the date the Circular was filed on SEDAR through the Internet by going to www.proxyvote.com or by telephone at 1-877-907-7643 and entering the 16-digit control number provided on the voting instruction form and following the instructions provided.

Please note that you will not receive another form of proxy or voting instruction form; please retain your current one to vote your Shares.

In any case, requests should be received at least five (5) business days prior to the proxy deposit date and time set out in the accompanying proxy or voting instruction form in order to receive the Meeting materials in advance of such date and the Meeting date.

After the Meeting

By telephone at 1-866-962-0492 or online at investor.relations@cae.com. A copy of the Meeting materials will be sent to you within ten (10) calendar days of receiving your request.

By order of the Board of Directors,

June 15, 2023

Montréal, Québec



			Mark Hounsell General Counsel, Chief Compliance Officer and Corporate Secretary

xv | CAE INC. | 2023 | Management Proxy Circular 1 | CAE INC. | 2023 | Management Proxy Circular

Section 1 – About Voting Your Shares

Record Date

June 22, 2023 is the record date for the Meeting.

Who can vote

Only holders of our Shares at the close of business on the Record Date are entitled to receive notice of and to attend, including by proxy, and vote at the Meeting or any adjournment thereof. The list of Shareholders on the Record Date is available for inspection by appointment during usual business hours at Computershare Trust Company of Canada, 650 de Maisonneuve west 7th floor, Montreal, QC H3A 3T2, and at the Meeting. As of June 15, 2023, 318,089,449 Shares are issued and outstanding. Each Share is entitled to one vote.

Principal Shareholders

To the knowledge of the Directors and executive officers of CAE (from records and publicly filed reports), there is no person who beneficially owns or exercises control or direction over more than 10% of the Shares.

All Directors and executive officers as a group (23 persons) beneficially owned or exercised control or direction over 519,580 Shares representing 0.16% of the class as at June 15, 2023.

Your Vote is Important

Your vote is important. Please read the information below to ensure your Shares are properly voted.

How do I participate in the Meeting?

The Meeting will be held in a virtual only format that will be conducted via live webcast online. Shareholders will not be able to attend the Meeting in person.

Participating in the Meeting online allows registered Shareholders and duly appointed Proxyholders, including non-registered (beneficial) Shareholders who have appointed themselves or another person as a Proxyholder, to participate at the Meeting and ask questions, all in real time, including verbally through a phone conference. Registered Shareholders and duly appointed Proxyholders can vote at the appropriate time during the Meeting.

Guests, including non-registered beneficial Shareholders who have not duly appointed themselves or another person as a Proxyholder, can log in to the Meeting as set out below. Guests will be able to participate in the Meeting but cannot vote.

To access the Meeting, follow the instructions below, as applicable to you:

1. Log in online at https://web.lumiagm.com/460290549. The platform is compatible with all major browsers except for Internet Explorer.

2. Click “I have a Login” and then enter your Control Number (see below) and Password “CAE2023” (note the password is case sensitive); OR

3. Click “I am a guest” and then complete the online form.

In order to find the 15-digit Control Number to access the Meeting:

— Registered Shareholders: The control number located on the form of proxy or in the email notification you received is your Control Number.

— Proxyholders: Duly appointed Proxyholders, including non-registered (beneficial) Shareholders that have appointed themselves or another person as a Proxyholder, will receive the Control Number from Computershare by e-mail after the proxy voting deadline has passed.

We recommend that you log in at least one hour before the start time of the Meeting. It is important to ensure you are connected to the Internet at all times if you participate in the Meeting online in order to vote when balloting commences. You are responsible for ensuring Internet connectivity for the duration of the Meeting. For additional details and instructions on accessing the Meeting online from your tablet, smartphone or computer, see the Virtual AGM User Guide provided by Computershare and accompanying this proxy circular.

For additional information regarding voting by proxy before the meeting, voting online, attending the virtual meeting or other general proxy matters, please contact Computershare at 1.800.564.6253 (Canada/U.S.) or 1.514.982.7555 (international/direct dial).

2 | CAE INC. | 2023 | Management Proxy Circular How to Vote your Shares

Section 1 – About Voting Your Shares

You may vote your Shares in one of the following ways:

1. By proxy using all the voting channels that have been available in the past; this has not changed. Voting at the Meeting remains in the virtual-only form, without any possibility for in-person attendance.

by mail: sign, date and return your proxy form in the envelope provided.

by telephone: call the telephone number on your proxy form.

on the Internet: visit the website listed on your proxy form.

by appointing another person to attend and vote at the Meeting online on your behalf.

Refer to the enclosed proxy form for instructions.

2. Virtually at the Meeting online by following the instructions below. The voting process is different for registered or non-registered (beneficial) Shareholders:

(a) if you are a registered Shareholder, you may vote at the Meeting by completing a ballot online during the Meeting. Follow the instructions above to access the Meeting and cast your ballot online during the designated time.

(b) if you are a non-registered Shareholder (including a participant in the employee plan) AND you wish to vote online at the Meeting, you must appoint yourself as Proxyholder in order to vote at the Meeting. You MUST complete and return a voting instruction form no later than 11:00 a.m. (Eastern Time) on August 4, 2023 appointing yourself as Proxyholder. Follow the instructions above to access the Meeting and cast your ballot online during the designated time. You will receive the Control Number for the Meeting from Computershare by e-mail after the proxy voting deadline has passed.

United States Beneficial holders: To vote at the Meeting, you must first obtain a valid legal proxy from your broker, bank or other agent and then register in advance of the Meeting. Follow the instructions from your broker or bank included with this Circular, or contact your broker or bank to request a legal proxy form. To register to attend the Meeting online, you must submit a copy of your legal proxy form to Computershare. Requests for registration should be directed to Computershare at 100 University Avenue, 8th Floor, Toronto, Ontario M5J 2Y1, or by e-mail at uslegalproxy@computershare.com. Requests for registration must be labelled as “Legal Proxy” and be received no later than 11:00 a.m. (EDT) on August 4, 2023. You will receive a confirmation of your registration after Computershare receives your registration materials. Please note that you are required to register your appointment as Proxyholder at http://www.computershare.com/CAE.

3 | CAE INC.

Section 1 – About Voting Your Shares

Voting by Proxy

| 2023 | Management Proxy Circular If you choose to vote by proxy, you are giving the person or people named on your proxy form (referred to as a “Proxyholder”) the authority to vote your Shares on your behalf online at the Meeting or any adjournment or postponement thereof.

Proxies are being solicited by management

Through this Circular, management is soliciting your proxy in connection with the matters to be addressed at the Meeting (or any adjournment(s) or postponements(s) thereof) to be held at the time and place and for the purposes set forth in the accompanying Notice of the Meeting.

The solicitation is being made primarily by mail, but you may also be contacted by telephone or other means. The Company has engaged Kingsdale Advisors as its strategic shareholder advisor and proxy solicitation agent and will pay fees of approximately C$50,000 to Kingsdale for proxy solicitation services in addition to certain out-of-pocket expenses. The Company may also reimburse brokers and other persons holding Shares in their name or in the name of nominees for their costs incurred in sending proxy material to their principals in order to obtain their proxies.

Unless you specify a different Proxyholder, the CAE officers and/or Directors whose names are pre-printed on the enclosed form of proxy (Alan N. MacGibbon, Marc Parent and Margaret S. (Peg) Billson) will vote your Shares. The Company may utilize the Broadridge QuickVoteTM system, which involves NOBOs being contacted by Kingsdale, which is soliciting proxies on behalf of management, to obtain voting instructions over the telephone and relaying them to Broadridge (on behalf of the NOBO’s intermediary). While representatives of Kingsdale are soliciting proxies on behalf of management, Shareholders are not required to vote in the manner recommended by the Board. The QuickVoteTM system is intended to assist Shareholders in placing their votes, however, there is no obligation for any Shareholders to vote using the QuickVoteTM system, and Shareholders may vote (or change or revoke their votes) at any other time and in any other applicable manner described in this Circular. Any voting instructions provided by a Shareholder will be recorded and such Shareholder will receive a letter from Broadridge (on behalf of the Shareholder’s intermediary) as confirmation that their voting instructions have been accepted.


Proxyholders other than management Shareholders desiring to appoint some person other than Alan N. MacGibbon, Marc Parent and Margaret S. (Peg) Billson as their representative at the Meeting may do so either by inserting such other person’s name in the blank space provided or by completing another proper proxy form and, in either case, delivering the completed proxy to CAE’s Corporate Secretary at 8585 Côte-de-Liesse, Saint-Laurent, Québec, H4T 1G6 or to Computershare Trust Company of Canada, 100 University Avenue, 8th Floor, Toronto, Ontario, M5J 2Y1 no later than 11:00 a.m. (Eastern Time) on August 4, 2023 (or, in the case of an adjournment or postponement, no later than 11:00 a.m. (Eastern Time) on the last business day preceding the day of such adjournment or postponement thereof).

4 | CAE INC. | 2023 | Management Proxy Circular You may indicate on the proxy form how you want your Proxyholder to vote your Shares, in which case the Proxyholder will vote in accordance with your instructions.

Section 1 – About Voting Your Shares

Voting of Proxies

You can also let your Proxyholder decide for you. If you do not specify on the proxy form how you want your Shares to be voted, your Proxyholder will have the discretion to vote your Shares as they see fit.

The enclosed proxy form gives the Proxyholder discretion with respect to any amendments or changes to matters described in the Notice of Annual Meeting and with respect to any other matters which may properly come before the Meeting (including any adjournment or postponement thereof).

At the time of printing this Circular, the management of CAE knows of no such amendments, variations or other matters to come before the Meeting.

Unless you specify a different Proxyholder or specify how you want your Shares to be voted, Alan N. MacGibbon, Marc Parent and Margaret S. (Peg) Billson will vote your Shares:

(a) FOR electing the nominated Directors who are listed in this Circular;

(b) FOR appointing PwC as auditors and for the authorization of the Directors to fix their remuneration;

(d) FOR approving the Omnibus Incentive Plan and ratifying conditional grants.

Registered Shareholders who wish to appoint a third-party Proxyholder to represent them at the Meeting must first use the Form of Proxy to appoint the Proxyholder and then must register their Proxyholder online. Failure to register the Proxyholder will result in the Proxyholder not receiving a Control Number and therefore being unable to participate in the Meeting. To register a third-party Proxyholder, Shareholders must visit https://www. computershare.com/CAE by August 4, 2023 at 11:00 a.m. (Eastern Time) and provide Computershare with the Proxyholder’s contact information required. Computershare needs this information so they can confirm their registration and send an email notification with a Control Number. Your Proxyholder needs the Control Number in order to participate in the meeting and vote your Shares. Your third-party Proxyholder should receive the email notification after 11:00 a.m. (Eastern Time) on August 4, 2023.

To be effective, your proxy must be received before 11:00 a.m. (Eastern Time) on August 4, 2023 or not less than 48 hours (excluding Saturdays, Sundays and holidays) prior to the time fixed for holding any adjournment of the Meeting.

If you have any questions or need assistance voting, please contact Kingsdale Advisors at 1-866-851-2743 (toll-free in North America) or 1-416-867-2272 (collect outside North America) or by email at contactus@kingsdaleadvisors.com. The time limit for deposit of proxies may be waived or extended by the Chair of the Meeting at his or her discretion, without notice.

Revocation of Proxies

You have the right to revoke a proxy by any of the following methods:

(a) Vote again by phone or Internet no later than 11:00 a.m. (Eastern Time) on August 4, 2023 (or not less than 48 hours (excluding Saturdays, Sundays and holidays) prior to the date of any adjourned or postponed Meeting); or

(b) Deliver another completed and signed proxy form, dated later than the first proxy form, by mail or fax such that it is received by CAE’s Corporate Secretary at 8585 Côte-de-Liesse, Saint-Laurent, Québec, H4T 1G6 or by Computershare Trust Company of Canada, 100 University Avenue, 8th Floor, Toronto, Ontario, M5J 2Y1 no later than 11:00 a.m. (Eastern Time) on August 4, 2023 (or not less than 48 hours (excluding Saturdays, Sundays and holidays) prior to the date of any adjourned or postponed Meeting).

Electronic Access to Proxy-Related Materials and Annual and Quarterly Reports

We offer our Shareholders the opportunity to view management proxy circulars, annual reports and quarterly reports through the Internet instead of receiving paper copies in the mail. You will find more information on this matter in the Notice-and-Access section above.

5 | CAE INC. | 2023 | Management Proxy Circular 6 | CAE INC. | 2023 | Management Proxy Circular

Section 2 – Business of the Meeting

1 Receive CAE’s Consolidated Financial Statements

CAE’s consolidated financial statements including the auditors’ report, for the year ended on March 31, 2023 will be presented to Shareholders at the Meeting. They can also be accessed on CAE’s website at www.cae.com, on SEDAR at www.sedar.com, or on EDGAR at www.sec.gov. No Shareholder vote is required in connection with the consolidated financial statements.

2 Elect 13 Directors

Nominees

92.3%1

Independent

Average Age

98.1%

% Votes FOR
in 2022

98.4%

Average Board Meeting Attendance

1. The only non-Independent Director is CAE’s President and CEO. “Independent Directors” refers to the standards of independence established by CAE’s Corporate Governance Guidelines, applicable corporate governance rules of the New York Stock Exchange and SEC, and under the Canadian Securities Administrators’ National Instrument 58-101 – Disclosure of Corporate Governance Practices and National Policy 58-201.

You will be electing a board of directors (“Board”) of 13 members. Each Director is elected annually for a term, which expires no later than the next annual meeting of Shareholders.


All of the following nominees, except for Sophie Brochu, are currently members of the Board of Directors, and have been recommended by the GC and the Board for election at the Meeting. Sophie Brochu will become a Director following her election at the Meeting.
— Ayman Antoun — Margaret S. (Peg) Billson — Sophie Brochu — Elise Eberwein — Marianne Harrison	— Alan N. MacGibbon — Mary Lou Maher — François Olivier — Marc Parent, C.M. — Gen. David G. Perkins	— Michael E. Roach — Patrick M. Shanahan — Andrew J. Stevens

7 | CAE INC. | 2023 | Management Proxy Circular Each nominee was elected at our 2022 annual Shareholders’ meeting held on August 10, 2022, by a majority of the votes cast (average of 98.1% of votes cast in favour), except for Sophie Brochu who is a first-time nominee.

Section 2 – Business of the Meeting

Please refer to Section 3 – About the Nominated Directors for further information regarding the experience, the selection process and other relevant information you should consider in casting your vote for each nominee.

Self-imposed term and age limits ensure CAE benefits from a combination of experience and fresh perspectives

The Board of Directors has passed a resolution establishing term limits comprising the following:

up to three four-year periods of service, to aggregate twelve years maximum;

no nominee may be proposed past their attaining 75 years of age; and

the Chair of the Board may be in the role for a full five-year term regardless of his or her age or the number of years the individual has been a Director.

The Board of Directors believes these limits, subject to reasoned exceptions, are appropriate to ensure fresh skill sets and perspectives are periodically brought to the oversight of CAE’s business.

Majority voting requirement

Each Director of the Company must be elected by a majority (50% +1 vote) of the votes cast with respect to his or her election, other than at contested meetings.

In accordance with our Corporate Governance Guidelines, any nominee who receives a greater number of votes cast “against” him or her than votes “for” will not be elected as a Director. Notwithstanding the foregoing, if the nominee is an incumbent Director, such Director may continue in office until the earlier of (i) the 90th day after the election, or (ii) the day on which his or her successor is appointed or elected. In accordance with the provisions of the Canada Business Corporations Act and its regulations, the Board may reappoint an incumbent Director even if he or she does not receive majority support in the following circumstances:

to satisfy Canadian residency requirements; or

to satisfy the requirement that at least two Directors are not also officers or employees of the Corporation or its affiliates.

Detailed voting results will be disclosed after the Meeting

Promptly, after the Meeting, we will publicly disclose the number and percentage of votes cast for and withheld in respect of each nominee, as well as those cast for and against each other matter voted on by Shareholders at the Meeting.


The Board of Directors recommends that Shareholders vote FOR the election of the 13 nominated members of the Board.

8 | CAE INC. | 2023 | Management Proxy Circular

Section 2 – Business of the Meeting

3 Appoint the Auditors

The Board, on recommendation by the Audit Committee, proposes that PricewaterhouseCoopers LLP (PwC), Chartered Accountants, Montréal, Québec be re-appointed as auditors of CAE to hold office until the close of the next annual meeting of Shareholders and that the Directors of CAE be authorized to fix their remuneration.

PwC has served as auditors of CAE since 1991.

PwC provides three types of services to CAE and its subsidiaries

1. Audit Services: fees billed for professional services for the audit of CAE’s annual consolidated financial statements and services that are normally provided by PwC in connection with statutory and regulatory filings, including the audit of the internal controls and financial reporting as required by the Sarbanes-Oxley Act of 2022 (“SOX”).

2. Audit-related Services: fees relating to work performed in connection with CAE’s acquisitions, financings/prospectuses, translation and other miscellaneous accounting-related services.

3. Tax Services: fees relating to tax compliance, tax planning and tax advice.

Auditors’ independence

The Audit Committee has discussed with PwC its independence from management and CAE, has considered and concluded that the provision of non-audit services is compatible with maintaining such independence.

Furthermore, as per its policy, the Audit Committee reviews and pre-approves all non-audit services provided by the external auditors above a specified level.

Fees Paid by CAE to PwC in FY2023

The following chart shows all fees paid to PwC by CAE and its subsidiaries in the most recent and prior fiscal year.


Fee Type	2023 ($ millions)	2022 ($ millions)
1. Audit services	6.5	5.8
2. Audit-related services	0.2	0.1
3. Tax services	0.4	0.5
Total	7.1	6.4

In order to further support PwC’s independence, the Audit Committee has set a policy concerning CAE’s hiring of current and former partners and employees of PwC who were engaged on CAE’s account in the recent years. Pursuant to this policy, CAE will not initiate nor pursue any discussion with any former partner, principal, Shareholder or professional employee(s) of PwC regarding potential or future employment in a reporting oversight role with CAE if they are in a position to influence the audit firm’s operations or financial policies, has ownership or partnership interests or financial participation in the audit firm or was a member of the CAE external audit team during the one-year period preceding the date that audit procedures commenced.


The Board of Directors recommends that Shareholders vote FOR the appointment of PwC as CAE’s auditors.

9 | CAE INC. | 2023 | Management Proxy Circular

Section 2 – Business of the Meeting

4 Advisory Vote on Executive Compensation

As detailed in Section 7 – Executive Compensation, CAE’s executive compensation philosophy and programs are based on the fundamental principle of pay-for-performance to align the interests of our executives with those of our Shareholders. This compensation approach allows CAE to attract and retain high-performing executives who are strongly incentivized to create value for CAE’s Shareholders on a sustainable basis.

Section 7 of the Circular describes our overall approach to executive compensation, the objectives of our executive compensation program, how compensation decisions are made and the compensation paid to our most highly paid executive officers in the last three years. Section 7 also describes the extensive stakeholder outreach conducted since last year’s Shareholders’ meeting with close to 20 of our Shareholders accounting for approximately 40% of the Company ownership, as well as other stakeholders, seeking their input on our compensation programs. This effort culminated in changes designed to further align compensation with the Company performance outcomes and the interests of Shareholders.

At the Meeting, Shareholders will be asked to consider and to cast an advisory, non-binding vote on CAE’s approach to executive compensation – this is often referred to as “say on pay”.

The text of the “say on pay” resolution reads as follows:

‘‘Resolved that the Shareholders accept the approach to executive compensation
disclosed in this Management Proxy Circular’’.

Because your vote is advisory, it will not be binding upon the Board. However, the HRC will review and analyze the results of the vote and take into consideration such results when reviewing executive compensation philosophy and programs.

If a significant proportion of the Shares represented, including by proxy, at the Meeting are voted against the above non-binding advisory resolution, the Board Chair or the HRC Chair will oversee a process to engage with Shareholders with a view to giving Shareholders the opportunity to express their specific concerns. The Board of Directors and the HRC will consider the results of this process and, if appropriate, review the Company’s approach to executive compensation in the context of Shareholders’ specific concerns.

Our approach to executive compensation was approved by 79.6% of the votes cast on the resolution during our August 10, 2022 annual meeting of Shareholders. Please refer to Section 7 – Executive Compensation – Compensation Discussion and Analysis – Shareholder Engagement, which describes our significant engagement initiatives with investors in FY2023, as well as the changes to our compensation programs implemented as a result thereof.


The Board of Directors recommends that Shareholders vote FOR the resolution set out above.

10 | CAE INC. | 2023 | Management Proxy Circular

Section 2 – Business of the Meeting

5 Approval of the Omnibus Incentive Plan and Ratification of Conditional Grants

With a view to streamline its equity-based incentive plans, to encourage greater share ownership by employees and to foster a greater alignment between the long-term interests of the Shareholders and the interests of employees, the Board of CAE adopted on May 31, 2023 the Omnibus Incentive Plan which allows for a variety of equity-based awards that provide different types of incentives, namely stock options ("Stock Options"), performance share units ("PSUs") and restricted share units ("RSUs"), to be granted to eligible participants. The Company believes that the Omnibus Incentive Plan will enhance its ability to attract, retain and motivate capable persons to advance its business strategy. A summary of the Omnibus Incentive Plan is set forth in Appendix D. The summary is qualified in its entirety by reference to the full text of the Omnibus Incentive Plan, which can be accessed on SEDAR (www.sedar.com) or on EDGAR (www.sec.gov). Capitalized terms used in such summary without express definition have the meanings attributed thereto in the Omnibus Incentive Plan. For more details on this plan, please refer to Section 7 – Executive Compensation - Compensation Discussion and Analysis – Executive Compensation Programs – Long-Term Incentive Program Design – Omnibus Incentive Plan.

At the Meeting, Shareholders will be asked to consider and vote to approve the Omnibus Incentive Plan as well as conditional grants of Stock Options, PSUs and RSUs made pursuant to the terms of the Omnibus Incentive Plan (the “Conditional Grants”). In order to be adopted and ratified, the Omnibus Incentive Plan and the Conditional Grants must be approved by ordinary resolution of the holders of Shares of CAE at the Meeting. The text of the resolution approving the Omnibus Incentive Plan and the Conditional Grants (the “Omnibus Incentive Plan Resolution”) is set forth below.

BE IT RESOLVED TO ADOPT THE FOLLOWING RESOLUTION:

THAT the Omnibus Incentive Plan providing for the issuance of a maximum of 10,000,000 shares (the “Shares”) adopted by the Board of Directors on May 31, 2023 (the “Plan”), the full text of which can be consulted on SEDAR (www.sedar.com), be and it is hereby approved;

THAT the Conditional Grants subject to shareholder ratification made pursuant to the terms of the Plan on June 9, 2023 of (i) 303,139 and 420,206 Stock Options to insiders and other employees respectively with an exercise price of $28.65 and expiring on June 9, 2030, (ii) 106,866 and 192,709 restricted share units to insiders and other employees respectively which shall vest on June 9, 2026, and (iii) performance share units which, upon vesting on June 9, 2026 and subject to performance criteria, may result in the issuance of up to 641,194 and 977,960 Shares to insiders and other employees respectively, be and they are hereby ratified, confirmed and approved;

THAT any officer of the Corporation be, and is hereby authorized and directed, for and on behalf of the Corporation, to finalize, sign or deliver all documents, to enter into any agreements and to do and perform all acts and things as such individual, in his or her discretion, deems necessary or advisable in order to give effect to the intent of this resolution and the matters authorized hereby, including compliance with all securities laws and regulations and the rules and requirements of the Toronto Stock Exchange, such determination to be conclusively evidenced by the finalizing, signing or delivery of such document or agreement or the performing of such act or thing.

If not approved, the Conditional Grants made pursuant to the Omnibus Incentive Plan will be deemed to have been made pursuant to the terms of the Corporation’s existing PSU Plan, RSU Plan and Employee Stock Option Plan.


The Board of Directors recommends that Shareholders vote FOR the Omnibus Incentive Plan Resolution.

11 | CAE INC. | 2023 | Management Proxy Circular 12 | CAE INC. | 2023 | Management Proxy Circular

Section 3 – About the Nominated Directors

This Section presents a profile of each nominated Director, including an explanation of each nominated Director’s experience, languages, education, skills, qualifications and core competencies, attendance at Board and Committee meetings from April 1, 2022 to March 31, 2023, total value of compensation received in FY2023, Share ownership information, the extent of fulfillment of the Minimum Ownership requirements, previous voting results, as well as participation on the boards of other public companies. A description of the Director Selection and Nomination Process, Board Attributes and Demographics and a tabular summary of our Directors’ Skills and Experiences follows the individual tables. “Market Value” refers to the product of the sum of the Shares and DSUs held by a Director multiplied by the closing price on the TSX of a Share on June 3, 2022 and June 5, 2023. Footnotes specific to each nominee are presented immediately below their biography.


98.1%	92.3%1	62	4.17	98.4%
Average 2022 Votes FOR	Independent Directors	Average Age	Average Tenure2 (years)	Average Board Attendance

1. The only non-Independent Director is CAE’s President and CEO.

2. For non-executive Directors.

13 | CAE INC. | 2023 | Management Proxy Circular

Section 3 – About the Nominated Directors


Ayman Antoun
Age: 57 Oakville, Ontario, Canada Independent Director since: 2022 Committees: Human Resources Total Value of Compensation Received in FY2023: $151,624 Languages: English, Arabic
Experience IBM– General Manager, Americas, which includes Canada, the United States and Latin America, and member of IBM’s Performance Team consisting of IBM’s top 50 executives globally (2020 – 2023); President, IBM Canada (2018 – 2020); held various senior executive sales leadership roles in Canada and the United States spanning Global Technology Services, Systems & Technology Group, Education Industry, Business Partners, and Global Sales Transformation (1988 – 2018)
Skills, Qualifications and Core Competencies Knowledge of Industry developed while at IBM where he gained experience in software development, which is essential to CAE Strategic Leadership and Management skills and experience obtained during his 35 years at IBM holding executive roles, including running IBM’s largest geography (Americas) which covered all twelve major industries across fourteen countries Information Technology / Cybersecurity / Digital expertise developed during his time at IBM where his roles had a focus on Infrastructure, Cloud, Cognitive Solutions, Security and Digital Reinvention software and hardware Government Relations experience gained by leading IBM’s public sector unit for more than eight years, serving as IBM Canada President, where he engaged with local, provincial and federal governments on a regular basis, and while serving as the partnership executive for the Canadian government for over ten years

Education BS, Electrical Engineering, University of Waterloo Graduate, Executive program in financial analysis, business management and strategic planning, Harvard Business School




2022 Voting Results
Votes For	99.87%	254,232,815
Votes Withheld	0.13%	323,802

Other Public Company Boards
None

Board and Committee Attendance1
Board of Directors	6 of 6	100%
Human Resources Committee	3 of 3	100%
Total	9 of 9	100%
1. Mr. Antoun joined the Board and Human Resources Committee on August 10, 2022.

Share Ownership
	June 5, 2023	June 3, 2022
Shares	-	–
DSUs	5,820	–
Total	5,820	–
Market Value	$168,082	–
Minimum Ownership Requirement	$400,000	N/A
% of Achievement2	42%	N/A
2. Mr. Antoun joined the Board on August 10, 2022 and must meet his required holdings over the five-year period from such date.

14 | CAE INC. | 2023 | Management Proxy Circular

Section 3 – About the Nominated Directors




2022 Voting Results
Votes For	95.27%	242,527,719
Votes Withheld	4.73%	12,028,898

Other Public Company Boards
Arconic Corp. (2020 – present)
Skywest, Inc. (2007 – 2015)

Board and Committee Attendance
Board of Directors	10 of 10	100%
Governance Committee (Chair)	3 of 3	100%
Human Resources Committee	6 of 6	100%
Total	19 of 19	100%

Share Ownership
	June 5, 2023	June 3, 2022
Shares	-	–
DSUs	61,168	51,526
Total	61,168	51,526
Market Value	$1,766,532	$1,747,246
Minimum Ownership Requirement	$400,000	$400,000
% of Achievement	442%	437%


Margaret S. (Peg) Billson
Age: 61 Albuquerque, New Mexico, U.S. Independent Director since: 2015 Committees: Governance (Chair), Human Resources Total Value of Compensation Received in FY2023: $256,000 Languages: English
Experience BBA Aviation–President & CEO, Aftermarket Services (2013 – 2016); President, Legacy Support (2009 – 2012) Eclipse Aviation–President & General Manager of the Airplane Division (2005 – 2008) Honeywell International–Vice-President & General Manager of Airframe Systems (2004 – 2005); Vice President & General Manager, Landing Systems (2002 – 2004); Vice President, Engine Systems Engineering and Program Management (1998 – 2001) Douglas Aircraft Company–Vice President Program Manager (1995 – 1997); Vice President Technical Services (1993 – 1995); held various quality assurance, engineering, and program management roles of increasing responsibility (1984 – 1993)
Skills, Qualifications and Core Competencies Knowledge of Industry gained as a veteran aviation business leader with over 35 years of experience leading technology rich companies and engineering sectors for BBA Aviation, Eclipse Aviation, Honeywell and Boeing (McDonnell Douglas) Strategic Leadership and Management experience and Human Resources / Compensation expertise gained while holding executive roles at Honeywell, Boeing (McDonnell Douglas) and BBA Aviation, and such roles have provided her with significant insight into human resources and compensation issues encountered by companies conducting business within the aerospace sector R&D expertise developed while overseeing multiple full scale aircraft design and development programs such as the MD-11 at McDonnell Douglas and the EA-500 at Eclipse Aviation, as well as her responsibilities in product development at Honeywell Manufacturing / Supply Chain expertise obtained through her extensive experience being accountable for the on-time manufacturing of airplanes and components

Education BS, Aeronautical Engineering, Embry-Riddle Aeronautical University MS, Engineering Aerospace, California State University Long Beach

15 | CAE INC. | 2023 | Management Proxy Circular

Section 3 – About the Nominated Directors




2022 Voting Results
Votes For	N/A	N/A
Votes Withheld	N/A	N/A

Other Public Company Boards
Bank of Montreal (2011 – present)
Bell Canada (2010 – 2020)
BCE Inc. (2010 – 2020)
CGI Inc. (2019 – 2020)
Valener Inc. (2000 – 2019)
Énergir (formerly Gaz Metro) (2007 – 2019)

Board and Committee Attendance
Board of Directors	N/A	N/A
Total	N/A	N/A

Share Ownership1
		June 3, 2022
Shares		-
DSUs		-
Total		-
Market Value		-
Minimum Ownership Requirement		N/A
% of Achievement		N/A
1. Ms. Brochu does not currently serve as a Director and will become a Director following her election at the Meeting.


Sophie Brochu
Age: 60 Bromont, Quebec, Canada Independent Director since: First time nominee (Independent1) Committees: N/A Total Value of Compensation Received in FY2023: N/A Languages: English, French
Experience Hydro-Québec–President and Chief Executive Officer (2020 – 2023) Énergir (formerly Gaz-Métro)–President and Chief Executive Officer (2007 – 2019); Vice-President, Business Development and other executive roles (1997 – 2007) Began her career as a financial analyst at Société québécoise d’initiatives pétrolières (SOQUIP) in 1987
Skills, Qualifications and Core Competencies Strategic Leadership and Management experience gained while serving as CEO at Energir and Hydro Quebec Human Resources / Compensation expertise gained during her service in CEO roles where she had ultimate oversight for succession planning, talent management and retention, and alignment of HR compensation programs with strategic orientations Government Relations expertise gained from her over 35 years of deep experience with energy utilities and regulated entities, both in Canada and the US, which involve various and complex governmental relations, both at the political and administrative levels, which resulted in her extensive strategic understanding of public policies ESG expertise through her over 25 years of experience in the deployment of health and safety programs, establishment of environmental frameworks, fostering of deep relationships with various stakeholders, and advancing of diversity and inclusion practices at the organizations that she oversaw

Education BA, Economics, University of Laval

16 | CAE INC. | 2023 | Management Proxy Circular

Section 3 – About the Nominated Directors




2022 Voting Results
Votes For	99.87%	254,228,700
Votes Withheld	0.13%	327,917

Other Public Company Boards
None

Board and Committee Attendance1
Board of Directors	6 of 6	100%
Audit Committee	2 of 2	100%
Human Resources Committee	3 of 3	100%
Total	11 of 11	100%
1. Ms. Eberwein joined the Board and Human Resources and Audit Committees on August 10, 2022.
Share Ownership
	June 5, 2023	June 3, 2022
Shares	14,500	-
DSUs	3,576	-
Total	18,076	-
Market Value	$522,035	-
Minimum Ownership Requirement	$400,000	N/A
% of Achievement	131%	N/A


Elise Eberwein
Age: 58 Scottsdale, Arizona, U.S. Independent Director since: 2022 Committees: Human Resources, Audit Total Value of Compensation Received in FY2023: $158,691 Languages: English
Experience American Airlines, Inc. – Executive Vice President, People and Communications (2013 – 2022) US Airways – Executive Vice President, People, Communications and Public Affairs (2005 – 2013) America West Airlines – Vice President, Corporate Communications (2003 – 2005) Served in key executive roles with Frontier Airlines and Western Pacific Airlines Began her aviation career as a flight attendant
Skills, Qualifications and Core Competencies Knowledge of Industry gained over her 35 years in the commercial aviation sector while working for six airlines, including several start-ups low-cost airlines and three major airlines: America West, US Airways, and American Airlines Strategic Leadership and Management experience gained while in leadership roles at US Airways and American Airlines which also included being a member of the executive management team leading two major airline mergers with responsibility for the subsequent integration work Human Resources / Compensation expertise gained through her roles leading all HR functions for more than 15 years, including serving as Chief Human Resources Officer for American Airlines, which resulted in her developing extensive executive compensation knowledge and talent development and succession planning experience ESG expertise obtained while developing and leading the diversity and inclusion initiatives as part of her responsibilities as CHRO of American Airlines

Education BA, Mass Communications, Lindenwood University Executive MBA, Colorado State University

17 | CAE INC. | 2023 | Management Proxy Circular

Section 3 – About the Nominated Directors




2022 Voting Results
Votes For	98.62%	251,048,760
Votes Withheld	1.38%	3,507,857

Other Public Company Boards
None

Board and Committee Attendance
Board of Directors	9 of 10	90%
Audit Committee (Chair)	4 of 4	100%
Governance Committee	3 of 3	100%
Total	16 of 17	94%

Share Ownership
	June 5, 2023	June 3, 2022
Shares	15,600	15,600
DSUs	28,706	18,875
Total	44,306	34,475
Market Value	$1,279,557	$1,169,047
Minimum Ownership Requirement	$400,000	$400,000
% of Achievement	320%	292%


Marianne Harrison
Age: 59 Boston, Massachusetts, U.S. Independent Director since: 2019 Committees: Audit (Chair) (financial expert), Governance Total Value of Compensation Received in FY2023: $261,000 Languages: English
Experience Manulife Financial Corporation–President and Chief Executive Officer of John Hancock Life Insurance Company, the U.S. division of Manulife Financial Corporation and a member of Manulife’s Executive Leadership Team (2017 – 2023); President and Chief Executive Officer of Manulife Canada, Manulife’s Canadian Division (2013 – 2017); held several leadership positions across the company, including President and General Manager for John Hancock Long-Term Care Insurance, and Executive Vice President and Controller for Manulife (2003-2017) TD Bank Group–Chief Financial Officer of Wealth Management after holding various other positions (1998 – 2003) PwC–Senior Manager after holding numerous other positions (1986 – 1998)
Skills, Qualifications and Core Competencies Strategic Leadership and Management experience gained while running all aspects of the P&L and serving as President and CEO of both John Hancock and Manulife Canada Finance / Accounting expertise developed during over 35 years in the financial industry including roles as Auditor for PWC; Corporate Controller Manulife Financial; and CFO Wealth Management TD Bank and was recognized by her election as a Fellow of the Profession, the highest designation for professional achievement conferred by the Chartered Professional Accountants of Ontario Risk Management experience gained throughout her career in financial services and as an active member of the Segment Risk Committee while serving as President and CEO John Hancock and Manulife Canada Capital Markets / M&A experience gained at Manulife Financial, where she was an active participant during mergers with both John Hancock and Standard Life, and the divestiture of Signature Services by John Hancock, as well as through having responsibility for the use of capital to ensure risk adjusted returns and company hurdle rates are met in both Canada and the US Segment

Education BA, English, University of Western Ontario Diploma in Accounting, Wilfrid Laurier University

18 | CAE INC. | 2023 | Management Proxy Circular

Section 3 – About the Nominated Directors




2022 Voting Results
Votes For	96.03%	244,446,475
Votes Withheld	3.97%	10,110,142

Other Public Company Boards
TD Bank (2014 – present)

Board and Committee Attendance1
Board of Directors	9 of 10	90%
Audit Committee	2 of 2	100%
Human Resources Committee	3 of 3	100%
Total	14 of 15	93%
1. Mr. MacGibbon was appointed Chair of the Board on August 10, 2022. As a result, he stepped down from the Audit and Human Resources Committees. As Chair of the Board, Mr. MacGibbon attends all Committee meetings.
Share Ownership
	June 5, 2023	June 3, 2022
Shares2	4,088	4,088
DSUs	69,709	56,633
Total	73,797	60,721
Market Value	$2,131,257	$2,059,049
Minimum Ownership Requirement3	$900,000	$400,000
% of Achievement	237%	515%
2. 1,011 of these Shares are owned beneficially by Mr. MacGibbon’s spouse, under the direction of Mr. MacGibbon. 3. Mr. MacGibbon’s minimum ownership requirement increased to $900,000 following his appointment as Chair of the Board on August 10,2022.


Alan N. MacGibbon Chair of the Board
Age: 67 Toronto, Ontario, Canada Independent Director since: 2015 Total Value of Compensation Received in FY2023: $345,298 Languages: English
Experience Deloitte LLP Canada– Senior Counsel (2012 – 2013); Managing Partner and Chief Executive and served on the Executive and Global Board of Directors of Deloitte Touche Tohmatsu Limited (2004 –2012); Global Managing Director, Quality, Strategy and Communications of Deloitte Touche Tohmatsu Limited (2011 – 2012)
Skills, Qualifications and Core Competencies Strategic Leadership and Management experience gained while serving as Managing Partner and CEO of Deloitte, where he was responsible for leading and managing the largest Canadian professional services firm with a partnership of over 800 partners and more than 8,000 employees Finance / Accounting expertise developed during his almost 35-year career at Deloitte, a leading global provider of audit and assurance, consulting, financial advisory services Risk Management experience gained through his roles at Deloitte where he advised large enterprises about the management of their risks Human Resources / Compensation expertise obtained while being Managing Partner and CEO of Deloitte Canada, where he dealt extensively with human resources and compensation issues as he had oversight of the succession planning and annual compensation planning and execution for all partners

Education BBA, University of New Brunswick Chartered Professional Accountant Chartered Accountant

19 | CAE INC. | 2023 | Management Proxy Circular

Section 3 – About the Nominated Directors




2022 Voting Results
Votes For	97.18%	247,367,289
Votes Withheld	2.82%	7,189,328

Other Public Company Boards
Canadian Imperial Bank of Commerce (2021 – present)
Magna International Inc. (2021 – present)

Board and Committee Attendance
Board of Directors	10 of 10	100%
Audit Commitee	4 of 4	100%
Human Resources Committee	6 of 6	100%
Total	20 of 20	100%

Share Ownership
	June 5, 2023	June 3, 2022
Shares	6,500	4,500
DSUs	9,775	3,443
Total	16,275	7,943
Market Value	$470,022	$269,347
Minimum Ownership Requirement	$400,000	$400,000
% of Achievement	118%	67%


Mary Lou Maher
Age: 63 Toronto, Ontario, Canada Independent Director since: 2021 Committees: Audit (financial expert), Human Resources Total Value of Compensation Received in FY2023: $247,000 Languages: English
Experience KPMG Canada–Canadian Managing Partner, Quality and Risk and Global Head of Inclusion and Diversity KPMG International (2017 – 2021); held various executive and governance roles, including Chief Financial Officer, Chief Inclusion and Diversity Officer and Chief Human Resources Officer (1983 – 2017)
Skills, Qualifications and Core Competencies Finance / Accounting expertise developed during her many years at KPMG where she gained audit experience in retail, manufacturing, financial services (banking and brokerage), hospitality, healthcare and real estate and was recognized through her election as a Fellow of the Chartered Professional Accountants of Ontario Human Resources / Compensation expertise gained while serving as Chief Human Resource Officer, Chief Inclusion and Diversity Officer and Global Head of Inclusion and Diversity at KPMG, where she created KPMG Canada’s first ever National Diversity Council and was the executive sponsor of pride@kpmg Risk Management experience gained while serving as a member of the KPMG Canadian Executive and Global Risk Management leadership teams, which are responsible for managing risk and legal matters for KPMG Canada including Enterprise Risk Management ESG expertise obtained while at KPMG where she oversaw the talent development of their workforce and led their diversity, equity, and inclusion initiatives

Education BCom, McMaster University Fellow Chartered Professional Accountant

20 | CAE INC. | 2023 | Management Proxy Circular

Section 3 – About the Nominated Directors




2022 Voting Results
Votes For	98.86%	251,664,205
Votes Withheld	1.14%	2,892,412

Other Public Company Boards
Fiera Capital Corp. (2022 – present)
Transcontinental Inc. (2008 – 2021)

Board and Committee Attendance
Board of Directors	10 of 10	100%
Audit Committee	4 of 4	100%
Governance Committee	3 of 3	100%
Total	17 of 17	100%

Share Ownership
	June 5, 2023	June 3, 2022
Shares	-	–
DSUs	45,002	35,700
Total	45,002	35,700
Market Value	$1,299,658	$1,210,587
Minimum Ownership Requirement	$400,000	$400,000
% of Achievement	325%	303%


François Olivier
Age: 58 Montreal, Quebec, Canada Independent Director since: 2017 Committees: Audit, Governance Total Value of Compensation Received in FY2023: $247,000 Languages: English, French
Experience Transcontinental Inc.–President and Chief Executive Officer (2008 – 2021); joined in 1993 in the Printing Sector and rose through the ranks to ultimately take on the role of President of the Information Products Printing Sector, and then became Chief Operating Officer in 2007 Canada Packers–General Manager (1988 – 1993)
Skills, Qualifications and Core Competencies Strategic Leadership and Management experience gained in driving profitable business growth through M&A and in managing large-scale manufacturing operations notably while in the roles of CEO and COO at Transcontinental, where he transformed the Canadian printing industry and made Transcontinental Canada’s largest printer both a leader in flexible packaging in North America and a Canadian leader in its specialty media segments International Markets experience obtained while CEO of Transcontinental, where he managed the multinational company with revenue of $3 billion and 9,000 employees operating in eight different countries Capital Markets / M&A expertise developed during his time at Transcontinental, which included developing and transforming the company through multiple mergers and acquisitions activities Manufacturing / Supply Chain experience gained while at Transcontinental, where he managed a network of 45 manufacturing locations in eight different countries

Education BSc, McGill University Graduate, Program for Management Development, Harvard Business School

21 | CAE INC. | 2023 | Management Proxy Circular

Section 3 – About the Nominated Directors


Marc Parent, C.M. President and CEO
Age: 62 Montreal, Quebec, Canada Director since: 2008 Total Value of Compensation Received in FY2023: please refer to Section 7 – Executive Compensation – Compensation of our Named Executive Officers for details concerning Mr. Parent’s compensation. Languages: English, French
Experience CAE Inc.–President and CEO (2009 – present); Executive Vice President and Chief Operating Officer responsible for all of CAE’s business segments and new growth initiatives (2008 – 2009); Group President, Simulation Products and Military Training & Services (2006 – 2008); Group President, Simulation Products responsible for the Company’s civil simulation products business as well as the design, manufacture and support of products for the Company’s civil and military training businesses (2005 – 2006) Bombardier Aerospace–Vice President and General Manager of Challenger 300, 604, and 850/870 programs as well as the CRJ 200 Regional Aircraft product line (2004 – 2005); Vice President and General Manager, U.S. Operations, with responsibilities encompassing Learjet facilities in Wichita and Tucson (2003 – 2004), Vice President and General Manager of Operations of the Toronto facility (2001 – 2003), Vice President, Operations of the de Havilland site in Toronto (2000 – 2001); Vice President Program Management for Product Development (1998 – 2000); Project Director responsible for the design, development and certification of the Q400 turboprop airliner (1995 – 1998)
Skills, Qualifications and Core Competencies Deep Knowledge of Industry gained during more than 35 years of aerospace experience at Canadair, Bombardier and CAE Strategic Leadership and Management experience developed in executive roles at Bombardier and CAE including as COO and CEO Human Resources / Compensation expertise gained during his many years in leadership roles including in his capacity as President and CEO of CAE and as General Manager of sites in Canada and the US while with Bombardier, where he oversaw large workforces Capital Markets / M&A experience gained while overseeing 36 M&A transactions, creating 19 joint ventures and multiple organic transactions of customer outsourcing since the start of his CEO tenure in 2009, which has resulted in realizing benefits of scale through synergy capture and best-of-breed technology consolidation

Education Bachelor of Engineering, École Polytechnique de Montreal Graduate, Harvard Business School Advanced Management Program Active pilot holding a Transport Canada Airline Transport Pilot License




2022 Voting Results
Votes For	99.88%	254,247,882
Votes Withheld	0.12%	309,416

Other Public Company Boards
Telus Corporation (2017 – present)

Board and Committee Attendance1
Board of Directors	10 of 10	100%
Total	10 of 10	100%
1 Upon invitation of Board Committees, Mr. Parent attended all or a part of their meetings.
Share Ownership2
	June 5, 2023	June 3, 2022
Shares	354,879	314,063
FY2004 LTUs3	42,985	42,985
LTUs3	232,111	232,111
Total	629,975	589,159
Market Value	$18,193,678	$19,978,382
2 As President and CEO, Mr. Parent has a higher ownership target than an Independent Director (please refer to Section 7 – Executive Compensation - Compensation Discussion and Analysis - Compensation Governance – Executive Share Ownership Requirements for details concerning Mr. Parent’s Share ownership requirements). 3 Please refer to Section 7 – Executive Compensation – Compensation Discussion and Analysis – Executive Compensation Programs - Long-Term Incentive Program Design - Inactive Equity-Based Plans with Legacy Participants for information about the FY2004 LTUs and the LTUs.

22 | CAE INC. | 2023 | Management Proxy Circular

Section 3 – About the Nominated Directors




2022 Voting Results
Votes For	96.49%	245,614,203
Votes Withheld	3.51%	8,942,414

Other Public Company Boards
Oshkosh Corp. (2022 – present)

Board and Committee Attendance1
Board of Directors	10 of 10	100%
Audit Committee	2 of 2	100%
Governance Committee	2 of 2	100%
Human Resources Committee	6 of 6	100%
Total	20 of 20	100%
1. Gen. Perkins stepped down from the Audit Committee and joined the Governance Committee on August 10, 2022.
Share Ownership
	June 5, 2023	June 3, 2022
Shares	-	–
DSUs	22,062	12,760
Total	22,062	12,760
Market Value	$637,151	$432,691
Minimum Ownership Requirement	$400,000	$400,000
% of Achievement	159%	108%


General David G. Perkins USA (Ret.)
Age: 65 Jackson, New Hampshire, U.S. Independent Director since: 2020 Committees: Human Resources, Governance Total Value of Compensation Received in FY2023: $247,000 Languages: English
Experience US Army–Commander of the United States Army Training and Doctrine Command (TRADOC) (2014 – 2018); Commander, Combined Arms Center & Commandant, Command & General Staff College (2011 – 2014); Commander, 4th Infantry Division (2009 – 2011); joined in 1980
Skills, Qualifications and Core Competencies Knowledge of Industry developed while serving for over 40-year in the US Army, including as the Training and Doctrine Command (TRADOC) commander, where he was responsible for developing and specifying the operational requirements for all US Army systems Strategic Leadership and Management experience gained while serving and leading the US Army, which is one of the most complex and largest organizations in the world, and where under his leadership, TRADOC developed the Army’s strategic concept of Multi-Domain Operations which has become a driver for future changes in operations and training, not only in the US Military, but around the world Government Relations expertise developed while commanding TRADOC, which is responsible for designing, acquiring, building, and constantly improving the entire US Army in accordance with all policies and laws both in the US and internationally Human Resources / Compensation experience based on running a recruiting organization that recruited and hired over 120,000 personnel annually and was then responsible for developing and implementing a talent management and leader development strategy for over 1.2 million personnel

Education BS, U.S. Military Academy, West Point MS, Mechanical Engineering, University of Michigan Masters in National Security and Strategic Studies, U.S. Naval War College

23 | CAE INC. | 2023 | Management Proxy Circular

Section 3 – About the Nominated Directors




2022 Voting Results
Votes For	98.86%	251,653,182
Votes Withheld	1.14%	339,369

Other Public Company Boards
CGI Inc. (2006 – present)

Board and Committee Attendance
Board of Directors	10 of 10	100%
Audit Committee	4 of 4	100%
Governance Committee	3 of 3	100%
Total	17 of 17	100%

Share Ownership
	June 5, 2023	June 3, 2022
Shares	-	–
DSUs	39,435	30,132
Total	39,435	30,132
Market Value	$1,138,883	$1,021,776
Minimum Ownership Requirement	$400,000	$400,000
% of Achievement	285%	255%


Michael E. Roach
Age: 71 Montreal, Quebec, Canada Independent Director since: 2017 Committees: Audit, Governance Total Value of Compensation Received in FY2023: $247,000 Languages: English
Experience Interac Inc.–Chairman of the Board (2018 – 2020) CGI Inc.–President and Chief Executive Officer (2006 – 2016), President and Chief Operating Officer (2002 – 2006); President, Canada and Europe (2001); Executive Vice President, Business Engineering and Outsourcing (1999 – 2000); Executive Vice President and General Manager, Telecommunication Information Systems and Services (1998 – 1999) Bell Canada–President and Chief Executive Officer of Bell Sygma Inc. (1992 – 1998), following progressive management roles (1974– 1992)
Skills, Qualifications and Core Competencies Strategic Leadership and Management experience gained as a board member and executive who participated in the development of numerous annual strategic plans, including evaluation and successful implementations while serving in his executive leadership roles Information Technology / Cybersecurity / Digital expertise developed during his tenure as CEO of CGI Inc., a global IT and business consulting firm Capital Markets / M&A expertise gained through his experience in identifying, executing, and integrating acquisitions and establishment and chairing of global capital investment programs International Markets experience obtained while operating across four continents in his role at CGI Inc.

Education BA, Economics and Political Science, Laurentian University Graduate, Columbia University Executive Program Graduate, Niagara Institute Leadership Training

24 | CAE INC. | 2023 | Management Proxy Circular

Section 3 – About the Nominated Directors




2022 Voting Results
Votes For	99.87%	254,217,248
Votes Withheld	0.13%	339,369

Other Public Company Boards
Leidos Inc. (2022 – present)
Spirit Aerosystems Inc. (2021 – present)
Eve Holdings, Inc. (2021 – 2022)

Board and Committee Attendance
Board of Directors	10 of 10	100%
Audit Committee	4 of 4	100%
Governance Committee	3 of 3	100%
Total	17 of 17	100%

Share Ownership
	June 5, 2023	June 3, 2022
Shares	-	–
DSUs	5,461	–
Total	5,461	–
Market Value	$157,714	–
Minimum Ownership Requirement	$400,000	$400,000
% of Achievement1	39%	N/A
1. Mr. Shanahan joined the Board on April 1, 2022 and must meet his required holdings over the five-year period from such date.


Patrick M. Shanahan
Age: 61 Seattle, Washington, U.S. Independent Director since: 2022 Committees: Audit, Governance Total Value of Compensation Received in FY2023: $181,317 Languages: English
Experience U.S. Department of Defense–U.S. Acting Secretary of Defense (2019); 33rd U.S.Deputy Secretary of Defense, where he helped lead the development of several key Department of Defense policies and strategies (2017 – 2018) The Boeing Company–Senior Vice President, Supply Chain & Operations (2016 – 2017); Senior Vice President of Commercial Airplane Programs, managing profit and loss for the 737, 747, 767, 777 and 787 programs and the operations at Boeing’s principal manufacturing sites (2008 – 2016); Vice President and General Manager of the 787 Dreamliner, leading the program during a critical development period (2007 – 2008); Vice President and General Manager of Boeing Missile Defense Systems, overseeing the Ground-based Midcourse Defence system, Airborne Laser and Advanced Tactical Laser (2004 – 2007); Vice President and General Manager of Boeing Rotorcraft Systems, overseeing the Apache, Chinook and Osprey (2002 – 2004); joined in 1986
Skills, Qualifications and Core Competencies Knowledge of Industry gained during his over three decades with The Boeing Company overseeing both their civil aviation and defense units and as the “customer” while serving in the government Strategic Leadership and Management experience obtained through his service in the U.S. Department of Defense, including as the Acting Secretary of Defense and the 33rd Deputy Secretary of Defense, where he oversaw the management of coordinating and supervising all matters related to the U.S. Armed Forces, as well as during his time in leadership roles at Boeing Risk Management expertise developed through his roles at Boeing overseeing development and execution of numerous complex civil aviation and defense programs Manufacturing / Supply Chain expertise gained through his roles at Boeing overseeing development and execution of numerous complex civil aviation and defense programs that included responsibilities for manufacturing operations, and supplier management functions, including implementation of advanced manufacturing technologies and global supply chain strategies

Education BS, Mechanical Engineering, University of Washington MS, Mechanical Engineering, Massachusetts Institute of Technology MBA, Massachusetts Institute of Technology’s Sloan School of Management

25 | CAE INC. | 2023 | Management Proxy Circular

Section 3 – About the Nominated Directors


Andrew J. Stevens
Age: 66 Cheltenham, Gloucestershire, U.K. Independent Director since: 2013 Committees: Human Resources, Governance Total Value of Compensation Received in FY2023: $247,000 Language: English
Experience Cobham plc–Served in positions of increasing responsibility including Group Managing Director, Aerospace Systems, Chief Operating Officer and Chief Executive Officer (2003 – 2012) Rolls-Royce–Managing Director Defence Aerospace (2001 – 2003) Messier-Dowty–Managing Director, then Chief Operating Officer (1996 – 2000) Bowthorpe plc (1994 – 1996) Dowty Group, a leading British manufacturer of aircraft equipment (1976 – 1994)
Skills, Qualifications and Core Competencies Knowledge of Industry gained during his over 45-year career in the global aerospace sector serving in positions at Dowty Group, Bowthorpe, Cobham and Rolls-Royce, where he served as Managing Director of Defence Aerospace Strategic Leadership and Management experience gained while serving in senior executive positions including CEO and COO at Cobham and COO at Messier-Dowty International Markets expertise developed while overseeing companies operating globally, including in North America, Europe, Middle East and Asia, and owning relationships with key customers, governments and suppliers that allowed for success in those locations Manufacturing / Supply Chain experience gained through serving as COO at both Cobham and Messier-Dowty, where he built a raise percentage in these important areas

Education Chartered Engineer, with a 1st Class honour degree in Production Engineering, Aston University in Birmingham




2022 Voting Results
Votes For	95.94%	244,222,498
Votes Withheld	4.06%	10,334,119

Other Public Company Boards
Héroux-Devtek Inc. (2014 – 2019)
De La Rue plc (2012 – 2019)
Cobham plc (2003 – 2012)

Board and Committee Attendance
Board of Directors	9 of 10	90%
Human Resources Committee	6 of 6	100%
Governance Committee	3 of 3	100%
Total	18 of 19	95%

Share Ownership
	June 5, 2023	June 3, 2022
Shares	-	–
DSUs	92,082	82,779
Total	92,082	82,779
Market Value	$2,659,328	$2,807,035
Minimum Ownership Requirement	$400,000	$400,000
% of Achievement	665%	702%

26 | CAE INC. | 2023 | Management Proxy Circular Director Selection and Nomination Process

Section 3 – About the Nominated Directors

Part of the Governance Committee’s responsibility is to identify and recruit suitable potential Board members and recommend to the Board nominees for election at annual Shareholders’ meetings, taking into consideration the “Board and Executive Officer Diversity, Equity and Inclusion Policy” (the “Diversity Policy”).

To fulfill this mandate, the GC:

- Identifies desirable skill sets, industry experience, diverse backgrounds, international experience, relationships and other attributes that would assist the Board in the conduct of its responsibilities and also further CAE’s interests (refer to “Board Attributes” below), taking into account criteria that promote diversity, including but not limited to gender, age, race, national or ethnic origin, sexual orientation and disability.

- Reviews with the Chair, President and CEO and other Directors possible candidates, including the existing members of the Board, which may meet some or all of such attributes.

- Considers potential conflicts of interest, independence issues and interlocking directorships of potential candidates.

- Approaches with the Chair and other Directors potential candidates not already serving as Directors to determine their availability and interest in serving on CAE’s Board, and interviews those interested to determine their suitability for nomination.

- Reviews with other members of the Board the potential nomination of any new Director before a final determination to nominate them is made and assess the effectiveness of the Director nomination process at achieving CAE’s diversity objectives.

Board members must:

- Demonstrate high ethical standards and integrity, including abiding by CAE’s Code of Conduct;

- Act honestly and in good faith regarding CAE’s best interests;

- Devote sufficient time to CAE’s affairs and exercise prudence and diligence in fulfilling all their Board-related responsibilities;

- Give independent judgment on issues facing CAE;

- Understand and challenge CAE’s business plans and strategy;

- Effectively participate in all Board-related deliberations;

- Make reasonable efforts to attend Board and committee meetings; and

- Review the management materials provided in advance of, and otherwise prepare for, all Board meetings.

Under the articles of CAE, the Board may consist of a minimum of three and a maximum of twenty-one Directors. As provided in CAE’s by-laws, the Directors are to be elected annually and a majority of the Directors shall be resident Canadians. Each Director will hold office until the next annual meeting or until his or her successor is duly elected unless his or her office is earlier vacated in accordance with the by-laws. In accordance with the by-laws, the Board has fixed the number of Directors to be elected at the Meeting at thirteen.

27 | CAE INC.

Section 3 – About the Nominated Directors

Board Attributes

| 2023 | Management Proxy Circular The following matrix identifying the gender, language skills, age, diversity affiliation, tenure, professional skills, expertise and qualifications of nominated Directors is reviewed by the Governance Committee annually to ensure CAE benefits from an appropriate combination of skills, experience with CAE’s business matters and corporate governance standards and fresh perspectives:

- All non-employee Director nominees (12 out of a total number of 13 Directors) are independent.

- All Board Committee members are independent.

Board Demographics

Ayman Antoun

Margaret S.
(Peg) Billson

Sophie Brochu

Elise Eberwein

Marianne Harrison

Alan N. MacGibbon

Mary Lou Maher

François Olivier

Marc Parent

Gen. David G.
Perkins, USA (Ret.)

Michael E. Roach

Patrick M. Shanahan

Andrew J. Stevens

Gender

French1

●

English1

●

Other language(s)1

●

Under 60

●

60-69

●

70+

●

LGBTQ2+

●

Visible minority

●

Indigenous people

0-5 years

●

6-10 years

●

More than 10 years

●

1. At a minimum, business proficiency, unless otherwise indicated.

28 | CAE INC. | 2023 | Management Proxy Circular

Section 3 – About the Nominated Directors

Skills and Experiences

Ayman Antoun

Margaret S.
(Peg) Billson

Sophie Brochu

Elise Eberwein

Marianne Harrison

Alan N. MacGibbon

Mary Lou Maher

François Olivier

Marc Parent

Gen. David G.
Perkins, USA (Ret.)

Michael E. Roach

Patrick M. Shanahan

Andrew J. Stevens

Knowledge of Industry

Experience with, or understanding of, some or all of the markets or industries which are directly relevant to CAE, including civil aviation, defence, and healthcare.

●

Strategic Leadership and Management

Experience as senior executive of a public company or other major organization, and executive or management experience developing, evaluating and implementing a strategic plan.

●

Finance / Accounting

Experience with, or understanding of, financial accounting and reporting and corporate finance, and familiarity with internal financial and accounting controls and IFRS.

●

Human Resources / Compensation

Experience with, or understanding of, executive compensation and benefits, including benefits and incentive programs, talent management and retention, leadership development, and succession planning.

●

Government Relations

Experience with, or understanding of, regulatory, political and public policy in Canada, the United States and/or international jurisdictions.

●

R&D

Experience with the oversight of large-scale R&D programs.

●

Legal / Governance

Experience with, or understanding of, corporate governance issues and practices, including the legal, compliance and regulatory environment applicable to public companies or other major organizations.

●

Information Technology / Cybersecurity / Digital

Experience with, or understanding of, the design and implementation, or oversight of the design and implementation, of enterprise-wide information technology systems, client-based digital infrastructures, data analytics, privacy and cybersecurity strategy and policies.

●

ESG

Experience with, or understanding of, ESG practices and programs, including sustainability, health and safety, diversity and inclusion and social responsibility.

●

Risk Management

Experience with, or understanding of, the identification and assessment of risks and risk management systems.

●

International Markets

Experience with, or understanding of, overseas markets where the Company has operations.

●

Capital Markets / M&A

Experience overseeing the allocation of capital to ensure superior risk-adjusted financial returns and in capital structure strategy and corporate transactions, including mergers, acquisitions, or divestitures of major assets and/or private/public entities.

●

Manufacturing / Supply Chain

Experience with, or understanding of, sourcing, manufacturing, supply chain, infrastructure, information management, logistics, and product development, distribution and marketing.

●

29 | CAE INC. | 2023 | Management Proxy Circular 30 | CAE INC. | 2023 | Management Proxy Circular

Section 4 – Corporate Governance

Our Commitment to Sound Corporate Governance

The Board and management team take pride in knowing that CAE has maintained the highest standards in corporate governance. CAE’s corporate governance is rooted in the basic principle that proper and ethical practices lead to the creation and preservation of Shareholder value.

Our governance structure enables independent, experienced and accomplished Directors to provide advice, insight and oversight to advance the interests of the Company and our Shareholders.

Regulatory compliance

As a Canadian reporting issuer with Shares listed on the TSX and the New York Stock Exchange (“NYSE”), CAE’s corporate governance practices are required to meet and exceed applicable rules adopted by the Canadian Securities Administrators (“CSA”) and the United States Securities and Exchange Commission (“SEC”), as well as provisions of the rules of the NYSE and of SOX.

Most of the NYSE’s corporate governance listing standards are not mandatory for CAE as a non-U.S. company, but CAE is required to disclose the significant differences between its corporate governance practices and the requirements applicable to United States companies listed on the NYSE. Except as summarized on CAE’s website (http://www.cae.com/investors/governance), CAE is in compliance with the NYSE requirements in all significant respects. CAE also complies with those provisions of SOX and the rules adopted by the SEC pursuant to that Act that are currently applicable to CAE.

Best practices and continuous improvement

The Board and its Governance Committee continue to monitor governance practices in Canada and the United States, and to implement changes to CAE’s governance policies and practices as necessary to comply with any new rules issued by the CSA and other applicable regulatory authorities. We also monitor recommended best practices of Shareholder representatives and other organizations and will implement any such practice we believe to be in the best interest of the Company.

Communication and Shareholder engagement

CAE is committed to ensure open, ongoing dialogue with Shareholders, other investors and the public. Through CAE’s Disclosure Policy and procedures, the Board ensures that communication of material information to investors is timely and accurate, and broadly disseminated in accordance with all applicable securities laws and stock exchange rules. CAE recognizes the importance of engaging in constructive and meaningful communications with Shareholders and values their input and insights. To that effect, we have put in place various means to ensure consistent and effective communication with Shareholders and to encourage them to express their views and provide direct feedback to the Board and management.

We regularly communicate with our stakeholders through various channels, including via our website (www.cae.com). Shareholders, customers and other stakeholders can access comprehensive information about the Company through the investor section of our webpage (www.cae.com/investors) where annual and quarterly reports, news releases, sustainability reports, corporate presentations and governance-related documents are available.

We host quarterly earnings conference calls with financial analysts and institutional investors to review CAE’s most recently released financial and operating results. Our earning calls are webcast live and are followed by a question and answer period which all Shareholders can access.

We also host Investor Days intended for capital market professionals, including financial analysts and institutional investors on an ad hoc basis. These events enable CAE to explain our activities and communicate our strategy and vision for the Company in a comprehensive way to our Shareholders. These meetings also provide opportunities to engage with CAE’s executive team. These events can be attended in person or via live webcast. The replay of the event and the supporting presentation are available on CAE’s website after the event.

The Board encourages Shareholders to attend the Company’s annual Shareholders’ meetings. These meetings provide valuable opportunities to discuss the Company, its corporate governance and other important matters.

31 | CAE INC. | 2023 | Management Proxy Circular The Company is committed to effectively engaging with Shareholders and other stakeholders on the topic of executive compensation on an ongoing basis.

Section 4 – Corporate Governance

Each year, we ask Shareholders at the Meeting to consider and to cast an advisory, non-binding vote on CAE’s approach to executive compensation – this is often referred to as “say on pay”. Although this is an advisory vote and the results are not binding, the HRC reviews and analyzes the results of the vote and takes into consideration such results when reviewing executive compensation philosophy and programs.

At the annual meeting of Shareholders held in August 2022, following the support received with respect to the advisory vote on executive compensation, CAE’s Board and management committed to engage, over the course of FY2023, with proxy advisory firms, our institutional Shareholders and other stakeholders to better understand any concerns or recommendations with respect to CAE’s compensation practices. Please refer to Section 7 – Executive Compensation – Compensation Discussion and Analysis - Shareholder Engagement, which describes our significant engagement initiatives with investors in FY2023.

Shareholders are also always invited to submit proposals to be considered at an annual Shareholders’ meeting of the Company and included in our management proxy circular. More information is provided under Section 8 – Other Important Information of this Circular.

CAE’s Global Communications and Investor Relations departments actively engage with investors to address any specific questions or concerns they might have. Shareholders may send comments or questions via email to investor.relations@cae.com. In addition, CAE’s transfer agent, Computershare Trust Company of Canada, has a toll-free number (1-800-564-6253) and website (www.computershare.com) to assist Shareholders.

Shareholders may communicate with the Board or management in writing to express their views on matters that are important to them, by addressing their correspondence to the Chair of the Board, either (i) by mail in an envelope marked “confidential” to the attention of the Chair of the Board, CAE Inc., 8585 Ch. de la Côte-de-Liesse St-Laurent (Québec) Canada H4T 1G6 or (ii) by email at boardchair@cae.com.

Shareholders may ask to meet with the Chair of the Board, the Chair of any Board Committee or an individual Director to discuss compensation and governance-related topics for which the Board is directly responsible. The Chair of the Board will consider such meeting requests in consultation with the Chair of the Governance Committee and the Corporate Secretary. The Board reserves the right to decline requests for meetings for any reason it deems appropriate, including where the proposed

topics for the meeting are not related to compensation and corporate governance matters and are better handled by management.

We are committed to maintaining and continuously enhancing our Shareholders’ engagement. We offer various opportunities for our institutional investors and proxy advisory groups to learn about CAE through:

- Investor days

- Investor roadshows throughout the year

- In person or videoconference meetings with our President and Chief Executive Officer, Executive Vice President Finance and Chief Financial Officer, Senior Vice President, Investor Relations and Enterprise Risk Management, Chief Sustainability Officer and Senior Vice President, Stakeholder Engagement, Group Presidents and senior leaders within our global operations

- Webcasts of our quarterly earnings conference calls with research analysts and institutional investors

- Executive presentations at institutional and industry conferences

- Quarterly earnings presentations available on our website

We also receive feedback through:

- Our Shareholders’ Annual General Meeting

- Regular discussions with sell-side analysts

- A dedicated address for email inquiries

- Our advisory note on our approach to executive compensation

- We continuously enhance our messaging to our investors to provide them with the most accurate guidance on our growth perspectives and the future value of their investment

Board and management roles

The purpose of the Board and its committees is to build long-term value for the Company’s Shareholders and to ensure the continuity and vitality of the Company’s businesses by setting policy for the Company, overseeing strategic planning, monitoring the Company’s performance, providing management with appropriate advice and performance feedback. Management is responsible for and the Board is committed to ensuring that CAE operates in a legal and ethically responsible manner. The Board’s stewardship role, specific responsibilities,

32 | CAE INC. | 2023 | Management Proxy Circular composition requirements and various other matters are set out in Appendix A – Board of Directors’ Charter to this Circular.

Section 4 – Corporate Governance

President and CEO’s role and responsibilities

The position description for the President and CEO is developed with input from the President and CEO, and is approved by the Governance Committee and the Board. The description (which is available on our website) provides that the President and CEO has the primary responsibility for the leadership, strategic and management direction and business results of CAE to ensure that CAE establishes appropriate goals, and manages its resources to meet these goals. It also provides that the President and CEO is accountable to the Board for, amongst other things, formulating and executing business strategies, overseeing CAE’s corporate governance structure and framework, overall responsibility for the management of CAE’s business, carrying out a comprehensive budgeting process and monitoring CAE’s performance against the budget, ensuring that CAE strategies are effectively implemented with timely progress towards strategic objectives, identifying and communicating risks and opportunities to the Board and dealing with them appropriately, keeping the Board fully informed of all important issues and aspects of the Company’s performance, opportunities and market developments, building and maintaining a network of strategic relationships with business leaders, governmental officials and investors, developing and implementing a human resource strategy which develops leadership capabilities, and creating an organizational structure and culture that optimize and sustain high levels of performance. The CEO is responsible for ensuring there is an effective risk management and business continuity framework in place, with appropriate systems to monitor, manage and mitigate such risks (including cybersecurity risks). In addition, the CEO is responsible for the implementation and communication of the Company’s ESG policies, practices and strategy (including diversity, equity and inclusion; health &, safety; ethics and anti-corruption; environment and climate change; and human rights). The CEO fosters a culture of ethical behaviour for CAE and to promotes compliance with CAE’s Code of Business Conduct and proactively ensures that CAE complies with all of its legal, accounting, ethical, moral and social responsibility obligations.

The Board Chair is independent

Mr. MacGibbon currently serves as the Chair of the Board. Mr. MacGibbon is a non-executive Director and, as such, is responsible for ensuring that the Board discharges its responsibilities independently of management.

Correspondence to the Independent Directors may be sent to the attention of the Chair of the Board, by email at boardchair@cae.com or at CAE’s address listed in this Circular.

The Board Chair position description (which is available on our website) sets out the Chair’s responsibilities and duties in guiding the Board in the fulfillment of their stewardship role, namely:

- Represent the Board in discussion with management;

- Represent the Board in discussion with third parties;

- Generally ensure that the Board functions independently of management;

- Chair and encourage free and open discussions at the Board meetings;

- Together with the GC, identify guidelines for the selection of, and evaluation of conduct of the Directors;

- Ensure the effective and transparent interaction of Board members and senior management;

- Act as a resource to the President and CEO on significant strategy and business initiatives and meet with the President and CEO regularly to provide feedback and advice on behalf of the Board and other stakeholders;

- Report to Shareholders on behalf of the Board and play a role in the Company’s external relationships in consultation with the President and CEO; and

- Report to Shareholders on behalf of the Board.

Processes in place to ensure the Board may function independently of management

The Independent Directors met separately from the President and CEO at each of the meetings of the Board during FY2023, and at each meeting of the HRC, GC and Audit Committee. At the Board meetings, the Independent Directors’ meetings are chaired by the non-executive Chair; at Committee meetings, by the Chair of that Committee. The Board, its Committees as well as individual Directors are also able to retain and meet with external advisors and consultants at the expense of CAE in appropriate circumstances. In fact, the Board has regular access to information independent of management through the external and internal auditors, as well as independent compensation consultants and independent legal counsel. The Board believes that sufficient processes are in place to enable it to function independently of management.

33 | CAE INC. | 2023 | Management Proxy Circular In order to enable it to effectively fulfill its responsibilities, the Board has established three standing committees currently composed of the following Independent Directors as of the Record Date:

Section 4 – Corporate Governance

Delegation to standing Board committees composed entirely of Independent Directors


	Governance	Audit	Human Resources
Ayman Antoun			X
Margaret S. (Peg) Billson	Chair		X
Elise Eberwein		X	X
Hon. Michael M. Fortier			Chair1
Marianne Harrison	X	Chair
Mary Lou Maher1		X	X
François Olivier	X	X
Gen. David G. Perkins, USA (Ret.)	X		X
Michael E. Roach	X	X
Patrick M. Shanahan	X	X
Andrew J. Stevens	X		X

1. Ms. Maher will succeed Hon. Michael M. Fortier as the Chair of the HRC after the end of the Meeting.

The nature and scope of authority and responsibility delegated to each standing committee is set forth in the Committee Charters presented in Section 5 – Board Committee Reports which can also be found on our website under “Corporate Governance” along with each Committee Chair’s position description.

The appointment of specific Directors to each of the standing Board Committees is generally intended to reflect the relevance of Independent Directors’ skills and experience to the applicable Committee’s Charter (refer to Section 3 – About the Nominated Directors for details about the selection process and criteria).

Orientation and continuing education

New Directors meet with CAE executive officers, including the President and CEO and Executive Vice President, Finance and CFO, to discuss CAE’s expectations of its Directors and to discuss CAE business and strategic plans. New Directors also review CAE’s current business plan, detailed agendas and materials of previous Board meetings. New Directors of CAE receive a comprehensive reference manual containing all key corporate and Board policies, including the Code of Business Conduct and other relevant materials and executive briefing sessions. All Directors have regular access to senior management to discuss Board presentations and other matters of interest. CAE management and the Governance Committee keep all Directors aware of major developments in corporate governance, important trends and new legal or regulatory requirements. The Board also receives presentations from senior management on CAE’s performance and issues relevant to the business of CAE, the industry and the competitive environment in which it operates.

34 | CAE INC.

Section 4 – Corporate Governance

| 2023 | Management Proxy Circular The Governance Committee encourages CAE’s Directors to attend conferences, seminars or courses whether they be industry-specific to CAE or relevant to fulfill their role as a Director, the cost of which will be borne by CAE. Throughout FY2023, management conducted or organized the education sessions noted in the following table. Also, CAE’s Directors are invited to visit CAE’s sites, attend industry events and trade shows. In recognition of the rapidly changing technology and competitive environment and new and emerging markets in our business, the Board requires management to provide an in-depth review of the business segments in which we operate at regularly scheduled meetings, as well as our industry in general. The Board and its Committees are continually updated by management on developments related to corporate governance, changes in the competitive landscape, Directors’ fiduciary duties, changes in law, technology, industry news and other educational material.

Date

Subject

Attendees

Presented by

April 19- 20, 2022

Strategic context updates, which include technological developments, civil aviation industry developments, defence & security industry developments, healthcare industry developments, financial developments, investor relations and enterprise risk management developments

Entire Board

CEO

CFO

Senior Vice-President, Global Strategy

Group President, Civil Aviation Training Solutions

Group President, Defense & Security

President, CAE Healthcare & EVP, Growth Initiatives and Business Development

Vice President, Technology & Innovation

Senior Vice President, Investor Relations and Enterprise Risk Management

May 18, 2022

August 9, 2022

November 9, 2022

February 13, 2023

Review of the control environment and update on the capital structure, corporate treasury market, climate-related disclosure requirements in Canada and U.S., enterprise risk management, accounting standard developments, financial risks, internal audits, tax planning and structure, securities and exchanges compliance and litigation developments

Audit Committee

CFO

Chief Accounting Officer and Corporate Controller

Chief Sustainability Officer and SVP, Stakeholder Engagement

Senior Vice President, Strategy & Investor Relations

General Counsel, Chief Compliance Officer and Corporate Secretary

Vice President, Global Taxation

Vice President and Treasurer

Director, Internal Audit

Director, Enterprise Risk Management

PricewaterhouseCoopers LLP

May 18, 2022

August 9, 2022

Update on health and safety requirements and executive compensation trends. Overview of new language provisions in Quebec and impact of jurisprudential developments in the U.S. on medical insurance coverage

Human Resources Committee

Senior Vice President, Global Human Resources

SVP, Civil Flight Services & Global Manufacturing Operations

Meridian Compensation Partners

May 18, 2022

November 9, 2022

February 13, 2023

Updates on ESG reporting standards, environmental and climate change risks, ESG regulatory developments, carbon emissions inventory and reduction initiatives. Updates on developments related to compliance, data protection, privacy and export controls and trends regarding whistleblowing, member independence and conflict of interests. Overview of diversity target and board succession planning trends, director compensation and compensation benchmarks

Governance Committee

Chief Sustainability Officer and SVP, Stakeholder Engagement

General Counsel, Chief Compliance Officer and Corporate Secretary

KPMG

Meridian Compensation Partners

35 | CAE INC. | 2023 | Management Proxy Circular

Section 4 – Corporate Governance

August 10, 2022

Updates on sustainable aviation

Entire Board

Chief Sustainability Officer and SVP, Stakeholder Engagement

November 9, 2022

February 13, 2023

Updates on aviation safety trends and developments, health & safety roles, key metrics, responsibilities and expectations, critical risk priorities and leadership practices, labour relations and compensation trends, including emerging best practices for executive compensation. Updates on talent and leadership trends, programs and initiatives as well as diversity initiatives. Review of compensation infrastructure trends

Human Resources Committee

Senior Vice President, Global Human Resources

Senior Vice President, Civil Flight Services & Global Manufacturing Operations

Chief Aviation Safety Officer (Defense & Security)

Director of Global Safety, Quality Assurance and Compliance (Civil)

Senior Vice President, Global Human Resources

Meridian Compensation Partners

November 9, 2022

Updates on risk management and insurance monitoring and governance of risks, cybersecurity, global insurance programs, and liability insurance coverage market trends for Directors and officers

Audit Committee

Executive Vice President, Finance and CFO

Risk & Insurance Manager

Chief Accounting Officer and Corporate Controller

PricewaterhouseCoopers LLP

Marsh Specialty US & Canada

November 10, 2022

Updates on Defense & Security business trends

Entire Board

Chair of the Board of CAE USA Inc.

CFO, Defense & Security

Group President, Defense & Security

February 14, 2023

Overview of global digital and technology strategy. Updates on cybersecurity risks

Entire Board

Chief Digital and Technology Officer

36 | CAE INC. | 2023 | Management Proxy Circular The Board maintains a strategic planning process and annually sets a strategic plan that considers, among other things, the opportunities and principal risks of the Company’s business.

Section 4 – Corporate Governance

Strategic planning oversight

It also reviews the effectiveness of the Board’s strategic planning process on a regular basis. The Board supervises management in the implementation of appropriate risk management and other systems. Separately from the strategic plan, the Board also approves an annual budget for financial performance.

The Board holds in-depth strategy sessions every year. In April 2022, the Board reviewed and approved the FY2023 budget and FY2023-FY2027 strategic plan. As part of the review, the Board considered the strategic plans and priorities for each of the three business segments. The Board also focused on the key risks and opportunities facing the business relating to strategic and operational execution, the changing economic and geopolitical environment, the competitive and regulatory environment, maintaining strong financial discipline and a strong capital position, operational resilience (including information security and data management), and stakeholder and regulatory expectations on climate and social actions. The Board also reviewed trends emerging in strategic and financial decision making with a focus on the future of technology, industry and competitive trends, macroeconomic and geopolitical shifts, climate change, sustainability, diversity, equity & inclusion, digital, health, and strategic partnerships. The Executive Management Committee reviewed and discussed the feedback and perspectives provided by the Board and the Board then approved the updated strategic plan.

The Executive Management Committee updates the Board on the execution of the strategy and strategic considerations at every regular Board meeting. The Board must approve any transaction that will have a significant strategic impact on the Company.

Enterprise risk management oversight

Enterprise risk management is essential to CAE as the Company operates in several industry segments which present a variety of risks and uncertainties. CAE has established an Enterprise Risk Management (ERM) Policy which sets out its framework to ensure that risks are identified, assessed, managed, and reported proactively and in a manner that is

consistent with the expectations of the Board and the interests of CAE’s internal and external stakeholders.

This framework relies on the Three Lines Model where the business segments, the risk management functions and the internal audit function work in collaboration to manage critical risks and continuously improve the risk management process:

- The first line is CAE’s leaders who are accountable for the risks they assume and for the daily management of their risks and controls. They are responsible for implementing preventive and corrective actions and maintaining and executing effective internal controls on a day-to-day basis;

- The second line involves various risk management, compliance, business continuity and controllership functions. These functions facilitate and monitor the implementation of effective risk management practices and assist risk owners in defining the target risk exposure and reporting adequate risk-related information throughout CAE. The second line also provides risk oversight across the enterprise and advises senior management in connection with ERM. Led by the Senior Vice President, Investor Relations and Enterprise Risk Management, the second line manages the ERM process and is supported as required by experts, risk champions, consultants and any other resources deemed appropriate to achieve the desired level of risk management; and

- At the third line, internal Audit provides to the Audit Committee and management an independent appraisal of CAE’s risk management framework, control environment and internal control systems. They advise and recommend to senior management opportunities for improvements in internal controls, risk management systems as well as bring to management’s attention organizational and operational benefits to be derived from engagements.

37 | CAE INC. | 2023 | Management Proxy Circular

Section 4 – Corporate Governance

Pursuant to our ERM policy:

- The Board is accountable for the oversight of enterprise risk management. As such, the Board will review with management the Company’s risk appetite and risk tolerance and assess whether the Company’s strategy is consistent with the agreed-upon risk appetite and tolerance for the Company. The Board will also review and discuss with management all key enterprise risk exposures on an aggregate, company-wide basis, and the steps management has taken to monitor and to manage those exposures. This includes the review with management of the Board’s expectations as to each committee’s respective responsibilities for risk oversight and management of specific risks to ensure a shared understanding as to accountabilities and roles. The Board will work with management to promote and actively cultivate a corporate culture that understands and implements enterprise-wide risk management.

- The Audit Committee and senior management provide an appraisal of CAE’s risk management framework, control environment and internal control systems.

- The Chairs of the Governance Committee, Audit Committee and Human Resources Committee each report to the Board after their respective committee meetings. The table below reflects principal oversight responsibilities for each of the 2023 enterprise risks listed:

You can find a more comprehensive discussion of risk management in Section 9 – Business Risk and Uncertainty of our fourth quarter and year ended March 31, 2023 Management Discussion and Analysis, filed with the Canadian securities commissions and provided to the U.S. Securities and Exchange Commission under Form 6-K, and available on our website (www.cae.com), on SEDAR (www.sedar.com), and on EDGAR (www.sec.gov).

38 | CAE INC. | 2023 | Management Proxy Circular CAE has a written Code of Business Conduct that governs the conduct of CAE’s Directors, officers, employees, contractors and consultants.

Section 4 – Corporate Governance

Ethical business conduct

The Governance Committee is responsible for reviewing the design and ensuring compliance with CAE’s Code of Business Conduct. It also has oversight responsibilities with respect to the implementation of the Code throughout CAE, as well as the handling of issues raised thereunder and the annual attestation of compliance. The Code of Business Conduct is available on the Company’s website (www.cae.com). CAE uses EthicsPoint, a third-party whistleblower reporting service, to facilitate reporting of breaches of the Code of Business Conduct and any other misconduct. Apart from any individual reports the Board or its Committees may receive from management or the whistleblower service, the Governance Committee receives regular reports on CAE’s ethics and compliance programs, including a summary of alleged violations of CAE’s Code of Business Conduct and related policies.

Our objectives, management approach and highlights are outlined in our Global Annual Activity and Sustainability report, which is available at www.cae.com/social-responsibility/.

Conflicts of interest and related party transactions

The Company has a number of policies and procedures that govern the disclosure of conflicts of interest, and the review and approval of transactions with Directors, officers and employees.

Under the Company’s Code of Business Conduct and Conflicts of Interest Policy, all potential conflicts of interests must be immediately disclosed as they arise. Conflicts of interests refer to a set of circumstances which creates an actual, perceived or potential risk that the professional judgment or actions in relation to a person’s responsibilities and duties towards the Company will be influenced by a secondary interest, which usually benefits the person financially, professionally and/or personally (including any interest they may have in an existing or proposed material contract or transaction involving the Company in which they have some influence or perceived interest).

Any disclosure by Directors, officers and members of the Company’s Executive Management Committee in relation to potential conflicts of interest must be made to the Company’s Corporate Secretary. The Company’s Corporate Secretary provides a quarterly report to the Governance Committee of all potential conflicts of interests disclosed by Directors, officers and members of the Company’s Executive Management Committee. Further, Directors, officers, employees and individual consultants are required on an annual basis to provide an acknowledgement and certification of compliance with the Code of Business Conduct, which includes a statement confirming that they have declared or disclosed any actual, perceived or potential conflicts of interest.

In accordance with the Company’s Audit Committee Charter, the Audit Committee must review and approve all related-party transactions with organizations determined as related from associations with Directors and officers. None of the Company’s Directors or officers had a material interest in any material transaction or proposed transaction involving the Company in the last year.

39 | CAE INC. | 2023 | Management Proxy Circular At CAE, ESG is integral to who we are as a company and how we make a difference in the world.

Section 4 – Corporate Governance

Environmental, Social and Governance (ESG) responsibility considerations

ESG is embedded in our culture and drives our decisions and actions. Our priority is to ensure the safety and well-being of our employees and customers, as well as having a positive impact on the communities where we are located. The Board has responsibility for reviewing and approving the Global Annual Activity and Sustainability report, including the underlying sustainability roadmap, objectives and performance data.

CAE’s noble purpose, making the world safer, captures how CAE makes a difference in the world and drives its decisions and actions. Making civil aviation safer, supporting peace and democracy with allied forces preparedness, and making healthcare safer are all rooted in the principles of ESG impact.

Over FY2023, many of our initiatives had a significant social impact. Amongst those initiatives:

- Following our FY2022 materiality matrix exercise, we developed a multi-year ESG roadmap with precise targets to monitor and report measurable progress on our initiatives in FY2023. This new FY2024-FY2028 strategic roadmap reinforces our commitment to sustainability and will enhance our impact and performance where it matters most. Twelve working groups, some cross-functional, developed objectives based on best practice analyses (stakeholder pulse, markets signals) and aligned with our business strategy. From this exercise, we produced the roadmap, which received approval from the Executive Management Committee and Board. We outline the multi-year objectives and targets in each chapter of our upcoming Global Annual Activity and Sustainability report.

- As members of the Executive Management Committee share the responsibility of advancing this roadmap, we are revisiting our existing ESG governance framework to identify opportunities to increase traction and drive enhanced outcomes at all levels of the organization. To that extent, the Board and the Executive Management Committee receive quarterly briefings on ESG trends, stakeholder signals and actions to be taken.

- In preparation for external assurance of our data, we are taking measures to improve the level of our data robustness and maturity in close collaboration with our internal audit and finance teams. We are developing sustainable and auditable data collection and reporting processes, including implementing the right controls and data accountability in the organization. We extended the scope of our sustainability reporting to provide a more comprehensive understanding of our impacts on the economy, environment and society, and to better inform our stakeholders through high quality measurable data, when available. Subsequent to the publication of the FY2023 report, CAE is planning to undergo an independent ESG assurance readiness assessment. Certification of a metrics sample is expected to follow in FY2024, with the intent to publish a fully certified report in FY2025.

- As part of our commitment to the decarbonization of the aerospace industry and to support the effort of our suppliers, CAE is joining the International Aerospace Environmental Group (IAEG) gathering all the players across the value chain to advance industry-wide environmental value creation. Though our membership, along with our partners, we expect to drive continuous improvement across the aerospace industry to pursue the delivery of high-quality leading-edge products and solutions with reduced health and environmental impact. We aim to contribute to the development of common voluntary environmental standards, to the development of resources for our ecosystem and to finding innovative solutions that support the Net Zero agenda of the whole industry. IAEG workgroups address such issues as chemical material declarations and reporting requirements, the development of alternative technologies and greenhouse gases reporting and management. To reinforce our collaboration on sustainability with our suppliers, we hosted a two-day ESG forum gathering a select group of strategic suppliers to share knowledge and explore further opportunities to reduce our joint carbon footprint.

- Our performance and achievements related to ESG factors are set out in our Global Annual Activity and Sustainability report. Our objectives, management approach, initiatives and highlights across the Environmental, Social and Governance factors are also outlined in this report, which is available at www.cae.com/social-responsibility.

40 | CAE INC. | 2023 | Management Proxy Circular Our reporting references the GRI Sustainability Standards of the Global Reporting Initiative (GRI).

Section 4 – Corporate Governance

Reporting standards

An independent institution, the GRI provides a globally accepted framework for sustainability reporting across companies and industries.

CAE abides by the principles of United Nations Global Compact as a signatory. We have begun to report on the United Nations’ Sustainable Development Goals (SDGs), by identifying five goals to which our corporate strategy and business model are most aligned and by mapping these goals to our material sustainability issues. We intend to continue the process of integrating the SDGs and to report on our progress for the main areas of focus we have identified. Refer to our Global Annual Activity and Sustainability report for the reasons why CAE prioritizes and pursues the following five goals:

CAE’s commitment to the United Nations Global Compact and to the United Nations Women Empowerment Principles, as well as its considerations of ESG factors are translated in its policies and codes, including the following policies available on CAE’s website:

- Anti-Corruption Policy;

- Code of Business Conduct;

- Conflicts Mineral Policy;

- Charitable Donations and Sponsorships Policy;

- Policy on Diversity, Equity and Inclusion in the Workplace;

- Environment, Health and Safety Policy;

- Gifts, Entertainment and Business Courtesies Policy;

- Human Rights Policy;

- Lobbying and Political Contributions Policy;

- Internal Reporting and Whistleblowing Policy; and

- Supplier Code of Conduct.

CAE also reports to the Carbon Disclosure Project (CDP) and we provide Taskforce on Climate-related Financial Disclosures (TCFD) reporting in our Global Annual Activity and Sustainability report.

In FY2023, we continued to report to the SASB standards for the Aerospace & Defence and Professional & Commercial Services industries described in our Global Annual Activity and Sustainability report.

We monitor the latest developments in ESG reporting expectations and continuously adjust our disclosure in line with best practices.

Governance and oversight

The Board has oversight and the Executive Management Committee (EMC) has responsibility for ESG issues. Such issues are reviewed by the Governance Committee and the HRC depending on the ESG issues to allow for review and guidance on strategy and major plans of action, as well as monitoring of implementation and performance against goals and targets identified in our FY2024-FY2028 ESG roadmap. In addition, the Board has responsibility for reviewing and approving the Global Annual Activity and Sustainability report, including the underlying ESG roadmap, objectives and performance data. From a management perspective, the EMC leads and oversees ESG issues. The EMC guides the various teams and ensures that the appropriate resources and targets are in place and executed.

Progress on ESG risk management plan is also reported to the EMC and to the Board through the ERM governance and based on their framework.

Assessment of Directors by the GC

Refer to Section 5 – Board Committee Reports.

Compensation

Refer to Section 5 – Board Committee Reports – The Human Resources Committee, Section 6 – Director Compensation and Section 7 – Executive Compensation –Compensation Governance – Role of the HRC.

41 | CAE INC. | 2023 | Management Proxy Circular 42 | CAE INC. | 2023 | Management Proxy Circular

Section 5 - Board Committee Reports

The Governance Committee

Assists the Board in developing and implementing our corporate governance guidelines, monitoring assessments of CAE’s corporate governance by various stakeholders and recommending where necessary possible improvements in CAE’s governance, identifying individuals qualified to become members of the Board and determining the composition of the Board and its committees, monitoring the interests of Directors and executive officers, reviewing the role and conduct of the Board, evaluating the performance of the Board and its Committees, reviewing the independence of each member of the Board, preparing the Board’s succession plan, determining the Directors’ remuneration, developing and overseeing an assessment process for the Board, overseeing CAE’s principal compliance programs, and reviewing and recommending for Board approval our corporate policies concerning business conduct, insider trading and anti-hedging, high standards of corporate governance, ethics, ESG matters, diversity, equity and inclusion, and human rights.

The members of the GC are all Independent Directors and the GC’s charter is available in the governance section of our website at CAE.com.

The GC held three meetings in FY2023; aggregate attendance: 100%

M.S. Billson (Chair)

M. Harrison

F. Olivier

Gen. D.G. Perkins, USA (Ret.)

M.E. Roach

A.J. Stevens

P.M. Shanahan

The members of the Governance Committee are selected for their experience and knowledge with respect to governance matters generally. Descriptions of the Governance Committee members’ credentials and past experience that positions them to be qualified and effective members of the Governance Committee can be found in Section 3 - About the Nominated Directors.


Highlights for FY2023 - The GC discussed Board succession planning and recommended the recruitment of an additional Director. The Committee considered several potential candidates to enhance diversity in the skillset and composition of the Board and considered and recommended the candidacy of Sophie Brochu. - The GC agreed to recommend for approval by the Board certain changes in the Directors DSU plan to better align with market practices. - The GC reviewed and approved amendments to CAE’s Board of Directors Charter and Positions Descriptions, and the Governance Committee Charter and Annual Workplan. - The GC reviewed and approved changes to CAE’s Insider Trading, Disclosure and Anti-Hedging policies. - The GC reviewed and approved amendments to the Charitable Donations and Sponsorships, Lobbying and Political Contributions and Human Rights policies. - The GC reviewed ESG performance and the development of a multi-year ESG roadmap.

43 | CAE INC.

Section 5 - Board Committee Reports

Continuing Education

| 2023 | Management Proxy Circular In addition to access through the Board’s website to an evergreen supply of current research and analysis, news reports and academic studies on best governance and compensation practices and other aspects of Board and fiduciary responsibilities and use of research and educational tools, the following activities were conducted in FY2023 to ensure that all required educational resources are available to Directors to properly discharge their responsibilities:

- Quarterly updates from management on ESG (including climate change) matters and on CAE’s compliance with such matters as anti-corruption, corporate policies and procedures, the use of foreign representatives, ethics in the workplace, export control laws and data protection and privacy; and

- Numerous presentations on CAE’s markets, technology, industry developments and other educational material.

Please refer to Section 4 – Corporate Governance – Orientation and continuing education for more information on the orientation of new Directors and education sessions conducted in FY2023.

Other Board commitments and Interlocks Policy

Some of the Directors serve on the boards of other public companies in Canada or another country or jurisdiction. The following policy applies to all Directors to avoid overboarding:

(a) No more than two Directors should serve on the same outside public board or outside board committee, unless otherwise agreed by the Board.

(b) Directors who are employed as chief executive officers, or in other senior executive positions on a full-time basis with a public company, should not serve on the boards of more than two public companies in addition to CAE’s Board.

(c) Directors who: (i) have full time employment with non-public companies, (ii) have full-time employment with public companies but not as CEO, or (iii) do not have full time employment should not serve on the boards of more than four public companies in addition to CAE’s Board.

(d) The President and Chief Executive Officer of CAE should not serve on the board of more than one other public company and should not serve on the board of any other public company where the chief executive officer of that other company serves on the CAE Board.

(e) Prior to accepting any additional public company board of directors’ appointment, a Director must first disclose the proposed appointment for review by the Governance Committee and the Chair of the Board.

None of CAE’s Directors is considered overboarded.

44 | CAE INC. | 2023 | Management Proxy Circular The GC has the mandate and responsibility to review, on an annual basis, the performance and effectiveness of the Board as a whole and each individual Director.

Section 5 - Board Committee Reports

Board evaluation process

The Chair of the Governance Committee annually approves a comprehensive questionnaire which is distributed by a third-party supplier to each member of the Board regarding various aspects of Board and individual performance. The questionnaire covers a wide range of issues, including the operation and effectiveness of the Board and its committees, the level of knowledge of the Directors relating to the business of CAE and the risks it faces, and the contribution of individual Directors, and allows for comment and suggestions. A separate questionnaire is distributed to members of CAE’s Executive Management Committee. The third-party supplier compiles responses to the questionnaires and prepares a report to the Governance Committee which provides a report to the full Board. The Governance Committee may then recommend changes based upon such feedback to enhance Board performance or refer any areas requiring follow-up to the relevant committees. In addition to the foregoing, each Director individually meets with the Chair of the Board at least once annually to discuss his or her individual performance and the performance of the Board as a whole. As well, the Chair of the Board’s performance is evaluated and assessed through one-on-one meetings between each Director and the Chair of the Governance Committee. Both the Chair of the Board and the Chair of the Governance Committee then report back to the full Board.

Resolution of complaints under the Code of Business Conduct

The Governance Committee is kept apprised of all reports of alleged of CAE’s Code of Business Conduct and related policies that are brought to the attention of the Global Ethics and Compliance Office, the General Counsel, Chief Compliance Officer and Secretary, and the Chief People Officer. The Governance Committee is regularly informed of the resolution of such complaints (as is the Audit Committee where an alleged misconduct relates to financial accounting, books and record keeping, fraud or similar financial impropriety) and of the results of the annual certification process for CAE employees under CAE’s Code of Business Conduct.

Diversity initiatives

In May 2015, following the GC’s recommendation, the Board adopted the Board’s Diversity Policy. The Diversity Policy was amended in 2018, and in 2020 its scope was broadened by expressly enumerating women, Aboriginal/Indigenous peoples, persons with disabilities and members of visible minorities, as defined in the Employment Equity Act (Canada) (collectively, “Designated Groups”), among the diverse groups which are the focus of the Diversity Policy.

The Diversity Policy confirms the guiding principle that the Board will nominate Directors and appoint executive officers based on merit and the needs of CAE at the relevant time, and, that CAE is strongly committed to finding the best people to serve in such roles.

The Diversity Policy also recognizes that diversity helps ensure that (a) Directors and executive officers provide the necessary range of perspectives, experiences and expertise required to achieve effective stewardship and management of CAE, and (b) a variety of differing perspectives are considered in addressing issues, while providing a greater likelihood that proposed solutions will be robust and comprehensive. CAE believes that diversity is an important attribute of a well-functioning Board and an effective team of executive officers.

The Diversity Policy provides that in identifying potential candidates to serve on the Board, the Governance Committee will (a) consider only candidates who are highly qualified based on their talents, experience, expertise, character and industry knowledge, (b) take into account criteria that promote diversity, including, but not limited to, gender, age, race, national or ethnic origin, sexual orientation and disability, (c) endeavour to use any available network of organizations and associations that may help identify diverse candidates, and (d) in order to support CAE’s commitment to all aspects of diversity, consider the level of representation of women and other Designated Groups on the Board; and in identifying potential candidates for appointment as President and CEO and for other executive officer positions, the Human Resources Committee and the President and CEO, respectively, will (a) consider individuals from a variety of backgrounds and perspectives with the Company’s diversity objectives in mind, and (b) consider the level of representation of women and members of other Designated Groups in executive officer positions.

45 | CAE INC. | 2023 | Management Proxy Circular In order to ensure that the Diversity Policy is appropriately implemented and to measure its effectiveness, at least annually:

Section 5 - Board Committee Reports

- the Governance Committee will assess and report to the Board regarding the efficacy of the Director nomination process at achieving the Company’s diversity objectives; and

- the President and CEO will assess and report annually to the Human Resources Committee regarding the efficacy of the executive officer appointment process at achieving the Company’s diversity objectives.

In May 2018, the Board, on the recommendation of the GC, updated the Diversity Policy, and adopted a target that women represent at least 30% of Directors by 2022.

In May 2020, the Board, on the recommendation of the Governance Committee, updated the Diversity Policy to reflect that the Board seeks gender parity, with the target for Director representation continuing to be at least 30% women by 2022.

We reached our 30% target following the annual meeting of the Shareholders held on August 10, 2022. The Diversity Policy was also amended in May 2020 by adopting a target that women represent at least 30% of executive officers by 2022. We reached our 30% target during FY2022 when three (3) out of ten (10) members of our Executive Management Committee were

women, prior to the expansion of the Executive Management Committee to eleven (11) members.

In June 2022, the Board amended the policy, on the recommendation of the GC, to broaden our targets to all diversity groups (including women, persons with disabilities, Aboriginal/Indigenous peoples, members of visible minorities and the LGBTQ2+ community) for both executive officers and Directors recognizing that diversity is an essential consideration in the selection process for Board candidates and executive officers. The Company’s targets were revised to reflect that at least 33% of executive officers and 40% of Directors form part of certain diversity groups (including women, persons with disabilities, Aboriginal/Indigenous peoples, members of visible minorities and the LGBTQ2+ community) by 2025. These new targets are coherent with CAE’s participation, for the third consecutive year, in the 50 – 30 Challenge, which is an initiative co-created by the Government of Canada, civil society and the private sector that aims to attain gender parity and significant representation (at least 30%) of under-represented groups, including racialized persons (including First Nations, Inuit and Métis), people living with disabilities (including invisible and episodic disabilities) and members of the LGBTQ2+ community, on boards and senior management positions in order to build a more diverse, inclusive, and vibrant economic future for Canadians.

Directors

Women

Women, Persons with disabilities, Aboriginal / Indigenous peoples, members of visible minorities and the LGBTQ2+ community

Target

Time frame

Target

Time frame

Board of Directors

30%

By 2022

40%

By 2025

Executive Officers


	Women, Persons with disabilities, Aboriginal / Indigenous peoples, members of visible minorities and the LGBTQ2+ community
	Target	Time frame
Executive Team	33%	By 2025

46 | CAE INC. | 2023 | Management Proxy Circular Our targets align with CAE’s Diversity, Equity & Inclusion initiative to foster an inclusive, diverse, bias-free environment and strengthen the representation and development of women in leadership positions.

Section 5 - Board Committee Reports

Furthermore, CAE received in 2022 the Gold-level of the Parity Certification by Women in Governance for its efforts in promoting gender parity in the workplace and was included in the 2023 Bloomberg Gender-Equality Index, a fifth year in a row, setting a new standard of transparency as a core part of a company’s commitment to gender equality. The Company was also named in 2023 a Top Company for Women in Emerging Technologies by Women and Drones, one of the Top 100 Companies in Canada, and one of Forbes’ Top Female-Friendly Companies. Our Chief Diversity, Equity and Inclusion Officer was recognized as one of the Top 10 DE&I Leaders in Canada by HR Manage magazine.

Also, in signing the BlackNorth Initiative pledge, we proudly committed CAE to taking deliberate action to attract talent from the Black community, and to create a workplace where black employees have the support to grow, an organization that celebrates the vibrancy and richness that diversity brings, and most of all, a company where every member of our team can succeed and thrive – with no exception.

For more information on other Diversity, Equity and Inclusion initiatives, please refer to the Talent Management section under Highlights for FY2023 of the HRC of this Circular and our Annual Activity and Corporate Social Responsibility report available on our website.

As at June 15, 2023, four (4) out of thirteen (13) Directors (i.e., 31%) and three (3) out of eleven (11) members of our Executive Management Committee (i.e., 27%) were women. Provided that all proposed nominee Directors are elected at the upcoming Meeting, five (5) out of thirteen (13) Directors (i.e., 38%) will be women on August 9, 2023. No (0%) Aboriginal peoples nor persons with disabilities were represented on the Board or the Executive Management Committee. One (1) out of thirteen (13) Directors (8%) and two (2) out of eleven (11) members of our Executive Committee (18%) was a member of a visible minority. One (1) out of thirteen (13) Directors (8%) was a member of the LGBTQ2+ community. No members of the LGBTQ2+ community were represented on the Executive Management Committee. The foregoing disclosure about diversity is derived from information provided by the Directors and executive officers. In accordance with privacy legislation, such information was collected on a voluntary basis, and where a particular individual chose not to respond, CAE did not make any assumptions or otherwise assign data to that individual.


	Women		Persons with disabilities		Aboriginal / Indigenous peoples		Members of visible minorities		Members of LGBTQ2+ community		Total Number	Number of individuals that are members of more than one group
	Number	%	Number	%	Number	%	Number	%	Number	%
Board of Directors	41	311	0	0	0	0	1	8	1	8	6	1
Executive Team	3	27	0	0	0	0	2	18	0	0	5	0

1. Provided that all proposed nominee Directors are elected at the upcoming Meeting, five (5) out of thirteen (13) Directors (i.e. 38%) will be women on August 9, 2023.

47 | CAE INC.

Section 5 - Board Committee Reports

The Audit Committee

| 2023 | Management Proxy Circular Assists the Board in its oversight of the integrity of our consolidated financial statements, review of public disclosure documents, compliance with applicable legal and regulatory requirements, the independence, qualifications and appointment of the external auditors, the performance of both the external and internal auditors, oversight of related-party transactions, management’s responsibility for assessing and reporting on the effectiveness of internal controls (including review of IT and cyber-security risks and elements impacting controls) and our enterprise risk management processes.

Also see our Annual Information Form for the year ended March 31, 2023 (which you can access on our website at CAE.com, on SEDAR at sedar.com and on EDGAR at sec.gov), for information about the Audit Committee, including its mandate and Audit Committee policies and procedures for engaging the external auditors.

All members of the Audit Committee are Independent Directors. Marianne Harrison and Mary Lou Maher have been determined by the Board to be the Audit Committee financial experts. In addition, the Board, in its judgment, has determined that each other member of the Audit Committee is financially literate. The Charter of the Audit Committee is available in the governance section of our website at CAE.com. and in the Annual Information Form for the year ended March 31, 2023.

The Audit Committee held four meetings in FY2023; aggregate attendance: 100 %.

M. Harrison
(Chair)

E. Eberwein

M. Maher

F. Olivier

M.E. Roach

P.M. Shanahan

The members of the Audit Committee are selected for their experience and knowledge with respect to financial reporting, internal controls and risk management. Descriptions of the Audit Committee members’ credentials and past experience that make them qualified and effective financial decision-makers can be found in Section 3 – About the Nominated Directors.

48 | CAE INC. | 2023 | Management Proxy Circular

Section 5 - Board Committee Reports


Highlights for FY2023 - The Committee reviewed and approved a revised version of the Policy and Procedures for Audit and Non-Audit Services. - The Committee reviewed and approved a revised version of the Disclosure Policy. - The Committee reviewed in detail quarterly interim consolidated financial information and earnings press releases before their public release. - The Committee also reviewed and recommended approval to the Board of the quarterly Management Discussion and Analysis (“MD&A”) and the press releases for the quarterly results. - The Committee reviewed the MD&A section of CAE’s annual report for the fiscal year ended March 31, 2022 and audited consolidated financial statements of CAE prepared by management for the fiscal year ended March 31, 2022 with management and PwC, and thereafter recommended that they be approved and filed with the Autorité des marchés financiers and the SEC. - The Committee approved the CAE Internal Audit plan and budget for the FY2023/FY2024 cycle and approved the Internal Audit Director Objectives. - The Committee reviewed PwC’s FY2023 work plan and approved PwC audit engagement letter and services fees. - The Committee reviewed the processes involved in evaluating CAE’s internal controls and oversaw the compliance process related to the certification and attestation requirements of SOX and related SEC rules, as well as of the rules relating to audit committees and certification of financial information adopted by the CSA. - The Committee also reviewed fraud review processes, litigation, securities and exchanges compliance, information technology and cyber security risks, insurance coverage, related-party fees, capital structure, M&A performance, S&P rating and outlook, financing activities, treasury, tax planning and compliance, and IFRS accounting standard changes. - The Committee reviewed amendments to the Enterprise Risk Policy and the Hiring Policy Regarding External Auditors and recommended these modifications for approval by the Board. - The Committee reviewed audit service performance and any best practices to implement going forward. - The Committee met with and on-boarded a new engagement leader and senior relationship partner to the consolidated Group Audit for FY2023 and are on-boarding a new partner in charge of the U.S. Defense and Security component audit for FY2024. - The Committee reviewed and approved Audit Quality Indicators for the group audit and for the U.S. Defense and Security component audit.

49 | CAE INC.

Section 5 - Board Committee Reports

The Human Resources Committee

| 2023 | Management Proxy Circular Assists the Board of Directors in its oversight responsibilities relating to compensation, benefits, incentives, nomination, evaluation and succession of the President and CEO, other officers and management personnel; oversees the Company’s environment, global occupational health and safety and aviation safety policies and practices, pension plan administration and pension fund investments, and management development and succession planning.

All members of the HRC are Independent Directors. The charter of the HRC is available in the governance section of our website at CAE.com.

The HRC held six meetings in FY2023, aggregate attendance: 100 %.

Hon. M.M.
Fortier (Chair)

A. Antoun

M.S. Billson

E. Eberwein

M. Maher

Gen. D.G. Perkins, USA (Ret.)

A.J. Stevens

The HRC is responsible to oversee the Company’s executive compensation programs and succession planning. We ensure that members of the HRC have the experience and knowledge to fulfill this role. Descriptions of the HRC Committee members’ credentials and past experience that make them qualified and effective HR decision-makers can be found in Section 3 – About the Nominated Directors.

As past CEOs and/or government leaders/managing directors, all members of the HRC possess the financial knowledge required in order to assess and determine the applicability of measures and targets utilized in determining variable compensation and assessing executive performance against targets and overall Company performance.

50 | CAE INC. | 2023 | Management Proxy Circular In FY2023, we deployed initiatives that were in direct link with the Company’s high technology ambitions.

Section 5 - Board Committee Reports

Highlights for FY2023

Talent management

The “Gigs” functionality was launched to enable our employees to discover short-term work opportunities outside of their current team that are aligned with their skills and interests. Using artificial intelligence, all employees will be exposed to the same development opportunities that will allow CAE leaders to have access to talent across all locations and connect with expert employees who have the skills needed for strategic projects. CAE introduced Mid-Year Roundtables to the annual talent review cycle. The focus of these discussions is employee growth and development. In the year-end talent and performance discussions we introduced questions related to diversity, equity and inclusion, allowing leaders and employees the opportunity to discuss each employee’s contribution to an inclusive culture. The Company maintained its focus on the identification and development of current and future women leaders across CAE with the graduation of the inaugural cohort of the Dare development program. Dare is a global development curriculum for 35 women leaders and individual contributors, designed to enhance their leadership skillsets. The intention of the program is to support the development of global participants and to create the awareness, tools and infrastructure to support the Company’s goals to increase the level of women representation in leadership positions.

At CAE, learning and development is at the heart of our strategy to accelerate innovation and reinforce our high-tech identity. We believe in creating a learning culture in which employees are empowered in their development. To support this vision, we offered training sessions helping employees to take ownership of their own development and held workshops with employees to identify and remove training obstacles. Additionally, we identified and deployed four new Leadership Pillars that are the foundation of the key behaviours and the distinct mindset expected of all leaders. The next steps will be to integrate the Leadership Pillars in all our processes; from recruitment, to development, promotion and to onboarding new members, etc. In FY2023, work was continued to ensure that the key acquisitions undertaken in FY2022, particularly the L3Harris Technologies’ Military Training business and Sabre’s airline operations portfolio, are fully integrated culturally into the CAE business.

CAE continues to make good progress with respect to its Diversity, Equity and Inclusion (DE&I) initiatives. Once again in FY2023, we have achieved our target of increasing our diverse leaders base by 10% year over year. For the fifth consecutive year, we have been named to Bloomberg Gender-Equality Index, and for the first time, we have received Gold level recognition from Women in Governance after 2 years in a row of Silver level recognition. Another first is CAE being recognized as one of Canada’s Top 100 Employers for 2023. Under the leadership of our Chief Diversity and Equity Officer, we have launched a Global Self-Identification campaign in late March 2023 to strengthen our baseline for DE&I strategy and Indigenous Training for our leaders in Canada. The Company takes the view that diversity and inclusivity needs to be part of the way leaders and employees behave daily and so strive to embed bias awareness in key processes including talent acquisition and talent management. Leaders are encouraged to discuss the importance of DE&I with their employees as well as act as bias interrupters when they see and hear biases showing up in talent and leadership reviews and succession planning exercises. To further our impact on the whole industry, we joined Air Canada’s effort to advance diversity in aviation by committing to doubling the number of 2023 Captain Judy Cameron Scholarships granted to young Canadian women studying to become commercial pilots or maintenance engineers.

In support of further enhancing an employee centric work environment, project Heartbeat was developed and successfully rolled out delivering a comprehensive plan to enhance employee experience through career and development opportunities, rewards and recognition programs, a focus on long service employees, as well as work-life balance.

51 | CAE INC. | 2023 | Management Proxy Circular The HRC also conducted a compensation risk assessment with the assistance of its independent compensation consultant to identify potential risks associated with CAE’s compensation programs, practices and policies.

Section 5 - Board Committee Reports

Executive compensation

The assessment concluded that the risks are reasonably unlikely to have a material adverse effect on the Company.

The Chair of the HRC engaged directly with multiple Shareholders to seek input on the Company’s executive compensation programs. As a result of these Shareholder engagement meetings, management, working with the HRC and the HRC’s independent compensation consultant, completed a review of the Company’s long-term (LTIP) and short-term (STIP) incentive plans to ensure market competitiveness, alignment with the Company’s high technology ambitions and Shareholders’ interests. Changes to both the LTIP and STIP plans were approved and will be implemented in FY2024. Please refer to Section 7 – Executive Compensation – Compensation Discussion and Analysis - Shareholder Engagement, which describes our significant engagement initiatives with investors in FY2023.

Health and safety

CAE is committed to ensuring the safety and well-being of our employees, our customers, our contractors and the community in which we operate. Health & Safety (H&S) matters are positioned as integral to CAE’s business results and directly linked to the success of the Company. The H&S priorities are driven by the Company risk profile and evolve from year to year accordingly, to ensure the most critical risks are addressed.

The Company’s H&S policy also places a strong emphasis on being proactive, and on leader engagement and accountability, as do the three pillars of the H&S strategy: risk management, learning and communication in addition to leadership and culture.

Our FY2023 safety performance showed an Injury Frequency rate (IFR) of 0.38 against a target of 0.42. The global portrait of work-related injuries across our locations remains the same as FY2022 and consists of three main types: slips/trips and falls; hand injuries; and ergonomic-related injuries. All incidents reported to CAE are classified according to our Global Health & Safety event notification and management program to ensure standardization throughout regions and businesses.

Among all incidents reported, a number that have the potential to result in serious injury or fatality are identified as significant events. In FY2023, five significant events were reported, all were investigated using a root cause analysis methodology and corrective actions were implemented. In addition, lessons learned were shared with all CAE sites and required actions were implemented to prevent the reoccurrence of similar incidents.

Hazardous situations (observations) reporting is used as a leading indicator of our H&S culture. In FY2023, we continued to encourage, coach and support our sites to report hazardous situations and proactively address the risks. Globally, 1,063 hazardous situations were reported in FY2023 compared to 588 in FY2022.

As part of Health and Safety global initiatives, three new programs were developed and deployed in all CAE sites to increase the robustness of our risk management strategy and address our most critical risks: Electrical Safety, Ergonomics and Ladders and Stepladders. All programs were deployed with a dedicated training for targeted employees.

52 | CAE INC. | 2023 | Management Proxy Circular CAEwellness offers multiple resources to help employees achieve work/life balance and remain healthy — both mentally and physically.

Section 5 - Board Committee Reports

Wellbeing

Frequent internal pulse surveys provided essential information that guided our efforts and focus on employee wellness. Those metrics are wellness scores on stress and personal health.

In FY2023, to build the global strategic wellness plan, we conducted a global employee survey on the wellness culture at CAE to ensure we provide the proper resources and put in place the right initiatives. Different initiatives were launched in FY2023 for our employee's:

—One CAE Spirit Week — We extended this annual event in honor of CAE’s 75th anniversary, hosting two weeks of activities organized around three themes: Do good. Look good. Feel good.

—Wellness Breaks — Introduced in FY2020 in Canada & USA, the Wellness breaks are now offered to all CAE employees.

—During the fall, different conferences were offered in various topics including nutrition, financial health, sleeping, etc.

—CAE Be Active Challenge — Introduced in FY2022, the 30-day Challenge encourages employees to participate individually or together in physical activities, including daily online training classes, as a great opportunity to create team spirit and develop healthy lifestyle habits. Additionally, CAE-sponsored activities promoting physical wellbeing occur ongoing throughout the year.

—R U OK? — A global initiative launched during the pandemic, R U OK? encourages open conversations on mental health, with the support of communication tools and stress management resources.

—Mental Health week — This initiative promotes various aspects of mental health, including stress management, healthy habits, physical activity and “me time.”

In light of input we received from employees and realizing that there were considerable benefits for a majority of our people, we introduced CAEcontinuum to sustain the advantages of working from home over the long run, well beyond the pandemic. Through this flexible work program, we implemented a standard global approach to ensure at least 25% of CAE’s workforce would work remotely on any given day in the post-COVID world. We created and deployed CAEcontinuum profiles to allow employees to split their time between working from home and working from the office.

53 | CAE INC. | 2023 | Management Proxy Circular Keeping everyone safe is our priority.

Section 5 - Board Committee Reports

Aviation safety programs

CAE is committed to advancing the highest standards of aviation safety, from the ground up into the skies. This involves setting objectives that provide clear direction in terms of safety goals, an effective reporting culture, continuous commitment and ongoing, proactive improvement of safety performance. Our Integrated, Safety Quality Assurance and Compliance Monitoring Policy sets the overall safety objectives and goals for the organization, outlining our commitment to safety, and providing the framework for CAE’s entire safety program. Designed to ensure safe operations throughout the organization, CAE’s Aviation Safety Program addresses the four components of aviation safety: safety policy, safety risk management, safety assurance and safety promotion.

The number of voluntary reports per 10,000 flight hours increased by 37% driven by a positive increase in the reporting of non-ab initio training centres and the inclusion of maintenance and engineering safety reports in Civil Aviation in FY2023 versus FY2022. Defense & Security saw a decrease of 10% for the same safety metric over the previous fiscal year despite an increase in our flying hours of 47% vs. FY2022.

Our regulatory compliance efforts are meeting or exceeding industry regulations, and best practices, in partnership with our quality assurance and compliance monitoring team.

54 | CAE INC. | 2023 | Management Proxy Circular Major activities and topics covered by the HRC are detailed on a by-meeting basis in the calendar below:

Section 5 - Board Committee Reports


Regular Meetings			Agenda
May 2022			Review of: - Health and Safety Review - Compensation Discussion & Analysis (CD&A) - Annual HRC self-evaluation - Executive compensation risk assessment Approval of: - STIP, LTIP and Merit awards for the President and CEO’s direct reports and FY2023 STIP/LTIP plans - Payouts under FY2022 STIP and Performance Share Unit grant awarded in FY2020 - President and CEO FY2022 Performance vs Objectives - President and CEO objectives for FY2023
August 2022			Review of: - Talent and Leadership Review - Diversity and Inclusion initiative update - Leadership development programs update - Retirement and savings plans - Proxy advisory reports - STIP update - Health and Safety
September 2022			Review of: - Shareholder engagement feedback - STIP and LTIP Design Review
November 2022			Review of: - Health and Safety - Aviation Safety Program Review - STIP update - Review FY2024 STIP and LTIP design - Labour relations update - Executive Share ownership guidelines status - Independence letter from the Board’s compensation consultant - Update on the Shareholder outreach Approval of: - Update Comparator Group
February 2023			Review of: - Health and Safety - Talent and Leadership update - STIP update - Glass Lewis and ISS updates and trends and FY2023 proxy preparation - Review of HRC mandate and workplan - Pension Investment Strategy Approval of: - FY2024 proposed STIP and LTIP design

55 | CAE INC. | 2023 | Management Proxy Circular 56 | CAE INC. | 2023 | Management Proxy Circular

Section 6 – Director Compensation

Director Compensation

This Section provides information pertaining to the compensation, Share ownership and Share ownership requirements of our non-employee Directors.

Our compensation program for non-employee Directors has the following objectives:

- Attract and retain highly qualified, committed and talented members of the Board with an extensive and relevant breadth of experience; and

- Align the interests of Directors with those of our Shareholders.

The Board sets the compensation of non-employee Directors based on recommendations from the Governance Committee.

The Governance Committee reviews the compensation of non-employee Directors every second year, unless required sooner, and recommends to the Board such adjustments as it considers appropriate and necessary to recognize the workload, time commitment and responsibility of the Board and committee members and to remain competitive with Directors’ compensation trends. Any Director who is also an employee of the Company or any of its subsidiaries does not receive any compensation as a Director.


Director compensation benchmarking and comparator group To benchmark Directors’ compensation, the Governance Committee uses the same comparator group of companies as that used to benchmark Named Executive Officers’ (“NEOs”) compensation. This comparator group comprises a mix of Canadian and U.S. publicly-listed companies that have relevance to CAE in terms of head office location, market segment or business activities, revenue and market capitalization. —Same comparator group as for NEOs. —Director comparator group last updated in FY2023. —Directors are paid a flat all-inclusive fee to reflect responsibilities, time commitment and risks of being effective Directors.


Effective January 1, 2022, Directors’ all-inclusive fees were set as follows:
Position	Annual Fee	Form of Payment
Board Chair	$400,000	$220,000 in DSUs $180,000 in cash or DSUs at Director’s election
Board Member	$225,000	$145,000 in DSUs $80,000 in cash or DSUs at Director’s election
Board Committee Chair1	$25,000	Cash or DSUs at Director’s election
Board Committee Member	$11,000	Cash or DSUs at Director’s election
1. The Governance Committee Chair compensation is $20,000. Committee Chairs do not receive additional compensation for Committee membership.

57 | CAE INC. | 2023 | Management Proxy Circular Refer to Section 7 – Executive Compensation of this Circular for the companies included in CAE’s latest comparator group and detailed selection criteria.

Section 6 – Director Compensation

Non-Employee Directors’ Deferred Share Unit Plan (Directors’ DSU Plan)

A DSU is equal in value to one Share of CAE and accrues additional units in an amount equal to each dividend paid on Shares. DSUs earned by non-employee Directors vest immediately but are only redeemable after termination of the Director’s service with CAE (“Terminate Date”). Payment in cash is then made based on the market value of the equivalent number of Shares, net of tax and any other applicable withholdings.

Risk mitigation

As per the terms of the DSU Plan, the rights and interests of a Director in respect of the DSUs held in such participant’s account are not transferable or assignable other than for specific cases of legal succession.

CAE maintains Directors’ and executive officers’ liability insurance for its Directors and executive officers, as well as those of its subsidiaries as a group.


Minimum shareholding requirements Directors are required to own the equivalent of five times the Board annual cash fee in the form of Shares and/or DSUs. The required holding must be acquired over a five-year period from the initial date of election of the Director to the Board. A non-employee Director is not, once the minimum Share and/or DSU ownership target is reached, obligated to acquire more Shares or DSUs if the value of his/her investment in CAE drops due to stock market fluctuations. —Minimum shareholding requirements align Directors’ and Shareholders’ interests. —Equal to five times the annual Board cash fee. —The required holding must be acquired over a five-year period from the initial date of election of the Director to the Board.

Anti-Hedging Policy

The policy provides that no Director or CAE executive (defined to include senior officers and vice-presidents) may, at any time, purchase or otherwise enter into financial instruments, including prepaid variable forward contracts, instruments for the short sale or purchase or sale of call or put options, equity swaps, collars, or units of exchangeable funds, that are designed to or that may reasonably be expected to have the effect of monetizing equity awards or hedging or offsetting a decrease in the market value of any CAE securities, including but not limited to DSUs.

58 | CAE INC. | 2023 | Management Proxy Circular The following table summarizes compensation earned by non-employee Directors of CAE during FY2023:

Section 6 – Director Compensation

Directors’ compensation table


Name	Total Fees Earned	Paid in Cash	Paid in DSUs1
Ayman Antoun2	$151,624		$151,624
Margaret S. (Peg) Billson	$256,000		$256,000
Elise Eberwein2	$158,691	$65,532	$93,159
Hon. Michael M. Fortier	$250,000		$250,000
Marianne Harrison	$261,000		$261,000
Alan N. MacGibbon3	$345,298		$345,298
Mary Lou Maher	$247,000	$76,500	$170,500
Hon. John P. Manley4	$143,011		$143,011
François Olivier	$247,000		$247,000
Gen. David G. Perkins, USA (Ret.)	$247,000		$247,000
Michael E. Roach	$247,000		$247,000
Patrick M. Shanahan	$243,067	$98,067	$145,000
Andrew J. Stevens	$247,000		$247,000

1. Represents the value of DSUs determined based on the grant date fair value of the award in accordance with accounting standards. The value of each unit is set to CAE’s closing Share price on the date of grant.

2. Ayman Antoun and Elise Eberwein joined the Board on August 10, 2022.

3. Alan N. MacGibbon was appointed Chair of the Board on August 10, 2022.

4. Hon. John P. Manley ceased serving as a Director on August 10, 2022.

59 | CAE INC.

Section 6 – Director Compensation

Directors’ share-based awards

| 2023 | Management Proxy Circular The following table shows for each non-employee Director the number of DSUs outstanding at the beginning of the fiscal year ended March 31, 2023, the number and the value of the DSUs that vested during such year, and the number and the value of all outstanding DSUs as at March 31, 2023. The non-employee Directors are not eligible to receive stock options or other option-based awards.


	Share-based Awards
Name	Number of DSUs at the Beginning of FY2023		Number of DSUs Vested During the Year1		Value Vested During the Year2		Number of DSUs at the End of FY2023		Market Value of DSUs not Paid Out or Distributed3
Ayman Antoun4		—		5,820		$151,624		5,820		$177,874
Margaret S. (Peg) Billson		51,526		9,642		$256,000		61,168		$1,869,309
Elise Eberwein4		—		3,576		$158,691		3,576		$109,287
Hon. Michael M. Fortier		88,514		9,416		$250,000		97,930		$2,992,750
Marianne Harrison		18,876		9,830		$261,000		28,706		$877,262
Alan N. MacGibbon		56,633		13,077		$345,298		69,709		$2,130,332
Mary Lou Maher		3,443		6,332		$247,000		9,775		$298,737
François Olivier		35,700		9,303		$247,000		45,002		$1,375,294
Gen. David G. Perkins, USA (Ret.)		12,760		9,303		$247,000		22,062		$674,250
Michael E. Roach		30,132		9,303		$247,000		39,435		$1,205,147
Patrick M. Shanahan5		—		5,461		$243,067		5,461		$166,899
Andrew J. Stevens		82,779		9,303		$247,000		92,082		$2,814,036

1. Represents the number of DSUs each non-employee Director earned during FY2023. The DSUs vest immediately but are redeemable and paid out only after the non-employee Director ceases to be a Director of CAE in accordance with the terms of the Directors DSU Plan.

2. The value was determined by multiplying the number of DSUs, including additional DSUs equivalent in value to the dividends paid on the Shares credited in-year, by the closing prices of the Shares on the TSX on the respective dates of each grant. The DSUs are granted at the end of each quarter.

3. The market value of the DSUs was determined by multiplying the number of all DSUs vested but not paid out or distributed, including additional DSUs equivalent in value to the dividends paid on the Shares credited in-year, as at March 31, 2023 by the closing price of the Shares on the TSX on March 31, 2023, which was $30.56. Numbers containing fractions have been rounded up for calculation purposes.

4. Ayman Antoun and Elise Eberwein joined the Board on August 10, 2022.

5. Patrick M. Shanahan joined the Board on April 1, 2022.

60 | CAE INC. | 2023 | Management Proxy Circular 61 | CAE INC. | 2023 | Management Proxy Circular

Section 7 – Executive Compensation

Letter from the Chair of the Human Resources Committee

Hon. Michael M. Fortier, PC

The Human Resources Committee is pleased to provide you with an overview of CAE’s executive compensation program for fiscal year 2023 and the changes we are introducing for fiscal year 2024. Our compensation framework directly links compensation to CAE’s long-term performance and value creation for our Shareholders.

We believe it is important to provide transparent disclosure of CAE’s performance, all aspects of our executive compensation program, the alignment between performance and compensation outcomes and feedback from our engagement with our Shareholders.

Over the past year we engaged directly with our Shareholders, seeking input on our compensation programs. We conducted a full review of our compensation programs and governance as well as incentive plan designs to address comments received from Shareholders.

Operational and Financial Performance Highlights of FY2023

Throughout FY2023, we maintained key points of strategic focus, including the following:

- Efficient growth

- Revolutionizing training and critical operations

- Technology and market leadership

- Skills and culture

Linking Pay and Performance

During FY2023, our Named Executive Officers (NEO) compensation outcomes was closely tied to CAE’s performance through:

- The Short-Term Incentive Plan (“STIP”), which pays out based on performance targets focused on profitability and growth through adjusted Earnings per Share* (“EPS”), adjusted order intake* and revenue metrics.

- The Long-Term Incentive Plan (“LTIP”) which is weighted 60% to Performance Share Units (“PSU”s), 20% to Restricted Share Units (“RSU”s) and 20% to Stock Options to provide a balanced focus on performance, long term Share price appreciation and retention. Our PSUs granted in FY2023 vest contingent on the achievement of adjusted EPS* and Free Cash Flow* targets.

Moving to FY2024, we will introduce changes to the STIP and LTIP metrics to enhance the link between NEO compensation outcomes and CAE performance. We are retaining the same STIP metrics but increasing the weighting of adjusted EPS* to 60%. For the PSUs we are replacing the two metrics adjusted EPS* and Free Cash Flow* with three metrics, each weighted 1/3: adjusted segment operating income margin %*, net cash provided by operating activities (“Cash from Operations“) and adjusted Return

* Non-IFRS and Other Financial Measures (see Appendix B).

on Capital Employed (“ROCE”). These changes will eliminate overlap between the STIP and LTIP and are directly aligned with the creation of Shareholder value. The majority of each executive’s compensation is at risk, contingent on performance and a significant proportion of each executive’s compensation is in the form of equity-based compensation which aligns compensation outcomes with our performance and Shareholders experience over the longer term.

Shareholder Engagement

In FY2023, we completed an extensive Shareholders outreach initiative, meeting with many of our largest investors, with most of the meetings being in person. We also met with Glass Lewis and ISS to seek their views on compensation and disclosure.

The committee also intends to engage annually with our Shareholders in order to seek their views on executive compensation generally. Please refer to Section 7 – Executive Compensation – Compensation Discussion and Analysis – Shareholder Engagement.

The Committee believes that the changes to our compensation programs will further enhance the alignment between our performance and compensation outcomes as well as the interests of our Shareholders.

As I step down from the Board this year, I am confident that the changes to our compensation design for FY2024 will be warmly received by our Shareholders.

Sincerely,



			Hon. Michael M. Fortier, PC Chair of the Human Resources Committee

62 | CAE INC. | 2023 | Management Proxy Circular This Section describes our compensation philosophy, policies and programs, and provides the details with respect to the compensation awarded to our Named Executive Officers (“NEO”) in FY2023.

Section 7 - Executive Compensation

Compensation Discussion and Analysis


For FY2023, our NEOs were: — Marc Parent, President and Chief Executive Officer — Sonya Branco, Executive Vice President, Finance and Chief Financial Officer — Carter Copeland, Senior Vice President, Global Strategy, overseeing CAE Healthcare — Daniel Gelston, Group President, Defense and Security — Nick Leontidis, Group President, Civil Aviation

Where to find it


Compensation Discussion and Analysis			Page
Executive Summary			64
Shareholder Engagement			69
Compensation Philosophy			70
Executive Compensation Programs			72
FY2023 Compensation Outcome			83
Determination of NEOs Individual Performance			89
Compensation Governance			94
Alignment of Compensation and Performance			101


Compensation of Our Named Executive Officers			Page
Summary Compensation Table			104
Outstanding Share-Based awards and option-based awards			106
Incentive Plan Awards – value vested or earned during the year			107
Pension Arrangements			108
Termination and Change of Control Benefits			109

63 | CAE INC. | 2023 | Management Proxy Circular As our core markets continue their path toward full normalization, CAE’s performance in FY2023 further served to contribute to our optimism about the company’s future.

Section 7 - Executive Compensation

Executive Summary

CAE Performance

Over the last several years, we strived to play offence during the downturn, capitalizing on opportunities to expand our capability set and further expanding our customer reach in core markets. Since completing nine acquisitions over the past three years, we have further integrated our organization to leverage best-of-breed talent and technologies. The strong order flow we have enjoyed this year is a testament to that strategy.

The growth outlook in our core markets continues to be robust, with air traffic recovery in civil aviation pointing to the creation of thousands of new pilots as well as significant government defense funding increases supporting future opportunities. And in Healthcare the ongoing shortage of nurses translates into the need for new and innovative training solutions. CAE is well- positioned to satisfy customer demands and drive attractive top- line growth in each case.

We enjoyed a year of significant growth and recovery in our Civil business, and while not all geographies have fully recovered from pandemic-related travel restrictions, we achieved record adjusted segment operating income margin* rates for the full year, aided by the structural cost actions taken during the downturn. We saw significant contributions to growth in both Full Flight Simulators deliveries and training, and as planned our results included earnings accretion from the successful integration of the Sabre AirCentre acquisition. Like several of our peers, we were negatively impacted by macroeconomic and geopolitical-related challenges in FY2023, most notably in our Defense business, where manpower and supply-chain pressures weighed on program performance. However, we partially offset many of these costs and drove consistent sequential improvement in both Defense (D&S) and consolidated CAE performance throughout the year and we expect to continue to drive improved performance in the future.

We continue to be very optimistic about the potential created by the scale of our enterprise as well as the combined research and development that we believe will define the technological forefront of our core markets in the years to come. In Civil, we continued to expand our global training network with the deployment of more than 20 Full Flight Simulators, the opening of new training centers in Singapore and Las Vegas, and the signing of partnerships with leading airlines including Qantas and Aegean. In D&S, the combination of legacy CAE and L3H MT has created a much larger bid pipeline with more prime bidding opportunities, many of which are dependent on the industry-leading, best-of-breed solutions that we can provide today. And in Healthcare, our work with the American Society of Anesthesiologists, contributes to the expansion of simulation centers like the one announced with Morgan State University, and support of state grants and associated clinical demand requirements all demonstrate CAE’s importance to the healthcare ecosystem. Across the combined franchises, we are increasingly developing numerous solutions to cross-sell, leverage jointly developed technologies, and differentiate our offerings across market spaces. Looking ahead, this will drive the potential for both outsized growth as well as enhanced profitability through shared technology development and evolving next-gen requirements for our customers.

For the full year, the Company generated 25% revenue growth and a 23.3% expansion in the adjusted segment operating income margin %*. The company’s book-to-sales ratio* remained strong throughout the year and totaled 1.2x for FY2023, setting up FY2024 for continued attractive growth. Our business's cash generative nature was demonstrated again in FY2023, with a free cash flow conversion rate* of 120%, which together with ongoing profit growth helped drive a reduction in our net-debt-to-adjusted EBITDA* from 3.6x in FY2022 to 3.4x in FY2023.

Throughout FY2023, we maintained our strategic focus on four main pillars:

* Non-IFRS and Other Financial Measures (see Appendix B).

64 | CAE INC. | 2023 | Management Proxy Circular

Section 7 - Executive Compensation

Efficient Growth:

- Continued to drive very strong order flow, resulting in a full-year book-to-sales ratio* of 1.2x and now seven straight quarters above 1.0x in our D&S business unit.

- Integrated the acquisition of Sabre’s AirCentre technology portfolio, resulting in a full year of earnings accretion as planned realization of structural cost savings implemented during COVID, resulting in strong adjusted segment operating income margin %* expansion in our Civil business. Ongoing robust growth in our Healthcare business, which now enjoys a revenue scale that is significantly larger than pre- pandemic levels, aided by the rollout of new technologies and consistent market share gains. Deepened our partnerships with other ecosystem players, including our MOU with The Boeing Company and a successful win on FLRAA with partner Bell/Textron.

Revolutionizing Training and Critical Operations:

- Through the successful combination of legacy CAE D&S and the recently acquired L3Harris Military Training business, our D&S program/platform exposures have more than doubled from pro-forma pre-merger levels and now include numerous US Department of Defense and foreign military platforms, including the Bell V-280, Boeing T-7, and Airbus MRTT, along several other classified and unclassified platforms.

- With the acquisition of the AirCentre business from Sabre, now known as CAE Flight Services, we have successfully delivered new capabilities to pre-existing CAE customers and significantly increased the bid pipeline of the legacy AirCentre portfolio.

- Celebrated the opening of new business aviation training centers, in Singapore and Las Vegas, along with signing numerous training agreements with Civil customers including partnerships with Qantas and Aegean.

- Sizeable increase in the number of prime bids and opportunities in the D&S pipeline and achieved prime wins in all five battlespace domains in FY2023.

Technology and Market Leadership:

- Further acceleration of the deployment of CAE RISE, the aviation industry’s premier data analytics suite for objective training solutions.

- Expansion of CAE Flight Services’ Next-Generation software suite, including cloud-based Operations Control, Crew Management, and Flight Management solutions.

- Successful implementation of next generation training solutions, including the +Tempo VR maintenance training technology for the United States Air Force and several tools including the Adaptive Learning Environment for the Japan Self Defense Force.

- Continued to grow our market-leading Learning Space audio- visual technology solution to aid in achieving rapid proficiency for clinical learners in the Healthcare space.

- The rollout of new mixed-reality training solutions including the CAE 700 MXR for use in Advanced Air Mobility markets and the HH-60W aircrew trainer for the United States Air Force.

- Launch of the Predator Mission Aircrew Training+ (“PMT+”) unmanned aerial vehicle training solution, with first sales completed.

- Deployment of synthetic environments and advanced digital twinning solutions for both military and non-military customers.

* Non-IFRS and Other Financial Measures (see Appendix B)

65 | CAE INC. | 2023 | Management Proxy Circular

Section 7 - Executive Compensation

Skills & Culture:

- Hired a Chief Technology & Product Officer to accelerate CAE’s digital transformation and accelerate cross-company technology development efforts.

- Grew our pool of diverse senior leaders by 12% year over year, exceeding our 10% commitment.

- Successful rollout of Project Heartbeat, a comprehensive plan to enhance employee experience through career and development opportunities, rewards and recognition programs as well as work-life balance.

- Launched CAE’s Career Hubs as well as the CAE Gigs initiative, to provide further career development support and expanded career mobility opportunities for our employees.

- Continued to maintain record-high employee engagement scores across the enterprise.

- As the first carbon-neutral Canadian aerospace company, launched the development of an electric conversion kit for Piper Archer aircraft expecting to convert two-thirds of our training fleet at our flight schools for a significant reduction of our Scope 1 emissions.

- Delivered CAE’s 5-year ESG roadmap involving collaboration with 15 working groups from all business units and functions with precise targets to monitor and report measurable progress on the priorities highlighted in our materiality matrix published in FY2022. Published first estimate of the major categories of Scope 3 Green House Gas emissions in the Carbon Disclosure Project.

- Admitted to the Renewable Energy 100 group this year recognizing CAE’s achievements and ambitions around decarbonization.

- Named to Bloomberg’s Gender-Equality Index for the fifth year in a row. Additionally recognized as one of Canada’s Top 100 Employers for 2023 and as one of Canada’s Top Employers for young people (2021, 2022), and Montreal Top Employer (2021, 2022).

- Joined Air Canada’s effort to advance diversity in aviation by committing to doubling the number of 2023 Captain Judy Cameron Scholarships granted to young Canadian women studying to become commercial pilots or maintenance engineers.

66 | CAE INC. | 2023 | Management Proxy Circular As CAE and the global economy began to emerge from the challenging environment caused by Covid-19 pandemic, the Board opted to modify certain elements of its incentive plans.

Section 7 - Executive Compensation

Compensation Decisions

NEW in FY2023

Short-Term Incentive Plan (“STIP”)

The STIP was reviewed, and the following changes were implemented:

— Introduction of revenue as a financial metric in FY2023 STIP

— Elimination of the free cash flow* and Customer satisfaction metrics from FY2023 STIP

— The financial metrics measures in FY2023 STIP are adjusted EPS* (50%), revenue (30%) and adjusted order intake* (20%)

In FY2023, we tied ESG to CAE executive compensation. CAE executives now have individual ESG objectives, with diversity as the common objective for all executives.

Long-Term Incentive Plan (“LTIP”)

The LTIP mix was changed to 60% PSUs, 20% RSUs and 20% Stock Options, aligning further our pay for performance with Shareholders interests.

The PSU Plan was modified to be based on two financial metrics: Adjusted EPS* and Free Cash Flow* being weighted 75% and 25%, respectively.

NEW in FY2024

Until the Covid-19 pandemic, CAE’s incentive plans had received strong Shareholder support. During FY2021 and FY2022, the Board approved several changes to the incentive plans to reflect the environment in which CAE was operating. Shareholder support for the incentive plan has not been as strong over the past two years. Last fall, the Human Resources Committee engaged with many of CAE’s largest Shareholders seeking their views on its compensation programs. Further to these discussions the Committee approved the changes listed below effective FY2024, to directly address the feedback we received from Shareholders.

Short-Term Incentive Plan (STIP)

The STIP was reviewed, and the following changes are effective for FY2024:

— Adjusted EPS*, adjusted order intake* and revenue will continue to be the three financial metrics measured in FY2024 STIP, with the weighting to adjusted EPS* increased by 10%

— The financial metrics measures for FY2024 STIP are now adjusted EPS* (60%), revenue (20%) and adjusted order intake* (20%)

* Non-IFRS and Other Financial Measures (see Appendix B)

67 | CAE INC. | 2023 | Management Proxy Circular The LTI mix remains the same, with 60% in PSUs, 20% in stock options and 20% in RSUs.

Section 7 - Executive Compensation

Long-Term Incentive Plan (LTIP)

The performance metrics for the FY2024 PSU awards were modified as follows:

— Adjusted segment operating income margin %* replaces adjusted EPS* as a profitability measure, resulting in adjusted EPS* now only being measured under the STIP

— Net cash provided by operating activities replaces free cash flow* as a cash management measure

— Adjusted ROCE* added to measure effective deployment of capital

— The FY2024 PSU metrics are equally weighted: 1/3rd adjusted segment operating income margin%*, 1/3rd net cash provided by operating activities and 1/3rd adjusted ROCE*

— Both net cash provided by operating activities and adjusted ROCE* will be measured cumulatively over the 3-year period. Adjusted segment operating income margin %* will be measured on a yearly basis and weighted 1/6th in year 1; 1/3rd in year 2 and 1/2 in year 3

CAE considered again in FY2024 but did not include relative TSR as a metric in the PSU plan, due to the challenges of finding a reasonable number of comparable companies that respond to external factors in a similar way. Without an appropriate peer group, a relative TSR metric does not reflect industry out- or under-performance, which is an important purpose of this metric. However, the HRC recognizes the importance of understanding CAE’s performance in context and regularly considers CAE’s performance relative to its closest business peers, to calibrate performance and target setting.

The Committee is seeking approval from Shareholders for an Omnibus plan which will allow Stock Options, RSUs and PSUs to be settled in Shares (issued from treasury or purchased on the open market), in cash or in a combination thereof at the Company’s discretion. For more details on this plan, please refer to Section 7 – Executive Compensation – Compensation Discussion and Analysis – Executive Compensation Programs – Long Term Incentive Program Design – Omnibus Incentive Plan.

Governance

A double trigger is introduced in the Change of Control provisions for equity-based compensation (PSUs, RSUs and Stock options). Starting with FY2024, all future equity awards will vest on a “double trigger” basis, requiring both a Change of Control and without fault termination of employment for equity vesting.

The CEO will be required to maintain his Share ownership requirement of 500% of base salary for one year following retirement.

* Non-IFRS and Other Financial Measures (see Appendix B)

68 | CAE INC. | 2023 | Management Proxy Circular We appreciate the importance of engaging with our Shareholders to better understand their views, concerns, and priorities related to our business operations, performance, and executive compensation programs.

Section 7 - Executive Compensation

Shareholder Engagement

As a result of FY2021 and FY2022 say on pay advisory votes (76.1% and 79.6%, respectively), we proactively reached out to our Shareholders and offered to meet with them to discuss our executive compensation programs.

We met with close to 20 of our largest Shareholders, who together account for approximately 40% of our ownership. These meetings allowed us to share the Board objectives around executive compensation and listen to their feedback and questions about our executive compensation programs.

The table below lists the key themes we heard from our Shareholders and CAE’s actions in response.


What we heard from our Shareholders			CAE’s response
Consider increasing the short-term incentive plan focus on profitability			Short-term incentive plan weighting to adjusted EPS* increased from 50% to 60% for FY2024
Clarify how Revenue is defined			Revenue is defined and measured using organic growth and including proportionate revenues from Joint Venture and adjusted for foreign exchange translation impacts. Revenue growth due to acquisitions in the year is excluded.
Consider increasing the focus on returns to Shareholders in the long-term incentive plan			Adjusted ROCE* is added as a PSU performance measure for FY2024, with a weighting of 1/3rd
Consider reducing metric overlap between the short-and long-term incentive plans			Adjusted EPS* is removed from the PSU performance metrics to eliminate overlapping with the short-term incentive metrics. The FY2024 PSUs will have three equally weighted performance metrics: - Adjusted segment operating income margin %* - Net cash provided by operating activities - Adjusted ROCE*
Increase long-term performance measurement for the PSUs			Adjusted ROCE* and net cash provided by operating activities (together 67% of the PSUs weighting) are based on a 3-year cumulative performance. Adjusted segment operating income margin %* will be measured annually, with a heavy focus on the 3rd year of performance: - 1/6th year one - 1/3rd year two - 1/2 year three
Consider more regular engagement with Shareholders			CAE is committed to offering engagement opportunities to Shareholders annually
Improve Proxy disclosure			CAE made significant changes to its proxy for FY2023, designed to provide increased transparency of disclosure
Enhance compensation governance			A double trigger is introduced in the Change of Control provisions for equity- based compensation (PSUs, RSUs and Stock Options). Starting in FY2024, all future equity awards will vest on a “double trigger” basis, requiring both a Change of Control and without cause termination of employment for equity vesting The CEO is required to maintain his Share ownership requirement for one year following retirement
Enhance Executive Share Ownership			RSUs and PSUs will be settled in Shares (issued from treasury or purchased on the open market), in cash or in a combination thereof at the Company’s discretion, pursuant to an Omnibus Incentive Plan, that Shareholders are asked to approve at this meeting

* Non-IFRS and Other Financial Measures (see Appendix B).

69 | CAE INC. | 2023 | Management Proxy Circular Much of CAE’s success in developing and growing its worldwide business is attributable to our highly qualified and motivated employees.

Section 7 - Executive Compensation

Compensation Philosophy

Compensation Objectives

The executive compensation programs are based on a pay-for-performance philosophy. Executives receive salaries, annual short-term incentive awards contingent upon attaining consolidated business results and individual achievements, and long-term incentive awards that motivate executives to create increasing and sustainable value for Shareholders. In addition, executives receive perquisites and participate in pension and benefits programs.

70 | CAE INC. | 2023 | Management Proxy Circular The principles underlying CAE’s executive compensation programs are as follows:

Section 7 - Executive Compensation

Compensation principles


Pay for performance			The majority of compensation is variable, contingent on and directly linked to financial and operational performance metrics, and CAE’s Share price.
Balance			The portion of total compensation that is performance-based increases with an executive’s level of responsibility and strategic scope of the role.
Long-term focus			Long-term stock-based compensation opportunities have a larger weight than short-term cash- based opportunities for our executive leaders.
Shareholder alignment			The financial interests of executives are directly aligned with the interests of our Shareholders through stock-based compensation, and annual and long-term performance metrics that correlate with sustainable Shareholders value growth.
Competitiveness			Total compensation is market competitive to attract, retain, and motivate CAE’s executive team while fostering entrepreneurial spirit. This is achieved by setting target compensation competitively with the median of our comparator group with compensation outcomes above the median when performance is strong and below median when it is not.
Responsibility			Financial and operational performance must not compromise our ethical, environmental and health and safety objectives, outlined in our Code of Business Conduct. Commitment to ethical and corporate responsibilities fundamentally underlies all aspects of our behavior and compensation plans, which provide for compensation to be reduced if these objectives are not upheld.

The following illustrates the relative weight of each compensation policy element, at target:

71 | CAE INC. | 2023 | Management Proxy Circular CAE’s executive compensation program has five main components: base salary, short-term incentive, long-term incentives, pension, and perquisites and benefits.

Section 7 - Executive Compensation

Executive Compensation Programs

The table below provides highlights of each component and describes the purpose and CAE’s policy for each component.

Overview

Form

Plan Highlights

Plan Objectives

Policy

Base Salary

Cash

Fixed pay annual review

Provide a base of regular income to attract and retain qualified leaders

Recognize scope and responsibilities of the position as well as the experience and sustained performance of the individual

Set competitive with the median of the comparator group

Short-term Incentive (STIP)

Cash

Annual award based on corporate and where appropriate, business unit metrics (75%) and individual objectives (KPIs) (25%) for the President and CEO and his direct reports

Executives can elect to receive some or all STIP payment as Executive Deferred Share Units

Reward the achievement of the Company’s financial and operational objectives

Reward the achievement of individual objectives aligned with the executive’s area of responsibility and role in realizing operational results

Drive superior individual and corporate performance

Set competitive with the median of the comparator group

Designed to result in above median payouts for superior performance

Performance metrics are aligned to the strategic plan and approved annually

Long-term Incentive (LTIP)

Performance Share Units (60%), Stock Options (20%), Restricted Share Units (20%)

LTIP value is awarded in different medium to long term compensation vehicles with both time and performance vesting based on achievement of longer-term financial objectives

Align management’s interests with Shareholders value growth

Reward the achievement of sustained market performance

Attract and retain key talent

Set competitive with the median of the comparator group

Ability to award LTI within a range and impact of Share price and financial performance designed to provide pay outcomes closely aligned with performance

Pension

Monthly pension in cash at retirement

Defined Benefit Plan for executives representing 2% of average 5 best years of earnings (salary plus STIP), per year of pensionable service

Supplementary Plan offered to the NEOs for pension above the income tax act cap on registered plans

Support retention of key executives

Set consistent with historical approach

Perquisites and Other Benefits

Employee Stock Purchase Plan (“ESPP”)

Perquisites

ESPP: Employees and executives may purchase CAE Shares up to 18% of their base salary; CAE matches 50% of the employee contributions, up to a maximum of 3% of the employee’s annual base salary

Perquisites: Cash allowance to cover certain expenses to support health and well-being

Provide executives with a Share ownership building vehicle

Set to be market competitive

72 | CAE INC. | 2023 | Management Proxy Circular The base salaries of the President and CEO and other NEOs are determined in accordance with CAE’s compensation philosophy and policies.

Section 7 - Executive Compensation

Base salaries

CAE’s executives’ salaries are positioned within a competitive range around the market median, based on the individual’s performance and level of experience and the scope and responsibilities of the role.

Base salaries are reviewed by the HRC** annually considering individual achievements, general performance, benchmark information and market conditions.

Annual Incentive Program Design


- The annual short-term incentive plan motivates the achievement of specific annual financial and operational results - To further strengthen alignment with Shareholders the overall corporate performance factor is capped at 100% if the adjusted EPS* result does not meet the target

The Short-Term Incentive Plan (STIP) provides for an annual cash incentive for executives and management employees based on CAE’s consolidated performance and individual achievements. The STIP motivates the achievement of specific annual financial and operational results, aligned with the corporate goals and strategy.

The table below outlines FY2023 STIP target ranges by NEO:


STIP Target as a % of Base Salary
NEO	Minimum	Target	Maximum
Marc Parent	0%	125%	250%
Sonya Branco	0%	75%	150%
Carter Copeland	0%	75%	150%
Daniel Gelston	0%	75%	150%
Nick Leontidis	0%	75%	150%

The STIP is based 75% on CAE performance and 25% on the executive’s individual performance. The Company performance factor consists of financial measures of varying weights that total 100%. The year-end result for each measure is assessed against predefined targets that are set and approved by the HRC at the beginning of the year. The individual performance factor is based on the executive’s performance against annual objectives and additional predefined quantitative and qualitative goals that reflect the strategic and operational priorities critical to each executive’s role.

* Non-IFRS and Other Financial Measures (see Appendix B).

** By the CAE USA Inc. Board of Directors for Daniel Gelston, Group President, Defense and Security.

73 | CAE INC. | 2023 | Management Proxy Circular In FY2023, the Company performance factor was based on three financial measures detailed in the table below:

Section 7 - Executive Compensation

The table below illustrates the annual STIP payout calculation for NEOs


STIP Measure
Performance Measure	Why this Measure is important	Weighting
Adjusted EPS*	Intended to keep management focused on EPS achievement as a critical metric reflecting the profitability of the Company and directly linked with Shareholders interest	50%
Revenue	Highlights the importance of revenue growth in the Company strategy	30%
Adjusted order intake*	Demonstrates the level of growth in sales for the Company’s products and services, thus is representative of future operational growth	20%

To further strengthen alignment with Shareholders the overall corporate performance factor is capped at 100% if the adjusted EPS* result does not meet the target approved by the Board of Directors.

NEW In FY2024, the Adjusted EPS* weighting will be increased to 60% to further increase management’s focus on Company profitability. Revenue and adjusted order intake* will continue to be important measures in FY2024 STIP and will be equally weighted at 20% each.

Demonstrating the depth of CAE’s commitment to ESG, CAE executives have individual ESG objectives, with diversity as the common objective tied to compensation. Compensation also considers each executive’s responsibility to always act in accordance with our values and our ethical, environmental and health and safety objectives, outlined in CAE’s Code of Business Conduct.

Following a review at year-end that considers overall business and individual performance as well as the performance of the business from a holistic and strategic perspective, the STIP payments for the President and CEO’s direct reports are approved by the HRC** and, for the President and CEO, by the Board upon the HRC’s recommendation. Canadian and US-based executives can elect to defer all or a portion of the STIP payment as Executive Deferred Share Units. The amount deferred is converted into a number of DSUs, (see details under “Executive Deferred Share Unit Plan”).

* Non-IFRS and Other Financial Measures (see Appendix B).

** By the CAE USA Inc. Board of Directors for Daniel Gelston, Group President, Defense and Security.

74 | CAE INC. | 2023 | Management Proxy Circular The LTIP is designed to reward executives for their contribution to the creation of Shareholders value.

Section 7 - Executive Compensation

Long-Term Incentive Program Design


CAE’s long-term incentive plan aligns management’s interests with Share price growth and related Shareholders value creation, and rewards sustained market performance.

For NEOs other than the CEO, the value of the LTIP grants varies by the level of responsibility and scope and is based on each executive’s performance as assessed by the HRC** and the Board.

The table below outlines FY2023 LTIP target ranges by NEO:


LTIP Target as a % of Base Salary
NEO	Minimum	Target	Maximum
Marc Parent	-	485%	-
Sonya Branco	100%	175%	250%
Carter Copeland	40%	95%	150%
Daniel Gelston	100%	175%	250%
Nick Leontidis	100%	175%	250%

CAE’s LTIP is comprised of PSUs, RSUs and Stock Options. All NEOs were eligible for an annual grant under each of these plans, and awards were allocated as follows:


LTIP Mix
Components	Weighting	Vesting
PSUs	60%	3-year cliff vesting
RSUs	20%	3-year cliff vesting
Stock Options	20%	4-year ratable vesting (25% per year)

** By the CAE USA Inc. Board of Directors for Daniel Gelston, Group President, Defense and Security.

75 | CAE INC. | 2023 | Management Proxy Circular In FY2015, CAE adopted a Performance Share Unit Plan (“PSU Plan”) for executives and senior management of CAE and its subsidiaries.

Section 7 - Executive Compensation

Performance Share Units


— PSU directly ties CAE executives to the achievement of the CAE strategic plan. — PSU is equal in value to one Share of CAE. — Vesting: 3-year cliff subject to the achievement of set performance criteria and the participant’s continued employment with CAE.			— Performance condition: Financial targets as set in the 3-year strategic plan approved by the Board. — Maximum payout multiplier set at 200%.

PSUs is a long-term incentive vehicle that vests based on the achievement of financial performance that is directly tied to the achievement of the CAE strategic plan.

A PSU has the same value as a Share of CAE. PSUs vest three years from the grant date, provided that the participant is employed by the Company on the vesting date and the performance targets are achieved.

In FY2023, the PSU Plan was modified to be based on two financial measures, adjusted EPS* and free cash flow*, weighted 75% and 25%, respectively. Three-year financial targets are determined based on the strategic plan approved by the Board of Directors and payout grids are set for each measure and approved by the HRC. For each measure, the target rate of granted units is multiplied by a factor ranging from 0% to 250%, with the overall payout multiplier capped at 200%.

In FY2023, the PSUs performance factor was based on two financial measures detailed in the table below:

PSU Performance Measures

Driver

Performance Measure

Weighting

Why this Measure is Important

Performance Assessment

Profitability

Adjusted EPS*

75%

Intended to keep management focused on EPS achievement as a critical metric reflecting the profitability of the Company and directly linked with Shareholders interest

Measured yearly and weighted:

- 1/6th year one

- 1/3rd year two

- 1/2 year three

Growth

Free cash flow*

25%

Intended to focus on generating sustainable cash flow over the long term by making capital allocation decisions aligned with long term to Shareholder value creation

Measured as a cumulative figure over a 3-year period

Vested PSUs are redeemed at the average fair market value of the Shares on the TSX for the 20 trading days preceding the final vesting date of the grant, Qualifying Event date or such other date as may be determined by the Human Resource Committee from time to time.

The current PSU Plan is an unfunded plan and non-dilutive as all vested PSUs are paid out in cash. Therefore, no disclosure of the annual burn rate is provided. For details concerning the treatment of PSUs following the executive termination, resignation, retirement and Change of Control, please refer to Section 7 – Executive Compensation - Compensation of our Named Executive Officers – Termination and Change of Control Benefits.

* Non-IFRS and Other Financial Measures (see Appendix B).

76 | CAE INC.

Section 7 - Executive Compensation

| 2023 | Management Proxy Circular NEW In FY2024, based on feedback received from our Shareholders, the PSU Plan was further modified to be based on three equally weighted financial measures: adjusted segment operating income margin %*, net cash provided by operating activities and adjusted ROCE*. These measures will also be used for PSUs to be granted under the Omnibus Incentive Plan, further described below.

The Committee is seeking approval for the Omnibus Incentive Plan, which will allow settlement PSUs in Shares issued from treasury and further encourage CAE ownership by employees, please refer to Section 7 – Executive Compensation – Compensation Discussion and Analysis – Executive Compensation Programs – Long Term Incentive Program Design – Omnibus Incentive Plan.

Restricted Share Units


— RSU is equal in value to one Share of CAE.			— Vesting: 3-year cliff subject to the participant’s continued employment with CAE.

In FY2015, CAE adopted a time-based Restricted Share Unit Plan (“RSU Plan”) for executives and senior management of CAE and its subsidiaries. RSUs are awarded to executives and senior management of CAE and its subsidiaries to enhanced alignment with Shareholders and support retention.

Each RSU has the same value as a Share of CAE. RSUs are granted for a three-year period and vest on the third anniversary of the grant if the participant remains employed with CAE until that time. Vested RSUs are redeemed at the average fair market value of the Shares on the TSX for the 20 trading days preceding the final vesting date of the grant, Qualifying Event date or such other date as may be determined by the HRC** from time to time

The RSU Plan is currently an unfunded plan and non-dilutive as all vested RSUs are paid out in cash. Therefore, no disclosure of the annual burn rate is provided. For details concerning the treatment of RSUs following the executive termination, resignation, retirement and Change of Control, please refer to Section 7 – Executive Compensation – Compensation of our Named Executive Officers – Termination and Change of Control Benefits.

The Committee is seeking approval for the Omnibus Incentive Plan which will allow settlement of RSUs in Shares issued from treasury and further encourage CAE ownership by employees, please refer to Section 7 – Executive Compensation – Compensation Discussion and Analysis – Executive Compensation Programs – Long-Term Incentive Program Design - Omnibus Incentive Plan.

* Non-IFRS and Other Financial Measures (see Appendix B).

** By the CAE USA Inc. Board of Directors for Daniel Gelston, Group President, Defense and Security.

77 | CAE INC.

Section 7 - Executive Compensation

Stock Options


— Option term: 7 years. — Vesting: 25% per year starting on the first anniversary date of the grant.			— FY2023 burn rate (ratio of granted options during the year versus issued and outstanding Shares): 0.20%.

| 2023 | Management Proxy Circular CAE adopted the Amended and Restated Employee Stock Option Plan (“ESOP”), to provide key employees of CAE with an opportunity to purchase Shares and to benefit from the related Share price appreciation, closely aligning the interests of employees with those of Shareholders. Stock Options increase the ability of CAE to attract, retain and reward individuals with exceptional skills.

Stock Options have value only to the extent Share price increases, so provide a transparent long-term incentive vehicle that directly aligns executives with Shareholder interests in Share price growth over the long-term. CAE’s Stock Options vest 25% per year over four and since FY2012 have a term of seven years, to reward long term Share price growth.

The HRC establishes rules and guidelines for the administration of the ESOP, selects the employees to whom awards are granted and the number of Shares covered by such awards, sets the terms and conditions of awards and cancels, suspends and amends awards. The HRC has the sole discretion to make determinations under, and to interpret, the ESOP.

The ESOP permits, at the discretion of the HRC, the surrender and cancellation without re-issue of an in-the-money Stock Option for cash equal to the fair market value of the Share underlying the Stock option less the Option exercise price, in lieu of the Share itself (the fair market value of a Share is the closing price of a Share on the TSX on the trading day on which the election is made).

For detailed disclosure of the terms and conditions of the ESOP, see Appendix C titled “Summary of the Employee Stock Option Plan”. A complete copy of the ESOP can be accessed on SEDAR at www.sedar.com or on EDGAR at www.sec.gov.

Omnibus Incentive Plan

In an effort to streamline its equity-based incentive plans, to encourage greater Share ownership by employees and to foster a greater alignment between the long term interests of the Shareholders and the interests of employees, the Board of CAE adopted on May 31, 2023 an Omnibus Incentive Plan (“Omnibus Incentive Plan”) which is a single plan that allows for different types of equity awards to be granted and to be settled through the issuance of Shares from treasury. The Omnibus Incentive Plan provides flexibility to the company to grant both whole Share awards, such as PSUs and RSUs as well as Stock Options. The Omnibus Incentive Plan provides that Stock Options will be settled in Shares issued from treasury, while PSUs and RSUs will be settled in Shares (either issued from treasury or purchased on the open market), in cash or in a combination thereof. The Omnibus Incentive Plan does not permit Option grants to non-employee directors. In light of these features, the Omnibus Incentive Plan will enhance the ability of the Company to attract, retain and reward key individuals to advance its business strategy and will promote a greater alignment of interests with the Shareholders of the Company.

The HRC is responsible for administering and interpreting the Omnibus Incentive Plan. Under the terms of the Omnibus Incentive Plan, the HRC will, in its sole discretion, from time to time designate the executive officers and employees to whom awards shall be granted and determine, if applicable, the number of Shares to be covered by such awards and the terms and conditions of such awards.

The Omnibus Incentive Plan will supplement the existing PSU Plan, RSU Plan and ESOP (collectively, the “Existing Plans”). Awards granted under the Existing Plans will remain outstanding and governed by the respective terms of such plans, but no new awards will be granted under any of the Existing Plans if the Omnibus Incentive Plan is approved by Shareholders, and any reserve of Shares remaining available for future issuance of Stock Options under the ESOP shall be cancelled. If the Omnibus Incentive Plan is not approved by Shareholders, the Existing Plans will remain in place and PSUs, RSUs and Stock Options may continue to be granted under the Existing Plans, subject to their terms.

78 | CAE INC. | 2023 | Management Proxy Circular The total number of Shares reserved for issuance under the Omnibus Incentive Plan shall be 10,000,000 (representing approximately 3.15% of the issued and outstanding Shares as at March 31, 2023).

Section 7 - Executive Compensation

Since the Omnibus Incentive Plan was adopted by the Board, on May 31, 2023, Conditional Grants were made by the Company on June 9, 2023 of (i) 303,139 and 420,206 Stock Options to insiders and other employees respectively which may be exercised at a price of $28.65 until June 9, 2030, (ii) 106,866 and 192,709 RSUs to insiders and other employees respectively which shall vest on June 9, 2026, and (iii) PSUs which may result in the issuance of up to 641,194 and 977,960 Shares upon vesting on June 9, 2026, subject to performance criteria, to insiders and other employees respectively. Such awards, representing 0.83% of the issued and outstanding Shares as at June 15, 2023, are conditional on the Shareholders approving the Omnibus Incentive Plan and ratifying the Conditional Grants. If not approved, these Conditional Grants shall be deemed to have been made pursuant to the terms of the Existing Plans.

The terms and conditions relating to the grants of PSUs, RSUs and Stock Options under the Omnibus Incentive Plan include the following:

Share Units

The HRC is authorized to grant PSUs and RSUs evidencing the right to receive Shares (issued from treasury or purchased on the open market), cash based on the value of a Share or a combination thereof at some future time to eligible persons under the Omnibus Incentive Plan.

RSUs generally become vested, if at all, following a period of continuous employment. PSUs are similar to RSUs, but their vesting is, in whole or in part, conditioned on the attainment of specified performance metrics as may be determined by the HRC. The terms and conditions of grants of RSUs and PSUs, including the quantity, type of award, grant date, vesting conditions, vesting periods, settlement date and other terms and conditions with respect to these awards will be set out in the participant’s grant agreement. Subject to the achievement of the applicable vesting conditions, the payout value of a PSU or RSU will generally be determined on the settlement date using the volume weighted average price of the Shares on the TSX for the last five (5) trading days (as opposed to the market value of the Shares on the TSX for the past 20 trading days, as is currently the case under the PSU Plan and RSU Plan).

Stock Options

All Stock Options granted under the Omnibus Incentive Plan have an exercise price equal to the volume weighted average trading price of the Shares on the TSX for the five (5) trading days before the date of the grant. A Stock Option shall be exercisable during a period established by the HRC which shall not be more than ten (10) years from the grant of the Stock Option. The Omnibus Incentive Plan provides that the exercise period shall automatically be extended if the date on which it is scheduled to terminate shall fall during a black-out period or within nine (9) trading days following the end of a black-out period. In such cases, the extended exercise period shall terminate ten (10) trading days after the last day of the black-out period.

For detailed disclosure pertaining to the terms and conditions of the Omnibus Incentive Plan, see Appendix D titled “Summary of the Omnibus Incentive Plan”. A complete copy of the Omnibus Incentive Plan can be accessed on SEDAR at www.sedar.com or on EDGAR at www.sec.gov.

79 | CAE INC. | 2023 | Management Proxy Circular In FY2017, CAE adopted an Executive Deferred Share Unit Plan (“Executive DSU Plan”).

Section 7 - Executive Compensation

Executive Deferred Share Unit Plan


— Executive DSU Plan helps our executives build their Share ownership in CAE. — Allows for elective deferral of STIP to DSUs. — DSU is equal in value to one Share of CAE.			— DSUs are only payable when the executive leaves CAE. — Executive DSU plan is non-dilutive as all DSUs are paid out in cash.

The purpose of the plan is to attract and retain talented individuals to serve as officers and executives of the Company and to help them build their Share ownership in CAE, and to promote a greater long-term alignment of interests between the executives and the Shareholders of the Company.

Canadian and US-based executives can elect to defer a portion of or their entire short-term incentive payment to Executive DSUs annually.

Each DSU has the same value as a Share of CAE. The DSUs accrue dividend equivalents payable in additional DSUs in an amount equal to dividends paid on Shares. The DSUs are only payable when the executive leaves the Company. Upon or within a defined period following the termination of their employment, DSU holders are entitled to receive a lump sum cash payment equal to the number of DSUs credited to their account as of that date multiplied by the Fair Market Value of one (1) Share on the settlement date.

80 | CAE INC. | 2023 | Management Proxy Circular Some NEOs have outstanding participation in the following long-term incentive plans, which are no longer active (no further awards are made under the plans) but have yet to be fully paid out.

Section 7 - Executive Compensation

Inactive Equity-Based Plans with Legacy Participants

Fiscal 2005 Deferred Share Unit Plan

In FY2005, CAE adopted a Long-Term Incentive Deferred Share Unit Plan (“LTUP”) for executives of CAE and its affiliates that, as amended from time to time, applies to all grants made thereafter. No FY2005 Long-Term Incentive Deferred Share Units (“LTUs”) have been granted by CAE since FY2014. All LTUs are fully vested for remaining plan participants, having vested in 20% increments over five (5) years, commencing one (1) year after the grant date. LTUs accrue dividend equivalents payable in additional units in amounts equal to dividends paid on Shares. LTUs are only redeemable in cash following the unit holder’s retirement or termination of employment at the market value of Shares on the TSX on the settlement date.

Fiscal 2004 Deferred Share Unit Plan

In FY2004, CAE adopted a Long-Term Incentive Deferred Share Unit Plan (“FY2004 LTUP”) for executives of CAE and its affiliates to partially replace the grant of options under CAE’s ESOP. No FY2004 Long-Term Incentive Deferred Share Units (“FY2004 LTUs”) have been granted by CAE since FY2004. All FY2004 LTUs are fully vested for remaining plan participants, having vested in 25% increments over four (4) years, commencing one (1) year after the grant date. FY2004 LTUs accrue dividend equivalents payable in additional units in amounts equal to dividends paid on Shares. FY2004 LTUs are only redeemable in cash following the unit holder’s retirement or termination of employment at the market value of Shares on the TSX on the settlement date.

Pension, Benefits and Perquisites


— Promote long-term employment with the Company. — Pensions payable under the Supplementary Pension Plan are conditional upon compliance with non-competition and non-solicitation clauses. — No extra years of service are generally granted under the pension plans.

Eligible employees participate in the Retirement Plan for Employees of CAE Inc. and associated companies. Executives at a vice president level and higher participate in the Pension Plan for Designated Executive Employees of CAE Inc. and associated companies (the “Designated Pension Plan”), and in the Supplementary Pension Plan of CAE Inc. and associated companies (the “Supplementary Pension Plan”). The Designated Pension Plan is a defined benefit plan to which CAE and participants contribute.

Pensions payable under the Supplementary Pension Plan are paid directly by CAE. See Section 7 – Executive Compensation – Compensation of our Named Executive Officers – Pension Arrangements” for details about the value of the accrued benefit to each of the NEOs. Except as discussed in “Change in Control Contracts” below, CAE does not grant extra years of credited service under its pension plans. Receipt of pension benefits under the Supplementary Pension Plan is conditional upon compliance with non-competition and non-solicitation clauses.

81 | CAE INC. | 2023 | Management Proxy Circular Under the CAE Employee Stock Purchase Plan, employees may make contributions towards the purchase of Shares of up to 18% of their annual base salary.

Section 7 - Executive Compensation

Employee Stock Purchase Plan


Provide employees with a Share ownership building vehicle and a savings vehicle beyond the pension plan.

Under the plan, CAE contributes $1 for every $2 of employee contributions, to a maximum contribution of 3% of the participant’s annual base salary.

Change in Control Contracts

All NEOs are entitled to termination of employment benefits following a Change of Control of CAE where the executive’s employment is terminated without cause within two years following the Change of Control. This is to safeguard the Company’s normal course of business in case of Change of Control. See Section 7 – Executive Compensation - Compensation of our Named Executive Officers – Termination and Change of Control Benefits for a summary of the impact of various events on the different compensation programs for the NEOs and details about the approximate incremental value that could be realized by a NEO following termination or a Change of Control event.

Perquisites

Flexible perquisites provide executives with a cash allowance to cover certain expenses such as vehicle expenses, and health and well-being. Such allowance is typical for senior executive positions and is capped at predetermined levels by position.

82 | CAE INC.

Section 7 - Executive Compensation

FY2023 Compensation Outcome

| 2023 | Management Proxy Circular Our FY2023 financial results reflect a difficult start to the year, driven by an underperformance in Q1 related to unanticipated charges on two legacy D&S programs in the US and challenging circumstances across the D&S business, including supply chain and manpower challenges. As a result, our overall consolidated EPS result for FY2023 fell short of plan. The lower EPS result had a significant impact on both our FY2023 STIP and LTIP incentive plan payout levels. The results of our FY2023 incentive plans are as follows: 62% payout for the STIP CAE performance multiplier and 76% payout for the PSU performance multiplier. These incentive plan outcomes reflect CAE’s financial performance against pre-established targets, specifically below plan performance of our EPS results in FY2023. This is the lowest level of CAE incentive plan performance in over eight years. The STIP CAE performance multiplier and PSU multiplier averaged 152% and 185% respectively during the most recent five-year period.

Base salaries

The salaries of the President and CEO and other NEOs are determined in accordance with CAE’s compensation philosophy and policy, and are reviewed and approved, in the case of the President and CEO, annually by the independent members of the Board of Directors. The HRC** reviews benchmark data to ensure that the President and CEO’s and his direct reports’ total direct compensation (base salary, short-term and long-term incentives) are in line with CAE’s compensation philosophy. The changes to base salary are market competitive, based on benchmarking relative to our compensation peer group and reflect individual performance, experience and retention considerations of our executives. The salary increases below were determined at the start of FY2023 and were based on benchmarking conducted by the Committee’s independent compensation advisor.

The table below outlines base salaries of all NEOs:


NEO	FY2022 Base Salary1 ($)	FY2023 Base Salary1 ($)	Increase
Marc Parent	1,200,000	1,260,000	5%
Sonya Branco	539,000	565,950	5%
Carter Copeland2	567,600	660,000	16%
Daniel Gelston3	693,000	741,510	7%
Nick Leontidis	540,570	567,600	5%

1. For Mr. Gelston and Mr. Copeland, the base salary was converted to Canadian dollars using the FY2023 average exchange rate of $1.32.

2. Mr. Copeland’s base salary was increased to $601,656 as of June 1st of 2022 (6% increase as per the regular annual salary increase), and has been adjusted further on January 1st, 2023 to $660,000, to recognize additional responsibility of overseeing the Healthcare division.

3. To reduce costs in the Defense and Security business unit, Mr. Gelston proposed and put in place a 20% reduction in his base salary from August 1st, 2022, to October 31st, 2022.

** By the CAE USA Inc. Board of Directors for Daniel Gelston, Group President, Defense and Security.

83 | CAE INC. | 2023 | Management Proxy Circular 75% of short-term incentive awards for the President and CEO and other NEOs is based on the achievement of CAE performance measures, namely adjusted EPS*, revenue and adjusted order intake*.

Section 7 - Executive Compensation

Short Term Incentive Plan

Corporate Performance

Details on these measures are described under Section 7 – Executive Compensation – Compensation Discussion and Analysis – Executive Compensation Programs – Annual Incentive Program Design.

The table below illustrates the respective weights given to each FY2023 CAE corporate performance measure, as well as the actual results and related payout levels.


Performance Measure1	Threshold (0%)	Target (100%)	Maximum (200%)	Actual Performance2	Weighting	Score
Adjusted EPS*	$0.94	$1.09	$1.24	$0.87	50%	0%
Revenue	$4,308M	$4,787M	$5,266	$4,759	30%	28%
Adjusted order intake*	$4,111M	$4,672M	$5,232	$5,049	20%	34%
STIP Payout						62%

1. If the adjusted EPS* target is not met, the corporate performance multiplier is capped at 100%.

2. For incentive plans purposes, adjusted EPS* and revenue are normalized for foreign exchange. In addition, revenue includes proportionate revenue generated by Joint Venture. Actual results before these adjustments are as follow: $0.88 for adjusted EPS and $4,203M for revenue.

The remaining 25% of the NEOs’ annual incentive is awarded based on pre-determined operational and financial measures specific to each executive. As with other performance measures, individual performance is assessed between 0% to 200%. For FY2023, the individual performance factor for NEOs varied between 0% and 200%. The HRC determined the President and CEO’s individual performance factor to be 160% which was recommended to and approved by the Board. The HRC** reviewed and approved the President and CEO’s recommendations on the individual performance factors for his direct reports following a detailed discussion about corporate and individual performance (see Section 7 – Executive Compensation – Compensation Discussion and Analysis – Determination of NEOs Individual Performance”).

In assessing the individual performance factor for the CEO, the HRC assesses the CEO’s performance relative to specific financial and operational CEO performance goals that are set at the start of the fiscal year. The specific targets for these goals are not disclosed as they include competitively sensitive information. However, the achievements relevant to the HRC’s consideration and assessment are listed below in Section 7. The HRC also considers recent financial and operating performance of CAE, and for FY2023 CAE’s stronger Share price performance relative to companies in the aerospace, defense, and airlines industries. There were 10 specific categories of objectives for the CEO for FY23, including: growth, orders, profitability, cash generation, M&A integration, balance sheet flexibility, ESG, talent, high-tech evolution, and training efficacy. Mr. Parent’s performance relative to the established goals resulted in an individual performance assessment of 160%. This resulted in an overall short-term incentive payout factor of 87% of target for the CEO, which reflects an approximate $1.1M reduction in short-term incentive compensation relative to FY2022, aligned with the HRC’s assessment of CAE’s financial and operational performance.

* Non-IFRS and Other Financial Measures (see Appendix B).

* *By the CAE USA Inc. Board of Directors for the Group President, Defense and Security.

84 | CAE INC. | 2023 | Management Proxy Circular The table below shows the calculation of the FY2023 STIP payout to each NEO:

Section 7 - Executive Compensation

Individual Payout


NEO	Year-end Base Salary1	X	Target STIP (% of base salary)	X	(	Corporate Performance Factor (75%)	+	Individual Performance Factor (25%)	)	=	2023 STIP Payout ($)
Marc Parent	$1,260,000	X	125%	X	(	62%	+	160%	)	=	$1,362,380
Sonya Branco	$565,950	X	75%	X	(	62%	+	90%	)	=	$292,879
Carter Copeland	$660,000	X	75%	X	(	62%	+	180%	)	=	$551,925
Daniel Gelston	$741,510	X	75%	X	(	62%	+	0%	)	=	$258,601
Nick Leontidis	$567,600	X	75%	X	(	62%	+	200%	)	=	$410,801

1. Annual base salary as of March 31, 2023. For Mr. Gelston and Mr. Copeland, the base salary was converted to Canadian dollars using the FY2023 average exchange rate of $1.32.

85 | CAE INC. | 2023 | Management Proxy Circular The table below sets out the LTIP ranges and actual awards to the NEOs granted in fiscal year 2023:

Section 7 - Executive Compensation

Long Term Incentive Plan

FY2023 LTIP - Awards Granted in June 2022


NEOs	FY2023 LTIP award (% of base salary)	Salary at time of grant ($)6	FY2023 LTIP award Value ($)	Weighting4
				PSUs (60%)1, 4		RSUs (20%)2,4		Stock Options (20%)3
				($)	(#)	($)	(#)	($)	(#)
Marc Parent	485%	1,260,000	6,111,000	3,666,600	109,550	1,222,200	36,520	1,222,200	112,100
Sonya Branco	240%	565,950	1,358,280	814,968	24,350	271,656	8,120	271,656	24,900
Carter Copeland5	150%	582,376	873,564	524,138	15,660	174,713	5,220	174,713	16,100
Daniel Gelston	250%	717,748	1,794,370	1,076,622	32,170	358,874	10,730	358,874	32,900
Nick Leontidis	250%	567,600	1,419,000	851,400	25,440	283,800	8,480	283,800	26,100

1. PSU awards under the PSU Plan (see Section 7 – Executive Compensation – Compensation Discussion and Analysis for details). Under this plan, the granted units may vest in June 2025, subject to CAE’s performance compared to payout grids approved by the HRC and the participant’s continued employment with CAE. Depending on the overall performance each year during the performance period, the target rate of granted units will be multiplied by a factor ranging from 0% to 200%. Vested PSUs will be paid based on the average Share price on the TSX during the 20 trading days preceding the final vesting date of the grant.

2. RSU awards under the RSU Plan (see Section 7 – Executive Compensation – Compensation Discussion and Analysis for details). Under this plan, 100% of the granted units will vest in June 2025, subject to the participant’s continued employment with CAE. Vested RSUs will be paid based on the average Share price on the TSX during the 20 trading days preceding the final vesting date of the grant.

3. Stock options awards under the ESOP (see Section 7 – Executive Compensation – Compensation Discussion and Analysis for details). Under this plan options are granted with an exercise price equal to the weighted average price per Share on the TSX on the five trading days immediately preceding the grant date. At each of the first four anniversaries of the grant, 25% of the award vests and becomes exercisable. Strike price for FY2023 stock options is $33.47.

4. The grant price on grant date is $33.47, representing the weighted average price of the Shares on the TSX on the five trading days immediately preceding the grant date.

5. Mr. Copeland also received a special one-time in August of 2022, equivalent to $96,698 to recognize additional responsibility for overseeing the Healthcare division. This special one-time grant was allocated as follow: 60% in PSU (2,170 units), 20% in RSUs (730 units) and 20% in stock options (2,200 units with a strike price of $26.83).

6. Annual base salary as time of grant (June 2022). For Mr. Gelston and Mr. Copeland, the base salary was converted to Canadian dollars using a conversion exchange rate of $1.27 on grant date.

86 | CAE INC.

Section 7 - Executive Compensation

FY2020 PSU (Performance Period Ending on March 31, 2022)

The vesting of the PSUs granted in FY2020 was tied to the performance of CAE adjusted EPS* compared to predetermined targets for a 3-year period from FY2020 to FY2022. As per the terms of the FY2020 PSU Plan, the HRC reviewed CAE’s adjusted EPS* performance for the fiscal year ended March 31, 2022 and approved the following results for PSUs granted in FY2020:


	Threshold (0%)	Target (100%)	Maximum (200%)	Actual Performance	Weighting	Score
Adjusted EPS* - FY2020	$1.25	$1.35	$1.45	$1.41	1/3	53%
Adjusted EPS* - FY2021	$0.05	$0.25	$0.55	$0.47	1/3	58%
Adjusted EPS* - FY2022	$0.68	$0.78	$0.88	$0.84	1/3	53%
FY2020 PSU Multiplier						164%

The actual amounts paid out to each eligible NEO in June 2022 for PSUs granted in FY2020 are as follow:


NEO	FY2020 PSUs award (# of units)	X	FY2020 PSUs Performance Factor (%)	X	Market Share Price2 ($)	=	PSU Value ($)
Marc Parent	61,250	X	164%	X	31.27	=	3,140,820
Sonya Branco	17,930	X	164%	X	31.27	=	919,427
Carter Copeland1	-	X	-	X	-	=	-
Daniel Gelston1	-	X	-	X	-	=	-
Nick Leontidis	18,320	X	164%	X	31.27	=	939,426

1. Mr. Gelston and Mr. Copeland were hired after the FY2020 PSU grant.

2. PSUs were redeemed using the average fair market value of the Shares on the TSX for the 20 trading days preceding the final vesting date of the grant ($31.2675).

* Non-IFRS and Other Financial Measures (see Appendix B)

87 | CAE INC.

Section 7 - Executive Compensation

FY2021 PSU (Performance Period Ending March 31, 2023)

| 2023 | Management Proxy Circular For greater alignment and consistency with the greater level of disclosure provided in this document, starting this year we will be presenting the PSU performance and related payout details of the fiscal year covered in this disclosure. The vesting of the PSUs granted in FY2021 was tied to the performance of CAE adjusted EPS* compared to predetermined targets for a 3-year period from FY2021 to FY2023 and ending on March 31, 2023. In accordance with the terms of the FY2021 PSU Plan, the HRC reviewed CAE’s adjusted EPS* performance for the fiscal year ended March 31, 2023, and approved the following results for PSUs granted in FY2021:


	Threshold (0%)	Target (100%)	Maximum (200%)	Actual Performance1	Weighting	Payout Level
Adjusted EPS* - FY2021	$0.05	$0.25	$0.55	$0.47	1/6	29%
Adjusted EPS* - FY2022	$0.67	$0.80	$0.93	$0.84	1/3	47%
Adjusted EPS* - FY2023	$1.12	$1.25	$1.38	$0.87	1/2	0%
FY2021 PSU Multiplier						76%

1. Starting in FY2023, for incentive plans purposes, adjusted EPS* results are normalized for foreign exchange for incentive plan purposes. For FY2023, adjusted EPS* before foreign exchange normalization is $0.88.

The Committee considered that the performance multiplier of 76% of target for FY2021 PSU with the resulting 3-year performance period ending on March 31, 2023, appropriately linking compensation outcomes with CAE’s performance.

The below table shows for each eligible NEO the payout value of FY2021 PSU grants with the resulting 3-year performance period ending March 31, 2023. The actual amounts paid out to each eligible NEO in June 2023 for PSUs granted in FY2021 are as follow:


NEO	FY2021 PSUs award (# of units)	X	FY2021 PSUs Performance Factor (%)	X	Market Share Price ($)	=	PSU Value3 ($)
Marc Parent	40,700	X	76%	X	29.37	=	908,473
Sonya Branco	11,920	X	76%	X	29.37	=	266,069
Carter Copeland1	-	X	-	X	-	=	-
Daniel Gelston2	8,490	X	76%	X	30.56	=	197,1854
Nick Leontidis	12,170	X	76%	X	29.37	=	271,649

1. Mr. Copeland was hired after FY2021, therefore no grant was allocated to him during FY2021.

2. Mr. Gelston, joined CAE on August 24, 2020 and received a one-time special LTIP grant during the same month.

3. PSUs were redeemed using the average fair market value of the Shares on the TSX for the 20 trading days preceding the final vesting date of the grant ($29.37).

4. Numbers presented in this table are based on equity valued as at March 31, 2023 close stock price ($30.56). The actual payout after vesting will be calculated using the average fair market value of the Shares on the TSX for the 20 trading days preceding the final vesting date of the grant (August 24, 2023 for Mr. Gelston’s one-time special grant).

* Non-IFRS and Other Financial Measures (see Appendix B)

88 | CAE INC. | 2023 | Management Proxy Circular Determination of NEOs Individual Performance

Section 7 - Executive Compensation


Marc Parent President and Chief Executive Officer			Marc Parent has been President and CEO of CAE Inc. since 2009. Prior to that, he held several leadership positions since joining CAE in 2005, including Group President, Simulation Products and Military Training & Services, and Executive Vice President and Chief Operating Officer. He has over 35 years of experience in the aerospace industry, having previously held positions with Canadair and Bombardier Aerospace in Canada and the United States. Mr. Parent has been honoured with many awards. In 1999, he was named one of Canada's Top 40 under 40 Leaders. In 2011, he was named Canadian Defence Review's Defence Executive of the year (which he won again in 2020). He was named CEO of the Year by Les Affaires newspaper in 2018. In 2019, he received the Aerospace Industries Association of Canada’s James C. Floyd Award. In 2020, Mr. Parent was granted the Order of Canada. In 2021, he was awarded the Prix Prospère by the Conseil du patronat du Québec and inducted into Canada’s Aviation Hall of Fame. And in 2022, Mr. Parent was named Industry Leader of the Year by the Living Legends of Aviation, inducted into Québec’s Air and Space Hall of Fame, named a Knight of the Ordre national du Québec, and awarded Aviation Week’s Philip J. Klass Award for Lifetime Achievement. Mr. Parent is a graduate of mechanical engineering from Montreal’s École Polytechnique and of the Harvard Business School’s Advanced Management Program. He was awarded an Honorary Doctorate by École Polytechnique, and is an active pilot holding an Airline Transport Pilot Licence from Transport Canada. Main targets and objectives for FY2023 and related results of Marc Parent, the President and CEO, are set out below: As previously discussed, this section paints a portrait of the major achievements of each NEO for FY2023. These were the main key performance indicators (KPIs) in determining the individual performance multiplier applicable to their annual incentive awards.
FY2023 Goals Growth: Deliver on growth and adjusted order intake* objectives to drive business expansion in this and future fiscal years Expand profitability: Complete structural cost initiatives, responsibly contain costs as volumes recover M&A Integration: Complete L3H MT synergy capture and retain a high score of customer renewals on the new Civil Flight Services business Balance sheet flexibility: Reduce overall leverage ratios while continuing to invest ESG: Further advance our ESG initiative through increasing the number of diverse senior leaders and developing an ESG roadmap Talent: Implement workstream to proactively address employee attraction and retention in the midst of a highly competitive employment market Training Efficacy: Develop and deploy integrated next-generation metrics focused on optimizing “Training Efficacy”

FY2023 Achievements
Growth: Achieved revenue growth target of $4.2B in FY2023, representing a 25% YoY increase, despite continuing impact of the pandemic in certain areas of the business and the impact of the Russia/Ukraine conflict, particularly to our Civil business unit. In addition, adjusted order intake* achieved $5.0B, greater than 10% ahead of target and providing a book-to-bill of 1.2x for the organization Expand profitability and generate strong cash flow conversion: Significant progress in terms of margin expansion achieved across the Civil business unit, reflecting gains realized as the result of cost containment efforts identified and implemented over the past two years. Did not reach the anticipated level of progress within the D&S business unit as the result of supply chain and manpower challenges evidenced across the defense industry throughout the year. In addition, the business unit was impacted by an unfavourable contract profit adjustment recorded in Q1 FY2023. Strong performance in cash generation with 120% free cash flow* conversion, exceeding the 100% target. M&A Integration; While we did not see the full benefits of the actions taken to maximize the cost synergies due to lower throughput during FY2023, the revenue synergies have exceeded expectations and put the integrated D&S business in a position to pursue large scale opportunities that neither previous business, legacy CAE nor L3Harris military training business, would have been able to pursue on their own. Integration of the Sabre Air Centre business is proceeding well with financial performance exceeding plan in FY2023 and customer renewals at 100%.			Balance Sheet Health: Strong progress in reducing the leverage ratios, including reducing Net debt-to-adjusted EBITDA* from 3.6x to 3.4x at year end and continuing to track well. ESG: Increased the number of diverse senior leaders by almost 14%, surpassing the target of 10% with a focused effort on recruitment, employee development and a commitment to DE&I awareness and training across CAE. Successfully developed and launched a 5-year ESG roadmap, intended to advance CAE’s leading position in ESG initiatives. Talent: Developed and launched 5 workstreams focused on attraction and retention of talent across the business. The workstreams included “Employee Experience”, “Total Rewards & Recognition”, “Long Service Employees” “Employee Development” and “Talent Attraction”. Key initiatives already launched include flexible vacation, enhanced maternity & paternity leave, and employee development tools. CAE employee turnover rates remain well below market rates, including retention of 97% of identified high potential employees. Training Efficacy: Successfully developed and will deploy integrated next-generation metrics focused on optimizing “training efficacy” with quantifiable measures & plans to augment operational processes in support of improving training outcomes.

* Non-IFRS and Other Financial Measures (see Appendix B)

89 | CAE INC. | 2023 | Management Proxy Circular

Section 7 - Executive Compensation


Sonya Branco Executive Vice President, Finance and Chief Financial Officer			Sonya Branco was appointed Vice President, Finance and Chief Financial Officer at CAE in May 2016. In this role, she has global responsibility for the company’s finance and procurement activities. She oversees the financial operations of CAE’s in approximately 250 sites and training locations in over 40 countries, as well as the financial reporting, treasury, global taxation, mergers & acquisitions, structured financing functions and global strategic sourcing. Ms. Branco has more than 20 years' experience as a financial officer. She joined CAE in 2008 and was appointed to the role of CAE’s Vice President and Corporate Controller in 2011. Her diverse background includes valuable experience in public accounting and financial reporting, strategic planning and mergers and acquisitions. In her capacity as Corporate Controller, Ms. Branco oversaw all of CAE’s external financial information from subsidiaries and joint ventures globally. Over the past years, Ms. Branco’s role expanded from the financial reporting Controller role to a broader strategic and operational scope in the organization. Prior to joining CAE, Ms. Branco worked at BCE in Mergers & Acquisitions and at PricewaterhouseCoopers, where she practiced in Audit and Advisory services. Ms. Branco is a certified professional accountant and she holds a Bachelor of Commerce degree from Concordia University and a Master’s degree in Business Administration from McGill University’s Desautels Faculty of Management. Ms. Branco has received numerous awards and is a Gold Medalist of the Ordre des comptables agréés du Québec. She was named one of Canada’s Top 100 Most Powerful Women in 2020 by Women’s Executive Network.
FY2023 Goals Achieve corporate annual financial targets for FY2023 Working with Business Unit leaders drive growth objectives across the organization Continue on driving cash flow generation across the business and enhancing balance sheet flexibility and leverage metrics. Advance CAE’s ESG objectives

FY2023 Achievements
Ms. Branco continued to provide strong financial stewardship to CAE in FY2023, managing through several fiscal challenges including the ongoing impact of the pandemic in segments of our business, geopolitical events in Europe and continuing high levels of volatility with foreign exchange rates globally. Growth and adjusted order intake* performance were strong, with revenue up 25% and adjusted order intake* representing a 1.2x book-to-bill level. Overall adjusted EPS* performance, while up 4.8% YoY, was not to target, particularly impacted by an unfavorable contract profit adjustment recorded in the D&S business unit in Q1 FY2023. Ms. Branco and the Finance team played an important role in supporting business growth initiatives across the organization including significant new long-term training agreement with Qantas, the opening and/or advancement of new training centers within the Civil business unit, key new programs awarded involving our D&S team including from the German government for the Chinook 47F and the Royal Australian Navy for Platform & Systems training. Additionally, the Finance team, led by Ms. Branco was instrumental in supporting the integrations of the Sabre Air Centre acquisition and the establishment of the Civil Flight Services division within the Civil BU.			Ms. Branco played a key role in achieving significant improvement in the company’s balance sheet, specifically related to Net debt-to-adjusted EBITDA* where the ratio declined from 3.6x to 3.4x in FY2023. This was achieved through effective cost control measures that were implemented organization wide, focus on reducing Non-Cash Working Capital* and pursuing new business opportunities with the respective business unit leaders. In addition, Ms. Branco achieved a strong cash conversion rate of 120%. Achieved increased DE&I representation within the Finance team and established effective governance and reporting practices in support of CAE’s 5-year ESG roadmap. In FY2023, Ms. Branco expanded the supply chain ESG engagement with additional disclosure of scope 3 carbon emissions coming from the supply chain. By engaging a CAE Supplier Forum gathering the suppliers representing 55% of the spend on the Full Flight Simulators (FFS). During the Forum, suppliers were trained on climate change and carbon footprint, they completed a self-assessment of their carbon footprint and had initial discussions with our engineers on how to work together to progressively reduce their carbon footprint. As well as, by joining the, International Aerospace Environment Group (IAEG), to harmonize ESG expectations for suppliers from the largest aerospace and defense companies Ms. Branco and the Global Procurement & Real Estate team navigated expertly through a volatile supply chain to deliver the manufacturing operations, and in turn to our customers for 100% on time delivery for the Civil Aviation operations.

* Non-IFRS and Other Financial Measures (see Appendix B)

90 | CAE INC. | 2023 | Management Proxy Circular

Section 7 - Executive Compensation


Carter Copeland Senior Vice President, Global Strategy			Carter Copeland was appointed CAE’s Senior Vice President, Global Strategy, in August 2021. He is responsible for cultivating strategic plans aimed at driving growth in key areas, as well as optimizing organizational performance. He works in partnership with CAE’s Executive Management Committee, with a particular focus on the company’s growth agenda, as well as areas of resource allocation and organizational design. In June 2022, Mr. Copeland took over the responsibility of CAE Healthcare business in addition to his Global Strategy position. Additionally, he has responsibility for the ongoing evaluation of CAE’s business portfolio and he plays a crucial role in the CAE technology transformation. Prior to joining CAE, Mr. Copeland served as the President and co- founder of Melius Research, an independent research, consulting, and data analytics firm focused both on traditional industrial firms as well as emerging industrial technology companies. Before co-founding Melius, Mr. Copeland was Managing Director and Senior Analyst covering the Global Aerospace and Defense sector for Barclays PLC. Prior to Barclays, he held various roles of increasing responsibility in the aerospace and defense research practice at Lehman Brothers. Before beginning his career on Wall Street, Mr. Copeland served on the staff of the Federal Reserve Board of Governors in Washington, D.C., aiding in monetary policy work and conducting corporate finance research. Mr. Copeland graduated with honors from the University of Alabama, with a degree in Economics. He also holds an MBA from Washington University in St. Louis, where he was a recipient of the prestigious Wood Fellowship. He is a Chartered Financial Analyst and formerly served as a member of the Corporate Leaders program on the Council of Foreign Relations. Mr. Copeland is a co-author of the book Lessons from the Titans.
FY2023 Goals Set corporate strategic planning, manage oversight, and lead associated process management Oversight of CAE’s Healthcare business unit at the Executive Management Committee level Evaluation of CAE’s strategic capital deployment plans and portfolio Co-lead efforts on cross-BU technology advancement, with a focus on training efficacy and tech incubation Broaden CAE strategic partnerships across the Aerospace & Defense ecosystem Enhance enterprise performance through detailed business line evaluation and competitive benchmarking

FY2023 Achievements
Led the creation and planning of CAE’s updated business strategy, which was centered on the construction of a bigger, stronger, more profitable company. As part of this effort, oversaw the exploration of numerous One CAE initiatives focused on leveraging organizational scale, technology development, as well as cost and operational synergies to improve long-term strategic positioning and earnings growth potential. Upon a change of leadership in the Healthcare business, oversaw a consistent improvement in performance throughout the remainder of FY2023, including the achievement of record revenues and consistent growth in adjusted segment operating income margin %* sequentially throughout the year. Led numerous assessments across all businesses and functions within CAE to address critical areas of performance improvement opportunity and organizational efficiency. Areas of particular emphasis within the enterprise performance objective included but were not limited to market and competitor analysis, macro risk assessment, and capital deployment prioritization.			Helped lead the expansion of CAE’s strategic partnerships, focused on expanding market and customer reach, including the completion of a significant collaboration with a major OEM. Successfully launched a One CAE effort to define and implement a new technology initiative focused on defining, tracking, and managing toward a holistic “training efficacy” standard. Co-led innovation efforts to help shape CAE’s five-year ESG roadmap and the rollout of CAE Heartbeat, the company’s new employee focused initiative designed to further enhance employee experience and retention.

* Non-IFRS and Other Financial Measures (see Appendix B)

91 | CAE INC. | 2023 | Management Proxy Circular

Section 7 - Executive Compensation


Daniel Gelston Group President, Defense and Security			Daniel Gelston was appointed Group President of CAE’s Defense & Security Group in August 2020. In this position, he leads the Defense & Security business worldwide, which focuses on helping CAE’s defense customers to maintain the highest levels of mission readiness. He also serves as President & General Manager of CAE USA Inc., the company's US-based subsidiary that operates under a Special Security Agreement (SSA) to mitigate foreign ownership, control or influence. Mr. Gelston is a proven leader with 25 years’ experience in the U.S. military, intelligence community and the global defense industry. Before joining CAE, Mr. Gelston served as President of L3Harris Technologies’ Broadband Communications Systems sector. Prior to that, Mr. Gelston was President of the SSA businesses Smiths Detection Inc. and Cobham Tactical Communications and Surveillance. In 2017, he led the SSA-controlled portion of Smith’s $710 million Morpho Detection acquisition and the divestment of Smith's Brazil business. In 2015, Mr. Gelston led the sale of Cobham's Surveillance Business and served as CEO during its transition to a standalone company. Mr. Gelston holds a Master of Science degree in Strategic Intelligence from the National Intelligence University, the only US institution of higher education that incorporates study in the Top Secret/Sensitive Compartmentalized Information (TS/SCI) arena. He also has a double-major Bachelor’s degree in Economics and International Strategic Policy from Bucknell University. Mr. Gelston’s military experience includes US Army active and reserve duty 1998 to 2007 as an Armor and Military Intelligence Officer. He is a US Army Armor School Draper Awardee and Intelligence Officer School Distinguished Honor Graduate.
FY2023 Goals Deliver on Growth objectives for the Defense and Security (D&S) business Expand profitability through improved efficiency and cost management including attainment of synergies related to the integration of the L3 Harris MT acquisition In support of CAE’s ESG priority, achieve a 10% increase in number of diverse senior leaders and develop a carbon impact study for the D&S business unit Drive growth of the business though acquisition and retention of key talent in midst of a challenging talent acquisition market place Continue to advance our technology and innovation objectives in current and future markets

FY2023 Achievements
While the Defense & Security (D&S) business unit experienced financial challenges in the course of FY2023, particularly adjusted segment operating income margin %, there were also some significant achievements in respect of the units overall financial performance. Revenues of $1.8B represented a 15% YoY growth in total revenue achieved and adjusted order intake of $2.0B provided a greater than 1.1x book-to-bill, both the revenue and adjusted order intake* were all-time records for the business unit. A variety of issues negatively impacted the adjusted segment operating income margin %*, performance of D&S including supply chain and manpower challenges felt throughout the defense industry in addition to an unfavourable contract profit adjustment recorded in D&S in Q1 FY2023. Progress was made throughout the year in terms of cost reductions and cost efficiencies including the successful implementation of a new ERP system. Mr. Gelston and the D&S team continued to leverage synergies, both cost and revenue related, to optimize the integration of the L3H MT acquisition. While the benefits of the actions taken to achieve the cost related synergies was not evident due to lower throughput in FY2023, revenue synergies surpassed expectations and supported significant new contract pursuits and wins that neither the legacy CAE D&S business, nor the L3H MT business on their own would have been qualified to pursue.			Significantly over-achieved in the expansion of diverse candidate representation amongst the senior leaders in D&S. Diverse senior leaders in D&S increased by 30% in FY2023. In addition, D&S completed an ASHRE Phase 1 energy survey at the largest operations centers which has led to initial power management system improvements and set a foundation for the Phase 2 ASHRE study which will be conducted in FY24. The lack of available, qualified talent across the defense industry, including within the D&S business unit was a significant impediment to the business’s performance in FY2023. Through enhanced recruiting strategies, the creation and communication of an attractive employee value proposition and the presence of an employee centric work environment, the D&S team made significant progress in addressing manpower shortages by focusing on filling critical roles on new programs. The efficiency of the hiring process increased quarter over quarter and has begun to contribute significantly to helping mitigate the impact of the talent shortages experienced in FY2023. Through a strong, well organized business acquisition group, the team exceeded its objectives to win business in supporting our technology and innovation objectives including winning generational platform training and simulation opportunities like the US Army’s Future Vertical Lift program and achieving an above target value of contracts to sell digitally immersive solutions to customers across the US and Internationally.

* Non-IFRS and Other Financial Measures (see Appendix B)

92 | CAE INC. | 2023 | Management Proxy Circular

Section 7 - Executive Compensation


Nick Leontidis Group President, Civil Aviation			Nick Leontidis was appointed CAE’s Group President, Civil Aviation, in June 2013. In this position, he is responsible for CAE’s Civil business, which comprises the world’s largest civil aviation training network, and provides comprehensive training solutions for pilots, cabin crew, maintenance technicians and ground personnel, in commercial, business aviation, helicopter, and the emerging eVTOL markets. Prior to his appointment as Group President, Mr. Leontidis served as CAE’s Executive Vice President, Strategy and Business Development for more than four years. During this time, he played an important leadership role, responsible for CAE’s overall corporate strategy, overseeing all mergers and acquisitions activities and the creation of the New Core Markets segment businesses, CAE Healthcare and CAE Mining. Mr. Leontidis joined CAE as a software engineer in 1988, and was promoted to Vice President of the Visuals Systems group in 1999. From 2001 to 2009 he held a series of executive positions of increasing responsibility in the Civil business unit, where he was instrumental in the creation and growth of the training and services business. His positions included Vice President, Sales and Marketing; Executive Vice President, Simulation Products; Executive Vice President, Civil Aviation Training and Equipment; and finally Executive Vice President, Customers, where he was responsible for sales, marketing, business development, strategic planning, program management and customer services functions across the Civil Simulation and Training business unit. Mr. Leontidis holds Bachelor’s and Master’s degrees in Engineering from Concordia University.
FY2023 Goals Achieve financial targets set for the Civil Aviation business unit Execute integration of Sabre’s AirCentre and establish CAE Flight Services division. Achieve financial and customer renewal objectives Further expand the Civil Training business’s global footprint to enhance customer experience Continue to advance our technology and innovation objectives in current and future markets Capture growth through commercial airline outsourcing Enhance ESG metrics, including increasing the number of diverse leaders by a minimum of 10% and ensuring not less than 30% of identified high-potentials are diverse candidates

FY2023 Achievements
Exceptional performance in FY2023 by Mr. Leontidis, the Civil leadership team and the broader CAE team (e.g. Global Sourcing, Operations and Engineering), inclusive of an adjusted segment operating income* performance of $485M, exceeding target and achieving the highest adjusted segment operating income* performance in the Civil Business Unit’s history, as well as an adjusted order intake* of $2.8M significantly exceeding target and representing a book-to-bill of 1.3X. Sales of Full Flight Simulators (FFS) remained strong with 62 sold in FY2023. The integration and performance of Sabre’s Air Centre business (Civil Flight Services) exceeded expectations. The creation of CAE’s Flight Service division was achieved with the integration of previous acquisitions including Roster Buster and Merlot. The adjusted segment operating income* and adjusted order intake* objectives are exceeding plan. Additionally, 100% of contract renewals was achieved, and new landmark deals were concluded with key airlines. Maintained strong progress in growing the Business Aircraft training (BAT) network in FY2023 with a new Training Centre opened in Las Vegas and the expansion of the Singapore centre. Additionally, 8 new FFSs have been deployed within the global BAT training network. Plans are in progress for the opening of our new locations in Savannah and Vienna in 2024. Achieved significant partnerships including a 15-year training agreement with Qantas and a Joint-Venture for a new flight training location in Greece with Aegean.			Expanded our high-tech innovation applications through launching RISE on several business aviation platforms and enabled a significantly high number of simulators within the commercial and business aviation training facilities, surpassing targets. In terms of airlines partnerships, AirAsia India has become the first airline in India to use CAE Rise™ Training System. Positioned CAE as an Advanced Air Mobility leader by partnering with five electric vertical takeoff and landing (eVTOL) developers, including Volocopter, with a definitive agreement signed in FY2023. Achieved objectives related to increasing the number of diverse leaders among the senior leadership teams as well as the representation of diverse candidates in the identified high potential group. Maintained zero major incidents reported within our global training network in FY2023. Despite the growth of Civil business operations, carbon emissions remained similar compared to FY2022 as a result of real estate footprint optimization and energy efficiency initiatives in our buildings.

Not all details of the NEO targets have been disclosed due to the potential competitive prejudice to CAE of doing so. The NEOs’ performance against their objectives was reviewed by the HRC**, in addition to having been reviewed by the President and CEO during the fiscal year

* Non-IFRS and Other Financial Measures (see Appendix B)

** By the CAE USA Inc. Board of Directors for Daniel Gelston, Group President, Defense and Security.

93 | CAE INC. | 2023 | Management Proxy Circular The HRC acts as an advisory committee to the Board of Directors.

Section 7 - Executive Compensation

Compensation Governance

Role of the HRC in setting executive compensation

The Board assigns responsibilities to the HRC to review, approve, and administer CAE’s compensation programs. The key components of the HRC’s compensation mandate as well as the decision-making process are outlined in the table:

Performance Measure

Management

CEO

Independent Compensation Consultant

HRC

Board

Executive compensation and benefits programs design

Develop

Review

Recommend

Approve

Annual NEO compensation

Develop

Recommend

Review

Approve

Annual CEO compensation

Develop

Recommend

Approve

Annual and long-term incentive plan measures, targets and performance results

Develop

Review

Recommend

Approve

Comparator group for executive compensation benchmarking purposes

Review

Develop

Approve

94 | CAE INC. | 2023 | Management Proxy Circular The HRC retains executive compensation experts to prepare and review executive compensation materials and to provide advice on compensation programs.

Section 7 - Executive Compensation

Role of the independent compensation consultants

Meridian Compensation Partners (“Meridian”) has been acting as the HRC’s independent compensation consulting firm since October 2020.

Meridian’s mandate during FY2023 was to prepare and review materials presented to the HRC including updates to CAE’s comparator group for benchmarking executive and Board of Directors compensation and on the design of the Company’s executive compensation programs. No CAE Director or officer has any affiliation with Meridian and Meridian meets the independence standards applied to executive compensation consultants.

CAE’s management also retain the services of experts in the field of executive compensation. In the past two years it has used the services of PCI Compensation Consulting (“PCI”) to assist with several analyses related to executive compensation. In FY2022, CAE’s management had also used services of FW Cook.

The following table shows the fees related to executive compensation work paid by CAE to Meridian and PCI and FW Cook in FY2022 and FY2023.


	Meridian		PCI		FW Cook
	FY2023	FY2022	FY2023	FY2022	FY2023	FY2022
Executive Compensation	$263,818	$228,708	$15,515	$27,308	$0.00	$193,090
All Other Fees	-	-	-	$2,000	-	-
Total	$263,818	$228,708	$15,515	$29,308	$0.00	$193,090

95 | CAE INC.

Section 7 - Executive Compensation

Risk Mitigation

| 2023 | Management Proxy Circular The HRC and the Board of CAE believe that (i) executive compensation should be contingent on performance relative to pre-established targets and objectives and (ii) management must achieve targets and objectives in a manner consistent with legal standards, as well as CAE’s ethical standards and internal policies. The HRC and the Board regularly review the Company’s compensation policies and practices to ensure that they do not encourage inappropriate risk-taking.

There are numerous risk management practices in place to ensure CAE compensation programs do not encourage inappropriate risk-taking behaviors but focus on long-term Shareholders value creation.

The following characteristics of our compensation program in FY2023 were identified as having risk-mitigating effects:


			What we do
ü			Provide a balanced pay mix of short, medium and longer-term compensation
ü			Balance of fixed and at-risk compensation
ü			No overlap of metrics between annual and long-term incentives (starting in FY2024)
ü			60% of long-term incentives vest contingent on performance
ü			Most performance metrics focused on a three-year period
ü			Provide for overlapping performance periods and vesting of equity, to ensure executives are exposed to long term risks of their decision making
ü			Caps on annual bonuses and PSU payout factors
ü			Robust clawback policy
ü			Prohibit executives from hedging CAE securities
ü			Robust and market aligned Share ownership guidelines and requirement to retain 25% of the net profit of option exercises while employed by CAE
ü			CEO required to maintain Share ownership requirement for one-year post-retirement (starting in FY2024)
ü			The HR Committee retains an independent compensation consultant
ü			Hold an annual Say on Pay vote and engage with Shareholders on executive pay


			What we don’t do
×			Offer excessive perquisites
×			Guarantee annual base salary increases or bonus payments
×			Guarantee a minimum level of vesting for performance-based awards
×			Single-trigger vesting upon a Change of Control
×			Offer loans to executives or directors
×			Re-price, backdate or exchange underwater stock options
×			Count PSUs or options toward Share ownership guidelines
×			Offer excessive severance arrangements to executives
×			Overemphasize any single performance metric

96 | CAE INC. | 2023 | Management Proxy Circular The HRC conducts an annual compensation risk assessment with the assistance of its independent compensation consulting firm Meridian to identify potential risks associated with CAE’s compensation programs, practices and policies.

Section 7 - Executive Compensation

In FY2023, the assessment concluded that the risks associated with the compensation programs are not reasonably likely to have a material adverse effect on the Company.

After considering the overall compensation program and taking into account both its knowledge of the past performance of the CAE management team and the nature of CAE’s various businesses, the HRC is not aware of any risks arising from the CAE’s compensation policies and practices that would be reasonably likely to have a material adverse effect on CAE.

Comparator Group


The CAE comparator group was reviewed in FY2023 to ensure the companies in the group and underlying selection criteria are still relevant. As a result of this review, Nuance Communications was removed from the group as it had been acquired. No other changes were made to the comparator group.			The comparator group includes size appropriate companies operating in at least one of CAE’s market segments, with a similar financial and operational footprint, or with which CAE competes for talent.

CAE’s comparator group comprises a mix of size appropriate and business relevant Canadian and US companies. The primary criteria for selecting the comparator group companies are:

- Principal place of business

- Company size based on revenue and market capitalization generally 1/3x to 3x CAE on revenue and market capitalization

- Companies with business operations outside of Canada (approximately 90% of CAE’s revenues are generated outside of Canada)

- Companies that compete with CAE for talent (CAE recruits executive talent from the U.S. and internationally and three of the CEO’s direct reports are based in the U.S.)

When CAE benchmarks executive compensation relative to the comparator companies, compensation values in USD for peer U.S. resident executives are converted at par (1:1), to manage foreign exchange considerations in benchmarking compensation.

97 | CAE INC. | 2023 | Management Proxy Circular

Section 7 - Executive Compensation

Comparator Group Financials1


	Revenue (C$M)	Market Cap (C$M)
North American Group
Air Canada	18,870	6,878
CGI Inc.	13,671	32,300
Booz Allen Hamilton	12,711	22,450
WSP Global Inc.	12,267	17,382
BRP Inc.	10,033	8,092
CACI International Inc	8,986	9,768
AMETEK, Inc.	8,509	43,486
Gartner, Inc.	7,607	33,003
Teledyne Technologies	7,470	26,572
Synopsys, Inc.	7,153	4,193
Spirit AeroSystems	6,899	76,705
Autodesk, Inc.	6,675	57,189
Cadence Design Systems	5,272	13,679
Open Text Corporation	4,981	77,847
IDEX Corporation	4,433	21,186
Curtiss-Wright Corporation	3,556	8,914
Woodward, Inc.	3,506	7,985
NFI Group Inc.	2,867	623
Hexcel Corporation	2,225	8,232
CAE Inc.	$4,203	$9,707
% Rank	P21	P38

1. Based on the most recent annual reports.

98 | CAE INC. | 2023 | Management Proxy Circular Under CAE’s Share Ownership Guidelines Policy, each executive is expected to meet a minimum equity ownership in the Company.

Section 7 - Executive Compensation

Executive Share Ownership Requirements


— Share ownership requirements must be achieved within 5 years from hire or promotion to executive position. — Only Shares, DSUs and 50% of RSUs are included.			— Majority of NEOs retain 25% of the net profit realized from option exercise in CAE Shares for the duration of their employment at CAE.

Shares, DSUs and 50% of RSUs are counted towards Share ownership:


Share Ownership Targets (as a % of base salary)
NEO			% of Base Salary
Marc Parent			500%
Sonya Branco			250%
Carter Copeland			200%
Daniel Gelston			250%
Nick Leontidis			250%

The Share ownership guidelines must be met within five years from the date of hire or promotion to the executive position. The Share ownership requirements are tested monthly until the requirement is met. Once the required Share ownership value is reached, the minimum number of Shares/units to be held by the executive is locked-in and the executive is required to hold at least this number of Shares/units until retirement or termination of employment.

In addition, for each option exercise, the CEO, CFO and Group Presidents retain CAE Shares equivalent in value to 25% of the net profit realized on such option exercise for the duration of their employment with CAE. This policy further aligns executive interests with those of our Shareholders and ensures that executives do not take advantage of short-term Share price movement.

In FY2023, the Share ownership guidelines were changed to require the CEO to retain his Share ownership requirement for one year after retirement.

As of March 31, 2023, three of the five NEOs met the ownership guidelines. The table below sets forth the minimum number of Shares/units to be held by the NEOs who have already met the requirement, the required value in dollars to meet the ownership guidelines and the actual value held as a percent of the annual base salary.

99 | CAE INC. | 2023 | Management Proxy Circular

Section 7 - Executive Compensation


NEO	Share Ownership Requirement as Percent of Salary (%)	Ownership Status	Target Date	Number of Shares/ Units to be Held Once Requirement Met (#)	Value Required to Meet Guidelines1 ($)	Completion to Meet Share Ownership Guidelines (%)	Value Held in Shares/ Units2 ($)	Value of Shares/Units Held as Percent of Salary3 (%)
Marc Parent	500	Already Met	N/A	286,858	N/A	100	19,946,1234	1,583
Sonya Branco	250	Already Met	N/A	36,553	N/A	100	1,460,714	258
Carter Copeland	200	Time to meet	August 2026	45,058	1,320,000	10	129,488	20
Daniel Gelston	250	Time to Meet	August 2025	63,278	1,853,775	29	533,070	72
Nick Leontidis	250	Already Met	N/A	65,044	N/A	100	8,252,821	1,454

1. Not applicable if the Share ownership requirement is already met.

2. Calculated based on the number of Shares, DSUs, LTUs, and 50% of RSUs held as of March 31, 2023 and the average closing Share price during five trading days preceding March 31, 2023 ($29.296) in accordance with the Share Ownership Guidelines Policy.

3. Calculated based on the annual base salary as of March 31, 2023. For Mr. Gelston and Mr. Copeland, the base salary was converted to Canadian dollars using the FY2023 average exchange rate of $1.32.

4. Includes 354,102 Shares, 42,985 FY2004 LTUs, 232,111 LTUs and 51,650 RSUs, which in total represent a value of $19,946,123 as of March 31, 2023 using the average closing Share price during the five trading days preceding March 31, 2023 ($29.296). Numbers containing fractions have been rounded up for calculation purposes.

100 | CAE INC. | 2023 | Management Proxy Circular Alignment of Compensation and Performance

Section 7 - Executive Compensation

Shareholders Return Performance Graph

The following graph compares the cumulative Shareholders return of the Shares with the cumulative returns of each of the S&P/TSX Composite Index and the S&P Aerospace & Defense Index for a five-year period commencing March 31, 20181, along with a discussion of the trend in executive officer compensation over the same period (in the paragraph that follows the table).

Comparison of Five-year Cumulative Total Return of CAE Inc. vs. S&P/TSX Composite Index and S&P Aerospace & Defense Index


	2018	2019	2020	2021	2022	2023
CAE Inc.	$100	$125	$76	$155	$140	$131
S&P/TSX Composite Index	$100	$108	$93	$134	$161	$152
S&P Aerospace & Defense Index	$100	$106	$89	$147	$146	$137

1. $100 invested in Shares traded on the TSX on March 31, 2018. Values are as at the last trading date during the month of March in the specified years and from the S&P/TSX Composite Total Return Index and S&P Aerospace & Defense Total Return Index, which assume dividend reinvestment. For FY2020, the decline is the result of the drastic decline in Share price observed in the last month of FY2020 due to the COVID-19 pandemic and the resulting stock market impact.

101 | CAE INC. | 2023 | Management Proxy Circular The CEO realizable pay and performance table shown below in this section reflects annual incentive payouts, which are generally well aligned with Share price and financial performance.

Section 7 - Executive Compensation

Discussion of trend in executive officer compensation over the same period

However, it also reflects the grant date value of long-term incentive awards. As all of our long-term incentive awards are in the form of CAE equity, the value of which aligns with our financial performance and the value of our equity over the lifetime of the award, it is the value realized and the realizable value of these awards, rather than their grant date value, which is tied directly to our Share price. The components of our executive compensation that align with performance are:

- Annual incentive: Results on the annual scorecard have directionally aligned with Share price performance over the five-year period. Payouts have ranged from 62% to 154% of target over the last five years.

- PSUs: Our PSUs, which are linked to key financial objectives, have paid out in relation to our Share price performance over the five-year timeframe (163% of target for FY2019 PSUs, 164% of target for FY2020 PSUs, and 76% of target for FY2021 PSUs). PSUs also precisely track the underlying value of CAE’s Share price, so there is 100% alignment with Share price performance over the 5-year period.

- RSUs: RSUs precisely track the underlying value of CAE’s Share price, so upon redemption there is 100% alignment with Share price performance over the 5-year period.

- Stock options: Stock options are only valuable to recipients to the extent that Share price appreciates. As of March 31, 2023, FY2020, FY2022 and FY2023 grants are out-of-the-money and have no value. FY2019 and FY2020 options grants are in-the-money.

CEO Realizable Pay and Performance

A significant portion (68%) of Mr. Parent’s President and CEO compensation consists of fully at-risk long-term incentives (the FY2023 LTI mix is 60% PSUs, 20% RSUs, 20% stock options), which are designed to focus the CEO on CAE’s long-term success. LTI is directly affected by the performance of CAE’s Share price:

- Stock options only have value to the extend the Share price increases;

- RSUs are directly impacted by Share price;

- PSUs are directly impacted by Share price and financial performance.

The table below is a look back comparing grant date total target direct compensation for Mr. Parent to the realizable value of this compensation during the last three years and Shareholder returns. The analysis is based on the return of a $100 investment by a Shareholder at the start of a period, compared to $100 of total direct compensation for the CEO for each year. In all cases, Shareholder returns are closely aligned with CEO realizable compensation value, which suggests our compensation programs are strongly aligned with Shareholder value creation.


Total Target Direct Pay1		Realizable Pay2	% Change in CEO Pay	% Change in TSR		From	To	Change in CEO relative Pay to $100 of CEO Pay	Change in TSR Relative to $100 Invested in CAE Shares
Fiscal 2021	$6,139,463	$9,457,538	+54%		+72%	March 31, 2020	March 31, 2023	$154		$172
Fiscal 2022	$7,446,013	$6,446,111	-13%		-15%	March 31, 2021	March 31, 2023	$87		$85
Fiscal 2023	$8,936,974	$7,076,274	-21%		-6%	March 31, 2022	March 31, 2023	$79		$94
Average	$7,507,483	$7,659,974	+7%		+17%			$107		$117

1. Includes salary, target bonus, long-term incentive grant of PSUs, RSUs and stock options as reported in the Summary Compensation Table. Excludes pension and all other compensation value.

102 | CAE INC. | 2023 | Management Proxy Circular

Section 7 - Executive Compensation

2. Includes salary, actual bonus paid, value of stock options that are in-the-money and the market value of unvested PSUs and RSUs (assuming PSUs vest at target for FY 2022 and FY2023 grants, actual performance multiplier of 76% for FY2021 cycle). Equity valued as at March 31, 2023 close stock price. Excludes pension and all other compensation value.

The table below compares target and realizable CEO compensation values.

103 | CAE INC. | 2023 | Management Proxy Circular Compensation of Our Named Executive Officers

Section 7 - Executive Compensation

Summary Compensation Table

The first of the following tables provides a summary of compensation earned during the last three fiscal years ended March 31 by the President and Chief Executive Officer, the Executive Vice President, Finance and Chief Financial Officer, and by the three most highly compensated policy-making executives who served as executive officers of CAE or its subsidiaries as at March 31, 2023 (collectively, “Named Executive Officers” or “NEOs”).


Name and Principal Position	Year	Salary	Share-Based Awards1	Option-Based Awards2	Non-Equity Incentive Plan Compensation		Pension Value4	All Other Compensation5	Total Compensation
					Annual Incentive Plan3	Long-Term Incentive Plan
Marc Parent President and Chief Executive Officer	2023	$1,250,000	$4,888,963	$1,223,011	$1,362,380	$0	$1,890,000	$91,270	$10,705,624
	2022	$1,174,400	$3,360,561	$1,441,052	$2,482,500	$0	$2,045,000	$95,250	$10,598,763
	2021	$906,847	$1,674,398	$2,511,818	$1,543,440	$0	$686,000	$83,735	$7,406,238
Sonya Branco Executive Vice President, Finance and Chief Financial Officer	2023	$556,016	$1,086,771	$271,659	$292,879	$0	$332,000	$73,189	$2,612,514
	2022	$530,833	$943,328	$405,152	$648,821	$0	$545,000	$73,404	$3,146,538
	2021	$423,709	$490,389	$735,370	$542,063	$0	$283,000	$70,143	$2,544,674
Carter Copeland6, 8 Senior Vice President, Global Strategy overseeing Healthcare	2023	$649,157	$776,661	$195,814	$551,925	$0	$400,000	$49,495	$2,623,052
	2022	$330,784	$361,028	$154,830	$271,384	$0	$212,000	$28,526	$1,358,552
Daniel Gelston6, 7 Group President Defense & Security	2023	$728,140	$1,435,863	$358,939	$258,601	$0	$410,000	$182,334	$3,373,877
	2022	$651,338	$885,153	$379,830	$814,570	$0	$477,000	$181,605	$3,389,496
	2021	$393,470	$343,675	$515,164	$438,075	$0	$230,000	$543,639	$2,464,023
Nick Leontidis Group President Civil Aviation	2023	$563,095	$1,135,302	$284,751	$410,801	$0	$788,000	$69,713	$3,251,662
	2022	$533,897	$946,642	$406,303	$670,983	$0	$798,000	$68,870	$3,424,695
	2021	$433,777	$500,674	$750,994	$553,711	$0	$674,000	$67,611	$2,980,767

1. Represents the value of Share-based awards granted under the RSUP and the PSUP. The value disclosed for the RSUs and PSUs represents the award date value calculated by multiplying the number of RSUs and PSUs awarded at target (100%) by CAE’s weighted average Share price during the five trading days immediately preceding the grant date ($20.57 for units granted in June of FY2021, $20.24 for units granted in August of FY2021 $36.82 for units granted in June of FY2022, $35.71 for units granted in September of FY2022, $33.47 for units granted in June of FY2023 and $26.83 for units granted in August of FY2023). Such value differs from the accounting grant date fair value determined in accordance with IFRS2, Share-based Payments, as the accounting fair value is assessed with the Share price on the date of the award (rather than on a weighted average price). The accounting grant date fair value would be as follows if using the Share closing price on the TSX on the respective grant date( $21.47 on June 2, 2020, $19.61 on August 24, 2020, $37.24 on June 1, 2021, $37.08 on September 1, 2021, $31.23 on June 10, 2022 and $25.49 on August 22, 2022): Mr. Parent: $1,747,658 in FY2021 (a difference of $73,260), $3,398,895 in FY2022 (a difference of $38,333), $4,561,766 in FY2023 (a negative difference of $327,197); Ms. Branco $511,845 in FY2021 (a difference of $21,456), $954,089 in FY2022 (a difference of $10,760) and $1,014,038 in FY2023 (a negative difference of $72,733); Mr. Leontidis: $522,580 in FY2021 (a difference of $21,906), $957,440 in FY2022 (a difference of $10,798) and $1,059,322 in FY2023 (a negative difference of $75,981); for Mr. Gelston: $332,978 in FY2021 (a negative difference of $10,697), $895,250 in FY2022 (a difference of $10,097) and $1,339,767 in FY2023 (a negative difference of $96,096); for Mr. Copeland: $374,879 in FY2022 (a difference of $13,851) and $726,003 in FY2023 (a negative difference of $50,657). Note that the actual value paid, if any, will differ.

104 | CAE INC. | 2023 | Management Proxy Circular

Section 7 - Executive Compensation

2. Represents the value of option-based awards granted under the ESOP and determined based on the grant date fair value of the award in accordance with IFRS2. Note that actual value received, if any, will differ. The value of each option is determined using the Black-Scholes model with the following assumptions:


	FY2023 August	FY2023 June	FY2022 September	FY2022 June	FY2021 August	FY2021 June
Dividend yield	0.78%	0.64%	0.65%	0.64%	1.22%	2.05%
Expected volatility	43.40%	42.00%	40.07%	40.53%	36.19%	35.15%
Risk-free interest rate	3.24%	3.30%	0.71%	0.76%	0.34%	0.36%
Expected option term	4.5	4.5	4.25	4	4.25	4
Black-Scholes Value	35.95%	34.92%	32.13%	30.92%	24.97%	24.26%

3. Represents the STIP payout earned in each fiscal year and paid in the first quarter of the following year (see Section 7 – Executive Compensation – Compensation Discussion and Analysis – FY2023 Compensation Decision - Short-Term Incentive Plan for details).

4. The pension value shown corresponds to the compensatory value reported in the Defined Benefit Plan Table and includes the service cost and the impact of the increase in earnings in excess of actuarial assumptions.

5. All other compensation in FY2023 comprises other benefit expenses and allowances paid by CAE as follows:


	Automobile Expenses ($)	Health & Insurance Benefits ($)	Other Perquisites ($)	Relocation ($)	Employer ESPP Contributions ($)	Dividend Equivalents	Total ($)
Marc Parent	40,842	12,928		-	37,500	-	91,270
Sonya Branco	–	13,345	43,000	-	16,844	-	73,189
Carter Copeland	-	3,295	46,200	-	-	-	49,495
Daniel Gelston	-	3,295	66,000	91,637	21,401	-	182,333
Nick Leontidis	31,491	12,928	8,400	-	16,893	-	69,712

Note: Mr. Marc Parent reimburses all variable costs related to his personal use of the CAE corporate aircraft. Accordingly, no amount is included for FY2023 under “All other compensation”.

6. Amounts paid in US dollars have been converted to Canadian dollars using an average exchange rate of $1.32 in FY2023, same rate as used in the MD&A and financial statements.

7. Mr. Gelston joined CAE on August 24, 2020 and received a one-time special LTIP grant of 8,490 Restrictive Share Units, 8,490 Performance Share Units and 105,200 stock options on August 24, 2020.

8. Mr. Copeland joined CAE on August 23, 2021 and received a one-time special LTIP grant of 2,890 Restrictive Share Units, 7,220 Performance Share Units and 13,000 stock options on September 1, 2021. Mr. Copeland assumed the responsibility for the Healthcare division as a temporary assignment from June 20, 2022 to December 31, 2022 and permanently as of January 1, 2023. In recognition for assuming these additional responsibilities, he received: a temporary assignment salary premium of $35,539, a one-time special LTIP grant of 730 Restrictive Share Units, 2,170 Performance Share Units and 2,200 stock options on August 22, 2022 and a special completion bonus of $99,000.

105 | CAE INC. | 2023 | Management Proxy Circular The following table details the outstanding awards under the CAE’s Share and option-based plans for the NEOs.

Section 7 - Executive Compensation

Outstanding Share-based awards and option-based awards


	Option-Based Awards				Share-Based Awards Market or Payout
Name	Number of Securities Underlying Unexercised Options (#)	Option Exercise Price1 ($)	Option Expiration Date	Value of Unexercised In-the-Money Options2 ($)	Number of Shares or Units of Shares that have not Vested3 (#)	Market or Payout value of Share- based Awards that have not Vested4 ($)	Value of Vested Share-Based Awards not Paid Out or Distributed5 ($)
Marc Parent	112,100	33.47	06/10/2029	–
	125,200	36.82	06/01/2028	–
	482,300	20.57	06/02/2027	4,818,177
	253,500	34.17	05/29/2026	–
	343,000	27.14	06/05/2025	1,173,060
	408,000	22.17	06/08/2024	3,423,120
Total				9,414,357	318,740	9,442,184	8,406,935
Sonya Branco	24,900	33.47	06/10/2029	–
	35,200	36.82	06/01/2028	–
	105,900	20.57	06/02/2027	1,057,941
	74,200	34.17	05/29/2026	–
	22,250	27.14	06/05/2025	76,095
Total				1,134,036	81,930	2,416,349	567,387
Carter Copeland	2,200	26.83	08/22/2029	8,206
	16,100	33.47	06/10/2029	–
	13,000	35.71	09/01/2028	–
Total				8,206	33,890	1,035,678	–
Daniel Gelston	32,900	33.47	06/10/2029	–
	33,000	36.82	06/01/2028	-
	105,200	20.24	08/24/2027	1,085,664
Total				1,085,664	83,920	2,502,314	–
Nick Leontidis	26,100	33.47	06/10/2029	–
	35,300	36.82	06/01/2028	–
	144,200	20.57	06/02/2027	1,440,558
	75,800	34.17	05/29/2026	–
	115,000	27.14	06/05/2025	393,300
	34,200	22.17	06/08/2024	286,938
Total				2,120,796	83,970	2,476,857	6,855,547

1. Pursuant to the terms of the plan, options under the ESOP were granted with an exercise price equal to the weighted average price of the Shares on the TSX on the five trading days immediately preceding the grant date (if the grant date falls within a blackout period or within five trading days following the end of a blackout period, the date of grant shall be presumed to be the sixth trading day following the end of such blackout period).

2. Options are in-the-money if the market value of the Shares covered by the options is greater than the option exercise price. The value shown is equal to the excess, if any, of the Share closing price on the TSX on March 31, 2023 ($30.56) over the option’s exercise price. The actual value realized will be based on the actual in-the-money value upon exercise of the options, if any. The options vest at 25% per year commencing one year after the grant date.

3. Represents the aggregate number of units that have not met all performance or employment conditions for payment.

4. Payout value is established based on the expected payout as per the performance targets achieved as of March 31, 2023 for PSUs and based on the Share closing price on March 31, 2023 ($30.56) for LTUs, and for RSUs and PSUs payable in June 2023 and August 2023, June 2024 and September 2024, June 2025 and August 2025.

5. Represents the portion of units under the LTUP that are vested at the end of the fiscal year and the units under the Executive DSUP and for which payment is deferred to the termination of employment.

106 | CAE INC. | 2023 | Management Proxy Circular The following table shows the value that was vested or earned, as well as the gain earned from options exercised, by the Named Executive Officers during FY2023 in respect of incentive plans.

Section 7 - Executive Compensation

Incentive plan awards – value vested or earned during the year


	Option-Based Awards-Value Vested During the Year1 ($)	Number of Options Exercised During the Year (#)	Gain on Exercise During the Year ($)	Share-based Awards-Value Vested During the Year2 ($)	Non-Equity Incentive Plan Compensation- Value Earned During the Year3 ($)
Marc Parent	2,249,286	418,000	6,591,157	3,906,874	1,362,380
Sonya Branco	639,185	-	-	1,143,928	292,879
Carter Copeland	-	-	-	-	551,925
Daniel Gelston	148,858	-	-	-	258,601
Nick Leontidis	693,570	-	-	1,168,617	410,801

1. This represents the value of potential gains from options that vested during FY2023. These generally include the portion of the options that were awarded in the last four fiscal years that vested in the year. The potential gains are calculated as the excess, if any, of the closing price of Shares on the TSX on each of the option vesting dates in FY2023 over the exercise price. The actual value realized, if any, will differ and will be based on the Share price on the actual exercise date.

2. The value of Share units that vested during FY2023 include: (i) the PSUs that vested on May 29, 2022 based on the average closing price of Shares on the 20 trading days preceding May 29, 2022, specifically $3,140,820 for Mr. Parent, $919,427 for Ms. Branco and $939,426 for Mr. Leontidis; Mr. Gelston and Mr. Copeland did not benefit from this grant; (ii) the RSUs that vested on May 29, 2022 based on the average closing price of Shares on the 20 trading days preceding May 29, 2022, specifically $766,054 for Mr. Parent, $224,501 for Ms. Branco and $229,191 for Mr. Leontidis. Mr. Gelston and Mr. Copeland did not benefit from this grant. None of the other PSUs or RSUs have vested as of March 31, 2023.

3. This represents the value paid to the NEOs under the short-term incentive plan for FY2023 year (see Section 7 – Executive Compensation – Compensation Discussion and Analysis – FY2023 Compensation Decision - Short-Term Incentive Plan for details).

107 | CAE INC. | 2023 | Management Proxy Circular Canadian based NEOs and key executives are members of the contributory Designated Pension Plan registered in Canada, whereas the US based NEOs and key executives are members of the CAE 401K plan for US employees.

Section 7 - Executive Compensation

Pension Arrangements


— Pensions payable under the Supplementary Pension Plan are conditional upon compliance with non- competition and non-solicitation clauses.			— No extra years of service are generally granted under the pension plans.

All NEOs and Key executives a.re also members of the non-contributory Supplementary Pension Plan. The amounts payable under these arrangements are based on “average annual earnings” which are calculated on the basis of the 60 highest-paid consecutive months of base salary and STIP payouts.

The Supplementary Pension Plan provides a pension benefit upon normal retirement at age 65 so that the pensions payable under CAE’s pension arrangements will result in an annual pension equal to 2% of average annual earnings (being the five-year top average salary and actual short-term incentive compensation for NEOs other than the President and CEO for each year of pensionable service). The President and CEO’s short-term incentive compensation used for the purpose of determining his average pensionable annual earnings is the target bonus. His maximum annual pension benefit is limited to $1,050,000. Executives may retire from the Company from age 60 with full pension entitlement. An executive is considered as having retired for the purposes of the Supplementary Pension Plan if, at the time of termination of employment with CAE, he/she is at least age 55 with a minimum of 5 years of participation in the Supplementary Pension Plan. The annual pension benefit will be reduced by between 0.5% and 0.25% per month prior to NEO’s normal retirement age depending on the age of the NEO at time of retirement.

Pensions payable under the Supplementary Pension Plan are paid directly by CAE. In Canada, CAE is obligated to fund or provide security to ensure payments under the Supplementary Pension Plan upon retirement of the executive. CAE has elected to provide security by obtaining letters of credit for a trust fund established for those executives who have retired. CAE has secured certain NEO’s and key executives’ pension benefits by a letter of credit for a trust fund established for the executives.

CAE does not generally grant extra years of credited service under its pension plans. Receipt of pension benefits under the Supplementary Pension Plan is conditional upon the compliance with non-competition and non- solicitation clauses.

108 | CAE INC. | 2023 | Management Proxy Circular

Section 7 - Executive Compensation


	Annual Benefits Payable
	Number of years of credited service (#)	At March 31, 2022 ($)	At age 65 ($)	Accrued obligation at start of the year ($)	Compensatory change1 ($)	Non- compensatory change2 ($)	Accrued obligation at year-end3 ($)
Marc Parent	18.17	779,000	1,031,000	12,318,000	1,890,000	(1,797,000)	12,411,000
Sonya Branco	14.25	243,000	578,000	3,419,000	332,000	(593,000)	3,158,000
Carter Copeland4	1.60	24,800	471,000	170,000	400,000	(84,000)	486,000
Daniel Gelston4	2.60	61,900	526,000	616,000	410,000	(121,000)	905,000
Nick Leontidis	23.00	502,000	526,000	7,892,000	788,000	(1,066,000)	7,614,000

1. The change in benefit obligation that is compensatory includes the service cost and the increase in earnings in excess or below what was assumed. The service cost is the estimated value of the benefits accrued during the calendar year.

2. The change in benefit obligation that is not compensatory includes interest cost, change in assumptions, and gains and losses other than for a difference in earnings and the decrease in the discount rate used to value the pension plans which increases the accrued obligation.

3. The present values of the accumulated benefits reported in the above table are calculated in accordance with the assumptions used for financial reporting purposes. See Note 19 to CAE’s consolidated financial statements for the fiscal year ended March 31, 2023. The total present value of accumulated benefits in our financial statements is calculated in accordance with IFRS.

4. Mr. Gelston’s and Mr. Copeland’s pension are payable in US dollars converted to Canadian dollars using the FY2023 average exchange rate of $1.32.

Termination and Change of Control Benefits

Payment entitlements upon termination

The various compensation plans applicable to the NEOs also contain different provisions that apply upon termination of employment or Change of Control of CAE. CAE does not have a formal policy for providing severance payment in the case of termination of employment but may provide severance payments and benefits as required by law.

CAE has nevertheless entered into employment agreements with Mr. Parent that provide for the payment of severance amounts and certain other benefits in the event of involuntary termination other than for cause. Mr. Parent’s severance entitlement on termination of employment other than for cause is two years’ salary plus target bonus, benefits and expenses. Mr. Parent would also be entitled to two years of service credited to the Supplemental Pension Plan.

CAE is also party to agreements with all its executive officers who are NEOs, pursuant to which such executives are entitled to termination of employment benefits following a Change of Control of CAE where the executive’s employment is expressly or constructively terminated without cause within two years following the Change of Control. In such event, the executive is entitled to two years of annual compensation (salary, short-term incentive and employee benefits, payable as a lump sum), two years of credited service and the immediate vesting of supplementary credited service for the purposes of any pension or retirement income plans, payment of long-term incentive Deferred Share Units, and vesting of all unvested stock options, RSUs and PSUs, as per plan provisions.

109 | CAE INC. | 2023 | Management Proxy Circular

Section 7 - Executive Compensation

Compensation Program

Resignation and Termination for Cause

Involuntary Termination

Retirement

Change of Control1

Annual Short-Term Incentive

Forfeit

Partial payment based on performance and time in position

Partial payment based on Company performance and time in position

Two times the greater of average three-year bonus or target bonus in case of termination2

Stock Options

Resignation: 30 days to exercise vested options

Termination for cause: All options are cancelled

30 days to exercise vested options

Exercise vested options up to expiry date; unvested options continue to vest and must be exercised within 30 days following vesting date

All options become vested, as per plan provisions

Performance Share Units

All units are forfeited

PSUs granted as of FY2017: units partially vest at a rate of 1/6, 1/3 and 1/2 for each full year of employment completed since the grant date.

All units will be paid out as scheduled

Unvested units vest as of the Change of Control date; all vested units become payable at the closing price of CAE Shares on the TSX on such date, as per plan provisions

Restricted Share Units

All units are forfeited

Units partially vest at a rate of 1/3 for each full year of employment completed since the grant date

All units will be paid out as scheduled

Unvested units vest as of the Change of Control date; all vested units become payable at the closing price of CAE Shares on the TSX on such date, as per plan provisions

For grants awarded on or after FY2024, these vesting rules will apply if a termination not for cause occurs within two years for a Change of Control

Deferred Share Units Grants from 04/2004

Vested units are paid out

All units become vested

Supplemental Pension Plan (SPP)

Resignation: If five or more years of participation in the SPP, accrued deferred pension at age 65 termination for cause: No benefits payable from the SPP

If five or more years of participation in the SPP, accrued deferred pension benefits at age 65

If age 55 or older with a minimum of five years of participation in SPP, immediate monthly pension payable

Immediate vesting and two years of additional service in case of termination2

Severance payments

Severance amount3 in case of termination

Severance amount4 in case of termination2

1. Change of Control is defined in the Change of Control Agreements between CAE and each Named Executive Officer. A Change of Control may be triggered by a number of events, notably an acquisition by a person of 20% of CAE’s voting rights which is accompanied by a change in the composition of the Board, an acquisition by a person of 35% of CAE’s voting rights or an acquisition of Shares representing half the equity of CAE. Compensation programs have various definitions of Change of Control events with different impacts on compensation. The provisions illustrated in the above table are for specific events that would provide the maximum benefits to the executives.

2. Pursuant to the Change of Control Agreements between CAE and each NEOs, termination is defined as an involuntary termination that occurs within the first two years following the Change of Control.

3. In the event of involuntary termination when severance is payable, it will be determined at the time of termination, taking into consideration the appropriate factors and current state of legislation and jurisprudence. Mr. Parent’s severance entitlement on termination of employment other than for cause is two years’ salary plus target bonus, benefits and expenses. Mr. Parent would also be entitled to two years of service credited to the Supplemental Pension Plan. Ms. Wood’s severance entitlement on termination of employment other than for cause is 12 months’ salary. The severance amount is undetermined for other NEOs.

4. The severance amount is equal to two times the sum of base salary, target bonus (or actual bonus averaged over the last three years, if greater), and the sum of the value of employee benefits and perquisites provided to the executive.

In the event of death during active employment with CAE, the executive is deemed to have retired the day before his/her death if he/she was at least age 55, otherwise, he/she is deemed to have terminated his/her employment the day before his/her death.

110 | CAE INC. | 2023 | Management Proxy Circular The following table sets forth estimates of the amounts payable to the NEOs upon specified events, assuming that each such event took place on March 31, 2023.

Section 7 - Executive Compensation

Amounts payable to NEOs upon specified termination events

The table does not quantify benefits under plans that are generally available to salaried employees and do not discriminate in favor of executive officers, including the Retirement Plan for Employees of CAE Inc. and associated companies, the ordinary DSU plan and the Employee Stock Purchase Plan. In addition, the table does not include the value of outstanding equity awards that have previously vested, such as stock options and DSUs/ LTUs, which are set forth above in Section 7 – Executive Compensation – Compensation of our Named Executive Officers – Incentive Plan Awards – Value Vested or Earned During the Year. For descriptions of the compensation plans and agreements that provide for the payments set forth in the following table, including our change in control agreements, see Section 7 – Executive Compensation – Compensation of our Named Executive Officers – Termination and Change of Control Benefits.


	Marc Parent	Sonya Branco	Carter Copeland	Daniel Gelston	Nick Leontidis
Involuntary Termination
Salary/Severance1	5,770,000	Undetermined	Undetermined	Undetermined	Undetermined
LTUs	–	–	-	-	-
Options	–	–	-	-	-
RSUs2	1,058,678	306,926	28,467	234,923	312,147
PSUs2	1,290,089	373,190	42,315	290,043	379,119
Supplementary Plan	1,357,000	–	-	-	-
Total	9,475,767	680,116	70,782	524,966	691,266
Retirement	Eligible	Not eligible	Not eligible	Not eligible	Eligible
LTUs	–	–	–	–	-
RSUs	–	–	–	–	-
PSUs	–	–	–	–	-
Options	–	–	–	–	-
Supplementary Plan	-	–	–	–	-
Total
Termination Following Change in Control	Eligible	Not eligible	Not eligible	Not eligible	Eligible
Salary/Severance3	6,212,213	2,221,075	2,402,400	2,727,285	2,325,530
LTUs4	–	–	–	–
Options5	2,409,089	705,294	6,155	542,832	720,279
RSUs6	3,156,848	836,122	270,150	797,310	855,680
PSUs6	6,964,100	1,778,259	772,515	1,850,062	1,823,049
Supplementary Plan7	1,357,000	254,000	294,000	677,000	683,000
Total	20,099,250	5,794,750	3,745,220	6,594,489	6,407,538

1. In the event of involuntary termination when severance is payable, it will be determined at the time of termination, taking into consideration the appropriate factors and current state of legislation and jurisprudence. Mr. Parent’s severance entitlement on termination of employment other than for cause is two years’ salary plus target bonus, benefits and expenses. Mr. Parent would also be entitled to two years of service credited to the Supplemental Pension Plan. Mr. Copeland and Mr. Gelston severance were converted into Canadian dollars using the FY2023 average exchange rate of $1.32.

111 | CAE INC. | 2023 | Management Proxy Circular

Section 7 - Executive Compensation

2. The time-RSU and the PSU values have been established by multiplying the number of units that would have vested upon involuntary termination as of March 31, 2023, based on performance during completed years, where applicable, and using the average fair market value of Shares on the TSX during the 20 trading days preceding the vesting date of March 31, 2023 which would be$29.55. Note that actual value will would differ.

3. Severance as per the Change of Control Agreements for each NEO.

4. The LTU value has been calculated by multiplying the number of units that would have vested upon a Change of Control as of March 31, 2023, and which will be redeemable within the year following the year the executive’s employment is terminated. As of March 31, 2023, all LTUs had already vested.

5. Option value has been calculated by multiplying the number of options that would have vested upon a Change of Control as of March 31, 2023 using a closing price of Shares of $30.56 on March 31, 2023, less the applicable option exercise price. Note that actual value will differ.

6. RSU and PSU value has been established by multiplying the number of units that would have vested upon a Change of Control as of March 31, 2023 using a closing price of Shares on the TSX of $30.56 on March 31, 2023. Note that actual value will differ.

7. The Supplementary Pension Plan benefits set forth for each NEO reflect the incremental value of benefits for each termination event that exceeds the present value of benefits set forth in the “Pension Benefits” tables above.

112 | CAE INC. | 2023 | Management Proxy Circular 113 | CAE INC. | 2023 | Management Proxy Circular

Section 8 – Other Important Information

Other Important Information

The management of CAE is aware of no business to be presented for action by the Shareholders at the Meeting other than that mentioned herein or in the Notice of Meeting.

Interest of informed persons in material transactions

No informed person (including any Director or executive officer) of CAE, any proposed Director of CAE, or any associate or affiliate of any informed person or proposed Director, had any material interest, direct or indirect, in any transaction since the commencement of CAE’s most recently completed financial year or in any proposed transaction which has materially affected or would materially affect CAE or any of its subsidiaries.

Indebtedness of Directors and executive officers

CAE does not offer its Directors or executive officers loans. CAE and its subsidiaries have not given any guarantee, support agreement, letter of credit or similar arrangement or understanding to any other entity in connection with indebtedness of CAE’s Directors or executive officers.

Shareholders proposals

To propose any matter for a vote by the Shareholders at an annual meeting of CAE, a Shareholder must send a proposal to the General Counsel, Chief Compliance Officer and Corporate Secretary at CAE’s office at 8585 Côte-de-Liesse, Saint-Laurent, Québec H4T 1G6 ninety (90) to one hundred fifty (150) days before the anniversary of CAE’s previous annual meeting, or within such other timeframe as prescribed by the applicable legislation. Shareholders will be required to submit notice of matters that they wish to raise at CAE’s 2024 annual meeting between March 12, 2024 and May 11, 2024 CAE may omit any proposal from its Circular and annual meeting for a number of reasons under applicable Canadian corporate law, including receipt of the proposal by CAE subsequent to the timeline noted above.

Request additional information

CAE shall provide to any person or company, upon written request to the General Counsel, Chief Compliance Officer and Corporate Secretary of CAE at CAE Inc., 8585 Côte-de-Liesse, Saint-Laurent, Québec, H4T 1G6, telephone number 514-734-5779 and facsimile number 514-340-5530:

1. one copy of the latest Annual Information Form of CAE together with one copy of any document or the pertinent pages of any document incorporated by reference therein;

2. one copy of the 2023 Annual Financial Report containing comparative financial statements of CAE for FY2023, together with the Auditors’ Report thereon and Management’s Discussion and Analysis; and

3. one copy of this Circular.

All such documents may also be accessed on CAE’s website (www.cae.com). Additional financial information is provided in CAE’s comparative financial statements and Management’s Discussion and Analysis available on SEDAR at www.sedar.com for the most recently completed financial year.

The contents of this Circular have been approved by the Board of Directors of CAE.



			Mark Hounsell, General Counsel, Chief Compliance Officer and Corporate Secretary
June 15, 2023 Montréal, Québec

114 | CAE INC. | 2023 | Management Proxy Circular 115 | CAE INC. | 2023 | Management Proxy Circular

Appendix A – Board of Directors’ Charter

CAE INC. (“CAE” or the “Company”)

Responsibilities

CAE’s President and Chief Executive Officer and the Company’s other executive officers are responsible for the management of the Company. The Board of Directors (the “Board”) is responsible for the stewardship of the Company and for monitoring the actions of, and providing overall guidance and direction to management. The Board shall act in the best interest of the Company.

Committees

The Board may establish committees, as it deems necessary or desirable, to assist it in the fulfillment of its duties and responsibilities, with such terms of reference as the Board may determine and may delegate from time to time to such committees or other persons any of the Board’s responsibilities that may be lawfully delegated. As such, the Board currently maintains an Audit Committee, a Human Resources Committee and a Governance Committee. Each committee is comprised entirely of independent directors, as determined by the Board in light of securities laws and applicable exchange rules, and each member of a committee is appointed by the Board after thorough review of the requirements for membership on each such committee. The independent directors will periodically, as they see fit, hold meetings without management.

Strategy

The Board will maintain a strategic planning process and annually approve a strategic plan. Separately from the strategic plan, the Board also approves an annual budget for financial performance.

Enterprise Risk Management

The Board is accountable for the oversight of enterprise risk management. As such, the Board will review with management the Company’s risk appetite and risk tolerance and assess whether the Company’s strategy is consistent with the agreed-upon risk appetite and tolerance for the Company. The Board will also review and discuss with management all key enterprise risk exposures on an aggregate, company-wide basis, and the steps management has taken to monitor and to manage those exposures. This includes the review with management of the Board’s expectations as to each committee’s respective responsibilities for risk oversight and management of specific risks to ensure a shared understanding as to accountabilities and roles.

The Board will work with management to promote and actively cultivate a corporate culture that understands and implements enterprise-wide risk management.

Corporate Governance

Corporate governance issues are the responsibility of the full Board. This includes the disclosure thereof, including in the Company’s Annual Activity and Corporate Social Responsibility report and Management Proxy Circular.

The Board periodically reviews a Disclosure Policy for the Company that, inter alia, addresses how the Company shall interact with shareholders, analysts and other stakeholders and covers the accurate and timely communication of all important information. The Company communicates with its stakeholders through a number of channels including its website, and they in turn can provide feedback to the Company in a number of ways, including e-mail.

The Board, through its Governance Committee, regularly reviews reports on compliance with the Company’s Code of Business Conduct and ethical practices. It periodically reviews Company policies with respect to decisions and other matters requiring Board approval.

116 | CAE INC. | 2023 | Management Proxy Circular Audit, Finance and Risk Management

Appendix A – Board of Directors’ Charter

The Board, directly and through the Audit Committee, oversees:

(i) the integrity and quality of the Company’s financial reporting and the effectiveness of internal controls;

(ii) the risk management framework, including the identification of the principal risks of the Company’s business, and ensures that there are systems in place to effectively monitor, manage and mitigate these risks;

(iii) cybersecurity governance, risk management, incident reporting and cyber risk disclosure;

(iv) the Company’s compliance with legal and regulatory requirements;

(v) the qualifications and independence of the Company’s external auditors;

(vi) the performance of the Company’s internal accounting function and external auditors; and

(vii) the adequacy of the Company’s material public documents prior to their release.

Succession Planning

The Board, with the help of the Human Resources Committee, ensures a succession plan is in place for the President and Chief Executive Officer and for other senior employees of the Company and monitors such plan.

Oversight and Compensation of Management

The Board considers recommendations of the Human Resources Committee with respect to:

(i) the appointment and compensation of senior officers of the Company at the level of Senior Vice President and above;

(ii) the implementation of processes for the recruitment, training, development and retention of senior employees who exhibit the highest standards of integrity and competence and any recommendation for improvement of the processes in place to develop high potential individuals, such as the Annual Leadership Development Process;

(iii) the compensation philosophy for the Company generally;

(iv) the adoption of any incentive compensation and equity-based plans, including stock option, stock purchase, deferred share unit, restricted share unit or other similar plans, in which employees are or may be eligible to participate; and

(v) the Company’s retirement policies and special cases.

The Board communicates to the President and Chief Executive Officer and periodically reviews the Board’s expectations regarding management’s performance and conduct of the affairs of the Company. The Board also periodically reviews the President and Chief Executive Officer’s position description and objectives and his performance against these objectives. Each year, after a performance evaluation, the Board approves, with the recommendation of the Human Resources Committee, the President and Chief Executive Officer’s compensation.

117 | CAE INC. | 2023 | Management Proxy Circular Environmental, Social and Governance (ESG) Matters

Appendix A – Board of Directors’ Charter

The Board, through the Governance and Human Resources committees, oversees and reviews the Company’s ESG policies, practices, strategy and reporting (including Diversity, Equity and Inclusion; Health & Safety; Ethics and Anti-Corruption; Environment and Climate Change; and Human Rights).

The Board, through the Audit Committee, reviews trends in corporate disclosure of non-financial performance (including ESG related disclosure).

Directors’ Qualifications, Compensation, Education and Orientation

The Board, through the Governance Committee, develops a process to determine, in light of the opportunities and risks facing the Company, what competencies, skills and personal qualities are required for new directors in order to add value to the Company while ensuring that the Board is constituted of a majority of individuals who are independent. With regards to Board composition, the Board ensures adherence to the term limits imposed on all directors and considers criteria that promote diversity, including but not limited to gender, international background, nationality, age and industry knowledge, in light of the Company’s Policy Regarding Board and Executive Officer Diversity.

The Board, through the Governance Committee, develops a program for the orientation and education of new directors, and ensures that prospective candidates for Board membership understand the role of the Board and its committees, the nature and operation of the Company’s business, and the contributions that individual directors are expected to make, and develops a program of continuing education if needed for directors.

The Board considers recommendations of the Governance Committee with respect to the level and forms of compensation for directors, which compensation shall reflect the responsibilities and risks involved in being a director of the Company.

Assessment of Board and Committee Effectiveness

The Board considers recommendations of the Governance Committee for the development and monitoring of processes for assessing the effectiveness of the Board, the committees of the Board, the committees’ chairs, the Chair of the Board and the contribution of individual directors, which assessments shall be made annually. These results are assessed by the Chair of the Board and/or the Chair of the Governance Committee and are reported to the full Board, which decides on actions deemed necessary, if any. The Board ensures that the number of directors and the composition of the Board permit the Board to operate in a prudent and efficient manner.

Retirement Plans

The Board is responsible for overseeing the management of the Company’s retirement plans and does this through its Human Resources Committee.

Outside Advisors

Directors may hire outside advisors at the Company’s expense, subject to the approval of the Chair of the Board and have access to the advice and services of the Company’s Corporate Secretary, who is also the General Counsel and Chief Compliance Officer.

Last updated – February 14, 2023

118 | CAE INC. | 2023 | Management Proxy Circular 119 | CAE INC. | 2023 | Management Proxy Circular

Appendix B – Non-IFRS and Other Financial Measures

This Circular includes non-IFRS financial measures, non-IFRS ratios, capital management measures and supplementary financial measures. These measures are not standardized financial measures prescribed under IFRS and therefore should not be confused with, or used as an alternative for, performance measures calculated according to IFRS. Furthermore, these measures should not be compared with similarly titled measures provided or used by other issuers. Management believes that these measures provide additional insight into our operating performance and trends and facilitate comparisons across reporting periods.

DEFINITIONS

A non-IFRS financial measure is a financial measure that depicts our financial performance, financial position, or cash flow and either excludes an amount that is included in or includes an amount that is excluded from the composition of the most directly comparable financial measures disclosed in our financial statements.

A non-IFRS ratio is a financial measure disclosed in the form of a ratio, fraction, percentage, or similar representation, that has a non‑IFRS financial measure as one or more of its components.

A total of segments measure is a financial measure that is a subtotal or total of two or more reportable segments and is disclosed within the notes to our consolidated financial statements, but not in our primary financial statements.

A capital management measure is a financial measure intended to enable an individual to evaluate our objectives, policies and processes for managing our capital and is disclosed within the notes to our consolidated financial statements, but not in our primary financial statements.

A supplementary financial measure is a financial measure that depicts our historical or expected future financial performance, financial position or cash flow and is not disclosed within our primary financial statements, nor does it meet the definition of any of the above measures.

Certain non-IFRS and other financial measures are provided on a consolidated basis and separately for each of our segments (Civil Aviation, Defense and Security and Healthcare) since we analyze their results and performance separately.

PERFORMANCE MEASURES

Gross profit margin (or gross profit as a % of revenue)

Gross profit margin is a supplementary financial measure calculated by dividing our gross profit by revenue for a given period. We track it because we believe it provides an enhanced understanding of our operating performance and facilitates the comparison across reporting periods.

Operating income margin (or operating income as a % of revenue)

Operating income margin is a supplementary financial measure calculated by dividing our operating income by revenue for a given period. We track it because we believe it provides an enhanced understanding of our operating performance and facilitates the comparison across reporting periods.

Adjusted segment operating income or loss

120 | CAE INC.

Appendix B – Non-IFRS and Other Financial Measures

| 2023 | Management Proxy Circular and losses arising from significant strategic transactions or specific events consist of the impairment reversal of non-financial assets following their repurposing and optimization (as described in Note 5 of our consolidated financial statements for the year ended March 31, 2023), cloud computing transition adjustment (as described in Note 5 of our consolidated financial statements for the year ended March 31, 2022) and impairments and other gains and losses incurred in relation to the COVID-19 pandemic (as described in Note 7 of our consolidated financial statements for the year ended March 31, 2021). We track adjusted segment operating income because we believe it provides an enhanced understanding of our operating performance and facilitates the comparison across reporting periods. Adjusted segment operating income on a consolidated basis is a total of segments measure since it is the profitability measure employed by management for making decisions about allocating resources to segments and assessing segment performance. Refer to Section 3.9 - Non‑IFRS measure reconciliations of the FY2023 MD&A for a reconciliation of this measure to the most directly comparable measure under IFRS.

Adjusted segment operating income margin (or adjusted segment operating income as a % of revenue)

Adjusted segment operating income margin is a non-IFRS ratio calculated by dividing our adjusted segment operating income by revenue for a given period. We track it because we believe it provides an enhanced understanding of our operating performance and facilitates the comparison across reporting periods.

Adjusted net income or loss

Adjusted net income or loss is a non-IFRS financial measure we use as an alternate view of our operating results. We calculate it by taking our net income attributable to equity holders of the Company from continuing operations and adjusting for restructuring, integration and acquisition costs, and impairments and other gains and losses arising from significant strategic transactions or specific events, after tax, as well as significant one-time tax items. Impairments and other gains and losses arising from significant strategic transactions or specific events consist of the impairment reversal of non-financial assets following their repurposing and optimization (as described in Note 5 of our consolidated financial statements for the year ended March 31, 2023), cloud computing transition adjustment (as described in Note 5 of our consolidated financial statements for the year ended March 31, 2022) and impairments and other gains and losses incurred in relation to the COVID-19 pandemic (as described in Note 7 of our consolidated financial statements for the year ended March 31, 2021). We track adjusted net income because we believe it provides an enhanced understanding of our operating performance and facilitates the comparison across reporting periods. Refer to Section 3.9 - Non-IFRS measure reconciliations of the FY2023 MD&A for a reconciliation of this measure to the most directly comparable measure under IFRS.

Adjusted earnings or loss per share (EPS)

Adjusted earnings or loss per share is a non-IFRS ratio calculated by dividing adjusted net income or loss by the weighted average number of diluted shares. We track it because we believe it provides an enhanced understanding of our operating performance on a per share basis and facilitates the comparison across reporting periods. Refer to Section 3.9 - Non-IFRS measure reconciliations of the FY2023 MD&A for a calculation of this measure.

For incentive plans purposes, this measure is further adjusted for currency fluctuations.

EBITDA and Adjusted EBITDA

EBITDA is a non-IFRS financial measure which comprises net income or loss before income taxes, finance expense – net, depreciation and amortization. Adjusted EBITDA further adjusts for restructuring, integration and acquisition costs, and impairments and other gains and losses arising from significant strategic transactions or specific events. Impairments and other gains and losses arising from significant strategic transactions or specific events consist of the impairment reversal of non-financial assets following their repurposing and optimization (as described in Note 5 of our consolidated financial statements for the year ended March 31, 2023), cloud computing transition adjustment (as described in Note 5 of our consolidated financial statements for the year ended March 31, 2022) and impairments and other gains and losses incurred in relation to the COVID-19 pandemic (as described in Note 7 of our consolidated financial statements for the year ended March 31, 2021). We use EBITDA and adjusted EBITDA to evaluate our operating

121 | CAE INC. | 2023 | Management Proxy Circular performance, by eliminating the impact of non-operational or non-cash items.

Appendix B – Non-IFRS and Other Financial Measures

Refer to Section 3.9 - Non-IFRS measure reconciliations of the FY2023 MD&A for a reconciliation of these measures to the most directly comparable measure under IFRS.

Free cash flow

Free cash flow is a non-IFRS financial measure that shows us how much cash we have available to invest in growth opportunities, repay debt and meet ongoing financial obligations. We use it as an indicator of our financial strength and liquidity. We calculate it by taking the net cash generated by our continuing operating activities, subtracting maintenance capital expenditures, changes in enterprise resource planning (ERP) and other assets not related to growth and dividends paid and adding proceeds from the disposal of property, plant and equipment, dividends received from equity accounted investees and proceeds, net of payments, from equity accounted investees. Refer to Section 6.1 - Consolidated cash movements of the FY2023 MD&A for a reconciliation of this measure to the most directly comparable measure under IFRS.

Cash conversion rate

Cash conversion rate is a non-IFRS ratio calculated by dividing free cash flow by adjusted net income. We use it to assess our performance in cash flow generation and as a basis for evaluating our capitalization structure.

LIQUIDITY AND CAPITAL STRUCTURE MEASURES

Non-cash working capital

Non-cash working capital is a non-IFRS financial measure we use to monitor how much money we have committed in the day-to-day operation of our business. We calculate it by taking current assets (not including cash and cash equivalents and assets held for sale) and subtracting current liabilities (not including the current portion of long-term debt and liabilities held for sale). Refer to Section 7.1 - Consolidated capital employed of the FY2023 MD&A for a reconciliation of this measure to the most directly comparable measure under IFRS.

Capital employed

Capital employed is a non-IFRS financial measure we use to evaluate and monitor how much we are investing in our business. We measure it from two perspectives:

Use of capital:

- For the Company as a whole, we take total assets (not including cash and cash equivalents), and subtract total liabilities (not including long-term debt and the current portion of long-term debt);

- For each segment, we take the total assets (not including cash and cash equivalents, tax accounts, employee benefits assets and other non-operating assets), and subtract total liabilities (not including tax accounts, long-term debt and the current portion of long‑term debt, royalty obligations, employee benefit obligations and other non-operating liabilities).

Source of capital:

- In order to understand our source of capital, we add net debt to total equity.

Refer to Section 7.1 - Consolidated capital employed of the FY2023 MD&A for a reconciliation of this measure to the most directly comparable measure under IFRS.

Return on capital employed (ROCE) and adjusted ROCE

122 | CAE INC.

Appendix B – Non-IFRS and Other Financial Measures

| 2023 | Management Proxy Circular consolidated financial statements for the year ended March 31, 2023), cloud computing transition adjustment (as described in Note 5 of our consolidated financial statements for the year ended March 31, 2022) and impairments and other gains and losses incurred in relation to the COVID-19 pandemic (as described in Note 7 of our consolidated financial statements for the year ended March 31, 2021). We use ROCE and adjusted ROCE to evaluate the profitability of our invested capital.

Net debt

Net debt is a capital management measure we use to monitor how much debt we have after taking into account cash and cash equivalents. We use it as an indicator of our overall financial position, and calculate it by taking our total long-term debt, including the current portion of long-term debt, and subtracting cash and cash equivalents. Refer to Section 7.1 - Consolidated capital employed of the FY2023 MD&A for a reconciliation of this measure to the most directly comparable measure under IFRS.

Net debt-to-capital

Net debt-to-capital is a capital management measure calculated as net debt divided by the sum of total equity plus net debt. We use this to manage our capital structure and monitor our capital allocation priorities.

Net debt-to-EBITDA and net debt-to-adjusted EBITDA

Net debt-to-EBITDA and net debt-to-adjusted EBITDA are non-IFRS ratios calculated as net debt divided by the last twelve months EBITDA (or adjusted EBITDA). We use net debt-to-EBITDA and net debt-to-adjusted EBITDA because they reflect our ability to service our debt obligations. Refer to Section 3.9 - Non-IFRS measure reconciliations of the FY2023 MD&A for a calculation of these measures.

Maintenance and growth capital expenditures

Maintenance capital expenditure is a supplementary financial measure we use to calculate the investment needed to sustain the current level of economic activity.

Growth capital expenditure is a supplementary financial measure we use to calculate the investment needed to increase the current level of economic activity.

The sum of maintenance capital expenditures and growth capital expenditures represents our total property, plant and equipment expenditures.

123 | CAE INC. | 2023 | Management Proxy Circular

Appendix B – Non-IFRS and Other Financial Measures

GROWTH MEASURES

Adjusted order intake

Adjusted order intake is a supplementary financial measure that represents the expected value of orders we have received:

- For the Civil Aviation segment, we consider an item part of our adjusted order intake when we have a legally binding commercial agreement with a client that includes enough detail about each party’s obligations to form the basis for a contract. Additionally, expected future revenues from customers under short-term and long-term training contracts are included when these customers commit to pay us training fees, or when we reasonably expect the revenue to be generated;

- For the Defense and Security segment, we consider an item part of our adjusted order intake when we have a legally binding commercial agreement with a client that includes enough detail about each party’s obligations to form the basis for a contract. Defense and Security contracts are usually executed over a long-term period but some of them must be renewed each year. For this segment, we only include a contract item in adjusted order intake when the customer has authorized the contract item and has received funding for it;

- For the Healthcare segment, adjusted order intake is typically converted into revenue within one year, therefore we assume that adjusted order intake is equal to revenue.

For incentive plans purposes, this measure is further adjusted for currency fluctuations.

Adjusted backlog

- Adjusted backlog is a supplementary financial measure that represents expected future revenues and includes obligated backlog, joint venture backlog and unfunded backlog and options :Obligated backlog represents the value of our adjusted order intake not yet executed and is calculated by adding the adjusted order intake of the current period to the balance of the obligated backlog at the end of the previous fiscal year, subtracting the revenue recognized in the current period and adding or subtracting backlog adjustments. If the amount of an order already recognized in a previous fiscal year is modified, the backlog is revised through adjustments;

- Joint venture backlog is obligated backlog that represents the expected value of our share of orders that our joint ventures have received but have not yet executed. Joint venture backlog is determined on the same basis as obligated backlog described above;

- Unfunded backlog represents legally binding Defense and Security orders with the U.S. government that we have received but have not yet executed and for which funding authorization has not yet been obtained. The uncertainty relates to the timing of the funding authorization, which is influenced by the government’s budget cycle, based on a September year-end. Options are included in adjusted backlog when there is a high probability of being exercised, which we define as at least 80% probable, but indefinite-delivery/indefinite-quantity (ID/IQ) contracts are excluded. When an option is exercised, it is considered adjusted order intake in that period, and it is removed from unfunded backlog and options.

Book-to-sales ratio

The book-to-sales ratio is a supplementary financial measure calculated by dividing adjusted order intake by revenue in a given period. We use it to monitor the level of future growth of the business over time.

124 | CAE INC. | 2023 | Management Proxy Circular

Appendix B – Non-IFRS and Other Financial Measures

SUPPLEMENTARY NON-FINANCIAL INFORMATION

Full-flight simulators (FFSs) in CAE’s network

A FFS is a full-size replica of a specific make, model and series of an aircraft cockpit, including a motion system. In our count of FFSs in the network, we generally only include FFSs that are of the highest fidelity and do not include any fixed based training devices, or other lower-level devices, as these are typically used in addition to FFSs in the same approved training programs.

Simulator equivalent unit (SEU)

SEU is a measure we use to show the total average number of FFSs available to generate earnings during the period. For example, in the case of a 50/50 flight training joint venture, we will report only 50% of the FFSs under this joint venture as a SEU. If a FFS is being powered down and relocated, it will not be included as a SEU until the FFS is re-installed and available to generate earnings.

Utilization rate

Utilization rate is a measure we use to assess the performance of our Civil simulator training network. While utilization rate does not perfectly correlate to revenue recognized, we track it, together with other measures, because we believe it is an indicator of our operating performance. We calculate it by taking the number of training hours sold on our simulators during the period divided by the practical training capacity available for the same period.

NON-IFRS MEASURE RECONCILIATIONS

Reconciliation of adjusted segment operating income


(amounts in millions)	Civil Aviation		Defense and Security		Healthcare		Total
Years ended March 31	2023	2022	2023	2022	2023	2022	2023	2022
Operating income	$430.3	$224.1	$35.7	$56.0	$8.0	$4.1	$474.0	$284.2
Restructuring, integration and acquisition costs	$52.0	$79.0	$10.6	$61.4	$1.7	$6.5	$64.3	$146.9
Impairments and other gains and losses arising from
significant strategic transactions or specific events:
Impairment reversal of non-financial assets
following their repurposing and optimization	$3.0	–	$6.8	–	–	–	$9.8	–
Cloud computing transition adjustment	–	$11.6	–	$1.8	–	–	–	$13.4
Adjusted segment operating income	$485.3	$314.7	$53.1	$119.2	$9.7	$10.6	$548.1	$444.5

125 | CAE INC. | 2023 | Management Proxy Circular

Appendix B – Non-IFRS and Other Financial Measures

Reconciliation of adjusted net income and adjusted EPS


	Three months ended March 31		Years ended March 31
(amounts in millions, except per share amounts)	2023	2022	2023	2022
Net income attributable to equity holders of the Company	$98.4	$55.1	$222.7	$141.7
Restructuring, integration and acquisition costs, after tax	$12.5	$27.1	$49.4	$110.0
Impairments and other gains and losses arising from
significant strategic transactions or specific events:
Impairment reversal of non-financial assets
following their repurposing and optimization, after tax	–	–	$7.1	–
Cloud computing transition adjustment, after tax	–	$9.8	–	$9.8
Adjusted net income	$110.9	$92.0	$279.2	$261.5
Adjusted number of shares outstanding (diluted)	318.7	318.5	318.4	312.9
Adjusted EPS	$0.35	$0.29	$0.88	$0.84

Reconciliation of EBITDA, adjusted EBITDA, net debt-to-EBITDA and net debt-to-adjusted EBITDA


	Last twelve months ended March 31
(amounts in millions, except net debt-to-EBITDA ratios)	2023	2022
Operating income	$474.0	$284.2
Depreciation and amortization	$342.2	$310.5
EBITDA	$816.2	$594.7
Restructuring, integration and acquisition costs	$64.3	$146.9
Impairments and other gains and losses arising from
significant strategic transactions or specific events:
Impairment reversal of non-financial assets
following their repurposing and optimization	$9.8	–
Cloud computing transition adjustment	–	$13.4
Adjusted EBITDA	$890.3	$755.0
Net debt	$3,032.5	$2,700.1
Net debt-to-EBITDA Net debt-to-adjusted EBITDA	3.72 3.41	4.54 3.58

126 | CAE INC. | 2023 | Management Proxy Circular 127 | CAE INC. | 2023 | Management Proxy Circular

Appendix C – Summary of the Employee Stock Option Plan

The ESOP includes the following provisions:


Eligibility			Any salaried employee of CAE or its subsidiaries is eligible to participate in the ESOP. The ESOP does not permit grants to non-employee Directors. Subject to ESOP provisions related to employee death, retirement, or termination without cause, no option granted under ESOP may be exercised unless that employee wishing to exercise such option is currently employed by CAE or one of CAE’s subsidiaries and has served continuously in such capacity since the date of the grant of such option.
Limitations on Grants			An ESOP participant (which may include an employee management insider of CAE) may not hold options on more than 5% (on an undiluted basis) of the issued and outstanding Shares. The number of Shares issuable to insiders of CAE at any time under all security-based compensation arrangements cannot exceed 10% of the issued and outstanding Shares. The number of Shares issued to insiders of the Company within any one-year period under all security-based compensation arrangements cannot exceed 10% of the Company’s issued and outstanding Shares.
Exercise Price			The weighted average price of the Shares on the TSX on the five trading days immediately preceding the grant date (if the grant date falls within a blackout period or within five trading days following the end of a blackout period, the grant date shall be presumed to be the sixth trading day following the end of such blackout period).
Termination of Employment			Death: options may be exercised to the extent that the optionee was entitled to do so at the time of death. The options can be exercised only during the period expiring on the day that is earlier of six months following the date of death and the option termination date. Retirement: all unvested options shall continue to vest following the retirement date. Such retired optionee shall be entitled, (a) to exercise any vested options held as of the retirement date until the termination date for each such option; and (b) to exercise any options vesting after the retirement date only during the 30-day period following the vesting date of the post retirement vesting options, after which any such options which remain unexercised shall expire. Involuntary termination for cause: each unvested option shall terminate and become null, void and of no effect on the date on which the optionee ceases to serve the Company. Involuntary termination without cause and resignation: the optionee has the right for a period of 30 days (or until the normal expiry date of the option if earlier) from the date of ceasing to be an employee to exercise his or her option to the extent that he/she was entitled to exercise it on the date of ceasing to be an employee. Upon the expiration of such 30-day period (subject to extension if the end of the period falls within a blackout period), each option shall terminate and become null, void and of no effect on the date on which such optionee ceases to serve the Company.
Transferability/ Assignment of Options			Options are not transferable or assignable otherwise than by will or by operation of estate law.
Financial Assistance			The ESOP does not contain any financial assistance provisions to facilitate employees’ participation in the program.

128 | CAE INC. | 2023 | Management Proxy Circular

Appendix C – Summary of the Employee Stock Option Plan


Amendments			The ESOP provides that its terms, as well as those of any option, may be amended, terminated or waived in certain stated circumstances. The ESOP specifies in what situations Shareholders approval is required.
Amendments not Requiring Shareholders Approval			The HRC has the authority, in accordance with and subject to the terms of the ESOP, to amend, suspend or terminate the ESOP or any option granted under the ESOP without obtaining Shareholders approval to: (a) (i) amend any terms relating to the granting or exercise of options, including the terms relating to the eligibility for (other than for non-executive Directors) and limitations or conditions on participation in the ESOP, the amount and payment of the exercise price (other than a reduction thereof) or the vesting, exercise, expiry (other than an extension of the termination date except as contemplated in the ESOP), assignment (other than for financing or derivative-type transaction purposes) and adjustment of options, or (ii) add or amend any terms relating to any cashless exercise features; (b) amend the ESOP to permit the granting of Deferred or Restricted Share Units under the ESOP or to add or amend any other provisions which result in participants receiving securities of the Company while no cash consideration is received by the Company; (c) make changes that are necessary or desirable to comply with applicable laws, rules or regulations of any regulatory authorities having jurisdiction or any applicable stock exchange; (d) correct or rectify any ambiguity, defective provision, error or omission in the ESOP or in any option or make amendments of a “housekeeping” nature; (e) amend any terms relating to the administration of the ESOP; and (f) make any other amendment that does not require Shareholders approval by virtue of the ESOP, applicable laws or relevant stock exchange or regulatory requirements; provided such amendment, suspension or termination (i) does not adversely alter or impair any previously granted option without the optionee’s consent and (ii) is made in compliance with applicable laws, rules, regulations, by-laws and policies of, and receipt of any required approvals from, any applicable stock exchange or regulatory authorities having jurisdiction.
Amendments Requiring Shareholders Approval			The ESOP provides that Shareholders approval is required to make the following amendments: (a) increase the maximum number of Shares issuable under the ESOP, except in the case of an adjustment pursuant to Article VIII thereof (subdivisions, consolidations or reclassifications of Shares or other such events); (b) increase the number of Shares that may be issued to insiders or to any one optionee under the ESOP, in both cases except in the case of an adjustment pursuant to Article VIII thereof (subdivisions, consolidations or reclassifications of Shares or other such events); (c) allow non-employee Directors to be eligible for awards of options; (d) permit any option granted under the ESOP to be transferable or assignable other than by will or pursuant to succession laws (estate settlements); (e) reduce the exercise price of an option after the option has been granted or cancel any option and substitute such option by a new option with a reduced exercise price granted to the same optionee, except in the case of an adjustment pursuant to Article VIII of the ESOP; (f) extend the term of an option beyond the original expiry date, except in case of an extension due to a blackout period; (g) add a cashless exercise feature payable in cash or Shares, which does not provide for a full deduction of the number of underlying Shares from the ESOP reserve; (h) add any form of or amendment to financial assistance provisions in the ESOP which is more favourable to optionees; and (i) amend any provisions to the amendment provisions of the ESOP.

129 | CAE INC. | 2023 | Management Proxy Circular 130 | CAE INC. | 2023 | Management Proxy Circular

Appendix C – Summary of the Employee Stock Option Plan


Change of Control			In the circumstances of a change in the beneficial ownership or control over the majority of the Shares of CAE or the sale of all or substantially all of CAE’s assets, the vesting of all options issued would be accelerated. A change of control is defined as (i) any event or circumstance where any person, any joint actor thereof or any person acting jointly or in concert therewith, or any combination thereof, acquires beneficial ownership or exercises control or direction, directly or indirectly (whether through a purchase, issuance or exchange of Shares or other voting securities, reorganization, amalgamation, merger, business combination, consolidation or other transaction or series of transactions having similar effect (or a plan of arrangement in connection with any of the foregoing)), other than solely involving the Company and any one or more of its subsidiaries, of a majority of the Shares or other voting securities of the Company or of any successor or resulting corporation or other person; or (ii) the sale or other disposition to a person other than a subsidiary of the Company of all or substantially all of the Company’s assets.
Adjustments			If certain corporate events affect the number or type of outstanding Shares, including, for example, a dividend in stock, stock split, stock consolidation or rights offering, adjustments will be made to the terms of the outstanding option grants as appropriate in such circumstances.

Appendix C – Summary of the Employee Stock Option Plan

Since the Shareholders approved an additional 10,000,000 Shares under the ESOP at the 2016 Annual and Special Shareholders Meeting held on August 10, 2016, the ESOP provides for the issuance of a maximum of 16,381,839 Shares upon exercise of stock options granted under the plan. The total maximum number of Shares available under the ESOP represents approximately 5% of CAE’s issued and outstanding Shares.

The number of stock options issued to each NEO under the ESOP varies as a percentage of the executive’s base salary divided by the fair value of a stock option at that time, which is determined by applying the Black-Scholes option-pricing valuation methodology. The number of outstanding stock options, as well as the other LTIP elements are considered by the HRC in determining how many new stock options may be granted in a fiscal year. During FY2023, stock options were granted to the NEOs and other key employees of CAE and its subsidiaries.

The below chart is based on March 31, 2023 information. As of that date, the weighted average remaining contractual life for the outstanding options was 3.44 years.


	Number of Securities to be Issued Upon Exercise of Outstanding Options	Percentage of CAE’s Outstanding Share Capital Represented by Such Securities	Weighted-Average Exercise Price of Outstanding Options	Number of Securities Remaining Available For Future Issuance Under Equity Compensation Plans (Excluding Securities Reflected in 1st Column)	Percentage of CAE’s Outstanding Share Capital Represented by Such Securities
Employee Stock Option Plan	6,323,537	1.99%	$26.63	2,730,739	0.86 %

The following table details the annual burn rate (i.e., the ratio of stock options granted vs CAE’s issued and outstanding Shares) for the last three fiscal years ended March 31, 2023:


	2023	2022	2021
Annual burn rate	0.20%	0.23%	0.99%

This burn rate indicates the number of Stock Options granted in each year as a percentage of the weighted average number of securities outstanding in the applicable fiscal year. CAE has monitored its long-term dilution by limiting the equity compensation to reasonable awards under the ESOP.

131 | CAE INC. | 2023 | Management Proxy Circular 132 | CAE INC. | 2023 | Management Proxy Circular

Appendix D – Summary of the Omnibus Incentive Plan

The Omnibus Incentive Plan includes the following provisions:


Eligibility			The HRC, in its sole discretion, from time to time designates the executive officers, employees and consultants of the Company or any of its subsidiaries to whom awards of PSUs, RUSs and/or Stock Options shall be granted and determine, if applicable, the number of Shares to be covered by such awards and the terms and conditions of such awards. The Omnibus Incentive Plan does not permit Stock Option grants to non-employee directors.
Limitations on Grants			The number of Shares issuable from treasury to any one participant shall not exceed more than 5% (on an undiluted basis) of the issued and outstanding Shares. The number of Shares issuable from treasury to insiders of CAE at any time under all security-based compensation arrangements cannot exceed 10% of the issued and outstanding Shares. The number of Shares issued from treasury to insiders of the Company within any one-year period under all security-based compensation arrangements cannot exceed 10% of the Company’s issued and outstanding Shares. The total number of Shares available for issuance under the Omnibus Incentive Plan shall be 10,000,000.
Exercise Price of Stock Options			All Stock Options granted under the Omnibus Incentive Plan have an exercise price which shall not be less than the market price of the Shares on the date of the grant. For purposes of the Omnibus Incentive Plan, the “market price “of the Shares as at a given date shall be the volume weighted average trading price of the Shares on the TSX for the five (5) trading days before such date. The HRC may, in its discretion, provide for procedures whereby Shares are sold, at the request of the participant, to cover the exercise price and the applicable withholding taxes, otherwise known as a “cashless exercise”, or to provide cash payments representing the value of the remaining Shares underlying the Stock Options. In the event of a “cashless exercise”, as permitted by the HRC, a participant may authorize a third-party broker to (i) pay on his or her behalf the Exercise Price for the number of Shares in respect of which the Stock Option is exercised, (ii) sell such portion of the Shares received upon exercise of the Stock Option which is sufficient to cover such Exercise Price and the amount necessary to satisfy any withholding tax obligations of the Company or any subsidiary, and (iii) remit to the Company or such subsidiary, as applicable, the portion of the proceeds sufficient to cover such withholding tax obligations.
Stock Option Term			The HRC shall determine, at the time of granting a Stock Option, the period during which the Stock Option is exercisable, which shall not be more than ten (10) years from the date of grant. Unless otherwise determined by the HRC, all unexercised Stock Options shall be cancelled at the expiry of such term. Should the expiration date for a Stock Option fall within a black-out period or within nine (9) trading days following the end of a black-out period, such expiration date shall be automatically extended to that date which is the tenth (10th) trading day after the end of the black-out period.
Share Unit Grant Date			Unless otherwise determined by the HRC, the date of grant of PSUs and RSUs shall not be before the sixth (6th) trading day following the day on which the HRC approves the grant of PSUs and RSUs. Should the date of grant fall within a black-out period or within five (5) trading days after the end of a black-out period, then the date of grant shall be deemed to be the later of the sixth (6th) trading day following the end of such black-out period or the sixth (6th) trading day following the day on which the HRC approved the grant.

133 | CAE INC. | 2023 | Management Proxy Circular 134 | CAE INC. | 2023 | Management Proxy Circular

Appendix D – Summary of the Omnibus Incentive Plan


Vesting			Each PSU, RSU or Stock Option awarded to a participant shall be exercisable at such time or times and/or pursuant to the achievement of such performance criteria and/or other vesting conditions as the HRC may determine in its sole discretion at the time of granting the particular award. Unless otherwise determined by the HRC, PSUs credited to a participant’s account in respect of which the performance criteria have not been achieved, shall automatically be forfeited and be cancelled effective the last day of the applicable performance period.
Settlement of Share Units			All vested PSUs and RSUs shall be settled as soon as practicable following the applicable “share unit vesting determination date” but in all cases prior to the last day of the restriction period. The applicable settlement date shall be determined by the HRC but shall not fall within a black-out period or within five (5) trading days after the end of a black-out period, unless the last day of the “restriction period” falls within this period. For the purposes of the Omnibus Incentive Plan, the “share unit vesting determination date” shall be the date on which the HRC determines if the vesting conditions with respect to PSUs or RSUs (including any applicable performance criteria) have been met, and as a result, establishes the number of PSUs or RSUs, as applicable, that become vested, if any. For the purposes of the Omnibus Incentive Plan, the “restriction period” shall be the applicable restriction period in respect of a particular PSU or RSU, which period, unless otherwise determined by the HRC at the time the PSU or RSU is granted, shall end on the trading day preceding December 31 of the calendar year which is three (3) years after the calendar year in which the PSU or RSU was granted. The Company, in its sole discretion, may settle (or cause a subsidiary to settle), vested PSUs or RSUs, by providing a participant (or the liquidator, executor or administrator, as the case may be, of the estate of the participant) with: (i) in the case of settlement of PSUs or RSUs for their cash equivalent, delivery of cash to the participant representing the cash equivalent, through wire transfer, cheque or any other form of payment deemed acceptable by the HRC; (ii) in the case of settlement of PSUs or RSUs for Shares, delivery of Shares issued from treasury and/or purchased on the participant’s behalf on the open market; or (iii) in the case of settlement of the PSUs or RSUs for a combination of Shares and the cash equivalent, a combination of (i) and (ii) above.
Determination of Amounts			For purposes of determining the cash equivalent of PSUs or RSUs to be paid, such calculation will be made as of the settlement date based on the market value on such date multiplied by the number of vested PSUs or RSUs in the participant’s account, net of any applicable taxes. For the purposes of determining the number of Shares to be issued or delivered to a participant upon settlement of PSUs or RSUs, such calculation will be made as of the settlement date based on the whole number of Shares corresponding to the vested PSUs or RSUs recorded in the participant’s account, net of the whole number of Shares to be sold to satisfy any applicable taxes.
Termination of Employment			Termination for Cause: all awards granted to such participant, whether vested or unvested on the termination date, shall be forfeited. For the purposes of the Omnibus Incentive Plan, the determination by the HRC that the participant was discharged for cause shall be binding on the participant. “Cause” shall include a breach of the Company’s Code of Business Conduct or other CAE policy, failure to perform specified and required duties after a written warning, serious misconduct or negligence of, among other things, a professional, ethical or legal nature, or moral turpitude.

Appendix D – Summary of the Omnibus Incentive Plan


			Resignation: (i) all unvested PSUs, RSUs and/or Stock Options granted to such participant will be forfeited on the termination date; (ii) all PSUs and RSUs granted to such participant and vested pursuant to the Omnibus Incentive Plan on the termination date will be settled (based on the vesting terms, including, if applicable, achievement of performance criteria, as determined in the final and sole discretion of the HRC) as soon as possible; and (iii) all vested Stock Options granted to such participant will remain exercisable until the earlier of: (A) thirty (30) days after the termination date; and (B) the expiry date of the options, after which time all such Stock Options will expire. For greater certainty, if, following a participant’s resignation, the end of the thirty (30) day period during which Stock Options may be exercised should fall within a black-out period or within nine (9) trading days following the end of a black-out period, such period shall be extended to the tenth (10th) trading day following the end of such black-out period. Retirement: (i) all unvested PSUs and/or RSUs granted to such participant will continue to vest as determined by the HRC and will be settled, as applicable, based on their vesting terms, including, if applicable, achievement of performance criteria, as determined in the final and sole discretion of the HRC; (ii) all unvested Stock Options granted to such participant will continue to vest in accordance with the terms of the Omnibus Incentive Plan and the participant’s grant agreement. Once vested, such Stock Options may only be exercised until the earlier of: (A) ninety (90) days following their vesting and (B) the expiry date of the Stock Options, after which time all unvested Stock Options will automatically expire. For greater certainty, if, following a participant’s retirement, the end of the ninety (90) day period during which Stock Options may be exercised should fall within a black-out period or within nine (9) trading days following the end of a black-out period, such period shall be extended to the tenth (10th) trading day following the end of such black-out period; (iii) all PSUs and RSUs granted to such participant and vested pursuant to the Omnibus Incentive Plan on the termination date will be settled (based on the vesting terms, including, if applicable, achievement of performance criteria, as determined in the final and sole discretion of the HRC) as soon as possible; and (iv) all vested Stock Options granted to such participant will remain exercisable until their expiry date after which time all such Stock Options will automatically expire. Death or Long-Term Disability: (i) all unvested PSUs and/or RSUs granted to such participant will fully vest at target on the termination date and be settled as soon as possible (regardless of vesting terms including, if applicable, achievement of performance criteria); (ii) all unvested Stock Options granted to such participant will vest on the termination date and may only be exercised until the earlier of: (A) six (6) months following the termination date; and (B) the expiry date of the Stock Options, after which time all unvested Stock Options will automatically expire; (iii) all PSUs and RSUs granted to such participant and vested pursuant to the Omnibus Incentive Plan on the termination date will be settled (based on the vesting terms, including, if applicable, achievement of performance criteria, as determined in the final and sole discretion of the HRC) as soon as possible; and (iv) all vested Stock Options granted to such participant will remain exercisable until the earlier: of (A) six (6) months after the termination date; and (B) the expiry date of the Stock Options, after which time all such options will automatically expire. For greater certainty, if, following a participant’s death or long-term disability, the end of the six (6) month period during which Stock Options may be exercised should fall within a black-out period or within nine (9) trading days following the end of a black-out period, such period shall be extended to the tenth (10th) trading day following the end of such black-out period.

135 | CAE INC. | 2023 | Management Proxy Circular 136 | CAE INC. | 2023 | Management Proxy Circular

Appendix D – Summary of the Omnibus Incentive Plan


			Termination without cause: (i) the HRC may, in its sole discretion, determine that a portion of the PSUs and/or RSUs granted to such participant, pro-rated to the number of fiscal years completed since their grant, will immediately vest on the termination date and be settled (based on their vesting terms, including, if applicable, achievement of performance criteria, up to the termination date, as determined in the final and sole discretion of the HRC); (ii) all unvested Stock Options granted to such participant will be forfeited on the termination date; (iii) all PSUs and RSUs granted to such participant and vested pursuant to the Omnibus Incentive Plan on the termination date will be settled (based on the vesting terms, including, if applicable, achievement of performance criteria, as determined in the final and sole discretion of the HRC) as soon as possible; and (iv) all vested Stock Options granted to such participant will remain exercisable until the earlier of: (A) ninety (90) days after the termination date; and (B) the expiry date of the Stock Options, after which time all such Stock Options will automatically expire. For greater certainty, if, following a participant’s termination without cause, the end of the ninety (90) day period during which Stock Options may be exercised should fall within a black-out period or within nine (9) trading days following the end of a black-out period, such period shall be extended to the tenth (10th) trading day following the end of such black-out period.
Transferability/ Assignment of Awards			Except as specifically provided in a grant agreement approved by the HRC, each award granted under the Omnibus Incentive Plan shall not be transferable or assignable otherwise than by will or by the laws of succession.
Financial Assistance			Unless otherwise determined by the HRC, the Company shall not offer financial assistance to any participant in regards to the exercise, vesting or payment of any award granted under the Omnibus Incentive Plan.
Amendments			The Omnibus Incentive Plan provides that its terms, as well as those of any grants, may be suspended, terminated, amended or revised in certain stated circumstances. The Omnibus Incentive Plan specifies in what situations Shareholders approval is required.
Amendments not Requiring Shareholders Approval			The Board may suspend or terminate the Omnibus Incentive Plan at any time, or from time to time amend or revise the terms of the Omnibus Incentive Plan or any granted awards without the consent of the participants, provided that such suspension, termination, amendment or revision shall: (i) not materially adversely alter or impair the rights of any participant, without the consent of such participant, except as permitted by the provisions of the Omnibus Incentive Plan; (ii) be in compliance with applicable law and with the prior approval, if required, of the Shareholders, a stock exchange or any other regulatory body having authority over the Company; and (iii) be subject to Shareholders approval, where required by law or the requirements of a stock exchange, provided that the Board may, from time to time, in its absolute discretion and without approval of the Shareholders of the Company make the following amendments: a. amend any terms and conditions relating to the granting of awards, including the terms relating to the eligibility for and limitations or conditions on participation in the Omnibus Incentive Plan (other than to allow non-employee directors of the Company to be eligible for awards of Stock Options under the Omnibus Incentive Plan), the amount and payment of the exercise price (other than a reduction thereof) or the vesting, exercise, expiry (other than an extension of the expiry date except if due to a black-out period) and adjustment of awards as provided hereunder;

Appendix D – Summary of the Omnibus Incentive Plan


			b. make changes that are necessary or desirable to comply with applicable laws, rules or regulations of any regulatory authorities having jurisdiction or any relevant stock exchange; c. correct or rectify any ambiguity, defective provision, error or omission in the Omnibus Incentive Plan or make amendments of a "housekeeping" nature; d. amend any terms relating to the administration of the Omnibus Incentive Plan; and e. make any other amendment that does not require Shareholders approval by virtue of the Omnibus Incentive Plan, applicable laws, rules or regulations of any regulatory authorities having jurisdiction or any relevant stock exchange. The Board may also, by resolution, advance the date on which any award may be exercised or payable or, subject to applicable regulatory provisions, including any rules of a stock exchange, extend the expiration date of any award, in the manner to be set forth in such resolution, provided that the period during which a Stock Option is exercisable or a PSU or RSU remains outstanding does not exceed: (i) in the case of Stock Options, ten (10) years from the Stock Option grant date subject to an extension due to a black-out period; and (ii) in the case of PSUs and RSUs, the last day of the restriction period in respect of such PSUs and RSUs. The Board shall not, in the event of any such advancement or extension, be under any obligation to advance or extend the date on or by which any Stock Option may be exercised or any PSU or RSU may remain outstanding with respect to any other participant.
Amendments Requiring Shareholders Approval			The Omnibus Incentive Plan provides that the Board shall be required to obtain Shareholders approval to make the following amendments: (i) increase the maximum number of Shares issuable under the Omnibus Incentive Plan, except in the case of an adjustment as provided under the Omnibus Incentive Plan; (ii) increase the number of Shares that are issuable or that may be issued to insiders or to any one participant under the Omnibus Incentive Plan, except in the case of an adjustment as provided under the Omnibus Incentive Plan; (iii) allow non-employee directors of the Company to be eligible for awards of Stock Options under the Omnibus Incentive Plan; (iv) permit any award granted under the Omnibus Incentive Plan to be transferable or assignable other than by will or pursuant to succession laws; (v) reduce the exercise price of a Stock Options after the Stock Option has been granted to a participant or cancel any Stock Option and substitute such Stock Option by a new Stock Option with a reduced exercise price granted to the same participant, except in the case of an adjustment provided under the Omnibus Incentive Plan; (vi) extend the term of a Stock Option beyond the original expiry date, except in case of an extension due to a black-out period; (vii) add any form of financial assistance and any amendment to a financial assistance provision in the Omnibus Incentive Plan which is more favourable to participants; and (viii) amend any provisions to the amendment provisions of the Omnibus Incentive Plan.

137 | CAE INC. | 2023 | Management Proxy Circular 138 | CAE INC. | 2023 | Management Proxy Circular

Appendix D – Summary of the Omnibus Incentive Plan


Change of Control			In the context of a change of control, all awards granted to a participant will be converted into or substituted by alternative awards, to the extent possible, and Stock Options, PSUs and RSUs which are not converted into or substituted by an alternative award shall vest and, in the case of Stock Options, become exercisable in full immediately prior to the consummation of the transaction constituting the change of control. If alternative awards are available and a participant is terminated without cause or submits a resignation for good reason within twenty-four (24) calendar months after a change of control, all outstanding alternative awards which are not then exercisable shall vest and alternative awards in which Stock Options were converted will become exercisable in full upon such termination or resignation. Alternative awards in which PSUs and RSUs were converted will be settled as soon as possible after vesting. Alternative awards in which Stock Options were converted will remain exercisable until the earlier of: (i) one (1) year after the termination or resignation; and (ii) the original expiry date of the Stock Options, after which time all such alternative awards will expire. A change of control is defined as (i) any event or circumstance where any person, any joint actor thereof or any person acting jointly or in concert therewith, or any combination thereof, acquires beneficial ownership or exercises control or direction, directly or indirectly (whether through a purchase, issuance or exchange of Shares or other voting securities, reorganization, amalgamation, merger, business combination, consolidation or other transaction or series of transactions having similar effect (or a plan of arrangement in connection with any of the foregoing)), other than solely involving the Company and any one or more of its subsidiaries, of a majority of the Shares or other voting securities of the Company or of any successor or resulting Company or other person; (ii) the sale or other disposition to a person other than a subsidiary of the Company of all or substantially all of the Company’s assets; (iii) the Company undergoing a liquidation or dissolution; or (iv) as a result of or in connection with: (A) a contested election of directors; or (B) a reorganization, amalgamation, merger, business combination, consolidation or other transaction or series of transactions involving the Company or any of its subsidiaries and another corporation or other entity, the nominees named in the most recent management information circular of the Company for election to the Board of directors no longer constitute a majority of the members of the Board of Director.
Adjustments			In the event of any subdivision, consolidation, reclassification, reorganization or any other change affecting the Shares, or any merger, amalgamation or consolidation of the Company with or into another corporation, or any distribution to all security holders of cash, evidences of indebtedness or other assets not in the ordinary course, or any transaction or change having a similar effect, the Board shall in its sole discretion, subject to the required approval of any stock exchange, determine the appropriate adjustments or substitutions to be made in such circumstances in order to maintain the economic rights of the participants in respect of awards under the Omnibus Incentive Plan, including, without limitation, adjustments to the exercise price, adjustments to the number of Shares to which a participant is entitled upon exercise or settlement, adjustments permitting the immediate exercise of any outstanding awards that are not otherwise exercisable or adjustments to the number or kind of Shares reserved for issuance.

EX-99.2 4 annualreport2023.htm EX-99.2 ANNUAL REPORT Annual Report 2023

Financial Report FISCAL YEAR ENDED MARCH 31, 2023

At CAE, we equip people in critical roles with the expertise and solutions to create a safer world. As a technology company, we digitalize the physical world, deploying software-based simulation training and critical operations support solutions. Above all else, we empower pilots, cabin crew, airlines, defence and security forces and healthcare practitioners to perform at their best every day and when the stakes are the highest. Around the globe, we’re everywhere customers need us to be with more than 13,000 employees in approximately 250 sites and training locations in over 40 countries. CAE represents more than 75 years of industry firsts—the highest-fidelity flight, mission and medical simulators and training programs powered by digital technologies. We embed sustainability in everything we do. Today and tomorrow, we’ll make sure our customers are ready for the moments that matter. Check out our Global Annual Activity and Sustainability Report! Our Global Annual Activity and Sustainability report is available online. It consolidates information on our company strategy, fiscal year 2023 performance and sustainability approach into one document. Integrating our reporting in this way enables us to provide stakeholders with a single source of information in key areas.It also signals that sustainability is inseparable from our core business strategy and activities. cae.com/social-responsibility/ cae.com Follow us on : @CAE_Inc. linkedin.com/company/cae

Message from the Chair of the Board Alan N. MacGibbon Chair of the Board Board oversight, diversity and renewal During this fiscal year, the Board took numerous governance actions, including the continuation of its director renewal process. As a result, CAE strengthened its Board oversight in the areas of strategic planning, enterprise risk management at the operational and corporate levels, cybersecurity, technology and human resources through the recommendation for election of three new directors who have already made significant contributions since joining the Board. In April 2022, we welcomed Patrick M. Shanahan, who brought with him more than 30 years of experience in the defense sector and deep knowledge of defence policy, strategy, technology, supply chain and operations. Elise Eberwein and Ayman Antoun were both elected as first-time nominees at the August 2022 Annual Shareholders meeting. Elise has more than 35 years of commercial aviation experience; most recently, she held the position of Executive Vice President, People and Communications for American Airlines, Inc. Ayman Antoun was General Manager of IBM Americas, which includes Canada, the U.S. and Latin America where he led an organization of over 60,000 employees supporting the digital transformation of numerous clients through the integration of innovative technology and transition to cloud operations. I wish to extend a warm thank you to outgoing director The Honourable Michael M. Fortier, P.C. who is retiring from CAE’s Board of Directors after a thirteen-year tenure where he has made significant contributions most recently as chair of our Human Resources Committee. Recognizing that diversity is an essential consideration, we amended our Diversity Policy to broaden our targets to all diversity groups for both executive officers and directors. Organizational targets were revised to reflect that at least 33% of executive officers and 40% of directors form part of certain diversity groups by 2025.  I am pleased to share my first message to shareholders in my capacity as Chair of the Board of CAE. Over FY23, we took action and launched initiatives directly aligned with the company’s high-technology ambitions to drive solid performance. From a financial standpoint, CAE drove consistent sequential improvement in key metrics and consolidated overall performance throughout the year. Underpinning our success is the dedication to our mission to lead at the frontier of digital immersion through high-tech training and operational support solutions that make the world a safer place. In the past year, CAE has made meaningful progress to become a more resilient and profitable company, and we look forward to capitalizing on the robust demand for our end-to-end training services.

Progress on ESG Over the past 12 months, CAE has made substantial progress in the company’s environmental, social and governance (ESG) mandate to deliver results across our broad sustainability strategy. We took important steps to promote responsible business practices throughout CAE’s supply chain and create a positive impact on our company and the community at large. In preparation for external assurance of our data, the company expanded the scope of our ESG reporting to provide a more comprehensive understanding of CAE’s impacts on the economy, environment and society, and to better inform our stakeholders through high-quality measurable data, when available. CAE’s new FY24-28 strategic roadmap reinforces our commitment to sustainability by enhancing our influence and performance where it matters most. Stakeholder outreach As a result of the FY21 and FY22 say on pay votes and investor feedback, we conducted an extensive outreach with close to 20 of our shareholders accounting together for approximately 40% of CAE ownership, as well as other stakeholders, seeking their input on our compensation programs. This effort culminated in changes designed to further align compensation with company performance outcomes and the interests of shareholders as well as improve disclosure in our Proxy Circular. Closing words I want to extend my congratulations to CAE President and CEO Marc Parent on the multiple accolades awarded to him this year. Marc was named a Knight of the distinguished Ordre national du Québec, inducted into Québec’s Air and Space Hall of Fame and received Aviation Week’s Philip J. Klass Award for Lifetime Achievement. Marc sets the standard as an outstanding representative of CAE in both the community and industry. I would also like to thank CAE employees for their dedication and commitment to the company’s core values and strategy to ensure continued success going forward. And to our shareholders – thank you for your ongoing support and confidence in our noble mission to make the world a safer place. The Board values the input and insights of our investors. We have frequently engaged with investors through constructive and meaningful communications to discuss key issues and look forward to continued dialogue. CAE’s excellent reputation, strong technical capabilities, long-standing customer relationships and global presence position us for continued success and value creation. (1) This report includes non-IFRS financial measures, non-IFRS ratios, capital management measures and supplementary financial measures. These measures are not standardized financial measures prescribed under IFRS and therefore should not be confused with, or used as an alternative for, performance measures calculated according to IFRS. Furthermore, these measures should not be compared with similarly titled measures provided or used by other issuers. Refer to Section 3.7 “Non-IFRS and other financial measure definitions” of CAE’s MD&A for the year ended March 31, 2023 (which section is incorporated by reference into this report) for the definitions and a reconciliation of these measures to the most directly comparable measure under IFRS. *This report includes forward-looking statements about our activities, events and developments that we expect to or anticipate may occur in the future including, for example, statements about our vision, strategies, market trends and outlook, future revenues, earnings, cash flow growth, profit trends, growth capital spending, expansions and new initiatives, including initiatives that pertain to environmental, social and governance (ESG) matters, financial obligations, available liquidities, expected sales, general economic and political outlook, inflation trends, prospects and trends of an industry, expected annual recurring cost savings from operational excellence programs, our management of the supply chain, estimated addressable markets, demands for CAE’s products and services, our access to capital resources, our financial position, the expected accretion in various financial metrics, the expected capital returns to shareholders, our business outlook, business opportunities, objectives, development, plans, growth strategies and other strategic priorities, and our competitive and leadership position in our markets, the expansion of our market shares, CAE's ability and preparedness to respond to demand for new technologies, the sustainability of our operations and other statements that are not historical facts. By their nature, forward-looking statements require us to make assumptions and are subject to inherent risks and uncertainties associated with our business which may cause actual results in future periods to differ materially from results indicated in forward-looking statements. While these statements are based on management’s expectations and assumptions regarding historical trends, current conditions and expected future developments, as well as other factors that we believe are reasonable and appropriate in the circumstances, readers are cautioned not to place undue reliance on these forward-looking statements as there is a risk that they may not be accurate. For more information, readers should refer to the sections “Caution concerning forward-looking statements” and “Material assumptions” under Section 2 of CAE’s MD&A for the year ended March 31, 2023, which sections are incorporated by reference into this report.

A message from our Chief Executive Officer Building a bigger, stronger, and more profitable CAE. Over the last year, CAE leveraged its legacy of technology development, unparalleled thought leadership and partnership across our eco systems to equip people in critical roles with the expertise and solutions to create a safer world. As we continue to build on our rich history, we took a variety of actions in fiscal 2023 aimed at transforming our industry and business. Marc Parent, C.M. President and Chief Executive Officer During the year, Civil eclipsed prior peak performance even before global passenger traffic fully recovered to pre-pandemic levels while Defense continued to make good progress towards its multiyear transformation. Meanwhile, Healthcare delivered double-digit growth through its dynamic team and highly innovative solutions. All three of our business units worked as One CAE to expand our technology and market positioning and revolutionize training and critical operations across our end-markets. As a result of these actions, we have expanded our core and developed next- generation technologies, all while focusing on our people and culture. Looking forward, as our customers prepare every day for the moments that matter, our solutions and offerings have never been more vital and will continue to elevate safety standards and human performance. Despite certain headwinds in the broader economy, expected secular trends are highly favourable across all of our segments. As always, we are working to capture more than our fair share of these growing markets, extend our competitive advantages and continuing to capitalize on emerging opportunities. We are delivering tangible success and driving strong order flow, with our significant backlog growing across our markets. CAE remains strategically positioned to meet our customers’ needs and drive substantial top and bottom-line growth in the years ahead. Deepening partnerships, expanding our customer reach We strive to be a partner of choice across all of our end markets. This year, we deepened our partnerships through both new and extended agreements, generating significant value for CAE, our customers and our partners. Among the more notable recent developments has been the announcement of our joint venture with AEGEAN, Greece's largest airline, to establish the first advanced flight training centre in Athens, Greece. The new centre is expected to begin pilot and cabin crew training by the end of 2023 and will be the most advanced flight training hub in Southeastern Europe powered by green energy. Also, CAE signed a 15-year exclusive agreement with the Qantas Group to develop and operate a new state- of-the-art pilot training center in Sydney, Australia. 

In addition to these partnerships, we have strategically expanded our business aviation footprint in attractive geographic locations to further strengthen our global network. We broke ground on a new business aviation training centre in Savannah, Georgia, and launched another business training centre in Las Vegas, Nevada. We also announced plans for our first business aviation training centre in Central Europe, to open in Vienna, Austria, in the second half of 2024. This expansion brings us closer to where our customers operate their aircraft and adds much-needed training capacity to enable the industry to meet the regulated training requirements associated with the existing in-service fleet. Over the past year, we have also significantly expanded our Civil Aviation business through the integration of Sabre’s AirCentre portfolio, acquired last year, which has brought us closer to our customers’ day-to-day critical operations and generated a significant increase in customer touchpoints. Airlines utilizing our robust solutions generate significant benefits, including cost savings and a reduction of their carbon footprint. We look forward to further leveraging the AirCentre acquisition to broaden our digital solutions offerings and deliver significant value to our airline customers. A few of our more recent successes, since the end of the fiscal year, underscore the progress that’s being made to renew our Defense backlog with larger and more profitable programs. Testament to our continued growth and capabilities in connection with U.S. Army aviation, Defense was awarded a contract to support Flight School Training Support Services (FSTSS) at Fort Novosel, Alabama. The FSTSS program is the world’s largest helicopter simulation training program, and our US$455 million contract is for training and simulation capabilities that will be used to prepare initial entry-level and graduate-level rotary wing flight training. Also leveraging our prominent flight training position in lower Alabama, we were competitively awarded the U.S. Air Force’s Initial Flight Training – Rotary Wing (IFT-R) contract, worth a maximum value of US$110.6 million over the total contract term, to execute all Air Force initial and intermediate Helicopter Flight Training. Under the IFT-R contract, we will be leveraging our existing training centre in Dothan, Alabama. Accelerating the development of next-gen technology CAE continues to accelerate the development of next-generation technology to expand our leadership position. To further drive CAE’s technology evolution and our cross-company technology development efforts, we appointed a Chief Digital and Technology Officer. We believe this addition and the formation of the Global Technology Product and Digital organization will enable optimal cross-department collaboration and operational efficiency. We recently reached a technology milestone in a field study with the Japan Air Self-Defense Force (JASDF) to validate the potential for more effective training by leveraging CAE’s latest Virtual Reality and Artificial Intelligence-enabled Digital Solutions. The study revealed a near full grade of proficiency score improvement across all JASDF participants. Our innovative training solution incorporated CAE Rise, which we originally conceived for Civil Aviation, to provide more effective training through real-time objective assessment. It also included Defense’s patented biometric feedback technology, enabling instructors to modulate complexity based on students’ stress, engagement, and cognitive workload levels. These data-driven and A.I.-enabled technologies are important building blocks that we expect to drive greater levels of training efficacy and safety. Such CAE innovations further enhance the value we can provide to customers and we are pursuing them with a view to unlocking a greater share of our addressable markets and developing new revenue streams. During the fiscal year, we introduced a number of new mixed-reality training solutions, including the CAE 700 MXR for use in Advanced Air Mobility markets and the HH-60W aircrew trainer which both utilize next-generation technologies to more efficiently deliver training to our Civil and Defense customers. We optimized the software offerings in our Flight Operations Solutions business to maximize our industry-leading product suite and help our customers capture efficiencies and economies. Finally, our market- leading CAE LearningSpace solution continues to grow, helping clinical learners in the Healthcare space achieve rapid proficiency. As we head into fiscal 2024, we continue to be excited about the potential created by the scale of our combined strengths and combined R&D advantage that we believe will define the technological forefront of our core markets in the years to come. We look forward to harnessing technology to develop new revenue streams, by revolutionizing our customers’ training and critical operations with digitally immersive solutions. We will also leverage technology to become even more operationally efficient. 

Civil Aviation In Civil Aviation, ongoing expansion and important contracts with leading airlines underscore CAE’s status as the partner of choice in civil aviation training. Improved full-flight simulator utilization and significant order flow this past year points to significant growth during and beyond the ongoing global aviation market recovery. More broadly, commercial aviation training demand continued to be strong despite the market not having fully recovered from pre-pandemic levels in key regions like Asia. In business aviation, training demand continued to be robust throughout our network, reflecting a high level of pilot training to support business aircraft flight activity, which continues to exceed pre-pandemic levels. As we look ahead, we will continue to deploy training capacity in lockstep with demand in this segment of the market. Defense & Security In Defense & Security, we continue to make progress on our industry- leadership journey with expanded capabilities. Defense has transformed to become the world's leading pure-play, platform independent, training and simulation business, providing solutions across all five battle-space domains. It is uniquely positioned to draw on CAE’s innovations in commercial aviation to transform training with the application of advanced analytics and leading-edge technologies. Our strong position in the market is evidenced by a record $2.0 billion adjusted order intake(1) in Defense & Security in fiscal 2023 (1.10x book-to-sales ratio(1)), with the recent post year-end strong wins with the US Army and US Air Force pointing to strong continued growth in the years ahead. Additionally, geopolitical events have galvanized national defence priorities in the U.S. and across NATO, and management expects increased spending and specific prioritization on defence readiness to translate into additional opportunities for CAE in the years ahead. Healthcare In fiscal 2023, Healthcare continued to gain share of the simulation market and to deliver double-digit revenue growth with our dynamic team and highly innovative solutions. Here too, we have been harnessing the power of our ‘One CAE’ mindset with a joint Civil and Healthcare presentation on the parallels between aviation and healthcare training to elevate quality and safety. Our teams recently collaborated at the industry’s largest simulation event, the International Meeting of Simulation in Healthcare, and is a great demonstration of CAE’s unique culture. 

Increasing our social impact and sustainability Climate change is one of the biggest global challenges facing the next generation and CAE is committed to supporting the decarbonization of our customers and the whole industry. As the first carbon-neutral Canadian aerospace company, CAE launched the development of an electric conversion kit for Piper Archer aircraft. We plan to convert two-thirds of our training fleet at CAE flight schools for a significant reduction of our Scope 1 emissions. All our facilities where we have operational control use either 100% sourced renewable electricity or are covered by renewable energy certificates. This year, CAE was admitted to the Climate Group’s RE100 initiative, a collective of 400 global companies most committed to the use of renewable energy worldwide. CAE’s admission to this group is further testament to the strength of its achievements and commitments toward renewable energy. CAE has embarked on the next leg of its sustainability journey by finalizing its five-year ESG roadmap for its next planning cycle, involving collaboration with 15 working groups from all business units and functions. CAE’s ambitious plan identifies precise objectives to monitor and report measurable progress on the priorities highlighted in our materiality matrix published in fiscal 2022. Focusing on our people CAE’s greatest strength continues to be the diverse talent of our people. Their exceptional passion and agile mindset are a key competitive differentiator that drives CAE’s success and upholds our One CAE culture. With talent development and employee engagement as top priorities, we are proud that CAE continued to maintain record- high employee engagement across the organization. CAEheartbeat, a global transformation we introduced this year, expands employee benefit availability and enhances work/life balance. We also launched two new initiatives, CAE Career Hubs and Gigs, to broaden employee career development support and career mobility opportunities. Pursuing exciting opportunities to define the future of our industry As we continue to take actions to transform our business, we are seeing solid proof in the efficacy of our strategy. CAE is growing and evolving to keep up with the pace of opportunities and set the stage for long-term growth and value creation. We are developing solutions to cross-sell, leverage jointly developed technologies, and differentiate our offerings across our businesses. In terms of our capital allocation priorities, we continue to focus on organic investments that are made in lockstep with customer demand. We’re on track to meeting our leverage target, which will further increase our financial flexibility. In summary, I am more excited than ever to be the leader of this highly unique company, whose cutting-edge training and critical operations solutions empower pilots, crew members, defence forces, and healthcare practitioners to perform at their best every day and when the stakes are the highest. We equip those in critical roles with the skills and expertise needed to move our world forward safely. CAE’s more than 13,000 employees worldwide are united by the values underpinning our mantra of ‘partner of choice,’ and are unwavering in their commitment to preparing our customers for the moments that matter. On behalf of CAE’s management, I wish to thank our employees for their ingenuity and dedication and recognize their essential contribution in making this vision a reality. I am pleased with the important progress we made last year, which expands further the opportunity set we have before us. We expect to continue making excellent progress in the year ahead and beyond.


Table of Contents
Management’s Discussion and Analysis
1.	HIGHLIGHTS		1
2.	INTRODUCTION		2
3.	ABOUT CAE		5
	3.1	Who we are	5
	3.2	Our mission	5
	3.3	Our vision	5
	3.4	Our strategy	5
	3.5	Our operations	6
	3.6	Foreign exchange	13
	3.7	Non-IFRS and other financial measure definitions	13
	3.8	Supplementary non-financial information definitions	16
	3.9	Non-IFRS measure reconciliations	17
4.	CONSOLIDATED RESULTS		19
	4.1	Results from operations – fourth quarter of fiscal 2023	19
	4.2	Results from operations – fiscal 2023	21
	4.3	Restructuring, integration and acquisition costs	23
	4.4	Consolidated adjusted orders and adjusted backlog	23
5.	RESULTS BY SEGMENT		24
	5.1	Civil Aviation	24
	5.2	Defense and Security	28
	5.3	Healthcare	30
6.	CONSOLIDATED CASH MOVEMENTS AND LIQUIDITY		32
	6.1	Consolidated cash movements	32
	6.2	Sources of liquidity	33
	6.3	Government participation	33
	6.4	Contingencies and commitments	34
7.	CONSOLIDATED FINANCIAL POSITION		35
	7.1	Consolidated capital employed	35
	7.2	Off balance sheet arrangements	36
	7.3	Financial instruments	37
8.	BUSINESS COMBINATIONS		39



9.	BUSINESS RISK AND UNCERTAINTY		40
	9.1	Strategic Risks	41
	9.2	Operational Risks	46
	9.3	Talent Risks	47
	9.4	Financial Risks	48
	9.5	Regulatory Risks	51
	9.6	Environmental, Social & Governance Risks	53
	9.7	Reputational Risks	54
	9.8	Technological Risks	54
10.	RELATED PARTY TRANSACTIONS		55
11.	CHANGES IN ACCOUNTING POLICIES		56
	11.1	New and amended standards adopted	56
	11.2	New and amended standards not yet adopted	56
	11.3	Use of judgements, estimates and assumptions	56
12.	INTERNAL CONTROL OVER FINANCIAL REPORTING		58


13.	OVERSIGHT ROLE OF AUDIT COMMITTEE AND BOARD OF DIRECTORS		58
14.	ADDITIONAL INFORMATION		58
15.	SELECTED FINANCIAL INFORMATION		59
Consolidated Financial Statements			60
Board of Directors and Executive Officers			117
Shareholder and Investor Information			118

Management’s Discussion and Analysis

for the fourth quarter and year ended March 31, 2023

1. HIGHLIGHTS

FINANCIAL

FOURTH QUARTER OF FISCAL 2023


(amounts in millions, except per share amounts, ROCE and book-to-sales ratio)		Q4-2023		Q4-2022	Variance $		Variance %
Performance
Revenue	$	1,256.5	$	955.0	$	301.5	32	%
Operating income	$	186.6	$	93.3	$	93.3	100	%
Adjusted segment operating income1	$	201.9	$	142.7	$	59.2	41	%

Net income attributable to equity holders of the Company	$	98.4	$	55.1	$	43.3	79	%
Basic and diluted earnings per share (EPS)	$	0.31	$	0.17	$	0.14	82	%


Adjusted EPS1	$	0.35	$	0.29	$	0.06	21	%


Net cash provided by operating activities	$	180.6	$	206.8	$	(26.2)	(13	%)
Free cash flow1	$	172.0	$	187.6	$	(15.6)	(8	%)
Liquidity and Capital Structure
Capital employed1	$	7,621.4	$	6,786.7	$	834.7	12	%

Adjusted return on capital employed (ROCE)1	%	5.7	%	6.2
Total debt	$	3,250.1	$	3,046.2	$	203.9	7	%
Net debt1	$	3,032.5	$	2,700.1	$	332.4	12	%


Growth
Adjusted order intake1	$	1,465.3	$	1,321.1	$	144.2	11	%
Adjusted backlog1	$	10,796.4	$	9,577.5	$	1,218.9	13	%
Book-to-sales ratio1		1.17		1.38
Book-to-sales ratio for the last 12 months		1.20		1.21

FISCAL 2023

(amounts in millions, except per share amounts)		FY2023		FY2022	Variance $		Variance %
Performance
Revenue	$	4,203.3	$	3,371.3	$	832.0	25	%
Operating income	$	474.0	$	284.2	$	189.8	67	%
Adjusted segment operating income	$	548.1	$	444.5	$	103.6	23	%

Net income attributable to equity holders of the Company	$	222.7	$	141.7	$	81.0	57	%
Basic EPS	$	0.70	$	0.46	$	0.24	52	%
Diluted EPS	$	0.70	$	0.45	$	0.25	56	%

Adjusted EPS	$	0.88	$	0.84	$	0.04	5	%


Net cash provided by operating activities	$	408.4	$	418.2	$	(9.8)	(2	%)
Free cash flow	$	335.7	$	341.5	$	(5.8)	(2	%)

1 Non-IFRS financial measure, non-IFRS ratio, capital management measure, or supplementary financial measure. Refer to Section 3.7 “Non-IFRS and other financial measure definitions" and Section 3.9 "Non-IFRS measure reconciliations” of this MD&A for the definitions and reconciliations of these measures to the most directly comparable measure under IFRS.

CAE Financial Report 2023 I 1

Management’s Discussion and Analysis

2. INTRODUCTION

In this management’s discussion and analysis (MD&A), we, us, our, CAE and Company refer to CAE Inc. and its subsidiaries. Unless we have indicated otherwise:

–This year and 2023 mean the fiscal year ending March 31, 2023;

–Last year, prior year and a year ago mean the fiscal year ended March 31, 2022;

–Dollar amounts are in Canadian dollars.

This MD&A was prepared as of May 31, 2023. It is intended to enhance the understanding of our annual consolidated financial statements and notes for the year ended March 31, 2023 and should therefore be read in conjunction with this document. We have prepared it to help you understand our business, performance and financial condition for the year ended March 31, 2023. Except as otherwise indicated, all financial information has been reported in accordance with International Financial Reporting Standards (IFRS), as issued by the International Accounting Standards Board (IASB). All quarterly information disclosed in the MD&A is based on unaudited figures.

The MD&A provides you with a view of CAE as seen through the eyes of management and helps you understand the Company from a variety of perspectives:

–Our mission;

–Our vision;

–Our strategy;

–Our operations;

–Foreign exchange;

–Non-IFRS and other financial measures;

–Consolidated results;

–Results by segment;

–Consolidated cash movements and liquidity;

–Consolidated financial position;

–Business combinations;

–Business risk and uncertainty;

–Related party transactions;

–Changes in accounting policies;

–Controls and procedures;

–Oversight role of Audit Committee and Board of Directors (the Board).

You will find our most recent financial report and Annual Information Form (AIF) on our website at www.cae.com, on SEDAR at www.sedar.com or on EDGAR at www.sec.gov. Holders of CAE’s securities may also request a printed copy of the Company’s consolidated financial statements and MD&A free of charge by contacting Investor Relations (investor.relations@cae.com).

2 I CAE Financial Report 2023

Management’s Discussion and Analysis

NON-IFRS AND OTHER FINANCIAL MEASURES

This MD&A includes non-IFRS financial measures, non-IFRS ratios, capital management measures and supplementary financial measures. These measures are not standardized financial measures prescribed under IFRS and therefore should not be confused with, or used as an alternative for, performance measures calculated according to IFRS. Furthermore, these measures should not be compared with similarly titled measures provided or used by other issuers. Management believes that these measures provide additional insight into our operating performance and trends and facilitate comparisons across reporting periods.

Performance Measures

–Gross profit margin (or gross profit as a % of revenue);

–Operating income margin (or operating income as a % of revenue);

–Adjusted segment operating income or loss;

–Adjusted segment operating income margin (or adjusted segment operating income as a % of revenue);

–Adjusted net income or loss;

–Adjusted earnings or loss per share (EPS);

–EBITDA and Adjusted EBITDA;

–Free cash flow.

Liquidity and Capital Structure Measures

–Non-cash working capital;

–Capital employed;

–Return on capital employed (ROCE) and adjusted ROCE;

–Net debt;

–Net debt-to-capital;

–Net debt-to-EBITDA and net debt-to-adjusted EBITDA;

–Maintenance and growth capital expenditures.

Growth Measures

–Adjusted order intake;

–Adjusted backlog;

–Book-to-sales ratio.

Definitions of all non-IFRS and other financial measures are provided in Section 3.7 “Non-IFRS and other financial measure definitions" of this MD&A to give the reader a better understanding of the indicators used by management. In addition, when applicable, we provide a quantitative reconciliation of the non-IFRS and other financial measures to the most directly comparable measure under IFRS. Refer to Section 3.7 “Non-IFRS and other financial measure definitions" for references where these reconciliations are provided.

ABOUT MATERIAL INFORMATION

This MD&A includes the information we believe is material to investors after considering all circumstances, including potential market sensitivity. We consider something to be material if:

–It results in, or would reasonably be expected to result in, a significant change in the market price or value of our shares; or

–It is likely that a reasonable investor would consider the information to be important in making an investment decision.

CAUTION REGARDING FORWARD-LOOKING STATEMENTS

This MD&A includes forward-looking statements about our activities, events and developments that we expect to or anticipate may occur in the future including, for example, statements about our vision, strategies, market trends and outlook, future revenues, earnings, cash flow growth, profit trends, growth capital spending, expansions and new initiatives, including initiatives that pertain to environmental, social and governance (ESG) matters, financial obligations, available liquidities, expected sales, general economic and political outlook, inflation trends, prospects and trends of an industry, expected annual recurring cost savings from operational excellence programs, our management of the supply chain, estimated addressable markets, demands for CAE’s products and services, our access to capital resources, our financial position, the expected accretion in various financial metrics, the expected capital returns to shareholders, our business outlook, business opportunities, objectives, development, plans, growth strategies and other strategic priorities, and our competitive and leadership position in our markets, the expansion of our market shares, CAE's ability and preparedness to respond to demand for new technologies, the sustainability of our operations and other statements that are not historical facts. Since forward-looking statements and information relate to future events or future performance and reflect current expectations or beliefs regarding future events, they are typically identified by words such as “anticipate”, “believe”, “could”, “estimate”, “expect”, “intend”, “likely”, “may”, “plan”, “seek”, “should”, “will”, "strategy", "future" or the negative thereof or other variations thereon suggesting future outcomes or statements regarding an outlook. All such statements constitute "forward-looking statements" within the meaning of applicable Canadian securities legislation and “forward-looking statements” within the meaning of the “safe harbor” provisions of the United States Private Securities Litigation Reform Act of 1995. By their nature, forward‑looking statements require us to make assumptions and are subject to inherent risks and uncertainties associated with our business which may cause actual results in future periods to differ materially from results indicated in forward‑looking statements. While these statements are based on management’s expectations and assumptions regarding historical trends, current conditions and expected future developments, as well as other factors that we believe are reasonable and appropriate in the circumstances, readers are cautioned not to place undue reliance on these forward-looking statements as there is a risk that they may not be accurate.

CAE Financial Report 2023 I 3

Management’s Discussion and Analysis

Important risks that could cause such differences include, but are not limited to, strategic risks, such as cybersecurity, geopolitical uncertainty, global economic conditions, competitive business environment, original equipment manufacturer (OEM) leverage and encroachment, inflation, international scope of our business, level and timing of defence spending, constraints within the civil aviation industry, our ability to penetrate new markets, research and development (R&D) activities, evolving standards and technology innovation and disruption, length of sales cycle, business development and awarding of new contracts, strategic partnerships and long-term contracts, risk that we cannot assure investors that we will effectively manage our growth, estimates of market opportunity and competing priorities; operational risks, such as supply chain disruptions, program management and execution, mergers and acquisitions, business continuity, subcontractors, fixed price and long-term supply contracts and our continued reliance on certain parties and information; talent risks, such as talent management, ability to attract, recruit and retain key personnel and management, corporate culture and labour relations; financial risks, such as availability of capital, customer credit risk, foreign exchange, effectiveness of internal controls over financial reporting, liquidity risk, interest rate volatility, returns to shareholders, estimates used in accounting, impairment risk, pension plan funding, indebtedness, acquisition and integration costs, sales of additional common shares, market price and volatility of our common shares, seasonality, taxation matters and adjusted backlog; regulatory risks, such as data rights and governance, U.S. foreign ownership, control or influence mitigation measures, compliance with laws and regulations, insurance coverage potential gaps, product-related liabilities, environmental laws and regulations, government audits and investigations, protection of our intellectual property and brand, third-party intellectual property, foreign private issuer status, and enforceability of civil liabilities against our directors and officers; environmental, social & governance (ESG) risks, such as extreme climate events and the impact of natural or other disasters (including effects of climate change) and more acute scrutiny and perception gaps regarding ESG matters; reputational risks; and technological risks, such as information technology (IT) and reliance on third-party providers for information technology systems and infrastructure management. The foregoing list is not exhaustive and other unknown or unpredictable factors could also have a material adverse effect on the performance or results of CAE. Additionally, differences could arise because of events announced or completed after the date of this MD&A. You will find more information in Section 9 "Business risk and uncertainty" of this MD&A. Readers are cautioned that any of the disclosed risks could have a material adverse effect on CAE’s forward-looking statements. Readers are also cautioned that the risks described above and elsewhere in this MD&A are not necessarily the only ones we face; additional risks and uncertainties that are presently unknown to us or that we may currently deem immaterial may adversely affect our business.

Except as required by law, we disclaim any intention or obligation to update or revise any forward-looking statements whether as a result of new information, future events or otherwise. The forward-looking information and statements contained in this MD&A are expressly qualified by this cautionary statement.

In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based on information available to us as of the date of this MD&A. While we believe that information provides a reasonable basis for these statements, that information may be limited or incomplete. Our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all relevant information. These statements are inherently uncertain, and investors are cautioned not to unduly rely on these statements.

MATERIAL ASSUMPTIONS

The forward-looking statements set out in this MD&A are based on certain assumptions including, without limitation: the prevailing market conditions, geopolitical instability, the customer receptivity to our training and operational support solutions, the accuracy of our estimates of addressable markets and market opportunity, the realization of anticipated annual recurring cost savings and other intended benefits from restructuring initiatives and operational excellence programs, the ability to respond to anticipated inflationary pressures and our ability to pass along rising costs through increased prices, the actual impact to supply, production levels, and costs from global supply chain logistics challenges, the stability of foreign exchange rates, the ability to hedge exposures to fluctuations in interest rates and foreign exchange rates, the availability of borrowings to be drawn down under, and the utilization, of one or more of our senior credit agreements, our available liquidity from cash and cash equivalents, undrawn amounts on our revolving credit facility, the balance available under our receivable purchase facility, the assumption that our cash flows from operations and continued access to debt funding will be sufficient to meet financial requirements in the foreseeable future, access to expected capital resources within anticipated timeframes, no material financial, operational or competitive consequences from changes in regulations affecting our business, our ability to retain and attract new business, our ability to achieve synergies and maintain market position arising from successful integration plans relating to the L3Harris Technologies’ Military Training business (L3H MT) and Sabre’s AirCentre airline operations portfolio (AirCentre) acquisitions, our ability to otherwise complete the integration of the L3H MT and AirCentre businesses acquired within anticipated time periods and at expected cost levels, our ability to attract and retain key employees in connection with the L3H MT and AirCentre acquisitions, management's estimates and expectations in relation to future economic and business conditions and other factors in relation to the L3H MT and AirCentre acquisitions and resulting impact on growth and accretion in various financial metrics, the realization of the expected strategic, financial and other benefits of the L3H MT and AirCentre acquisitions in the timeframe anticipated, economic and political environments and industry conditions, the accuracy and completeness of public and other disclosure, including financial disclosure, by L3Harris Technologies and AirCentre, and the absence of significant undisclosed costs or liabilities associated with the L3H MT and AirCentre acquisitions. Air travel is a major driver for CAE's business and management relies on analysis from the International Air Transport Association (IATA) to inform its assumptions about the rate and profile of recovery in its key civil aviation market. Accordingly, the assumptions outlined in this MD&A and, consequently, the forward-looking statements based on such assumptions, may turn out to be inaccurate. For additional information, including with respect to other assumptions underlying the forward-looking statements made in this MD&A, refer to Section 9 "Business risk and uncertainty" of this MD&A.

4 I CAE Financial Report 2023

Management’s Discussion and Analysis

3. ABOUT CAE

3.1 Who we are

CAE’s common shares are listed on the Toronto and New York stock exchanges (TSX / NYSE) under the symbol CAE.

3.2 Our mission

To lead at the frontier of digital immersion with high-tech training and operational support solutions to make the world a safer place.

3.3 Our vision

To be the worldwide partner of choice in civil aviation, defence and security and healthcare by revolutionizing our customers’ training and critical operations with digitally immersive solutions to elevate safety, efficiency and readiness.

3.4 Our strategy

CAE's four strategic pillars

There are four fundamental pillars that underpin our strategy and investment thesis:

–Efficient growth;

–Revolutionizing training and critical operations;

–Technology and market leadership;

–Skills and culture.

Efficient growth

Revolutionizing training and critical operations

Technology and market leadership

We have a rich and long-dated history of innovation and delivering state-of-the-art technology solutions that define the forefront of the industries we operate in. As a result, we constantly seek new ways to enhance the performance of our customers by fostering a culture of continuous improvement and innovation. This drives technology leadership, deeper customer partnerships, and new customer development, enabling us to capitalize on the ample headroom in our large, growing addressable markets.

Skills and culture

Our core values are innovation, integrity, empowerment, and excellence. We employ these values across a diverse global team to drive a unique social impact. We seek to create an employee experience and environment that values teamwork, professional growth, and engagement. As a result, our employees across the globe share a passion to prepare our customers for the moments that matter.

CAE Financial Report 2023 I 5

Management’s Discussion and Analysis

3.5 Our operations

We provide digitally immersive training and operational support solutions to three markets globally:

–The civil aviation market includes major commercial airlines, regional airlines, business aircraft operators, civil helicopter operators, aircraft manufacturers, third-party training centres, flight training organizations, maintenance repair and overhaul organizations (MRO) and aircraft finance leasing companies;

–The defence and security market includes defence forces, OEMs, government agencies and public safety organizations worldwide;

–The healthcare market includes hospital and university simulation centres, medical and nursing schools, paramedic organizations, defence forces, medical societies, public health agencies and OEMs.

CIVIL AVIATION MARKET

We provide comprehensive training solutions for flight, cabin, maintenance and ground personnel in commercial, business and helicopter aviation, a complete range of flight simulation training devices, ab initio pilot training and crew sourcing services, as well as aircraft flight operations solutions.

We have the unique capability and global scale to address the total lifecycle needs of the professional pilot, from cadet to captain, with our comprehensive aviation training solutions. We are the world’s largest provider of civil aviation training services. Our deep industry experience and thought leadership, large installed base, strong relationships and reputation as a trusted partner enable us to access a broader share of the market than any other company in our industry. We provide aviation training services in more than 35 countries and through our broad global network of approximately 70 training locations, we serve all sectors of civil aviation including airlines and other commercial, business and helicopter aviation operators.

Among our thousands of customers, we have long-term training centre operations, training services agreements and joint ventures with approximately 50 major airlines and aircraft operators around the world. Our range of training solutions includes product and service offerings for pilots, cabin crew and aircraft maintenance technicians, training centre operations, curriculum development, courseware solutions and consulting services. We currently manage 324 full-flight simulators (FFSs), including those operating in our joint ventures. We offer industry-leading technology, and we are shaping the future of training through innovations such as our next generation training systems, including CAE Real-time Insights and Standardized Evaluations (CAE Rise), which improves training quality, objectivity and efficiency through the integration of untapped flight and simulator data-driven insights into training. In the development of new pilots, we operate the largest ab initio flight training network in the world and have over 20 cadet training programs globally. In resource management, we are a global market leader in the provision of flight crew and technical personnel to airlines, aircraft leasing companies, manufacturers and MRO companies worldwide. With our CAE flight operation solutions, we have further strengthened our position as a technology leader, complementing our flight simulator and training solutions while increasing our total addressable market.

Quality, fidelity, reliability and innovation are hallmarks of the CAE brand in flight simulation and we are the world leader in the development of civil flight simulators. We continuously innovate our processes and lead the market in the design, manufacture and integration of civil FFSs for major and regional commercial airlines, business aircraft operators, third-party training centres and OEMs. For example, as we are entering a new era of aviation with Advanced Air Mobility (AAM), disruptive aerospace companies are building new aircraft types from the ground up. This will create a large demand for trained professional pilots to safely fly both passengers and cargo across markets. CAE has already partnered with five electric vertical takeoff and landing (eVTOL) developers in order to support the evolution of this new industry. We are positioned to develop the pilot workforce of the future and ensure safe introduction of eVTOL operations by leveraging our technologies and expertise in aviation safety.

We have established a wealth of experience in developing first‑to‑market simulators for more than 35 types of aircraft models. Our flight simulation equipment, including FFSs, are designed to meet the rigorous demands of their long and active service lives, often spanning several decades of continuous use. Our global reach enables us to provide best-in-class support services such as real-time, remote monitoring and enables us to leverage our extensive worldwide network of spare parts and service teams.

We believe the Civil Aviation segment is positioned as a gateway in a highly regulated, secular growth market, with an addressable market estimated at approximately $6.5 billion, and headroom for growth.

Market drivers

Demand for training and flight operations solutions in the civil aviation market is driven by the following:

–Pilot and maintenance training and industry regulations;

–Safety and efficiency imperatives of commercial airlines and business aircraft operators;

–Expected long-term secular global growth in air travel;

–Expected long-term growth, including new aircraft deliveries and renewal of the active fleet of commercial and business aircraft;

–Demand for trained aviation professionals;

–Complexity of flight operations solutions;

–Emergence of the newer market for advanced air mobility.

6 I CAE Financial Report 2023

Management’s Discussion and Analysis

Pilot and maintenance training and industry regulations

Civil aviation training is a largely recurring business driven by a highly-regulated environment through global and domestic standards for pilot licensing and certification, amongst other regulatory requirements. These recurring training requirements are mandatory and are regulated by national and international aviation regulatory authorities such as the International Civil Aviation Organization (ICAO), European Aviation Safety Agency (EASA) and the U.S. Federal Aviation Administration (FAA).

In recent years, pilot certification processes and regulatory requirements have become increasingly stringent. Simulation-based pilot certification training is taking on a greater role internationally with the Multi-Crew Pilot License (MPL), with the Airline Transport Pilot certification requirements in the U.S. and with Upset Prevention and Recovery Training (UPRT) requirements mandated by both EASA and the FAA.

Safety and efficiency imperatives of commercial airlines and business aircraft operators

The commercial airline industry is competitive, requiring operators to continuously pursue operational excellence and efficiency initiatives to achieve satisfactory returns while continuing to maintain the highest safety standards and the confidence of air travelers. Airlines are finding it increasingly more effective to seek expertise in training from trusted partners such as CAE to address growing efficiency gaps, pilot capability gaps, evolving regulatory and training environments, and on-going aircraft programs. Additionally, CAE offers business jet pilots one of the most advanced, respected and accessible training programs in the industry, covering a wide spectrum of business aircrafts. Partnering with CAE gives immediate access to a world-wide fleet of simulators, courses, programs and instruction capabilities, and allows them flexibility in pursuing fleet training options that suit their business.

Our pilot training system, CAE Rise, is well positioned to elevate the pilot training experience. This system enables instructors to deliver training in accordance with airlines’ Standard Operating Procedures and enables instructors to objectively assess pilot competencies using live data during training sessions. Furthermore, CAE Rise augments instructors’ capability to identify pilot proficiency gaps and evolve airline training programs to the most advanced aviation safety standards, including Advanced Qualification Program and Evidence Based Training methodologies.

Expected long-term secular global growth in air travel

The secular growth in air travel results in long-term demand for flight, cabin, maintenance and ground personnel, which in turn drives demand for training and flight operations solutions.

In commercial aviation, as per the International Air Transport Association (IATA), global air passenger demand, measured by revenue passenger-kilometers (RPKs), has shown a strong increase of 64% for calendar 2022 compared to calendar 2021. For the first three months of calendar 2023, worldwide passenger traffic increased by 58% compared to the first three months of calendar 2022. Passenger traffic in Europe grew by 45%, while in Asia and North America it increased by 126% and 28% respectively over the same period.

Air cargo has seen a reduction in demand in recent months, with cargo tonne-kilometers down 8% for calendar 2022 compared to calendar 2021. For the first three months of calendar 2023, cargo tonne-kilometers decreased by 10% compared to the first three months of calendar 2022.

In business aviation, both the FAA and Eurocontrol, the European Organisation for the Safety of Air Navigation have indicated signs of stabilization in flight activity. The FAA has shown an increase of 1% in the total number of business jet flights, which includes all domestic and international flights over the past 12 months. The European business jet market has also stabilized; according to Eurocontrol, the total number of business aviation flights in Europe have decreased by 1% over the same period.

On-going disruptions with supply chain and production activities have hindered parts of the Civil operations throughout the year. Additionally, high inflation, the on-going Russian invasion of Ukraine and labour shortages are also causing higher energy costs and supply chain and cargo related issues.

Expected long-term growth, including new aircraft deliveries and renewal of the active fleet of commercial and business aircraft

As an integrated training solutions provider, our long-term growth is closely tied to the active commercial and business aircraft fleet. Short and medium-term growth in aircraft fleets will experience pressure as airlines realign fleet capacity to meet new demand levels and OEMs reduced production.

Major business jet OEMs are continuing with plans to introduce a variety of new aircraft models in the upcoming years including Dassault's Falcon 6X and the Bombardier Challenger 3500.

Our business aviation training network, comprehensive suite of training programs, key long-term OEM partnerships and ongoing network investments, position us well to effectively address the training demand arising from the entry-into-service of these new aircraft programs.

Our strong competitive moat in the aviation market, as defined by our extensive global training network, best-in-class instructors, comprehensive training programs and strength in training partnerships with airlines and business aircraft operators, allows us to effectively address training needs that arise from a growing active fleet of aircraft.

CAE Financial Report 2023 I 7

Management’s Discussion and Analysis

We are well positioned to leverage our technology leadership and expertise, including CAE 7000XR Series FFSs, CAE 400XR, 500XR, and 600XR Series Flight Training Devices and CAE Simfinity™ ground school solutions, in delivering training equipment solutions that address the growing training needs of airlines, business jet operators, helicopter operators and now AAM.

Demand for trained aviation professionals

Demand for trained aviation professionals is driven by air traffic growth, pilot retirements and by the number of aircraft deliveries. We are well positioned in the training services market to address the training requirements of airline customers.The expansion of global economies and airline fleets have resulted in a shortage of qualified personnel needed to fulfill this growing capacity.

In November 2020, we released our 2020-2029 Pilot Demand Outlook in which we estimate an expected global requirement of 264,000 new pilots in the civil aviation industry to sustain growth and support mandatory retirements over the next ten years. Furthermore, over the long-term, we expect additional demand for pilots from the emerging AAM in accordance with the expected future entry into service of eVTOLs.

Complexity of flight operations solutions

Airlines need to closely manage their operations which come with daily challenges. To help optimize these operations we offer a suite of flight service products. This suite of products provides solutions for flight operations including training management, crew management, flight management, airport management, in-flight services management and operations control. These products enable optimized management for schedule disruptions and allows for maximized resources for all personnel and aircrafts.

The benefits for flight management include reduced fuel and carbon emissions for both regular and irregular operations. Crew and airport management decreases disruption related crew costs and improved staff utilization. Finally, movement management decreases delay and cancellation costs for airlines.

Emergence of the newer market for advanced air mobility

AAM and the developing eVTOL aircraft are emerging into a new era of aviation. With this, comes a large demand for uniquely trained professional pilots to safely fly passenger and cargo across global markets.

We look at this new industry as an opportunity for pilot training. This technology is expected to promote community acceptance, instill confidence in the public, influence regulators to implement rules and policies that will stimulate growth, and ensure safety in this emerging industry.

8 I CAE Financial Report 2023

Management’s Discussion and Analysis

DEFENSE AND SECURITY MARKET

We are a platform-independent training and simulation solutions provider, preparing global defence and security forces for the mission ahead.

Defense and Security addresses the critical needs of its customers that face rapidly changing environments and challenges to global security. The shift in the nature of the geopolitical environment has expedited the need for the U.S. and its allies to prepare for the possibility of near-peer threats across multi‑domain operations in air, land, sea, space and cyber. Aligned with the priorities of U.S. and allied national defence strategies, we leverage our core training and simulation expertise with advanced digital technologies to deliver solutions that address military training modernization and enhanced security mission support requirements.

Our customers depend on synthetic training and next-generation situational awareness to ensure mission success through planning, preparation, and analysis in complex, multi-domain environments. Leveraging our immersive ecosystems, we enable defence forces to “train as they fight” with real-time training and rehearsal scenarios. From mixed-reality task training devices to high-fidelity full‑mission simulators, we support more than 70 different platforms across all domains. With over 145 sites, our cutting-edge technology optimizes training and enhances situational awareness to solve our customers’ challenges at the point of need.

CAE supports a broad range of solutions at customer sites to deliver products and services supporting efficacy at all proficiency levels. Our extensive suite of simulation-based technology supports training modernization and spans all domains. Through the Aerospace Simulator Integrated Support and Training (ASIST) program, we deliver scalable, high-fidelity, and critical training and simulator integration to the Australian Defence Force. We also support the Royal Australian Navy with the Platforms and Systems Training Contract (PSTC) to provide distributive mission training. These few examples demonstrate how we continue to build on decades of modeling and simulation expertise, developing solutions that address the increasingly complex challenges impacting global defence and security forces.

In addition to solutions delivered to customer sites, we provide comprehensive training at our CAE global training centres. At the CAE Dothan Training Center in Alabama, U.S. Army fixed-wing candidates enter initial training, while the U.S. Air Force (USAF) initial entry training is maintained at CAE’s Pueblo Training Center in Colorado. Outside of the U.S., we provide basic and advanced flight training at NATO Flight Training Centres across multiple sites in Canada. Leveraging our expertise and strategic partnerships, CAE has expanded training into Europe with the International Flight Training School in Italy, a joint venture with Leonardo Helicopters, along with providing ab initio training for the German Air Force at CAE’s Bremen Training Centre in Germany and a site in Montpellier, France.

Beyond our extensive government customer reach, CAE partners with leading OEMs, industry players, and global defence contractors. This includes partnerships with Lockheed Martin on global C-130 training solutions and Boeing to support mission‑critical platforms like the P-8 and CH-47. Our recent partnership with Bell Textron on the V-280 platform provides next‑generation training capabilities for the U.S. Army Future Long-Range Assault Aircraft (FLRAA) mission, a key component to help Army Aviation transform under the Future Vertical Lift (FVL) modernization priorities. Increasing complexities of contracts and systems drive the industry toward collaboration as we continue to leverage our strategic relationships and culture of innovation to meet the ever-changing market landscape.

The mission readiness of defence and security forces will require connecting customers, platforms and locations in a singular multi‑domain environment for training and rehearsal. These expanded capabilities increase the need to enhance operational test and training infrastructure to support distributed mission training and operations. As the prime contractor for the USAF Simulators Common Architecture Requirements and Standards (SCARS) effort, we lead the integration and standardization of aircraft simulators to operate and train together in a strict cyber secure environment. This real-time enterprise network is critical to multi-domain operations.

Global modernization of defence forces continues to be a priority, increasing requirements for efficiencies and secure operational capabilities. We are focused on transformational digital training solutions, next-generation situational awareness and enabling technology to ensure mission readiness. The vast complexity and scale of digital environments empower decision-makers at every level to test courses of action in rigorous, data-driven assessments. We leverage these technologies to provide a single visualization platform to support collaborative command and control decision-making enhanced by artificial intelligence (AI) and machine learning.

We believe the Defense and Security segment is positioned as a strategic partner for training and mission support across multi‑domain operations and continues to develop as a global leader in digitally immersive training and operational support solutions. We estimate our addressable defence market across all five domains to be approximately $14.3 billion.

CAE Financial Report 2023 I 9

Management’s Discussion and Analysis

Market drivers

Demand for training and operational support solutions in the defence and security markets is driven by the following:

–Increased defence spending;

–Expected stable demand on enduring platforms and increased opportunities on next-generation systems;

–Maximization of efficiencies through outsourced training and support services;

–Increased competition straining military aviation recruitment, training and retention;

–Demand for integrated network training systems to support multi-domain conflict;

–Expanded utilization of synthetic environments to support efficacy, reduce costs and lower environmental impact.

Increased defence spending

According to the Stockholm International Peace Research Institute, global military expenditures increased by approximately 4% in 2022, reaching an all-time high of $2.2 trillion. Europe demonstrated the largest increase at 13% as countries reacted to the invasion of Ukraine and increased East Asia activity. The immediate challenges posed by geopolitical instability and possible near-peer threats across multi‑domain operations will drive expected increases in defence budgets over the next year. Economic headwinds and a potential need to reverse current levels of deficit spending could impact global defence; however, training is fundamental to achieving and maintaining mission readiness and budget pressures will push more training into the cost-effective virtual environment, thus creating increased opportunities for our products, services and digital capabilities.

Expected stable demand on enduring platforms and increased opportunities on next-generation systems

CAE generates a high degree of recurring business from our strong position on enduring platforms, including long-term service contracts. Defence forces in mature markets maximize the use of their existing platforms through upgrades, updates, and life extension programs of existing assets, creating opportunities for simulator upgrades and training support services. In addition, substantial demand for enduring platforms such as the C-130, P-8, F-16, C295, MH-60R, NH90 and MQ-9 in global defence markets requires new training systems and services. Opportunities continue to expand as defence forces prepare for next-generation platforms. Our significant experience and strategic relationships uniquely position us to support next-generation platforms, and enable the efficient transition from current to future state training.

Maximization of efficiencies through outsourced training and support services

Another driver for our expertise and capabilities is the efficiency gained by our customers from outsourcing training and support services. Defence forces and governments continue to find ways to maximize efficiency and enhance readiness, which includes allowing active‑duty personnel to focus on operational requirements. There has been a growing trend among defence forces to consider outsourcing a variety of training and operational support services. We expect this trend to continue, which aligns directly with our strategy to grow long‑term, recurring services business. We believe governments will increasingly look to industry for training and operational support solutions to achieve faster delivery, lower capital investment requirements, and support required to meet the demand for producing aircrews and achieve desired readiness levels.

Increased competition straining military aviation recruitment, training and retention

High demand from the civil commercial and business aviation sector has impacted the recruitment, training and retention of military pilots. The challenge has led to defence forces looking at numerous initiatives to address the potential pilot shortage, including modernization efforts and initiatives related explicitly to training innovation, such as the U.S. Air Force Pilot Training Transformation project. Defence forces are considering outsourcing instructor pilot positions and adopting new technologies that help make pilot training more effective and efficient to increase throughput, creating opportunities for CAE’s products, services and solutions.

Demand for integrated network training systems to support multi-domain conflict

The shift in the nature of the geopolitical environment and the pivot to preparing for a near‑peer adversary, combined with limited personnel and budget pressures, have prompted defence forces globally to outsource the development, management and delivery of training systems required to support today’s complex environments. Increasingly, defence forces are considering a more integrated and holistic approach to training across all domains – air, land, sea, space and cyber. Defence forces are seeking to maximize commonality for increased efficiencies, cost savings, integration and immersive training across multi-domain operations. As a training systems integrator, we address the overall training enterprise to deliver comprehensive solutions, from platform-centric individual training through operational, joint all-domain mission training.

Expanded utilization of synthetic environments to support efficacy, reduce costs and lower environmental impact

One of the underlying drivers for our expertise and capabilities is the increasing use of synthetic training throughout the defence community. More defence forces and governments are adopting synthetic environments for a greater percentage of their overall approach to improve training effectiveness, reduce operational demands on platforms, lower risks in training and significantly lower costs. Additional benefits of synthetic training mitigate our customers’ environmental impact by providing a safer form of multi-domain training with a significant reduction in the carbon footprint compared to live training in a real environment. At the same time, these digitally immersive synthetic environments, when combined with AI and cloud computing, can provide a tool for planning, course of action analysis, and mission support.

10 I CAE Financial Report 2023

Management’s Discussion and Analysis

HEALTHCARE MARKET

We offer healthcare students and clinical professionals integrated physical, digital and virtual education and training solutions, including interventional and imaging simulations, curricula, mixed-reality and digital learning, audiovisual debriefing solutions, centre management platforms and patient simulators.

Simulation-based training is one of the most effective ways to prepare healthcare practitioners for the moments that matter: treating patients, handling critical situations and reducing medical errors. The experience and best practices gained over our more than 75-year simulation-based aviation training history apply seamlessly to healthcare, and we leverage those lessons to deliver innovative solutions that accelerate healthcare learning, enhance training and ultimately improve the quality and availability of patient care. The healthcare industry continues to face a challenging situation: increased demand for nurses complicated by decreased student access to both patients and clinical sites as well as an unchanging and lengthy education timeline. Based on our experiences in aviation and defence, we are well-suited to address the challenges of this evolving healthcare environment. As a result, we see potential growth in the healthcare training and simulation markets propelled by multiple secular tailwinds, including an aging population necessitating increased care; a global shortage of healthcare workers, especially nurses; an increase in preventable medical errors; a limited number of hospital beds; and continued attrition of the healthcare workforce. All of this necessitates innovation in and acceleration of healthcare education and certification, which can be accomplished through simulation. In 2020, only 17 U.S. states accepted simulation for 50 percent of clinical training hours. Today, nearly every state has introduced or passed such legislation.

We are well-positioned to capture growing demand for nursing and simulation-based training through our broad and innovative portfolios of medical training solutions, including patient, ultrasound and interventional simulators, audiovisual debriefing solutions, centre management platforms, augmented reality applications and e‑learning simulation-based curricula. We provide training solutions to customers in more than 110 countries, and are a leader in the design, development and delivery of patient simulators based on advanced models of human physiology that realistically reflect human responses to clinical interventions. We apply that same degree of rigour and innovation to our digital, remote and virtual simulation solutions. For example, CAE Vimedix, our advanced ultrasound simulator, offers augmented reality for remote and virtual learning, significantly reducing the time it takes to master ultrasound scanning and comprehend ultrasonographic anatomy. Our learning management system consolidates the delivery of digital learning solutions to augment simulation-centre-based training, giving learners the ability to learn anytime, anywhere and at their own pace, amplifying access to education and training, regardless of geographical limitations. We leverage advanced technologies to build sophisticated digital capabilities that improve patient outcomes and are gaining broad acceptance and adoption in the market. Mixed reality is featured across our portfolio, including patient simulation (CAE AresAR and CAE LucinaAR), interventional simulation (CAE CathLabVR), and ultrasound simulation (CAE VimedixAR). We provide these advanced technologies and innovative learning tools to hospitals and academic institutions, which represent the largest segments of the healthcare simulation market.

We see future opportunities arising in the Healthcare business, including supporting government customers; growing acceptance of new digital and virtual learning products and increased recognition of the value of simulation-based preparedness for pandemics and other high-risk scenarios. This is supported by professional organizations, such as the International Nursing Association of Clinical Simulation and Learning (INASCL) and the Society for Simulation in Healthcare (SSH), that have encouraged regulatory bodies and policymakers to demonstrate flexibility by replacing the clinical hours usually completed in a live healthcare setting with virtually simulated experiences.

We believe the Healthcare segment is positioned as a leader in developing healthcare professionals through technology, educational content and training, with an estimated healthcare simulation market of approximately US$1.7 billion. North America is the largest market for healthcare simulation, followed by Europe and Asia.

Market drivers

Demand for our simulation products and services in the healthcare market is driven by the following:

–Growing emphasis on patient safety and outcomes;

–Global shortage amid an increased demand for healthcare personnel;

–Rising use of simulation, with a demand for innovative and custom training approaches to prevent medical errors;

–Limited access to patients for educational and clinical development purposes;

–Evolving medical technologies and growing use and acceptance of remote and virtual delivery methods;

–Increased focus on pandemic and disaster preparedness.

Growing emphasis on patient safety and outcomes

CAE expects increased adoption of simulation-based training and certification of healthcare professionals will improve patient safety and outcomes. We believe this would result in a significantly larger addressable market than the current market, which is primarily education-based. According to the WHO, patient harm due to unsafe care is one of the leading causes of death and disability worldwide. On average, about one in 10 patients suffers an adverse event while receiving hospital care in high-income countries, and up to 134 million adverse events occur due to unsafe care in hospitals in low- and middle-income countries, together contributing to around 2.6 million deaths every year. Two key strategic initiatives of the WHO Global Safety Action Plan carry significant relevance for implementing simulation-based training for healthcare professionals, including: assuring the safety of every clinical process and educating every health worker to contribute to the design and delivery of safe care systems. Simulation-based training can help clinicians gain confidence, knowledge and expertise for improving patient safety in a risk-free environment. As the Medicare and Medicaid reimbursement structure in U.S. hospitals shifts from being based solely on the quantity of services to the quality of services (value-based care), including safety and patient outcomes, we expect more hospitals to implement simulation-based training to improve performance and reduce the risk of medical errors.

CAE Financial Report 2023 I 11

Management’s Discussion and Analysis

Simulation is a required or recommended element in a growing movement towards High Stakes Assessment and Certification. Examples in the U.S. include Maintenance of Certification in Anesthesiology (MoCA) Cognitive Assessment and Advanced Trauma Life Support. Moreover, the Accreditation Council for Graduate Medical Education is evolving towards competency-based assessment with specific benchmarks to measure and compare performance which favours the adoption of simulation products and training.

Global shortage amid an increased demand for healthcare personnel

The World Health Organization (WHO) estimates 55 countries are facing significant health worker shortages, with a potential shortfall of 10 million health workers by 2030, mostly in low- and lower-middle income countries. However, countries at all levels of socioeconomic development face varying degrees of difficulties in the education, employment, deployment, retention, and performance of their workforce. This is exacerbated by the effects of the pandemic, which continue to strain the already limited supply of these valuable healthcare professionals. According to the International Council of Nurses, the pandemic contributed to higher nurse turnover, with the WHO projecting that the world will need an additional 9 million nurses and midwives by the year 2030.

According to the Association of American Medical Colleges (AAMC), the U.S. faces a projected shortage up to 124,000 physicians by 2034, with demand for physicians outpacing supply. Education and training are critical to creating a qualified pipeline of doctors. While the nation’s medical schools and teaching hospitals continue to invest in medical education and physician training to improve care, doctor shortages continue to threaten patients’ health and well-being, according to the AAMC.

Rising use of simulation, with a demand for innovative and custom training approaches to prevent medical errors

The majority of product and service sales in healthcare simulation involve healthcare education. Together with our global distribution network, we are reaching new and emerging markets and addressing the international demand potential for simulation-based training. CAE segments the healthcare simulation market by virtual, augmented and mixed-reality simulators, patient simulators, interventional simulators, skills trainers, ultrasound simulators, audiovisual and simulation centre management solutions, simulated clinical environments and training services. There is a growing body of evidence demonstrating that medical simulation improves clinical competency, delivers better patient outcomes and reduces medical errors, which can help mitigate the rate of increase in healthcare costs. Healthcare is expected to become increasingly relevant in a world more acutely aware of the benefits of healthcare simulation and training to help save lives at a steady state and in a healthcare crisis.

Limited access to patients for educational and clinical development purposes

Traditionally, medical education has adhered to an apprenticeship model in which students care for patients under the supervision of more experienced staff. In this model, students have limited access to high-risk procedures and rare complications, inhibiting their ability to practice critical decision‑making skills. The use of simulation in professional programs complements traditional learning and helps students hone their clinical and critical thinking skills for high-risk, low-frequency events. The U.S. National Council of State Boards of Nursing's national simulation guidelines, indicate a pre-licensure nursing education program may substitute simulation for up to 50% of its traditional clinical hours. In the U.K., the Nursing and Midwifery Council permanently increased the allowance of simulation activities to 600 hours for nursing students as part of their clinical practice. In addition, SSH and INACSL continue to call for more flexibility in replacing required clinical training hours with simulation hours for health science students, emphasizing that virtual simulation is an effective teaching method that results in improved student learning outcomes.

Simulation provides consistent, repeatable training and exposure to a broader range of patients and scenarios than a learner may experience in normal clinical practice settings. As an example, our CAE Vimedix ultrasound simulator offers more than 200 patient pathologies for cardiac, emergency and obstetrics and gynecology medicine. As the training and education model continues to evolve, CAE Healthcare simulators provide a low-risk alternative for practicing life-saving procedures, inter-professional team training and major disaster response.

Evolving medical technologies and growing use and acceptance of remote and virtual delivery methods

Advancements in medical technology along with greater acceptance of remote and virtual delivery methods are driving the use of simulation. New medical devices and advanced procedures, such as intra‑cardiac echocardiography, cardiac assist devices, and mechanical ventilation enhancements, require advanced training solutions, such as simulation, for internal product development and customer training. Regulatory and certification agencies are increasingly stringent in requesting that clinicians be trained before adopting new disruptive technologies, an undertaking for which simulation is well-suited. We continue to collaborate with OEMs to deliver innovative and custom training for the introduction of new interventional procedures. Additionally, we are broadening our use of remote and virtual learning through programs such as Maestro Evolve, an interactive virtual learning platform for remote instruction, and online digital learning courses focused on nurses and respiratory therapists.

Increased focus on pandemic and disaster preparedness

Recent global events highlighted the importance of preparedness in all sectors, including healthcare, and underscored the vital role of simulation-based training and education in ensuring readiness. We can support efforts to enhance trauma readiness, strengthen and assess the emergency response workforce, and prepare hospitals for medical surges through simulation-based training, readiness drills and human factors training. For example, through our partnership with a local simulation centre, we supported the Human Patient Simulation Network conference in 2023, India’s first multidisciplinary hybrid simulation event and with it the first air crash responder disaster drill.

12 I CAE Financial Report 2023

Management’s Discussion and Analysis

3.6 Foreign exchange

We report all dollar amounts in Canadian dollars. We value assets, liabilities and transactions that are measured in foreign currencies using various exchange rates as required by IFRS.

The tables below show the variations of the closing and average exchange rates for the three main currencies in which we operate.

We used the closing foreign exchange rates in the table below to value our assets, liabilities and adjusted backlog in Canadian dollars at the end of each of the following periods:


			Increase /
	2023	2022	(decrease)
U.S. dollar (US$ or USD)	1.35	1.25	8	%
Euro (€ or EUR)	1.47	1.38	7	%
British pound (£ or GBP)	1.67	1.64	2	%

We used the average foreign exchange rates in the table below to value our revenues and expenses throughout the following periods:


			Increase /
	2023	2022	(decrease)
U.S. dollar (US$ or USD)	1.32	1.25	6	%
Euro (€ or EUR)	1.38	1.46	(5	%)
British pound (£ or GBP)	1.59	1.71	(7	%)

For fiscal 2023, the effect of translating the results of our foreign operations into Canadian dollars resulted in an increase in revenue of $73.8 million and an increase in net income of $6.5 million, when compared to fiscal 2022. We calculated this by translating the current year’s foreign currency revenue and net income of our foreign operations using the average monthly exchange rates from the previous year and comparing these adjusted amounts to our current year reported results. You will find more details about our foreign exchange exposure and hedging strategies in Section 9 "Business risk and uncertainty" of this MD&A. A sensitivity analysis for foreign currency risk is included in Note 29 of our consolidated financial statements.

3.7 Non-IFRS and other financial measure definitions

A non-IFRS ratio is a financial measure disclosed in the form of a ratio, fraction, percentage, or similar representation, that has a non‑IFRS financial measure as one or more of its components.

CAE Financial Report 2023 I 13

Management’s Discussion and Analysis

PERFORMANCE MEASURES

Gross profit margin (or gross profit as a % of revenue)

Operating income margin (or operating income as a % of revenue)

Adjusted segment operating income or loss

Adjusted segment operating income or loss is a non-IFRS financial measure that gives us an indication of the profitability of each segment because it does not include the impact of any items not specifically related to the segment’s performance. We calculate adjusted segment operating income by taking operating income and adjusting for restructuring, integration and acquisition costs, and impairments and other gains and losses arising from significant strategic transactions or specific events. Impairments and other gains and losses arising from significant strategic transactions or specific events consist of the impairment reversal of non-financial assets following their repurposing and optimization (as described in Note 5 of our consolidated financial statements for the year ended March 31, 2023), cloud computing transition adjustment (as described in Note 5 of our consolidated financial statements for the year ended March 31, 2022) and impairments and other gains and losses incurred in relation to the COVID-19 pandemic (as described in Note 7 of our consolidated financial statements for the year ended March 31, 2021). We track adjusted segment operating income because we believe it provides an enhanced understanding of our operating performance and facilitates the comparison across reporting periods. Adjusted segment operating income on a consolidated basis is a total of segments measure since it is the profitability measure employed by management for making decisions about allocating resources to segments and assessing segment performance. Refer to Section 3.9 “Non‑IFRS measure reconciliations” of this MD&A for a reconciliation of this measure to the most directly comparable measure under IFRS.

Adjusted segment operating income margin (or adjusted segment operating income as a % of revenue)

Adjusted net income or loss

Adjusted net income or loss is a non-IFRS financial measure we use as an alternate view of our operating results. We calculate it by taking our net income attributable to equity holders of the Company from continuing operations and adjusting for restructuring, integration and acquisition costs, and impairments and other gains and losses arising from significant strategic transactions or specific events, after tax, as well as significant one-time tax items. Impairments and other gains and losses arising from significant strategic transactions or specific events consist of the impairment reversal of non-financial assets following their repurposing and optimization (as described in Note 5 of our consolidated financial statements for the year ended March 31, 2023), cloud computing transition adjustment (as described in Note 5 of our consolidated financial statements for the year ended March 31, 2022) and impairments and other gains and losses incurred in relation to the COVID-19 pandemic (as described in Note 7 of our consolidated financial statements for the year ended March 31, 2021). We track adjusted net income because we believe it provides an enhanced understanding of our operating performance and facilitates the comparison across reporting periods. Refer to Section 3.9 “Non-IFRS measure reconciliations” of this MD&A for a reconciliation of this measure to the most directly comparable measure under IFRS.

Adjusted earnings or loss per share (EPS)

Adjusted earnings or loss per share is a non-IFRS ratio calculated by dividing adjusted net income or loss by the weighted average number of diluted shares. We track it because we believe it provides an enhanced understanding of our operating performance on a per share basis and facilitates the comparison across reporting periods. Refer to Section 3.9 “Non-IFRS measure reconciliations” of this MD&A for a calculation of this measure.

EBITDA and Adjusted EBITDA

14 I CAE Financial Report 2023

Management’s Discussion and Analysis

Free cash flow

Free cash flow is a non-IFRS financial measure that shows us how much cash we have available to invest in growth opportunities, repay debt and meet ongoing financial obligations. We use it as an indicator of our financial strength and liquidity. We calculate it by taking the net cash generated by our continuing operating activities, subtracting maintenance capital expenditures, changes in enterprise resource planning (ERP) and other assets not related to growth and dividends paid and adding proceeds from the disposal of property, plant and equipment, dividends received from equity accounted investees and proceeds, net of payments, from equity accounted investees. Refer to Section 6.1 “Consolidated cash movements” of this MD&A for a reconciliation of this measure to the most directly comparable measure under IFRS.

LIQUIDITY AND CAPITAL STRUCTURE MEASURES

Non-cash working capital

Non-cash working capital is a non-IFRS financial measure we use to monitor how much money we have committed in the day-to-day operation of our business. We calculate it by taking current assets (not including cash and cash equivalents and assets held for sale) and subtracting current liabilities (not including the current portion of long-term debt and liabilities held for sale). Refer to Section 7.1 “Consolidated capital employed” of this MD&A for a reconciliation of this measure to the most directly comparable measure under IFRS.

Capital employed

Capital employed is a non-IFRS financial measure we use to evaluate and monitor how much we are investing in our business. We measure it from two perspectives:

Use of capital:

–For the Company as a whole, we take total assets (not including cash and cash equivalents), and subtract total liabilities (not including long-term debt and the current portion of long-term debt);

–For each segment, we take the total assets (not including cash and cash equivalents, tax accounts, employee benefits assets and other non-operating assets), and subtract total liabilities (not including tax accounts, long-term debt and the current portion of long‑term debt, royalty obligations, employee benefit obligations and other non-operating liabilities).

Source of capital:

–In order to understand our source of capital, we add net debt to total equity.

Refer to Section 7.1 “Consolidated capital employed” of this MD&A for a reconciliation of this measure to the most directly comparable measure under IFRS.

Return on capital employed (ROCE) and adjusted ROCE

ROCE is a non-IFRS ratio calculated over a rolling four-quarter period by taking net income attributable to equity holders of the Company adjusting for net finance expense, after tax, divided by the average capital employed. Adjusted ROCE further adjusts for restructuring, integration and acquisition costs, and impairments and other gains and losses arising from significant strategic transactions or specific events. Impairments and other gains and losses arising from significant strategic transactions or specific events consist of the impairment reversal of non-financial assets following their repurposing and optimization (as described in Note 5 of our consolidated financial statements for the year ended March 31, 2023), cloud computing transition adjustment (as described in Note 5 of our consolidated financial statements for the year ended March 31, 2022) and impairments and other gains and losses incurred in relation to the COVID-19 pandemic (as described in Note 7 of our consolidated financial statements for the year ended March 31, 2021). We use ROCE and adjusted ROCE to evaluate the profitability of our invested capital.

Net debt

Net debt is a capital management measure we use to monitor how much debt we have after taking into account cash and cash equivalents. We use it as an indicator of our overall financial position, and calculate it by taking our total long-term debt, including the current portion of long-term debt, and subtracting cash and cash equivalents. Refer to Section 7.1 “Consolidated capital employed” of this MD&A for a reconciliation of this measure to the most directly comparable measure under IFRS.

Net debt-to-capital

Net debt-to-EBITDA and net debt-to-adjusted EBITDA

Net debt-to-EBITDA and net debt-to-adjusted EBITDA are non-IFRS ratios calculated as net debt divided by the last twelve months EBITDA (or adjusted EBITDA). We use net debt-to-EBITDA and net debt-to-adjusted EBITDA because they reflect our ability to service our debt obligations. Refer to Section 3.9 “Non-IFRS measure reconciliations” of this MD&A for a calculation of these measures.

CAE Financial Report 2023 I 15

Management’s Discussion and Analysis

Maintenance and growth capital expenditures

Maintenance capital expenditure is a supplementary financial measure we use to calculate the investment needed to sustain the current level of economic activity.

Growth capital expenditure is a supplementary financial measure we use to calculate the investment needed to increase the current level of economic activity.

The sum of maintenance capital expenditures and growth capital expenditures represents our total property, plant and equipment expenditures.

GROWTH MEASURES

Adjusted order intake

Adjusted order intake is a supplementary financial measure that represents the expected value of orders we have received:

–For the Civil Aviation segment, we consider an item part of our adjusted order intake when we have a legally binding commercial agreement with a client that includes enough detail about each party’s obligations to form the basis for a contract. Additionally, expected future revenues from customers under short-term and long-term training contracts are included when these customers commit to pay us training fees, or when we reasonably expect the revenue to be generated;

–For the Defense and Security segment, we consider an item part of our adjusted order intake when we have a legally binding commercial agreement with a client that includes enough detail about each party’s obligations to form the basis for a contract. Defense and Security contracts are usually executed over a long-term period but some of them must be renewed each year. For this segment, we only include a contract item in adjusted order intake when the customer has authorized the contract item and has received funding for it;

–For the Healthcare segment, adjusted order intake is typically converted into revenue within one year, therefore we assume that adjusted order intake is equal to revenue.

Adjusted backlog

Adjusted backlog is a supplementary financial measure that represents expected future revenues and includes obligated backlog, joint venture backlog and unfunded backlog and options:

–Obligated backlog represents the value of our adjusted order intake not yet executed and is calculated by adding the adjusted order intake of the current period to the balance of the obligated backlog at the end of the previous fiscal year, subtracting the revenue recognized in the current period and adding or subtracting backlog adjustments. If the amount of an order already recognized in a previous fiscal year is modified, the backlog is revised through adjustments;

–Joint venture backlog is obligated backlog that represents the expected value of our share of orders that our joint ventures have received but have not yet executed. Joint venture backlog is determined on the same basis as obligated backlog described above;

–Unfunded backlog represents legally binding Defense and Security orders with the U.S. government that we have received but have not yet executed and for which funding authorization has not yet been obtained. The uncertainty relates to the timing of the funding authorization, which is influenced by the government’s budget cycle, based on a September year-end. Options are included in adjusted backlog when there is a high probability of being exercised, which we define as at least 80% probable, but indefinite-delivery/indefinite-quantity (ID/IQ) contracts are excluded. When an option is exercised, it is considered adjusted order intake in that period, and it is removed from unfunded backlog and options.

Book-to-sales ratio

3.8 Supplementary non-financial information definitions

Full-flight simulators (FFSs) in CAE's network

Simulator equivalent unit (SEU)

Utilization rate

16 I CAE Financial Report 2023

Management’s Discussion and Analysis

3.9 Non-IFRS measure reconciliations

Reconciliation of adjusted segment operating income



					Defense
(amounts in millions)	Civil Aviation				and Security				Healthcare						Total
Three months ended March 31	2023		2022		2023		2022		2023		2022		2023		2022
Operating income	$	149.3	$	58.1	$	29.0	$	25.8	$	8.3	$	9.4	$	186.6	$	93.3
Restructuring, integration and acquisition costs	13.6		26.6		1.5		9.2		0.2		0.2		15.3		36.0
Impairments and other gains and losses arising from
significant strategic transactions or specific events:
Cloud computing transition adjustment	—		11.6		—		1.8		—		—		—		13.4
Adjusted segment operating income	$	162.9	$	96.3	$	30.5	$	36.8	$	8.5	$	9.6	$	201.9	$	142.7


					Defense
(amounts in millions)	Civil Aviation				and Security				Healthcare						Total
Years ended March 31	2023		2022		2023		2022		2023		2022		2023		2022
Operating income	$	430.3	$	224.1	$	35.7	$	56.0	$	8.0	$	4.1	$	474.0	$	284.2
Restructuring, integration and acquisition costs	52.0		79.0		10.6		61.4		1.7		6.5		64.3		146.9
Impairments and other gains and losses arising from
significant strategic transactions or specific events:
Impairment reversal of non-financial assets
following their repurposing and optimization	3.0		—		6.8		—		—		—		9.8		—
Cloud computing transition adjustment	—		11.6		—		1.8		—		—		—		13.4
Adjusted segment operating income	$	485.3	$	314.7	$	53.1	$	119.2	$	9.7	$	10.6	$	548.1	$	444.5

Reconciliation of adjusted net income and adjusted EPS


		Three months ended					Years ended
	March 31					March 31
(amounts in millions, except per share amounts)		2023		2022			2023		2022
Net income attributable to equity holders of the Company		$	98.4	$	55.1		$	222.7	$	141.7
Restructuring, integration and acquisition costs, after tax		12.5		27.1			49.4		110.0
Impairments and other gains and losses arising from
significant strategic transactions or specific events:
Impairment reversal of non-financial assets
following their repurposing and optimization, after tax		—		—			7.1		—
Cloud computing transition adjustment, after tax		—		9.8			—		9.8
Adjusted net income		$	110.9	$	92.0		$	279.2	$	261.5



Average number of shares outstanding (diluted)		318.7		318.5			318.4		312.9

Adjusted EPS		$	0.35	$	0.29		$	0.88	$	0.84

CAE Financial Report 2023 I 17

Management’s Discussion and Analysis

Reconciliation of EBITDA, adjusted EBITDA, net debt-to-EBITDA and net debt-to-adjusted EBITDA


	Last twelve months ended
	March 31
(amounts in millions, except net debt-to-EBITDA ratios)		2023		2022
Operating income		$	474.0	$	284.2
Depreciation and amortization		342.2		310.5
EBITDA		$	816.2	$	594.7
Restructuring, integration and acquisition costs		64.3		146.9
Impairments and other gains and losses arising from
significant strategic transactions or specific events:
Impairment reversal of non-financial assets
following their repurposing and optimization		9.8		—
Cloud computing transition adjustment		—		13.4
Adjusted EBITDA		$	890.3	$	755.0



Net debt		$	3,032.5	$	2,700.1

Net debt-to-EBITDA		3.72		4.54
Net debt-to-adjusted EBITDA		3.41		3.58

18 I CAE Financial Report 2023

Management’s Discussion and Analysis

4. CONSOLIDATED RESULTS

4.1 Results from operations – fourth quarter of fiscal 2023


(amounts in millions, except per share amounts)		Q4-2023	Q3-2023	Q2-2023	Q1-2023	Q4-2022
Revenue	$	1,256.5	1,020.3	993.2	933.3	955.0
Cost of sales	$	894.7	722.3	719.6	700.4	683.4
Gross profit	$	361.8	298.0	273.6	232.9	271.6
As a % of revenue2	%	28.8	29.2	27.5	25.0	28.4
Research and development expenses	$	40.0	30.2	32.2	40.7	34.9
Selling, general and administrative expenses	$	149.7	138.1	128.0	145.1	143.6
Other (gains) and losses	$	(10.5)	(6.7)	(3.2)	(2.4)	(20.9)
After tax share in profit of equity accounted investees	$	(19.3)	(14.4)	(8.1)	(11.4)	(15.3)


Restructuring, integration and acquisition costs	$	15.3	4.9	22.6	21.5	36.0
Operating income	$	186.6	145.9	102.1	39.4	93.3
As a % of revenue2	%	14.9	14.3	10.3	4.2	9.8


Finance expense – net	$	51.4	48.8	41.3	36.2	32.5
Earnings before income taxes	$	135.2	97.1	60.8	3.2	60.8
Income tax expense (recovery)	$	33.3	17.1	14.5	(0.5)	3.7
As a % of earnings before income taxes
(effective tax rate)	%	25	18	24	(16)	6


Net income	$	101.9	80.0	46.3	3.7	57.1
Attributable to:



Equity holders of the Company	$	98.4	78.1	44.5	1.7	55.1
Non-controlling interests	$	3.5	1.9	1.8	2.0	2.0
	$	101.9	80.0	46.3	3.7	57.1
EPS attributable to equity holders of the Company
Basic and diluted	$	0.31	0.25	0.14	0.01	0.17


Adjusted segment operating income2	$	201.9	160.6	124.7	60.9	142.7

Adjusted net income2	$	110.9	89.2	61.5	17.6	92.0


Adjusted EPS2	$	0.35	0.28	0.19	0.06	0.29

Revenue was 32% higher compared to the fourth quarter of fiscal 2022

Revenue was $1,256.5 million this quarter, $301.5 million or 32% higher than the fourth quarter of fiscal 2022. Revenue variances by segment were as follows:


(amounts in millions)
Three months ended March 31		2023		2022	Variance $		Variance %
Civil Aviation	$	661.4	$	432.7	$	228.7	53	%
Defense and Security		536.0		469.5		66.5	14	%
Healthcare		59.1		52.8		6.3	12	%
Revenue	$	1,256.5	$	955.0	$	301.5	32	%

You will find more details in Section 5 "Results by segment" of this MD&A.

Gross profit was 33% higher compared to the fourth quarter of fiscal 2022

Gross profit was $361.8 million this quarter (28.8% of revenue) compared to $271.6 million (28.4% of revenue) in the fourth quarter of fiscal 2022. The increase in gross profit compared to the fourth quarter of fiscal 2022 was mainly due to higher revenue recognized during the period. The overall gross profit margin was stable compared to the fourth quarter of fiscal 2022.

2 Non-IFRS financial measure, non-IFRS ratio, capital management measure, or supplementary financial measure. Refer to Section 3.7 “Non-IFRS and other financial measure definitions" and Section 3.9 "Non-IFRS measure reconciliations” of this MD&A for the definitions and reconciliations of these measures to the most directly comparable measure under IFRS.

CAE Financial Report 2023 I 19

Management’s Discussion and Analysis

Operating income was 100% higher compared to the fourth quarter of fiscal 2022

Operating income was $186.6 million this quarter (14.9% of revenue) compared to $93.3 million (9.8% of revenue) in the fourth quarter of fiscal 2022. Operating income variances by segment were as follows:


(amounts in millions)
Three months ended March 31		2023		2022	Variance $		Variance %
Civil Aviation	$	149.3	$	58.1	$	91.2	157	%
Defense and Security		29.0		25.8		3.2	12	%
Healthcare		8.3		9.4		(1.1)	(12	%)
Operating income	$	186.6	$	93.3	$	93.3	100	%

You will find more details in Section 5 "Results by segment" of this MD&A.

Adjusted segment operating income was 41% million higher compared to the fourth quarter of fiscal 2022

Adjusted segment operating income was $201.9 million this quarter (16.1% of revenue) compared to $142.7 million (14.9% of revenue) in the fourth quarter of fiscal 2022. Adjusted segment operating income variances by segment were as follows:


(amounts in millions)
Three months ended March 31		2023		2022	Variance $		Variance %
Civil Aviation	$	162.9	$	96.3	$	66.6	69	%
Defense and Security		30.5		36.8		(6.3)	(17	%)
Healthcare		8.5		9.6		(1.1)	(11	%)
Adjusted segment operating income	$	201.9	$	142.7	$	59.2	41	%

You will find more details in Section 5 "Results by segment" of this MD&A.

Finance expense - net was 58% higher compared to the fourth quarter of fiscal 2022

The increase was mainly due to higher finance expense from an increased level of borrowing under credit facilities and an increase in variable interest rates.

We are incurring higher finance expense, commensurate with central bank monetary tightening policies.

Effective tax rate was 25% this quarter

Income tax expense this quarter amounted to $33.3 million, representing an effective tax rate of 25%, compared to an effective tax rate of 6% for the fourth quarter of fiscal 2022.

The effective tax rate was impacted by restructuring, integration and acquisition costs this quarter. In the fourth quarter of last year, the effective tax rate was also impacted by restructuring, integration and acquisition costs, as well as the cloud computing transition adjustment. Excluding the effect of these items, the effective tax rate would have been 24% this quarter compared to 15% in the fourth quarter of fiscal 2022. On this basis, the increase in the tax rate this quarter compared to the fourth quarter of fiscal 2022 was mainly attributable to the change in the mix of income from various jurisdictions.

20 I CAE Financial Report 2023

Management’s Discussion and Analysis

4.2 Results from operations – fiscal 2023


(amounts in millions, except per share amounts)		FY2023	FY2022
Revenue	$	4,203.3	3,371.3
Cost of sales	$	3,037.0	2,415.8
Gross profit	$	1,166.3	955.5
As a % of revenue	%	27.7	28.3
Research and development expenses	$	143.1	120.8
Selling, general and administrative expenses	$	560.9	489.1
Other (gains) and losses	$	(22.8)	(37.0)
After tax share in profit of equity accounted investees	$	(53.2)	(48.5)


Restructuring, integration and acquisition costs	$	64.3	146.9
Operating income	$	474.0	284.2
As a % of revenue	%	11.3	8.4


Finance expense – net	$	177.7	130.6
Earnings before income taxes	$	296.3	153.6
Income tax expense	$	64.4	3.6
As a % of earnings before income taxes (effective tax rate)	%	22	2


Net income	$	231.9	150.0
Attributable to:



Equity holders of the Company	$	222.7	141.7
Non-controlling interests	$	9.2	8.3
	$	231.9	150.0
EPS attributable to equity holders of the Company
Basic	$	0.70	0.46



Diluted	$	0.70	0.45

Adjusted segment operating income	$	548.1	444.5

Adjusted net income	$	279.2	261.5

Adjusted EPS	$	0.88	0.84

Revenue was 25% higher compared to last year

Revenue was $4,203.3 million this year, $832.0 million or 25% higher than last year. Revenue variances by segment were as follows:


(amounts in millions)
Years ended March 31		2023		2022	Variance $		Variance %
Civil Aviation	$	2,166.4	$	1,617.8	$	548.6	34	%
Defense and Security		1,844.2		1,602.1		242.1	15	%
Healthcare		192.7		151.4		41.3	27	%
Revenue	$	4,203.3	$	3,371.3	$	832.0	25	%

You will find more details in Section 5 "Results by segment" of this MD&A.

Gross profit was 22% higher compared to last year

Gross profit was $1,166.3 million this year (27.7% of revenue) compared to $955.5 million (28.3% of revenue) last year. The increase in gross profit compared to last year was mainly due to higher revenue recognized during the period. The lower overall gross profit margin this year was mainly due to the unfavourable contract profit adjustments recorded in Defense and Security in the first quarter of fiscal 2023.

CAE Financial Report 2023 I 21

Management’s Discussion and Analysis

Operating income was 67% higher compared to last year

Operating income was $474.0 million this year (11.3% of revenue) compared to $284.2 million (8.4% of revenue) last year. Operating income variances by segment were as follows:


(amounts in millions)
Years ended March 31		2023		2022	Variance $		Variance %
Civil Aviation	$	430.3	$	224.1	$	206.2	92	%
Defense and Security		35.7		56.0		(20.3)	(36	%)
Healthcare		8.0		4.1		3.9	95	%
Operating income	$	474.0	$	284.2	$	189.8	67	%

You will find more details in Section 5 "Results by segment" of this MD&A.

Adjusted segment operating income was 23% higher compared to last year

Adjusted segment operating income was $548.1 million this year (13.0% of revenue) compared to $444.5 million (13.2% of revenue) last year. Adjusted segment operating income variances by segment were as follows:


(amounts in millions)
Years ended March 31		2023		2022	Variance $		Variance %
Civil Aviation	$	485.3	$	314.7	$	170.6	54	%
Defense and Security		53.1		119.2		(66.1)	(55	%)
Healthcare		9.7		10.6		(0.9)	(8	%)
Adjusted segment operating income	$	548.1	$	444.5	$	103.6	23	%

You will find more details in Section 5 "Results by segment" of this MD&A.

Finance expense - net was $47.1 million higher than last year


	FY2022 to
(amounts in millions)	FY2023
Finance expense - net, prior period	$	130.6
Change in finance expense from the prior period:
Increase in finance expense on long-term debt (other than lease liabilities)	$	37.5
Increase in finance expense on lease liabilities	2.3
Decrease in finance expense on royalty obligations	(1.0)
Increase in other finance expense	9.7
Increase in borrowing costs capitalized	(0.8)
Increase in finance expense from the prior period	$	47.7
Change in finance income from the prior period:
Increase in interest income on loans and finance lease contracts	$	(1.2)
Decrease in other finance income	0.6
Increase in finance income from the prior period	$	(0.6)
Finance expense - net, current period	$	177.7

The increase in finance expense on long-term debt is mainly due to an increased level of borrowing under credit facilities and an increase in variable interest rates.

We are incurring higher finance expense, commensurate with central bank monetary tightening policies.

Effective tax rate was 22% this year

Income tax expense this year amounted to $64.4 million, representing an effective tax rate of 22%, compared to an income tax expense of $3.6 million for the same period last year, representing an effective tax rate of 2%.

Last year, the effective tax rate was impacted by restructuring, integration and acquisition costs, and the cloud computing transition adjustment. The effective tax rate was not impacted by these items this year. Excluding the effect of these items last year, the effective tax rate would have been 14%. On this basis, the increase in the tax rate compared to last year was mainly attributable to the change in the mix of income from various jurisdictions, and the beneficial impact recognized on tax assets and positive impact of tax audits in Canada last year.

22 I CAE Financial Report 2023

Management’s Discussion and Analysis

4.3 Restructuring, integration and acquisition costs


	FY2023		FY2022		Q4-2023		Q4-2022
Integration and acquisition costs	$	66.3	$	87.8	$	15.0	$	23.6
Impairment of non-financial assets - net	2.3		37.1		—		6.5
Severances and other employee related costs	2.7		6.9		0.3		2.3
Other costs	2.8		15.1		—		3.6
Impairment reversal of non-financial assets following their
repurposing and optimization	(9.8)		—		—		—
Total restructuring, integration and acquisition costs	$	64.3	$	146.9	$	15.3	$	36.0

For the year ended March 31, 2023, restructuring, integration and acquisition costs associated with the fiscal 2022 acquisition of L3H MT amounted to $17.6 million (2022 – $63.5 million) and those related to the fiscal 2022 acquisition of AirCentre amounted to $48.9 million (2022 – $18.1 million).

For the year ended March 31, 2023, cash provided by operating activities included payments related to the integration and acquisition costs for our acquired businesses and severances and other costs associated with our previously announced restructuring program amounting to approximately $79 million (2022 – $132 million).

Impairment reversal of non-financial assets following their repurposing and optimization

For the year ended March 31, 2023, restructuring, integration and acquisition costs include gains on the reversal of impairment of an intangible asset of $6.8 million in the Defense and Security segment and property, plant and equipment of $3.0 million in the Civil Aviation segment, following their repurposing and optimization and new customer contracts and opportunities.

4.4 Consolidated adjusted orders and adjusted backlog

Adjusted backlog3 13% higher compared to last year


(amounts in millions)	FY2023		FY2022
Obligated backlog3, beginning of period	$	7,871.4	$	6,412.6
+ adjusted order intake	5,049.1		4,091.2
- revenue	(4,203.3)		(3,371.3)
+ / - adjustments	244.7		738.9
Obligated backlog, end of period	$	8,961.9	$	7,871.4
Joint venture backlog3 (all obligated)	300.2		308.1
Unfunded backlog and options3	1,534.3		1,398.0
Adjusted backlog	$	10,796.4	$	9,577.5

Fiscal 2023 adjustments were mainly due to foreign exchange movements, partially offset by contract amendments and the revaluation of prior year contracts.

The book-to-sales ratio for the quarter was 1.17x. The ratio for the last 12 months was 1.20x.

You will find more details in Section 5 "Results by segment" of this MD&A.

3 Non-IFRS financial measure, non-IFRS ratio, capital management measure, or supplementary financial measure. Refer to Section 3.7 “Non-IFRS and other financial measure definitions" and Section 3.9 "Non-IFRS measure reconciliations” of this MD&A for the definitions and reconciliations of these measures to the most directly comparable measure under IFRS.

CAE Financial Report 2023 I 23

Management’s Discussion and Analysis

5. RESULTS BY SEGMENT

We manage our business and report our results in three segments:

–Civil Aviation;

–Defense and Security;

–Healthcare.

The method used for the allocation of assets jointly used by the operating segments and costs and liabilities jointly incurred (mostly corporate costs) between operating segments is based on the level of utilization when determinable and measurable, otherwise the allocation is based on a proportion of each segment’s cost of sales and revenue.

Unless otherwise indicated, elements within our financial results are presented in order of magnitude.

5.1 Civil Aviation

FISCAL 2023 EXPANSIONS AND NEW INITIATIVES

Expansions

–We announced the expansion of our commercial aviation training network in Toronto, Canada with the addition of a Boeing 737 MAX, a 787 FFS and a 777 FFS;

–We announced the expansion of our business aviation training network in Burgess Hill, U.K. with the addition of the first Dassault Falcon 6X FFS;

–We announced the signing of a 15-year agreement with the Qantas Group, to develop and operate a new state-of-the-art pilot training centre in Sydney, Australia;

–We expanded our business aviation footprint with the launch of our first West Coast U.S location offering Gulfstream, Embraer and Bombardier platforms located in Las Vegas, Nevada. We also announced a new training centre dedicated to training on Gulfstream platforms slated to open in early-2024 in Savannah, Georgia;

–Together with AirAsia India, we announced our collaboration to integrate the CAE Rise Training System into the airline’s simulator training program. AirAsia India is the first airline in India to adopt a data-driven training program using CAE Rise;

–Together with Clay Lacy Aviation we announced a two-way organizational cross-training and job-sharing agreement. This agreement calls for CAE instructors to be trained to company standards enabling them to fly with Clay Lacy, and for their senior pilots to be approved to conduct training and check flights for CAE;

–We have partnered with Jazz Aviation to meet the future needs for pilots through the Jazz Approach program, an ab-initio pilot training that provides cadets a direct pathway to a first officer position at Jazz Aviation;

–Together with AEGEAN, we announced our joint venture for a new flight-training location in Athens, Greece. The centre is expected to begin pilot and cabin crew training by the end of calendar 2023 and will be our first training centre in Southeastern Europe.

New programs and products

–We concluded a strategic partnership with Vertical Aerospace to be their exclusive global provider of VX4 pilot training and courseware;

–Together with Piper Aircraft Inc., we launched our electric aircraft modification program, where we will develop a conversion kit and bring an electric variant option of the aircraft to market. As a carbon neutral company, this program will allow CAE to further reduce it's direct carbon emissions at the source;

–We have launched our newest advancement in pilot training, the CAE 700MXR flight simulator. This high-fidelity flight simulator targets the eVTOL aircraft pilot training and will provide cost-effective, realistic and scalable flight training;

–Together with Spirit Airlines, we announced the launch of the Spirit Wings Pilot Pathway program that aims to expand the carrier’s pipeline of highly skilled, professional pilots. The program, located at CAE’s flight academy in Phoenix, Arizona, will put graduates on the fast track to a successful career as a Spirit Pilot.

24 I CAE Financial Report 2023

Management’s Discussion and Analysis

FISCAL 2023 ORDERS

Civil Aviation obtained contracts this quarter expected to generate future revenues of $841.5 million, including contracts for 19 FFSs. This brings the total civil order intake to $2,827.1 million and 62 FFSs for the year.

Notable FFS contract awards for the year included:

–Five Boeing 737 MAX and three Boeing 787 to United Airlines;

–One Boeing 737 MAX and one ATR 72-600 to CAE Simulation Training Private Limited, a joint venture between InterGlobe Enterprises and CAE;

–Two Airbus A320 Neo and one Boeing 737 MAX to American Airlines;

–One Phenom 100/300 and one Phenom 300 to Embraer-CAE Training Services, a joint venture between Embraer and CAE;

–One Airbus A350 and one ATR-72-600 to Fiji Airways;

–Two Boeing 737 MAX to Delta Air Lines;

–Two Airbus A320 to Blue Sky Aviation Training;

–Two Boeing 737 MAX to Allegiant Air;

–One Airbus A320 to Zhuhai Flight Training Centre;

–One ATR72 to Air New Zealand;

–One Airbus A220 to Qantas Group;

–One Airbus A220 to JetBlue;

–One Boeing 737 MAX to Singapore CAE Flight Training, a joint venture between Singapore Airlines and CAE;

–34 FFSs to undisclosed and other customers.

Notable contract awards for fiscal 2023 included:

–A 15-year commercial aviation training agreement with Qantas Group;

–A 3-year exclusive commercial aviation training agreement extension and 13-year commercial aviation training agreement with Mesa Airlines;

–An 8-year commercial aviation training agreement with GOL Airlines;

–A 5-year Pilot License cadet training agreement with Japan Airlines;

–A 10-year flight next-gen crew and operations manager agreement with SkyWest, Inc.;

–A 6-year business aviation training agreement with Delux Public Charter LLC (JSX Air);

–A 3-year business aviation training agreement with Tag Aviation Holdings;

–A 3-year business training agreement with Aerolineas Ejecutivas S.A. de C.V.

CAE Financial Report 2023 I 25

Management’s Discussion and Analysis

FINANCIAL RESULTS


(amounts in millions)		FY2023	FY2022	Q4-2023	Q3-2023	Q2-2023	Q1-2023	Q4-2022
Revenue	$	2,166.4	1,617.8	661.4	517.4	507.2	480.4	432.7
Operating income	$	430.3	224.1	149.3	117.2	88.4	75.4	58.1
Adjusted segment operating income	$	485.3	314.7	162.9	131.4	104.4	86.6	96.3
As a % of revenue4	%	22.4	19.5	24.6	25.4	20.6	18.0	22.3



Depreciation and amortization	$	243.4	224.1	64.0	63.5	57.4	58.5	57.7


Property, plant and equipment
expenditures	$	240.6	247.3	49.5	58.4	64.6	68.1	68.1
Intangible asset expenditures	$	88.6	53.4	24.8	22.1	26.0	15.7	16.7
Capital employed4	$	4,710.4	4,256.9	4,710.4	4,673.3	4,520.8	4,363.9	4,256.9
Adjusted backlog	$	5,730.8	4,919.2	5,730.8	5,647.6	5,457.1	4,993.2	4,919.2

Supplementary non-financial information
Simulator equivalent unit		257	246	265	263	252	250	246
FFSs in CAE's network		324	316	324	323	315	318	316
Utilization rate	%	72	60	78	73	66	71	69
FFS deliveries		46	30	17	9	10	10	7

Revenue up 53% compared to the fourth quarter of fiscal 2022

The increase compared to the fourth quarter of fiscal 2022 was mainly due to higher revenue recognized from simulator sales, driven by higher deliveries, the integration into our results of AirCentre acquired in the fourth quarter of the prior year, higher utilization across our network, the foreign exchange impact on the translation of our foreign operations and the contribution from recently deployed simulators in our network.

Revenue was $2,166.4 million this year, $548.6 million or 34% higher than last year

The increase compared to last year was mainly due to higher utilization across our network, the integration into our results of AirCentre, higher revenue recognized from simulator sales, driven by the timing of production and other milestones on devices for which revenue was not recognized upon delivery and higher deliveries, and the contribution from recently deployed simulators in our network.

Operating income up 157% compared to the fourth quarter of fiscal 2022

Operating income was $149.3 million (22.6% of revenue) this quarter, compared to $58.1 million (13.4% of revenue) in the fourth quarter of fiscal 2022. This quarter’s operating income included restructuring, integration and acquisition costs of $13.6 million compared to $26.6 million in the fourth quarter of fiscal 2022.

The increase compared to the fourth quarter of fiscal 2022 was mainly due to higher revenue recognized from simulator sales, driven by higher deliveries and the timing of production of milestones, the contribution from recently deployed simulators in our network, lower restructuring, integration and acquisition costs, higher utilization across our network, the integration into our results of AirCentre and the cloud computing transition adjustment expense recognized in the prior year. The increase was partially offset by a gain on remeasurement of a contingent consideration liability in the prior year and a lower net benefit from the remeasurement of long-term royalty obligations this year.

Operating income was $430.3 million this year, $206.2 million or 92% higher than last year.

Operating income was $430.3 million (19.9% of revenue) this year, compared to $224.1 million (13.9% of revenue) last year. This year's operating income included restructuring, integration and acquisition costs of $52.0 million compared to $79.0 million last year.

The increase compared to last year was mainly due to higher utilization across our network, higher revenue recognized from simulator sales, driven by the timing of production and other milestones on devices for which revenue was not recognized upon delivery and higher deliveries, the integration into our results of AirCentre, the contribution from recently deployed simulators in our network and lower restructuring, integration and acquisition costs.

Adjusted segment operating income up 69% compared to the fourth quarter of fiscal 2022

Adjusted segment operating income was $162.9 million (24.6% of revenue) this quarter, compared to $96.3 million (22.3% of revenue) in the fourth quarter of fiscal 2022.

4 Non-IFRS financial measure, non-IFRS ratio, capital management measure, or supplementary financial measure. Refer to Section 3.7 “Non-IFRS and other financial measure definitions" and Section 3.9 "Non-IFRS measure reconciliations” of this MD&A for the definitions and reconciliations of these measures to the most directly comparable measure under IFRS.

26 I CAE Financial Report 2023

Management’s Discussion and Analysis

The increase compared to the fourth quarter of fiscal 2022 was mainly due to higher revenue recognized from simulator sales, driven by higher deliveries and the timing of production of milestones, the contribution from recently deployed simulators in our network, higher utilization across our network and the integration into our results of AirCentre. The increase was partially offset by a gain on remeasurement of a contingent consideration liability in the prior year and a lower net benefit from the remeasurement of long-term royalty obligations this year.

Adjusted segment operating income was $485.3 million this year, $170.6 million or 54% higher than last year

Adjusted segment operating income was $485.3 million (22.4% of revenue) this year, compared to $314.7 million (19.5% of revenue) last year.

The increase compared to last year was mainly due to higher utilization across our network, higher revenue recognized from simulator sales, driven by the timing of production and other milestones on devices for which revenue was not recognized upon delivery and higher deliveries, the integration into our results of AirCentre and the contribution from recently deployed simulators in our network.

Property, plant and equipment expenditures were $49.5 million this quarter and $240.6 million for the year

Growth capital expenditures were $37.1 million for the quarter and $187.4 million for the year. Maintenance capital expenditures were $12.4 million for the quarter and $53.2 million for the year.

Capital employed increased by $37.1 million compared to last quarter and increased by $453.5 million compared to last year

The increase in capital employed compared to last quarter was due to higher right-of-use assets, movements in foreign exchange rates and higher property, plant and equipment. The increase is partially offset by a lower investment in non-cash working capital.

The increase in capital employed compared to last year was due to movements in foreign exchange rates, higher property, plant and equipment and higher right-of-use assets in support of training network expansions. The increase was partially offset by a lower investment in non-cash working capital.

Adjusted backlog up 16% compared to last year


(amounts in millions)	FY2023		FY2022
Obligated backlog, beginning of period	$	4,718.3	$	4,047.4
+ adjusted order intake	2,827.1		2,016.5
- revenue	(2,166.4)		(1,617.8)
+ / - adjustments	176.2		272.2
Obligated backlog, end of period	$	5,555.2	$	4,718.3
Joint venture backlog (all obligated)	175.6		200.9
Adjusted backlog	$	5,730.8	$	4,919.2

Fiscal 2023 adjustments were mainly due to foreign exchange movements, partially offset by contract amendments and the revaluation of prior year contracts.

This quarter's book-to-sales ratio was 1.27x. The ratio for the last 12 months was 1.30x.

CAE Financial Report 2023 I 27

Management’s Discussion and Analysis

5.2 Defense and Security

FISCAL 2023 EXPANSIONS AND NEW INITIATIVES

Expansions

–We entered into a memorandum of understanding (MoU) with MBDA Deutschland to jointly develop virtual simulation environments that support the development, training and use of network-enabled, collaborative effectors to support the Future Combat Air System program and further develop the key technologies required for mission planning, collaborative algorithms and sensor data fusion;

–We entered into a MoU with Boeing to expand their collaboration and explore further teaming opportunities in defence aerospace training, leveraging the strengths, skills and advanced technologies of the two companies with the intent to further enhance innovation and competition through potential joint-offerings. This resulted in multi-mission platform collaboration in Canada, Germany and Norway to provide superior management, technical and cost-effective training solutions for the P-8A Poseidon program.

New programs and products

–The German government announced Boeing’s CH-47F Chinook was selected for the heavy helicopter program. CAE GmbH is a member of Boeing’s Team Chinook providing flight simulation technologies and training support services;

–The Royal Australian Navy awarded the Platforms and Systems Training Contract to CAE Australia Ltd. to deliver sustainable distributed training in support of naval training transformation;

–Piaggio Aerospace to deliver a P.180 Avanti II FFS (Level D) in support of the Italian Air Force;

–The U.S. Army announced Bell Textron’s V-280 was selected as the Future Long Range Assault Aircraft to support Future Vertical Lift. CAE is a member of Team Valor supporting the platform.

FISCAL 2023 ORDERS

Defense and Security was awarded $564.7 million in orders this quarter and $2,029.3 million in total for fiscal 2023, including notable contract awards from:

–L3 Harris to provide Program Management, Integrated Logistics & Support, Data Management System and Embedded Systems Engineering support for the CF-18 Systems Engineering Support Contract to the Royal Canadian Air Force;

–Rotorsim, a joint venture between CAE and Leonardo, to provide the training system in support of the Joint NH90 Training Program Full Mission Flight Trainer Maintenance Upgrade to the Netherlands Ministry of Defence;

–The Commonwealth of Australia for comprehensive training and sustainment support services under the Australian Defence Force ASIST program;

–The Public Works Government Services of Canada to provide a CH-149 Cormorant flight training device and maintenance and logistics support;

–The USAF for the continuation of KDAM training, contractor logistics support, and courseware development;

–The Naval Air Warfare Center Training Systems Division for a non-motion MH-60R Tactical Operational Flight Trainer configured for the Republic of Korea;

–The U.S. Army to continue fixed-wing flight training and support services at the CAE Dothan Training Center. Through a competitive recompete, the US Army also chose to award the program with options through 2032 and the addition of a new suite of technology in the fourth quarter;

–The USAF for the continuation of Initial Flight Training supported at the CAE Pueblo Training Center;

–An international customer for F-16 flight training device upgrades;

–Lockheed Martin to support the development of a C-130J weapons system trainer for the Royal New Zealand Air Force;

–The U.S. Army for advanced instructor pilot training support services to expand the scope of flight training and support services for both aircrew and non-aircrew personnel;

–The U.S. Navy to support T-44C simulator training and instructional services for the Chief of Naval Air Training;

–Lockheed Martin to support the development of a KC-130J weapons system trainer for the U.S. Marine Corp.

FINANCIAL RESULTS


(amounts in millions)		FY2023	FY2022	Q4-2023	Q3-2023	Q2-2023	Q1-2023	Q4-2022
Revenue	$	1,844.2	1,602.1	536.0	452.5	442.4	413.3	469.5
Operating income (loss)	$	35.7	56.0	29.0	24.9	12.1	(30.3)	25.8
Adjusted segment operating income	$	53.1	119.2	30.5	25.4	18.4	(21.2)	36.8
As a % of revenue	%	2.9	7.4	5.7	5.6	4.2	—	7.8



Depreciation and amortization	$	86.8	73.4	23.2	21.7	21.0	20.9	20.1


Property, plant and equipment
expenditures	$	25.4	21.6	11.9	4.8	3.5	5.2	6.0
Intangible asset expenditures	$	28.2	24.9	9.4	5.6	6.4	6.8	6.9
Capital employed	$	2,565.0	2,338.3	2,565.0	2,514.5	2,641.2	2,528.4	2,338.3
Adjusted backlog	$	5,065.6	4,658.3	5,065.6	5,147.5	5,180.8	5,032.4	4,658.3

28 I CAE Financial Report 2023

Management’s Discussion and Analysis

Revenue up 14% compared to the fourth quarter of fiscal 2022

The increase compared to the fourth quarter of fiscal 2022 was mainly due to a higher level of activity on our North American programs and the foreign exchange impact on the translation of our foreign operations.

Revenue was $1,844.2 million this year, $242.1 million or 15% higher than last year

The increase compared to last year was mainly due to the integration into our results of L3H MT, acquired in the second quarter of the prior year, a higher level of activity on our North American programs and the foreign exchange impact on the translation of our foreign operations.

Operating income up 12% compared to the fourth quarter of fiscal 2022

Operating income was $29.0 million (5.4% of revenue) this quarter, compared to $25.8 million (5.5% of revenue) in the fourth quarter of fiscal 2022. This quarter’s operating income included restructuring, integration and acquisition costs of $1.5 million compared to $9.2 million in the fourth quarter of fiscal 2022.

The increase compared to the fourth quarter of fiscal 2022 was mainly due to lower restructuring, integration and acquisition costs, higher margins on our European programs and higher profitability in our joint ventures, partially offset by lower margins on certain North American programs and a lower net benefit from the remeasurement of long-term royalty obligations.

Operating income was $35.7 million this year, $20.3 million or 36% lower than last year

Operating income was $35.7 million (1.9% of revenue) this year, compared to $56.0 million (3.5% of revenue) last year. This year’s operating income included restructuring, integration and acquisition costs of $10.6 million compared to $61.4 million last year.

The decrease compared to last year was driven by lower margins on our North American programs, in part due to unfavourable contract profit adjustments on two U.S. programs in the first quarter of fiscal 2023, and higher selling, general and administrative expenses from higher bid and proposal costs associated with the pursuit of a larger Defense and Security pipeline, partially offset by lower restructuring, integration and acquisition costs and lower net research and development expenses.

Adjusted segment operating income down 17% compared to the fourth quarter of fiscal 2022

Adjusted segment operating income was $30.5 million (5.7% of revenue) this quarter, compared to $36.8 million (7.8% of revenue) in the fourth quarter of fiscal 2022.

The decrease compared to the fourth quarter of fiscal 2022 was mainly due to lower margins on certain North American programs and a lower net benefit from the remeasurement of long-term royalty obligations, partially offset by higher margins on our European programs and higher profitability in our joint ventures.

Adjusted segment operating income was $53.1 million this year, $66.1 million or 55% lower than last year

Adjusted segment operating income was $53.1 million (2.9% of revenue) this year, compared to $119.2 million (7.4% of revenue) last year.

Capital employed increased by $50.5 million compared to last quarter and increased by $226.7 million compared to last year

The increase compared to last quarter was mainly due to a higher investment in non-cash working capital, primarily due to higher contract assets, lower contract liabilities and higher inventories, partially offset by higher accounts payable and accrued liabilities.

The increase compared to last year was mainly due to movements in foreign exchange rates and lower other non-current liabilities.

CAE Financial Report 2023 I 29

Management’s Discussion and Analysis

Adjusted backlog up 9% compared to last year


(amounts in millions)	FY2023		FY2022
Obligated backlog, beginning of period	$	3,153.1	$	2,365.2
+ adjusted order intake	2,029.3		1,923.3
- revenue	(1,844.2)		(1,602.1)
+ / - adjustments	68.5		466.7
Obligated backlog, end of period	$	3,406.7	$	3,153.1
Joint venture backlog (all obligated)	124.6		107.2
Unfunded backlog and options	1,534.3		1,398.0
Adjusted backlog	$	5,065.6	$	4,658.3

Fiscal 2023 adjustments were mainly due to foreign exchange movements, partially offset by contract amendments.

This quarter's book-to-sales ratio was 1.05x. The ratio for the last 12 months was 1.10x.

In fiscal 2023, $821.6 million of unfunded backlog was transferred to obligated backlog and $816.6 million was added to the unfunded backlog.

5.3 Healthcare

FISCAL 2023 EXPANSIONS AND NEW INITIATIVES

Expansions

–We expanded our relationship with the Mayo Clinic College of Medicine and Science, finalizing a significant partnership for our LearningSpace centre management solution for its simulation centre in Rochester, Minnesota;

–Through efforts supported by CARES Act funding and Mon Health hospital system, we increased our presence and visibility in the U.S. to address West Virginia’s increased demand for nurses by introducing three statewide mobile nursing labs that use simulation to train students and healthcare providers;

–We secured several competitive deals with universities and colleges for our advanced patient simulators and our customizable centre management platform, CAE LearningSpace;

–We extended our geographic reach through a multi-location sale in India that included our Human Patient Simulator as well as CAE Luna, CAE Vimedix, CAE Blue Phantom and CAE LearningSpace;

–We were awarded contracts through our OEM program, for future research and development efforts as well as additional simulators to teach pacemaker placement;

–We expanded our relationship with the American Society of Anesthesiologists through a commitment to develop two additional SimSTAT modules for the MoCA.

New programs and products

–We introduced two new enhancements to our LearningSpace centre management platforms with the Standardized Patient Administration module that offers streamlined scheduling and communication with standardized patients via a dedicated mobile application and the updated NextGen Room View that optimizes the video interface for watching live or recorded simulation training sessions;

–We released an update for CAE VimedixAR that features enhanced animation and upgraded components that offers hands-free operation of selected controls for a better user experience.

FINANCIAL RESULTS


(amounts in millions)		FY2023	FY2022	Q4-2023	Q3-2023	Q2-2023	Q1-2023	Q4-2022
Revenue	$	192.7	151.4	59.1	50.4	43.6	39.6	52.8
Operating income (loss)	$	8.0	4.1	8.3	3.8	1.6	(5.7)	9.4
Adjusted segment operating income	$	9.7	10.6	8.5	3.8	1.9	(4.5)	9.6
As a % of revenue	%	5.0	7.0	14.4	7.5	4.4	—	18.2



Depreciation and amortization	$	12.0	13.0	2.2	3.1	3.5	3.2	3.1


Property, plant and equipment
expenditures	$	2.8	3.3	1.5	0.2	0.5	0.6	0.6
Intangible asset expenditures	$	9.6	12.3	2.3	1.9	2.5	2.9	2.6
Capital employed	$	240.8	204.3	240.8	253.6	251.0	220.2	204.3

30 I CAE Financial Report 2023

Management’s Discussion and Analysis

Revenue up 12% compared to the fourth quarter of fiscal 2022

The increase compared to the fourth quarter of fiscal 2022 was mainly due to higher revenue from sales of patient simulators and the foreign exchange impact on the translation of our foreign operations.

Revenue was $192.7 million this year, $41.3 million or 27% higher than last year

The increase compared to last year was mainly due to higher revenue from sales of patient simulators and centre management solutions, driven by growth in our CAE LearningSpace simulation platform, key partnerships with OEMs and the foreign exchange impact on the translation of our foreign operations.

Operating income down 12% compared to the fourth quarter of fiscal 2022

Operating income was $8.3 million (14.0% of revenue) this quarter, compared to $9.4 million (17.8% of revenue) in the fourth quarter of fiscal 2022. This quarter’s operating income included restructuring, integration and acquisition costs of $0.2 million compared to $0.2 million in the fourth quarter of fiscal 2022.

The decrease compared to the fourth quarter of fiscal 2022 was mainly driven by the recognition of a gain on remeasurement of a contingent consideration liability in the prior year and a lower net benefit from the remeasurement of long-term royalty obligations this year. The decrease was partially offset by higher revenue, as described above.

Operating income was $8.0 million this year, $3.9 million or 95% higher than last year

Operating income was $8.0 million (4.2% of revenue) this year, compared to $4.1 million (2.7% of revenue) last year. This year’s operating income included restructuring, integration and acquisition costs of $1.7 million compared to $6.5 million last year.

The increase compared to last year was mainly due to higher revenue, as described above, a favourable product mix and lower restructuring, integration and acquisition costs. The increase was partially offset by higher net research and development expenses due to the recognition of previously unrecognized investment tax credits in the prior year, a gain on remeasurement of a contingent consideration liability in the prior year, and a lower net benefit from the remeasurement of long-term royalty obligations this year.

Adjusted segment operating income down 11% compared to the fourth quarter of fiscal 2022

Adjusted segment operating income was $8.5 million (14.4% of revenue) this quarter, compared to $9.6 million (18.2% of revenue) in the fourth quarter of fiscal 2022.

Adjusted segment operating income was $9.7 million this year, $0.9 million or 8% lower compared to last year

Adjusted segment operating income was $9.7 million (5.0% of revenue) this year, compared to $10.6 million (7.0% of revenue) last year.

The decrease compared to last year was mainly due to higher net research and development expenses due to the recognition of previously unrecognized investment tax credits in the prior year, a gain on remeasurement of a contingent consideration liability in the prior year and a lower net benefit from the remeasurement of long-term royalty obligations this year. The decrease was partially offset by higher revenue, as described above.

Capital employed decreased by $12.8 million compared to last quarter and increased by $36.5 million compared to last year

The decrease compared to last quarter was mainly due to lower non-cash working capital, driven by lower inventories and higher accounts payable and accrued liabilities.

The increase compared to last year was mainly due to higher non-cash working capital, driven by higher accounts receivable and inventories, and movements in foreign exchange rates.

CAE Financial Report 2023 I 31

Management’s Discussion and Analysis

6. CONSOLIDATED CASH MOVEMENTS AND LIQUIDITY

We manage liquidity and regularly monitor the factors that could affect it, including:

–Cash generated from operations, including timing of milestone payments and management of working capital;

–Capital expenditure requirements;

–Scheduled repayments of long-term debt obligations, our credit capacity and expected future debt market conditions.

6.1 Consolidated cash movements


(amounts in millions)	FY2023		FY2022		Q4-2023		Q4-2022
Cash provided by operating activities*	$	522.9	$	395.7	$	158.5	$	83.2
Changes in non-cash working capital	(114.5)		22.5		22.1		123.6
Net cash provided by operating activities	$	408.4	$	418.2	$	180.6	$	206.8
Maintenance capital expenditures5	(62.8)		(55.4)		(14.8)		(16.1)
Change in ERP and other assets	(45.6)		(37.4)		(14.9)		(10.4)
Proceeds from the disposal of property, plant and equipment	5.7		8.4		0.9		0.3
Net (payments to) proceeds from equity accounted investees	(10.9)		(19.4)		(0.4)		0.5
Dividends received from equity accounted investees	40.9		27.1		20.6		6.5

Free cash flow5	$	335.7	$	341.5	$	172.0	$	187.6
Growth capital expenditures5	(206.0)		(216.8)		(48.1)		(58.6)
Capitalized development costs	(87.1)		(55.6)		(22.8)		(15.8)
Net proceeds from the issuance of common shares	16.3		696.1		0.8		0.6

Business combinations, net of cash acquired	(6.4)		(1,883.7)		—		(498.9)
Acquisition of investment in equity accounted investees	—		(4.3)		—		—
Other cash movements, net	(28.7)		7.4		3.1		9.3


Effect of foreign exchange rate changes on cash and cash equivalents	16.4		(16.7)		2.6		(8.8)

Net change in cash before proceeds and repayment of long-term debt	$	40.2	$	(1,132.1)	$	107.6	$	(384.6)
* before changes in non-cash working capital

Net cash provided by operating activities of $180.6 million this quarter

Net cash provided by operating activities was $26.2 million lower compared to the fourth quarter of fiscal 2022. The decrease was mainly due to a lower contribution from non-cash working capital, partially offset by higher net income from operating activities before non-cash items.

Net cash provided by operating activities of $408.4 million this year

Net cash provided by operating activities was $9.8 million lower than the same period last year. The decrease was mainly due to a lower contribution from non-cash working capital, partially offset by higher net income from operating activities before non-cash items.

Free cash flow of $172.0 million this quarter

Free cash flow was $15.6 million lower compared to the fourth quarter of fiscal 2022. The decrease was mainly due to a lower contribution from non-cash working capital, partially offset by higher cash provided by operating activities and higher dividends received from equity accounted investees.

Free cash flow of $335.7 million this year

Free cash flow was stable compared to last year. A lower contribution from non-cash working capital was partially offset by higher cash provided by operating activities.

Property, plant and equipment expenditures were $62.9 million this quarter and $268.8 million for the year

Growth capital expenditures were $48.1 million this quarter and $206.0 million for the year. Maintenance capital expenditures were $14.8 million this quarter and $62.8 million for the year.

5 Non-IFRS financial measure, non-IFRS ratio, capital management measure, or supplementary financial measure. Refer to Section 3.7 “Non-IFRS and other financial measure definitions" and Section 3.9 "Non-IFRS measure reconciliations” of this MD&A for the definitions and reconciliations of these measures to the most directly comparable measure under IFRS.

32 I CAE Financial Report 2023

Management’s Discussion and Analysis

6.2 Sources of liquidity

We have a committed unsecured revolving credit facility at floating rates, provided by a syndicate of lenders. We and some of our subsidiaries can borrow funds directly from this credit facility to cover operating and general corporate expenses and to issue letters of credit.

The total amount available through this revolving credit facility at March 31, 2023 was US$1.0 billion (2022 – US$850.0 million and $300.0 million, available through a Sidecar unsecured revolving credit facility). There was US$320.0 million drawn under the facility as at March 31, 2023 (2022 – US$270.0 million), and US$32.5 million was used for letters of credit (2022 – US$26.6 million). The applicable interest rate on this revolving credit facility is variable, based on the bank’s prime rate, bankers’ acceptance rates or LIBOR/SOFR plus a margin based on the private credit rating.

We have an unsecured Export Development Canada (EDC) Performance Security Guarantee (PSG) account for US$225.0 million (2022 – US$225.0 million). This is an uncommitted revolving facility strictly for the issuance of performance bonds, advance payment guarantees or similar instruments. As at March 31, 2023 the total outstanding for these instruments was $198.5 million (2022 – $182.9 million).

We manage an uncommitted receivable purchase facility of up to US$400.0 million (2022 – US$400.0 million), in which we sell interests in certain of our accounts receivable to third parties for cash consideration. As at March 31, 2023, the carrying amount of the original accounts receivable sold to financial institutions pursuant to the receivable purchase facility totalled $266.7 million (2022 – $213.9 million) of which $42.4 million (2022 – $21.0 million), corresponding to the extent of our continuing involvement, remains in accounts receivable with a corresponding liability included in accounts payable and accrued liabilities.

We have certain debt agreements which require the maintenance of standard financial covenants. As at March 31, 2023, we are compliant with all our financial covenants.

The following table summarizes the long-term debt:


	As at March 31		As at March 31
(amounts in millions)	2023		2022
Total long-term debt	$	3,250.1	$	3,046.2
Less:
Current portion of long-term debt	133.4		142.8
Current portion of lease liabilities	81.2		99.0
Long-term portion of long-term debt	$	3,035.5	$	2,804.4

Term loans

In September 2022, we extended the maturity of our US$175.0 million variable interest-bearing term loan from July 2023 to July 2024.

In March 2023, we repaid a term loan of US$50.0 million.

Revolving credit facility amendments

In October 2022, we amended our US$850.0 million unsecured revolving credit facility to increase the total capacity to US$1.0 billion and extended the maturity by one year to September 2027. In addition, we terminated our $300.0 million Sidecar unsecured revolving credit facility, which had no borrowings and was coming to maturity in April 2023.

Pension obligations

We maintain defined benefit and defined contribution pension plans. Our defined benefit pension plans are considered sufficiently funded. We expect to pay employer contributions and benefits of $35.5 million in fiscal 2024.

6.3 Government participation

We have agreements with various governments whereby the latter contribute a portion of the cost, based on expenditures incurred by CAE, of certain R&D programs for modeling, simulation and training services technology.

During fiscal 2019, we announced a plan to invest in R&D innovations over the next five years, including Project Digital Intelligence. The aim has been to develop the next generation training solutions for aviation, defence and security and healthcare to leverage digital technologies. The Government of Canada, through the Strategic Innovation Fund (SIF), and the Government of Québec, through Investissement Québec (IQ), agreed to participate in the project through interest free loans of up to $150.0 million and $47.5 million, respectively, in relation to eligible costs incurred from fiscal 2019 to fiscal 2023. Government contributions for Project Digital Intelligence ended in fiscal 2023.

CAE Financial Report 2023 I 33

Management’s Discussion and Analysis

During fiscal 2021, we concluded a new financial participation agreement with IQ. Under this agreement, IQ agreed to invest up to $30.0 million in repayable contributions on eligible CAE spending of up to $82.4 million related to Healthcare R&D projects which support CAE's continued development of technologies, products and services that allow to make healthcare safer. Government contributions for this program ended on March 31, 2023.

During fiscal 2022, we concluded new financial participation agreements with the Government of Canada and the Government of Québec who will fund up to $190.0 million and $150.0 million, respectively, in the form of partially repayable loans for eligible spending related to R&D projects. The investments will fund Project Resilience, a plan to invest $1 billion in R&D innovations over the next five years with the aim to develop technologies of the future, including digitally immersive solutions using data ecosystems and AI in Civil Aviation, Defense and Security and Healthcare. The project will also allow CAE to position itself as a leader in end‑to-end technology, operational support and training solutions for AAM, as well as develop green light aircraft technologies.

6.4 Contingencies and commitments

Contingencies

During fiscal 2015, we received tax notices of reassessment from the Canada Revenue Agency (CRA) in connection with our characterization of amounts received under the Strategic Aerospace and Defence Initiative (SADI) program during our 2012 and 2013 taxation years. Under the SADI program, we received funding from the Government of Canada for our eligible spending in R&D projects, in the form of an unconditionally repayable interest-bearing loan, for which we commenced repayment of the principal and interest in fiscal 2016 in accordance with the terms of the agreement. The CRA has taken the position that amounts received under the SADI program qualify as government assistance. We filed notices of objection against the CRA’s reassessments and subsequently filed a notice of appeal to the Tax Court of Canada.

In September 2021, the Tax Court of Canada ruled in favour of the CRA’s contention and held that the amounts received under the SADI program qualified as government assistance. We subsequently filed an appeal to the Federal Court of Appeal against the Tax Court’s decision. In October 2022, the Federal Court of Appeal issued a decision in which it rejected the appeal. In December 2022, we filed an application for leave to appeal to the Supreme Court of Canada.

In May 2023, the Supreme Court of Canada denied the application for leave to appeal. We consider this matter closed as the Supreme Court’s decision cannot be appealed. The outcome did not have a material impact on our consolidated financial statements as at March 31, 2023.

Commitments

We enter into contractual obligations and commercial commitments in the normal course of our business. The table below represents our contractual obligations and commitments for the next five fiscal years and thereafter:


(amounts in millions)	2024		2025		2026		2027		2028		Thereafter		Total
Long-term debt (excluding interest)	$	133.4	$	486.7	$	264.2	$	171.5	$	562.7	$	1,175.7	$	2,794.2
Lease liabilities	104.5		62.7		55.9		51.5		47.6		402.4		724.6
Purchase commitments	297.5		126.6		58.7		62.4		1.9		1.9		549.0
	$	535.4	$	676.0	$	378.8	$	285.4	$	612.2	$	1,580.0	$	4,067.8

As at March 31, 2023, the Company had additional commitments of $80.2 million related to leases not yet commenced that have not been recognized as a lease liability nor included in the table above.

We have purchase commitments related to agreements that are enforceable and legally binding. Most are agreements with subcontractors to provide services for long-term contracts that we have with our clients. The terms of the agreements are significant because they set out obligations to buy goods or services in fixed or minimum amounts, at fixed, minimum or variable prices and at various points in time.

As at March 31, 2023, we had other long-term liabilities that are not included in the table above such as employee benefits obligations and deferred tax liabilities. CAE’s cash obligation in respect of the employee benefits obligations depends on various elements including market returns, actuarial gains and losses and interest rates. We did not include deferred tax liabilities since future payments of income taxes depend on the amount of taxable earnings and on whether there are tax loss carry‑forwards available.

34 I CAE Financial Report 2023

Management’s Discussion and Analysis

7. CONSOLIDATED FINANCIAL POSITION

7.1 Consolidated capital employed


	As at March 31		As at March 31
(amounts in millions)	2023		2022
Use of capital:
Current assets	$	2,235.0	$	2,148.6
Less: cash and cash equivalents	(217.6)		(346.1)

Current liabilities	(2,246.7)		(2,091.2)
Less: current portion of long-term debt	214.6		241.8
Non-cash working capital6	$	(14.7)	$	(46.9)

Property, plant and equipment	2,387.1		2,129.3
Intangible assets	4,050.8		3,796.3
Other long-term assets	1,763.6		1,504.6
Other long-term liabilities	(565.4)		(596.6)
Capital employed	$	7,621.4	$	6,786.7
Source of capital6:
Current portion of long-term debt	$	214.6	$	241.8
Long-term debt	3,035.5		2,804.4
Less: cash and cash equivalents	(217.6)		(346.1)
Net debt6	$	3,032.5	$	2,700.1
Equity attributable to equity holders of the Company	4,507.7		4,009.7
Non-controlling interests	81.2		76.9
Capital employed	$	7,621.4	$	6,786.7

Capital employed increased $834.7 million compared to last year

The increase was mainly due to higher other long-term assets, higher property, plant and equipment and higher intangible assets, as described below.

Return on capital employed (ROCE)6

ROCE was 4.9% this quarter, which compares to 4.3% in the fourth quarter of last year. Adjusted ROCE was 5.7% this quarter, which compares to 6.2% in the fourth quarter of last year and 5.5% last quarter.

Non-cash working capital increased by $32.2 million compared to last year

The increase was mainly due to higher contract assets, higher inventories and higher accounts receivable, partially offset by higher contract liabilities and higher accounts payable and accrued liabilities.

Property, plant and equipment increased by $257.8 million compared to last year

The increase was mainly due to movements in foreign exchange rates and capital expenditures in excess of depreciation.

Intangible assets increased by $254.5 million compared to last year

The increase was mainly due to movements in foreign exchange rates and additions in excess of depreciation.

Other long-term assets increased by $259.0 million compared to last year

The increase was mainly due to a higher investment in equity accounted investees, higher other non-current assets, mainly due to advance payments for property, plant and equipment, higher right-of-use assets in support of training network expansions, primarily due to additions and remeasurements in excess of depreciation, and higher employee benefits assets.

6 Non-IFRS financial measure, non-IFRS ratio, capital management measure, or supplementary financial measure. Refer to Section 3.7 “Non-IFRS and other financial measure definitions" and Section 3.9 "Non-IFRS measure reconciliations” of this MD&A for the definitions and reconciliations of these measures to the most directly comparable measure under IFRS.

CAE Financial Report 2023 I 35

Management’s Discussion and Analysis

Total debt increased by $203.9 million compared to last year

The increase in total debt was mainly due to movements in foreign exchange rates and additions and remeasurements of lease liabilities.

Net debt7 increased by $332.4 million compared to last year


(amounts in millions)		FY2023		FY2022
Net debt, beginning of period	$	2,700.1	$	1,425.4

Impact of cash movements on net debt
(see table in the consolidated cash movements section)		(40.2)		1,132.1
Effect of foreign exchange rate changes on long-term debt		223.3		(28.0)
Impact from business combinations		—		35.1
Non-cash lease liability movements		126.1		112.1
Other		23.2		23.4
Change in net debt during the period	$	332.4	$	1,274.7
Net debt, end of period	$	3,032.5	$	2,700.1

		As at March 31		As at March 31
Liquidity measures		2023		2022
Net debt-to-capital7	%	39.8	%	39.8

Net debt-to-EBITDA7		3.72		4.54

Net debt-to-adjusted EBITDA7		3.41		3.58

Total equity increased by $502.3 million this year

The increase compared to last year was mainly due to changes in other comprehensive income, including foreign currency translation adjustments, and the net income realized this year.

Outstanding share data

Our articles of incorporation authorize the issue of an unlimited number of common shares and an unlimited number of preferred shares issued in series. We had a total of 317,906,290 common shares issued and outstanding as at March 31, 2023 with total share capital of $2,243.6 million. In addition, we had 6,323,537 options outstanding under the Employee Stock Option Plan (ESOP).

As at April 30, 2023, we had a total of 317,946,890 common shares issued and outstanding and 6,279,862 options outstanding under the ESOP.

7.2 Off balance sheet arrangements

In the normal course of business, we manage an uncommitted receivable purchase facility in which we sell interests in certain of our accounts receivable to third parties for cash consideration with limited recourse to CAE.

You will find more details about our financial assets program in Section 6.2 "Sources of Liquidity."

7 Non-IFRS financial measure, non-IFRS ratio, capital management measure, or supplementary financial measure. Refer to Section 3.7 “Non-IFRS and other financial measure definitions" and Section 3.9 "Non-IFRS measure reconciliations” of this MD&A for the definitions and reconciliations of these measures to the most directly comparable measure under IFRS.

36 I CAE Financial Report 2023

Management’s Discussion and Analysis

7.3 Financial instruments

We are exposed to various financial risks in the normal course of business. We enter into forward contracts and swap agreements to manage our exposure to fluctuations in foreign exchange rates, interest rates and share price which have an effect on our share‑based payments costs. We formally assess, both at inception of the hedge relationship and on an ongoing basis, whether the derivatives we use in hedging transactions are highly effective in offsetting changes in cash flows of hedged items in relation to the hedged risk. We enter into these transactions to reduce our exposure to risk and volatility, and not for trading or speculative purposes. We only enter into contracts with counterparties that are of high credit quality.

Classification of financial instruments

We have made the following classifications for our financial instruments:

Financial assets:

–Cash and cash equivalents, restricted cash and derivative instruments not designated as hedging instrument in a hedge relationship, are classified at fair value through profit and loss (FVTPL);

–Accounts receivable, non-current receivables, net investment in finance leases and advances are classified at amortized cost, except for those that are acquired for the purpose of selling or repurchasing in the near term and classified as held for trading which are measured at FVTPL;

–Equity investments are classified at fair value through OCI (FVOCI).

Financial liabilities:

–Accounts payable and accrued liabilities, long-term debt, including interest payable, as well as lease liabilities and royalty obligations are classified at amortized cost;

–Contingent consideration arising on business combinations and derivative instruments not designated as hedging instruments in a hedge relationship are classified at FVTPL.

Fair value of financial instruments

The fair value of a financial instrument is determined by reference to the available market information at the reporting date. When no active market exists for a financial instrument, we determine the fair value of that instrument based on valuation methodologies as discussed below. In determining assumptions required under a valuation model, we primarily use external, readily observable market data inputs. Assumptions or inputs that are not based on observable market data incorporate our best estimates of market participant assumptions. Counterparty credit risk and our own credit risk are taken into account in estimating the fair value of financial assets and financial liabilities.

The following assumptions and valuation methodologies have been used to measure the fair value of financial instruments:

–The fair value of cash and cash equivalents, accounts receivable and accounts payable and accrued liabilities approximate their carrying values due to their short-term maturities;

–The fair value of derivative instruments, which include forward contracts, swap agreements and embedded derivatives accounted for separately and is calculated as the present value of the estimated future cash flows using an appropriate interest rate yield curve and forward foreign exchange rate. Assumptions are based on market conditions prevailing at each reporting date. The fair value of derivative instruments reflect the estimated amounts that we would receive or pay to settle the contracts at the reporting date;

–The fair value of the equity investments, which does not have a readily available market value, is estimated using a discounted cash flow model, which includes some assumptions that are not based on observable market prices or rates;

–The fair value of non-current receivables is estimated based on discounted cash flows using current interest rates for instruments with similar risks and remaining maturities;

–The fair value of long-term debts, royalties obligations and other non-current liabilities are estimated based on discounted cash flows using current interest rates for instruments with similar risks and remaining maturities;

–The fair value of the contingent considerations arising on business combinations are based on the estimated amount and timing of projected cash flows, the probability of the achievement of the criteria on which the contingency is based and the risk-adjusted discount rate used to present value the probability-weighted cash flows.

A description of the fair value hierarchy is discussed in Note 27 of our consolidated financial statements.

Financial risk management

Due to the nature of the activities that we carry out and as a result of holding financial instruments, we are exposed to credit risk, liquidity risk and market risk, including foreign currency risk and interest rate risk. Our exposure to credit risk, liquidity risk and market risk is managed within risk management parameters documented in corporate policies. These risk management parameters remain unchanged since the previous period, unless otherwise indicated.

CAE Financial Report 2023 I 37

Management’s Discussion and Analysis

Credit risk

Credit risk is defined as our exposure to a financial loss if a debtor fails to meet its obligations in accordance with the terms and conditions of its arrangements with CAE. We are exposed to credit risk on our accounts receivable and certain other assets through our normal commercial activities. We are also exposed to credit risk through our normal treasury activities on our cash and cash equivalents and derivative financial assets. Credit risks arising from our normal commercial activities are managed with regards to customer credit risk.

Our customers are mainly established companies, some of which have publicly available credit ratings, as well as government agencies, which facilitates risk assessment and monitoring. In addition, we typically receive substantial non-refundable advance payments for contracts with customers. We closely monitor our exposure to major airline companies in order to mitigate our risk to the extent possible. Furthermore, our trade receivables are held with a wide range of commercial and government organizations and agencies. As well, our credit exposure is further reduced by the sale of certain of our accounts receivable to third-party financial institutions for cash consideration on a limited recourse basis (receivable purchase facility). We do not hold any collateral as security. The credit risk on cash and cash equivalents is mitigated by the fact that they are mainly in place with a diverse group of major North American and European financial institutions.

We are exposed to credit risk in the event of non-performance by counterparties to our derivative financial instruments. We use several measures to minimize this exposure. First, we enter into contracts with counterparties that are of high credit quality. We signed International Swaps & Derivatives Association, Inc. (ISDA) Master Agreements with all the counterparties with whom we trade derivative financial instruments. These agreements make it possible to offset when a contracting party defaults on the agreement, for each of the transactions covered by the agreement and in force at the time of default. Also, collateral or other security to support derivative financial instruments subject to credit risk can be requested by CAE or our counterparties (or both parties, if need be) when the net balance of gains and losses on each transaction exceeds a threshold defined in the ISDA Master Agreement. Finally, we monitor the credit standing of counterparties on a regular basis to help minimize credit risk exposure.

The carrying amounts presented in Note 9 and Note 27 of our consolidated financial statements represent the maximum exposure to credit risk for each respective financial asset as at the relevant dates. A summary of our exposure to credit risk and credit loss allowances for accounts receivable and contract assets by segments is included in Note 29 of our consolidated financial statements.

Client concentration risk

For the year ended March 31, 2023, contracts with the U.S. federal government and its various agencies included in the Defense and Security segment accounted for 22% (2022 – 23%) of consolidated revenue.

Liquidity risk

Liquidity risk is defined as the potential risk that we cannot meet our cash obligations as they become due. We manage this risk by establishing cash forecasts, as well as long-term operating and strategic plans. The management of consolidated liquidity requires a regular monitoring of expected cash inflows and outflows which is achieved through a forecast of our consolidated liquidity position, for efficient use of cash resources. Liquidity adequacy is assessed in view of seasonal needs, stress-test results, growth requirements and capital expenditures, and the maturity profile of indebtedness, including availability of credit facilities, working capital requirements, compliance with financial covenants and the funding of financial commitments. We manage our liquidity risk to maintain sufficient liquid financial resources to fund our operations and meet our commitments and obligations. We also regularly monitor any financing opportunities to optimize our capital structure and maintain appropriate financial flexibility.

Market risk

Market risk is defined as our exposure to a gain or a loss in the value of our financial instruments as a result of changes in market prices, whether those changes are caused by factors specific to the individual financial instruments or its issuer, or factors affecting all similar financial instruments traded in the market. We are mainly exposed to foreign currency risk and interest rate risk.

We use derivative instruments to manage market risk against the volatility in foreign exchange rates, interest rates and share-based payments in order to minimize their impact on our results and financial position. Our policy is not to utilize any derivative financial instruments for trading or speculative purposes.

Foreign currency risk

Foreign currency risk is defined as our exposure to a gain or a loss in the value of our financial instruments as a result of fluctuations in foreign exchange rates. We are exposed to foreign exchange rate variability primarily in relation to certain sale commitments, expected purchase transactions and debt denominated in a foreign currency, as well as on our net investment from our foreign operations which have functional currencies other than the Canadian dollar (in particular the U.S. dollar, Euro and British pound). In addition, these operations have exposures to foreign exchange rates primarily through cash and cash equivalents and other working capital accounts denominated in currencies other than their functional currencies.

We mitigate foreign currency risks by having our foreign operations transact in their functional currency for material procurement, sale contracts and financing activities.

We use forward foreign currency contracts and foreign currency swap agreements to manage our exposure from transactions in foreign currencies. These transactions include forecasted transactions and firm commitments denominated in foreign currencies. Our foreign currency hedging programs are typically unaffected by changes in market conditions, as related derivative financial instruments are generally held until their maturity, consistent with the objective to fix currency rates on the hedged item.

38 I CAE Financial Report 2023

Management’s Discussion and Analysis

Interest rate risk

Interest rate risk is defined as our exposure to a gain or a loss to the value of our financial instruments as a result of fluctuations in interest rates. We bear some interest rate fluctuation risk on our floating rate long-term debt and some fair value risk on our fixed interest long‑term debt. We mainly manage interest rate risk by fixing project-specific floating rate debt in order to reduce cash flow variability. We have floating rate debts through our revolving credit facilities and other specific floating rate debts. A mix of fixed and floating interest rate debt is sought to reduce the net impact of fluctuating interest rates. Derivative financial instruments used to manage interest rate exposures are mainly interest rate swap agreements. As at March 31, 2023, 73% (2022 – 75%) of the long-term debt bears fixed interest rates.

Our interest rate hedging programs are typically unaffected by changes in market conditions, as related derivative financial instruments are generally held until their maturity to establish asset and liability management matching, consistent with the objective to reduce risks arising from interest rate movements.

Hedge of share-based payments expense

We have entered into equity swap agreements with major Canadian financial institutions to reduce our exposure to fluctuations in our share price relating to the cash-settled share-based payments plans. Pursuant to the agreement, we receive the economic benefit of dividends and share price appreciation while providing payments to the financial institutions for the institution’s cost of funds and any share price depreciation. The net effect of the equity swap agreements partly offset movements in our share price impacting the cost of the cash-settled share-based payments plans.

Hedge of net investments in foreign operations

As at March 31, 2023, we have designated a portion of our unsecured senior notes, term loans and revolving credit facility as a hedge of our net investments in U.S. entities. Gains or losses on the translation of the designated portion of these USD denominated long‑term debts are recognized in OCI to offset any foreign exchange gains or losses on translation of the financial statements of those U.S. entities.

A sensitivity analysis for foreign currency risk and interest rate risk is included in Note 29 of our consolidated financial statements.

8. BUSINESS COMBINATIONS

During the year ended March 31, 2023, we completed our assessment of the fair value of assets acquired and liabilities assumed of L3Harris Technologies’ Military Training business (L3H MT) and Sabre’s AirCentre airline operations portfolio (AirCentre) acquired in fiscal 2022.

Adjustments to the purchase price allocations of the L3H MT and AirCentre acquisitions resulted in increases of intangible assets of $27.0 million, other long-term liabilities of $6.4 million, and current liabilities of $4.0 million, and decreases of current assets of $11.9 million, other long-term assets of $2.6 million and deferred tax assets of $2.1 million.

During the year ended March 31, 2023, cash consideration of $6.4 million was paid for an acquisition realized in fiscal 2021.

You will find more details in Note 2 of our consolidated financial statements.

CAE Financial Report 2023 I 39

Management’s Discussion and Analysis

9. BUSINESS RISK AND UNCERTAINTY

Risk strategy and philosophy

We operate in several industry segments which present a variety of risks and uncertainties. Our risk management strategy is forward‑looking and aligned with our business strategy. CAE’s risk-taking activities are undertaken with the understanding that risk‑taking and effective management of risks are necessary and integral to achieving strategic objectives and managing business operations.

When making decisions about risk-taking and risk management, we place the highest priority on the following objectives:

–To protect the health and safety of our employees, customers, stakeholders and the general public;

–To protect our reputation and brand;

–To maintain financial strength;

–To effectively and prudently deploy capital invested by our shareholders; and

–To safeguard the expectations we have established with our shareholders, customers and creditors.

The risks and uncertainties described below are risks that we currently believe could materially and adversely affect our business, financial condition and results of operation. These are not necessarily the only risks we face; additional risks and uncertainties that are presently unknown to us or that we may currently deem immaterial may adversely affect our business. One should carefully consider the following risk factors, in addition to the other information contained herein, before deciding to purchase CAE securities.

Risk governance

We maintain strong risk governance practices. Management and the Board discuss the critical risks facing our business quarterly, annually during the strategic planning and budgeting processes, and on an ad hoc basis, as deemed necessary. To mitigate the risks that may impact our business or future performance, management has established an enterprise risk management (ERM) policy and a framework that provides a structured approach to identify, assess, manage, monitor and report on risks.

This framework relies on the Three Lines Model where the business segments, the risk management function and our internal audit function work in collaboration to manage critical risks and continuously improve the risk management process, as presented below.

CAE’s ERM Framework

Management develops and deploys risk strategies that align with our strategic objectives and business processes. Management continuously reviews the evolution of the critical risks facing our business and the Board oversees the risk management process and validates it through procedures performed by our internal auditors, when it deems necessary.

Risk approach and implementation

CAE promotes a strong risk culture that allows individuals and groups to make better risk-informed decisions aligned with our strategic objectives and risk appetite. A strong risk culture also allows us to maximize opportunities. Early identification of risks also helps CAE be more proactive and prevent major incidents. A strong risk culture and common approach to risk management are integral to our risk management practices.

40 I CAE Financial Report 2023

Management’s Discussion and Analysis

Each business unit and functional group identifies and assesses critical and emerging risks on an ongoing basis. Risk owners are responsible for managing risks they own, and for reporting, via the chain of command, the evolution of their risk profile. All risks are either measured quantitatively or assessed qualitatively and aggregated at an enterprise level. Risk assessment criteria provide a consistent risk assessment process and risk ratings.

CAE’s comprehensive enterprise risk profile is updated on a regular basis as well as when a major shift occurs, such as for significant merger and acquisition activity. It is prepared considering CAE’s strategic and business plans and identifies an owner for each risk. It is presented to the Executive Management Committee, and a summary thereof to the Board together with risk management activities to address such risks. All risks or weaknesses are reported to the Executive Management Committee or the Senior Vice President, Investor Relations and Enterprise Risk Management, who assess their potential impact. Depending on the severity, a risk strategy is selected (risk acceptance, transference, avoidance or reduction), implemented, monitored and reported in accordance with the risk management process.

Risk Categories

We have grouped the risks that our business faces in the following categories and investors should read this Business Risk and Uncertainty section in full:

–Strategic: risks arising from inability to implement appropriate business plans or strategies, from inappropriate decision‑making processes or inappropriate utilization or allocation of resources and the inability to adapt to competition and changes in the market or financial environment;

–Operational: risks of loss arising from inadequate or failed internal processes, people, and systems or from external events;

–Talent: risks arising from failure to effectively manage talent recruitment, development, retention, key person reliance, wellbeing, health and safety, and resource allocation;

–Financial: risks arising from ineffective management of financial tools leading to a loss in revenue/profit, shareholder value and/or CAE’s overall stability;

–Regulatory: risks arising from failure to comply with local and international laws or to identify proper legal protection (e.g., patents) or to implement appropriate corporate governance practices to shield CAE from unfavourable consequences;

–Environmental, Social & Governance: risks arising from environmental, social and/or governance events, conditions or ineffective practices leading to a tarnished reputation, loss of confidence, legal sanctions, or financial impact;

–Reputational: risks of a tarnished reputation and/or loss of confidence and trust with customers and key stakeholders caused by reputational impacting events; and

–Technological: risks arising from ineffective practices related to IT infrastructure, technology investment, cybersecurity and privacy and records retention.

9.1 Strategic Risks

Cybersecurity

CAE could be negatively impacted by threats to the security of its information technology and operational technology systems. CAE is faced with the risk of disruption, loss, theft, misuse, or unauthorized access to pertinent sensitive data (e.g., intellectual property) and confidential information (e.g., customer, partner and employee information) stored on CAE’s systems and technologies and/or those of its partners, suppliers, and vendors and non-compliance with regulatory, legislative and commercial security requirements. Cybersecurity incidents related to our information technology systems, digital platforms and software supply chain are a threat to the integrity, reliability, and availability of technology and data. Cybersecurity incidents may take the form of system failures and non‑availability, software bugs or defects, cyber-attacks, cyber extortion (including ransomware), breaches of systems security, electronic crime, malware, unauthorized attempts to gain access to our proprietary and sensitive information, hacking, phishing, identity theft, theft of intellectual property and confidential information, denial-of-service attacks aimed at causing network failures and services interruption and other cybersecurity threats to our information technology infrastructure and systems.

Continued use of remote work and use of video conferencing and collaborative platforms (initially implemented by CAE in response to the pandemic) has increased the pressure on our information technology infrastructure which, in turn, may increase CAE’s vulnerability to these risks. In addition, subcontractors may, based on the requirements of their participation in our processes, be granted access to our IT platform and software solutions, thereby exposing us to heightened IT and cybersecurity risks.

A successful breach of security of our information systems could lead to theft or misuse of our customers’, employees’, suppliers’, shareholders’, or business contacts’ proprietary, confidential, or personal data information and result in third-party claims against us, reputational harm, regulatory fines or financial loss.

IT, digital and cybersecurity risks could disrupt our operations and cause our airline customers’ operations to be significantly disrupted by having to ground their fleet or delay flights.

Cybersecurity risks include the risk of loss of, corruption of, or unauthorized disclosure or access to business information and data, confidential, classified or restricted information. This may include unauthorized access to information belonging to CAE, our employees, or our business partners, including aircraft OEMs, fixed based operations and customers. These risks expose us to client attrition, non-compliance with privacy legislation or any other laws in effect, litigation, regulatory fines, penalties or regulatory action, compliance costs, corrective measures, investigative or restoration costs, cost hikes to maintain and upgrade technological infrastructures and systems or reputational harm, all of which could have a negative effect on CAE’s operating results, reporting capabilities, profitability and reputation.

CAE Financial Report 2023 I 41

Management’s Discussion and Analysis

Given the highly evolving nature of cyber or other security threats or disruptions and their increased frequency, the impact of any future incident cannot be easily predicted, and the costs related to such threats or disruptions may not be fully insured or indemnified by other means. This is accentuated by the increasing geopolitical stressors. In addition, the digital transformation and the adoption of emerging technologies, such as AI, automation and the increasing use of “frontier” cyber offensive techniques, call for continued focus and investment to manage our risks effectively.

Furthermore, we may experience similar security threats at customer sites that we operate or manage or to which we gain access to deliver services. CAE may be impacted by cybersecurity risks and similar incidents at our customers, suppliers and partners. These parties have varying levels of cybersecurity maturity, expertise and safeguards. In addition, some of these parties may have an elevated threat condition due their involvement in government and defense contracts, which can similarly elevate the risk to CAE and the likelihood of the threats we face.

Geopolitical uncertainty

Geopolitical developments (e.g., political tensions, changes in government commitment, direction and regulatory requirements) can disrupt CAE’s operations and have a significant impact on CAE’s financial position. Throughout fiscal 2023, global uncertainty continued to intensify, and, in some parts of the world, political instability has become more pronounced, protracted and unpredictable. Such rising or persisting geopolitical tensions, policy changes and prolonged political instability in various countries where we have a presence could lead to delays or cancellation of orders, deliveries or projects, difficulties or increased costs related to repatriating capital or the expropriation of assets in which we have invested significant resources, particularly when the customers are state‑owned or state-controlled entities. It is possible that in the markets we serve, unanticipated political instability could impact our operating results and financial position.

Political developments impacting international trade, including trade disputes, increased tariffs and sanctions, particularly potentially conflicting policies from the U.S., European Union, Russia and China with ramifications beyond their borders, may negatively impact markets and cause weaker macroeconomic conditions or drive political or national sentiment, impacting CAE’s operating environment and financial position.

The war in Ukraine and the international response has had, and may continue to have, potential wide-ranging consequences for global market volatility and economic conditions, including energy and commodity prices, which may, in turn, increase inflationary pressures and interest rates. Certain countries, including Canada and the U.S., have imposed strict financial and trade sanctions against Russia, which have had, and may continue to have, far-reaching effects on the global economy and energy and commodity prices. CAE has suspended all services and training to Russian airlines, aircraft operators and healthcare distributors, which has impacted our results of operations in fiscal 2023 and will continue to impact our results going forward. The short, medium and long‑term implications of the war in Ukraine and the potential direct and indirect impacts on CAE remain uncertain and unpredictable. Depending on the extent, duration and severity of the war, it may have the effect of heightening many of the other risks described herein, including, without limitation, the risks of legal action from counterparties in the region to whom we have ceased providing products and/or services in light of the conflict, volatility in financial markets, increase in energy and commodity prices globally, supply shortages, reduced consumer purchasing power, significant disruptions in logistics infrastructure, telecommunications services and risks relating to the unavailability of information technology systems and infrastructure. The resulting impacts to the global economy, financial markets, inflation, interest rates and unemployment, among others, could adversely impact economic and financial conditions. In addition, we may experience other risks, difficulties and challenges in the way we conduct our business and operations generally as a result of the ongoing conflict, including an increased risk of cybersecurity attacks.

Global economic conditions

CAE’s results from operations are sensitive to and may be significantly impacted by changes in the economic conditions of the industries and geographic areas in which we operate. CAE may fail to anticipate and/or react in an agile manner to known and unanticipated global economic conditions (e.g., business cycles, trends, inflation, unemployment, financial soundness, and supplier and consumer confidence). Also, any prolonged or significant impact arising from difficult economic conditions may have an adverse effect on our business, results from operations and financial condition.

Competitive business environment

We sell our simulation products, training services and software solutions in highly competitive international markets and we expect such competition to intensify in the future. CAE may lose its competitive advantage by failing to anticipate and/or react in an agile manner to known and unexpected moves by existing or new competitors. New participants have emerged in recent years and the competitive environment is intense, with aerospace and defence companies positioning themselves to try to take greater market share by consolidating through mergers and acquisitions and vertical integration strategies and by developing their own internal capabilities. Some of our competitors in the simulation and training markets are also involved in other major segments of the aerospace and defence industry beyond simulation and training. As such, some of them are larger than we are, and may have greater financial, technical, marketing, manufacturing and distribution resources and market share which could adversely affect CAE’s ability to compete successfully. In addition, our main competitors are either aircraft manufacturers, or have well-established relationships with aircraft manufacturers, airlines and governments, which may give them an advantage when competing for projects.

42 I CAE Financial Report 2023

Management’s Discussion and Analysis

Moreover, as we expand our product portfolio to software solutions, we face new competitors who are able to leverage a larger installed customer base and their involvement beyond software solutions to adopt more aggressive pricing policies and offer more attractive sales terms, which could cause us to lose potential sales or to sell our software at lower prices. We also face competition from niche companies that offer particular software solutions that attempt to address certain problems that our software solves or certain customer needs. We expect to continue to invest significant resources in research and development to continue to enhance our software solutions and leverage a high level of customer satisfaction, but there is no assurance that we can satisfy customer demands as they evolve.

Finally, economic growth and pressure underlie the demand for all of our products and services. Periods of economic recession, constrained credit, government austerity and/or international commercial sanctions generally lead to heightened competition for demand of our services and products. This in turn, typically leads to a reduction in profit on sales won during such a period. Should such conditions occur, we could experience price and margin erosion.

OEM leverage and encroachment

We secure data, parts, equipment and many other inputs from a wide variety of OEMs, subcontractors and other sources. CAE may lose its competitive advantage by failing to anticipate and/or react in an agile manner to known and unanticipated changes from existing and/or new OEMs. Also, we are not always able to find two or more sources for inputs that we require, and, in the case of specific aircraft simulators and other training equipment, significant inputs can only be sole-sourced. We may therefore be vulnerable to delivery schedule delays, the financial condition of the sole-source suppliers and their willingness to deal with us. Within their corporate groups, some sole-source suppliers include businesses that compete with parts of our business and reap certain critical advantages; an OEM controls the pricing for the data, parts and equipment packages that are often required to manufacture a simulator specific to that OEM’s aircraft, which in turn, is a critical capital cost for any simulation-based training service provider. This could lead to onerous licencing terms, high licence fees or even refusal to licence to us the data, parts and equipment packages that are often required to manufacture and operate a simulator based on an OEM’s aircraft.

CAE, as an independent training provider and simulator manufacturer, has the ability to replicate certain aircraft platforms without data, parts and equipment from the OEM. Where we use an internally produced simulation model for an aircraft or develop courseware without using OEM-sourced and licenced data, parts and equipment, the OEM in question may attempt retaliatory or obstructive actions against us to block the provision of training services or manufacturing, sale and/or deployment for training of a simulator for such aircraft, claiming breach of intellectual property rights or other legal basis. Such actions may cause us to incur material legal fees and/or may delay or prevent completion of the simulator development project or provision of training services, which may negatively impact our financial results.

Similarly, where we use open-source software, freeware or commercial off-the-shelf software from a third party, the third party in question or other persons may attempt retaliatory or obstructive actions against us to block the use of such software or freeware, claiming breach of licence rights or other legal basis. Such actions may cause us to incur material legal fees and/or may delay or prevent completion of the simulator development project or provision of training services, which may negatively impact our financial results.

Inflation

Our operations are vulnerable to increases in costs of significant inputs, such as energy, components, raw materials, and transportation. The global energy crisis, heightened by the conflict in Ukraine, could continue to contribute to global inflation, which has been substantial particularly given recent geopolitical events. Ongoing inflation would further drive up our overall operation costs. We may not be able to pass these higher costs to our customers in full or at all in a timely manner, successfully negotiate requests for equitable adjustment from our government customers, or otherwise offset such unforeseen cost increases through efficiencies and the like, and as a result any significant increases in our costs and/or the failure of our measures to limit their impact could have a material adverse effect on our business, financial condition, prospects and/or results of operations.

International scope of our business

We have operations in over 40 countries including our joint venture operations. We also sell and deliver products and services to customers around the world. Sales to customers outside Canada made up approximately 90% of revenue in fiscal 2023. We expect sales outside Canada to continue to represent a significant portion of revenue in the foreseeable future. As a result, we are subject to the risks inherent in conducting business abroad, including, among other things:

–Change in Canadian and foreign government policies, laws, regulations and regulatory requirements, or the interpretation, application, and/or enforcement thereof;

–Adoption of new, and the expansion of existing tariffs, embargoes, controls, sanctions, trade, work or travel restrictions and other restrictions;

–Recessions and other economic crises in other regions or specific foreign economies and the impact on our cost of doing business in those regions;

–Acts of war, civil unrest, force majeure and terrorism;

–Social and economic instability;

–Risk that inter-governmental relationships may deteriorate such that CAE’s operations in a given country may be negatively impacted;

–Limitations on the CAE’s ability to repatriate cash, funds or capital invested or held in jurisdictions outside Canada;

–Difficulties, delays and expenditures that may be experienced or incurred in connection with the movement and clearance of personnel and goods through the customs and immigration authorities of multiple jurisdictions; and

–Complexity and corruption risks of using foreign representatives and consultants.

CAE Financial Report 2023 I 43

Management’s Discussion and Analysis

While the impact of these risks is difficult to predict, any one of them could adversely affect our financial position, results of operations, reputation and/or cash flows.

Level and timing of defence spending

A significant portion of our revenue is generated by sales to defence and security customers around the world. We provide products and services for numerous programs to Australian, Canadian, European, UAE, U.K., U.S., and other foreign governments as both the prime and/or subcontractor. As defence spending comes from public funds and is always competing with other public interests for funding, there is a risk associated with the level of spending a particular country may devote to defence as well as the timing of defence contract awards, which can be very difficult to predict and may be impacted by numerous factors such as the political environment, foreign policy, macroeconomic conditions, the nature of the international threat environment and the risk of availability of funding influenced by customers’ budget cycles. Fluctuations in defence spending in the markets in which we operate or a significant delay in the timing of defence procurement could have a material negative impact on our future revenue, earnings and operations.

Civil aviation industry

A significant portion of our revenue comes from supplying equipment and training services to the commercial and business airline industries. The civil aviation market is predominantly driven by long-term trends in airline passenger and cargo traffic. The principal factors underlying long-term traffic growth are sustained economic growth and political stability both in developed and emerging markets. Potential impediments to steady growth include acts of terrorism, health crises, natural disasters, the interruption of global mobility, oil price volatility, increased global environmental regulations or other major world events. Commercial flight activity has continued to improve compared to fiscal year 2022, following the COVID-19 pandemic disruption. While we have seen an improvement in East Asia, there is a risk that we may experience a delayed recovery in air travel demand to pre-COVID levels in the event travel restrictions are reinstated. Decreased airline passenger and cargo traffic for an extended period could have a material and adverse effect on our financial and operating performance.

Demand for training solutions in the civil aviation market is further influenced by airline profitability, availability of aircraft financing, OEMs ability to supply aircraft, world trade policies, technological advances, government-to-government relations, national aviation authority regulations, price and other competitive factors, fuel prices and geopolitical environment.

Constraints in the credit market may reduce the ability of airlines and others to purchase new aircraft, negatively affecting the demand for our training equipment and services, and the purchase of our products. In addition, airline consolidations, fleet decisions or financial challenges involving airline customers could impact our revenues and limit our opportunity to generate profits from those customers.

Our ability to penetrate new markets

Penetration of new markets, including as a result of new technologies, represents both a risk and an opportunity for CAE. Success in these markets is by no means assured. As we operate in new markets, unforeseen difficulties, major investments and additional expenditures could arise, which may have an adverse effect on our operations, financial position, profitability and reputation. Penetrating a new market is inherently more difficult than managing within our already established markets. New products and technologies introduced in new markets could also generate unanticipated safety or other concerns resulting in expanded product liability risks, potential product recalls and other regulatory issues that could have an adverse impact on us.

Research and development activities

We carry out some of our R&D initiatives with the financial participation of governments, including the Government of Quebec and the Government of Canada. We also receive investment tax credits from federal and provincial governments in Canada and from the federal government in the U.S. and the U.K. on eligible R&D activities that we undertake. The level of government financial participation and investment tax credits we receive reflects government policy, fiscal policy and other political and economic factors. We may not, in the future, be able to replace these existing programs with programs of comparable benefit to us, which could have a negative impact on our financial performance and R&D activities. Moreover, the investment tax credits available to us can be reduced by changes to the respective governments’ legislation which could have a negative impact on our financial performance and R&D activities. In addition, these credits and programs are routinely subject to review and audit, which may result in challenges and disputes and could result in reductions or reversals of grants, credits or contributions previously received.

Furthermore, our R&D investments in new products or technologies may or may not be successful. Our results may be impacted if we invest in products that are not accepted on the market, if customer demand or preferences change, if new products are not brought to market in a timely manner, if we lack commercial or procurement experience, if we experience delays in obtaining regulatory approvals, or if our products become obsolete. We may also incur cost overruns in developing and bringing to market new products.

Evolving standards and technology innovation and disruption

The civil aviation and defense and security markets in which we operate are characterized by changes in customer requirements, new aircraft models, evolving industry standards, increased power to analyze data and evolving customer expectations influenced by global trends such as climate change, pandemics, the growth of developing markets, population growth and demographic factors. CAE may fail to catch the next wave of market disruption and/or be displaced by disruptive technologies or services due to inadequate resourcing, organization and management of transformation. If we do not accurately predict the needs of our existing and prospective customers, develop new products, enhance existing products and services and invest in and develop new technologies that address those evolving standards and technologies, we may lose current customers and be unable to attract new customers or penetrate new markets successfully. This could reduce our revenue and market share.

44 I CAE Financial Report 2023

Management’s Discussion and Analysis

The evolution of technology could also have a negative impact on the value of our fleet of FFSs or require significant investments to our fleet to update to the evolving technology. The adoption of new technologies, such as AI, machine learning and unmanned aerial systems or remotely piloted aircraft, presents opportunities for us, but may result in new and complex risks. Also, our business could be negatively affected if our products do not successfully integrate or operate with other sophisticated software, hardware, computing and communications systems that are also continually evolving.

Length of sales cycle

The sales cycle for our products and services can be long and unpredictable, ranging from 6 to 18 months for Civil Aviation applications and from 6 to 24 months or longer for Defense and Security applications. During the time when customers are evaluating our products and services, we may incur expenses and management time. Incurring these expenditures in a period that has no corresponding revenue will affect our operating results and financial position. We may pre-build certain products in anticipation of orders to come and to facilitate a faster delivery schedule to gain competitive advantage; if orders for those products do not materialize when expected, we have to carry the pre-built product in inventory for a period of time until a sale is realized.

Business development and awarding of new contracts

We obtain most of our contracts through competitive bidding processes. As the competitive environment intensifies, the number of bid protests may increase. Significant costs and managerial time are required to prepare bids and proposals for contracts that may not ultimately be awarded to CAE or may be split with competitors. A significant portion of our revenue is dependent on obtaining new orders and continued replenishment of our adjusted backlog. We cannot be certain that we will continue to win contracts through competitive bidding processes at the same rate as we have in the past. Moreover, certain foreign governments increasingly rely on certain types of contracts that are subject to multiple competitive bidding processes, including multi-vendor indefinite delivery/indefinite quantity (ID/IQ), General Services Administration Pricing Schedule and other supply chain leveraging strategies, which may result in greater competition and increased pricing pressure. Furthermore, our competitive environment is also affected by a significant number of bid protests from unsuccessful bidders on new program awards. Bid protests can result in contract modifications or the award decision being reversed and loss of the contract award. Even where a bid protest does not result in the loss of an award, the resolution can extend the time until the contract activity can begin, which can reduce our earnings in the period in which the contract would otherwise be performed.

Strategic partnerships and long-term contracts

We have long-term strategic partnerships and contracts with major airlines, aircraft operators and defence forces around the world, including Authorized Training Provider agreements. These long-term contracts are included in our backlog at the awarded amount but could be subject to unexpected adjustments or cancellations and therefore do not represent a guarantee of our future revenues. We cannot be certain that these partnerships and contracts will be renewed on similar terms, or at all, when they expire, and our financial results could be adversely affected by our partners' level of operations, revenue, financial health, contribution and indemnifications. We can make no assurance that customers will fulfill existing purchase commitments, exercise purchase options or purchase additional products or services from CAE.

CAE cannot assure investors that we will effectively manage our growth

Our growth has placed and may continue to place significant demands on our management and operational and financial infrastructure. As our operations grow in size, scope and complexity, and as we identify and pursue new opportunities, we may be subject to both transition and growth-related risks, including capacity constraints and pressure on our internal systems and controls, and may need to increase the scale of our infrastructure (financial, management, informational, personnel and otherwise). There can be no assurance we will be able to respond adequately or quickly enough to the changing demands that material expansion will impose on management, team members and existing infrastructure, and changes to our operating structure may result in increased costs or inefficiencies that we cannot anticipate. Our ability to manage future growth effectively requires us to continue to implement and improve financial, management and operational processes and systems and to expand, train and manage our employee base. As our organization continues to grow and we are required to implement more complex organizational management structures, we may find it increasingly difficult to maintain the benefits of our corporate culture and efficiencies, including our ability to quickly develop and launch new and innovative products. Any of these difficulties could adversely impact our business performance and results of operations.

Estimates of market opportunity

The estimates of market opportunity included in this MD&A, including those we have generated ourselves, are subject to significant uncertainty and are based on assumptions and estimates. While our estimates of the addressable markets included in this report were made in good faith and are based on assumptions and estimates we believe to be reasonable, these estimates may not prove to be accurately indicative of our future growth. Further, even if the estimates of our market opportunity do prove to be accurate, we could fail to capture a significant portion, or any portion, of the available markets.

Competing priorities

Responding to competing priorities as well as critical and time-sensitive matters as they emerge throughout the organization may divert management’s attention from our key strategic priorities, and cause us to reduce, delay, or alter initiatives that could otherwise increase our long-term value.

CAE Financial Report 2023 I 45

Management’s Discussion and Analysis

9.2 Operational Risks

Supply chain disruptions

Unpredictable shifts in supply and demand patterns on a global scale may cause delays in project delivery, increase price pressure from single sourced items and overall project costs and result in declining bid performance. The pandemic and widening geopolitical fractures intensified global supply chain imbalances. Further, conservative and protective behaviours from businesses and governments, such as increasing demand and hoarding, as well as increased competition for critical electrical components and products and commodities, commodity-based products have also intensified. In this context, supply chain disruptions may hinder our ability to execute projects in a timely manner, support aftermarket needs, finish projects or leave us with unsold materials or products, all of which could result in penalties or impacts on contract profitability and could have a material adverse effect on our business, financial condition and results of operations. Delays and volatility specific to our supply chain requirements could ultimately have an overall negative impact on our ability to compete on the market, our client relationships, our growth, reputation, financial performance and cash flows.

Program management and execution

CAE may fail to accurately estimate the resources and costs required to fulfill contract commitments, as well as to effectively manage and control our costs, which may impact our profitability.

When making proposals, we rely heavily on our estimates of costs and timing for completing the associated projects, as well as assumptions regarding technical issues. We may bid on programs for which the work activities, deliverables, and timelines are vague or for which the solicitation incompletely describes the actual work, which may result in inaccurate pricing assumptions. Furthermore, we may realize the lost opportunity cost of not bidding on and winning other contracts that we may have pursued otherwise.

Contracts are often long-term and may involve new technologies, unforeseen events, such as technological difficulties, cost fluctuations, significant inflation, problems with suppliers, and cost overruns. These factors affect the cost estimates of the contracts we bid on, which can result in the contractual price becoming less favourable or even unprofitable for us. Our profitability could also be negatively affected if we continue to experience increased labour/material inflationary pressures, economic headwinds and global supply chain disruptions.

If we experience difficulties or do not meet program milestones, we may be unable to achieve program milestones as currently scheduled and may have to devote more resources than originally anticipated, which may impact timely execution and profitability.

Mergers and acquisitions

CAE may fail to achieve the expected strategy, synergies and outcomes associated with the integration of acquired entities. The realization of anticipated benefits from mergers, acquisitions and related activities depends, in part, upon our ability to integrate the acquired business, the realization of synergies both in terms of successfully marketing our broadened product and service portfolio, efficient consolidation of the operations of the acquired businesses into our existing operations, cost management to avoid duplication, information systems integration, technology investments, staff reorganization, establishment of controls, procedures, and policies, performance of the management team and other personnel of the acquired operations as well as cultural alignment. There can be no assurance that we will realize anticipated synergies, or that we will meet any financial and performance targets provided. In addition, our inability to adequately integrate an acquired business in a timely manner might result in departures of qualified personnel or lost business opportunities which would negatively impact operations and financial results. There are also risks associated with the acquisition of a business where certain legacy liabilities could arise and where there is strong reliance and dependency on certain key suppliers.

Business continuity

CAE may be unable to recover from business interruptions, including pandemics, natural disasters, political/social unrest, terrorism, and IT disruptions including those at third-party suppliers and service providers, in an efficient and timely manner. Such disruptions may cause delays in the execution of certain programs which require us to incur additional non-compensable costs, including overtime work, that are necessary to meet clients’ schedules to avoid penalties or sanctions under contracts or even the cancellation of some contracts. These business interruptions can also have a detrimental effect on our customers’ operations and may lead to aircraft being grounded and flights delayed. Our vulnerability and that of our partners and service providers to security breaches, denial of service attacks or other hacking or phishing attacks has also increased as a result of the COVID-19 pandemic, the increased geopolitical tensions and our recent acquisitions.

Subcontractors

We engage subcontractors for many of our contracts with whom we may have disputes, including with regard to the quality and timeliness of their work, customer concerns, or their failure to comply with applicable laws. Subcontractors may not be able to acquire or maintain the quality of the materials, components, subsystems and services they supply, which might result in greater product returns, service problems and warranty claims. In connection with our government contracts, we may be required to procure certain materials, components and parts from supply sources approved by government authorities and CAE relies on subcontractors and other suppliers to comply with applicable laws, regulations and other requirements regarding procurement of counterfeit, unauthorized or otherwise non-compliant parts or materials. Each of these subcontractor risks could have a material adverse effect on our business, financial condition, results of operations and cash flows.

46 I CAE Financial Report 2023

Management’s Discussion and Analysis

Fixed price and long-term supply contracts

We provide a number of our products and services through fixed-price contracts that enable us, contrary to cost-reimbursable contracts, to benefit from performance improvements, cost reductions and efficiencies, but also require us to absorb cost overruns reducing profit margins or incurring losses if we are unable to achieve estimated costs and revenues. It can be difficult to estimate all of the costs associated with these contracts, including assumptions on future rates of inflation, or to accurately project the level of sales we may ultimately achieve. In addition, a number of contracts to supply equipment and services to commercial airlines and defence organizations are long-term agreements that can run up to 25 years. While some of these contracts can be adjusted for increases in inflation and costs, the adjustments may not fully offset the increases, or we may not be able to successfully negotiate requests for equitable adjustment from our government customers, which could negatively affect the results of our operations. Other contracts involve new technologies and applications and unforeseen events, such as technological difficulties, fluctuations in the price of raw materials, a significant increase in inflation, problems with our suppliers and cost overruns, can result in the contractual price becoming less favourable or even unprofitable to us over time. Some of our programs rely on the supply of OEM systems as specified by our customers and over which we may have limited control over pricing and against which our customer contracts may not sufficiently provision to cover unplanned price increases from such OEMs.

Continued reliance on certain parties and information

Following an acquisition closing date, CAE may remain reliant on the target’s personnel, good faith, expertise, historical performance, technical resources and information systems, timely support, proprietary information and judgment in providing the services to customers under a transitional services agreement. Accordingly, we may continue to be exposed to adverse developments in the business and affairs of parties with which we contract.

Although we strive to conduct a sufficient level of investigation in connection with any acquisition or related transaction, an unavoidable level of risk remains regarding the accuracy, quality and completeness of the information provided to CAE. There may also be liabilities, deficiencies or other claims associated with companies or assets we acquire that we failed to discover or were unable to quantify accurately or at all in our due diligence which may result in unanticipated costs. CAE may not be in a position to independently verify the accuracy or completeness of such information, and there may be events which may have occurred with respect to acquisition targets, or which may affect the completeness or accuracy of the information provided which are unknown to CAE.

9.3 Talent Risks

Talent management

CAE may be unable to attract, develop and retain top talent, key people and critical roles to achieve CAE’s global strategic objectives. To support our growth strategies, objectives and normal business operations, CAE needs to maintain a sufficient, qualified and engaged workforce. Our financial position, global brand reputation and ability to achieve strategic objectives may be negatively affected by a failure to manage attrition, to retain and integrate key personnel, to maintain an appropriately sized workforce to meet contract needs and to transition employees from completed projects to new projects or between internal business groups. Since the pandemic and as broadly reflected in the industry, CAE has been faced with new talent-related challenges and risks, including higher employee mobility, a re-evaluation of employee’s relationship with their workplace and a highly competitive employee marketplace which may make it more difficult to recruit, attract and retain skilled personnel, reducing the availability of our workforce and causing human impacts that may, in turn, negatively impact our business.

Key personnel and management

Our continued success will depend in part on our ability to attract, recruit and retain key personnel and management with relevant skills, expertise and experience, including technology developers of our intellectual property. CAE is dependent on the industry experience, qualifications and knowledge of a variety of employees, including our executive officers, managers and other key employees to execute our business plan and operate our business. If we were to experience a shortfall, illness or a substantial turnover in our leadership or other key employees or teams, our business, results from operations and financial condition could be materially adversely affected. The emergency succession plan put in place to deal with any situation which requires immediate replacement of our key personnel and management presents logistical challenges in its application and incremental costs to CAE. Failure to successfully implement such a succession plan, where relevant, for key roles, could impair our business until qualified replacements are found.

Corporate culture

We believe that a critical contributor to our success has been our corporate culture, which is based on our core values of One CAE, Innovation, Empowerment, Excellence and Integrity. As we continue to grow and develop, we must effectively integrate, develop and motivate a growing number of new employees, based in various countries around the world, some of whom come to us via acquisitions. In addition, we must preserve our ability to execute quickly in further developing our products and services and implementing new features and initiatives. As a result, maintaining our corporate culture could potentially be challenging, which would affect the engagement of our employees and could limit our ability to innovate and operate effectively. Any failure to preserve our culture and evolve it to adapt to our new reality could also negatively affect our ability to recruit and retain personnel, to continue to perform at current levels or to execute on our business strategy effectively and efficiently.

CAE Financial Report 2023 I 47

Management’s Discussion and Analysis

Labour relations

Approximately 2,400 employees are represented by unions and are covered by 55 collective agreements as of March 31, 2023. These differing collective bargaining agreements have various expiration dates, including that of our largest employee group in Montreal, Canada which is expiring in June 2023 and is currently in the process of being renewed. If we experience difficulties with renewals and renegotiations of existing collective agreements or if our employees pursue new collective representation, we could incur additional expenses and may be subject to work stoppages, slow-downs or other labour-related disruptions. Any such expenses or delays could adversely affect our programs served by employees who are covered by such agreements or representation.

9.4 Financial Risks

Availability of capital

We depend, in part, upon our debt funding and access to capital markets. We have various debt facilities, including lease liabilities, with maturities ranging between calendar 2023 and 2053, and we cannot provide assurance that these facilities will be refinanced at the same cost, for the same duration and on similar terms as were previously available. If we require additional debt funding, our market liquidity may not be sufficient considering multiple factors including significant instability or disruptions of the capital markets, a deterioration in or weakening of our financial position due to internal or external factors, restrictions or prohibitions on CAE’s access to these facilities, or significant increase in the cost of one or more of these facilities, including credit facilities or the issuance of medium- and long-term debt, which may adversely affect our ability to fund our operations and contractual or financing commitments.

Our unsecured senior notes, term loans and revolving credit facility include standard events of default and covenant provisions whereby accelerated repayment and/or termination of the agreements may result if we were to default on payment or violate certain covenants. In the event that we are unable to maintain compliance with such covenants, we may have restricted access to capital, and we would be required to obtain amendments or waivers from our lenders, refinance the indebtedness subject to covenants or take other mitigating actions prior to a potential breach.

Customer credit risk

We are exposed to credit risk on accounts receivable from our customers. Adverse changes in a customer's financial condition could cause us to limit or discontinue business with that customer, require us to assume more credit risk relating to that customer's future business, or result in uncollectible trade accounts receivable from that customer. Future credit losses relating to any one of our major customers could be material and could result in a material charge to our financial results.

Foreign exchange

Our operations are global with approximately 90% of our revenue generated from worldwide exports and international activities generally denominated in foreign currencies, mainly the U.S. dollar, the Euro and the British pound. Our revenue is generated approximately 50% in the U.S., and the balance in Europe and the rest of the world.

Three areas of our business are exposed to fluctuations of foreign exchange rates; our global network of training, software and services operations, our production operations abroad (mainly in Germany, and the U.S.) and our production operations in Canada as a significant portion of the revenue generated in Canada is in foreign currencies, while a large portion of our operating costs is in Canadian dollars.

For our Canadian operations, when the Canadian dollar increases in value, it negatively affects the translation of our foreign currency denominated revenue and hence our financial results since results are consolidated in Canadian dollars for financial reporting purposes. However, when the Canadian dollar decreases in value, it negatively affects our foreign currency-denominated costs. Since not all of our revenue is hedged, it is not possible to completely offset the effects of changing foreign currency values, which leaves some residual exposure that may impact our financial results. This residual exposure may be higher when currencies experience significant short-term volatility.

Business conducted through our foreign operations are substantially based in local currencies which are translated to Canadian dollars for financial reporting purposes. Appreciation of foreign currencies against the Canadian dollar would have a positive translation impact and a devaluation of foreign currencies against the Canadian dollar would have the opposite effect.

Effectiveness of internal controls over financial reporting

Our disclosure controls and procedures and internal controls over financial reporting may fail to prevent certain errors and fraud. A control system can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Due to the inherent limitations in control systems, no evaluation of controls can provide absolute assurance that all control issues within an organization are detected. The inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple errors or mistakes. Controls can also be circumvented by individual acts of certain persons, by collusion of two or more people or by management override of the controls. Due to these inherent limitations, misstatements due to error or fraud may occur and may not be detected in a timely manner or at all.

Any failure of our internal controls could have an adverse effect on our results of operations, harm our reputation and limit our ability to produce timely and accurate financial statements or comply with applicable regulations, causing investors to lose confidence in our reported financial information. If we are unable to implement any of the required changes to our internal control over financial reporting effectively or efficiently or are required to do so earlier than anticipated, it could adversely affect our operations, financial reporting and results of operations.

48 I CAE Financial Report 2023

Management’s Discussion and Analysis

Liquidity risk

CAE faces liquidity risks which stem from holding assets that cannot be readily converted to cash when needed. The pandemic and increased geopolitical uncertainty have amplified the unpredictability of business and transaction cycles, thereby bringing uncertainty as to the cash we expect to generate from our operations and our ability to meet financial requirements in the foreseeable future.

Interest rates

We are exposed to risk on the interest rate of our debt. If interest rates increase, our floating rate long-term debt would increase even though the amount borrowed remained the same, and net income and cash flows would decrease, which could materially and adversely affect CAE’s financial condition and operating results. Increasing interest rates may also restrict our ability to expand into new markets if we do not have access to debt or equity capital on acceptable terms, which in turn may negatively affect our competitiveness and results of operations. Similarly, changes in interest rates may negatively affect the ability of our customers to deploy capital or to obtain credit to finance their businesses on acceptable terms, which will impact their demand and ability to pay for our products and services.

Returns to shareholders

Payment of dividends and other cash or capital returns to our shareholders are at the discretion of the Board of Directors and depend on various factors, including our operating cash flows, sources of capital, the satisfaction of solvency tests and other financial requirements, our operations and financial results, as well as our dividend and other policies which may be reviewed from time to time.

No assurance can be given as to whether or when CAE will declare and pay dividends in the future, or the frequency or amount of any such dividend. In addition, there is no assurance that shareholders who currently have their common shares enrolled in CAE’s Dividend Reinvestment Plan (DRIP) will continue to have their common shares participate in the DRIP, which may have an impact on our cash flows.

Estimates used in accounting

Accounting for our contracts, notably contracts for the design, engineering, and manufacturing of training devices, requires judgment associated with estimating contract revenue and costs and assumptions for schedule and technical issues. Because of the significance of the judgments and estimation processes involved in accounting for our contracts, materially different amounts could be recorded if we used different assumptions or if the underlying circumstances were to change. Changes in underlying assumptions, circumstances or estimates may adversely affect our future results of operations and financial condition.

Impairment risk

The carrying amounts of our non-financial assets subject to amortization are tested for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Goodwill and assets that are not yet available for use are tested for impairment annually or at any time if an indicator of impairment exists. Factors that may result in a change in circumstances, indicating that the carrying value of our goodwill or non-financial assets may not be recoverable include reduced future estimated cash flows, slower growth rates than forecasted and a decline in our stock price and market capitalization. Change in key assumptions, such as a failure to meet our five-year strategic plan or other unanticipated circumstances may affect the accuracy or validity of our estimates. Because of the significance of our goodwill and other non-financial assets, any future impairment of these assets could require material non-cash charges to our operating results, which also could have a material adverse effect on our financial condition.

Pension plans

Economic and capital market fluctuations can negatively affect the investment performance, funding and expense associated with our defined benefit pension plans. Pension funding for these plans is based on actuarial estimates and is subject to limitations under applicable regulations. Actuarial estimates prepared during the year were based on, amongst others, assumptions regarding the performance of financial markets, discount rates, inflation rates, future salary increases, estimated retirement ages and mortality rates. The actuarial funding valuation reports determine the amount of cash contributions that we are required to make into registered retirement plans. There can be no assurance that our pension expense and the funding of these plans will not increase in the future, thereby negatively impacting our earnings, cash flow and shareholders' equity.

Indebtedness

CAE may achieve strategic growth objectives by financing costs of acquisitions out of available liquidities, including cash on hand and/or advances or drawdowns under one or more of our revolving credit facility or other debt financing. Such borrowings could have material adverse consequences for CAE, including: limiting our ability to obtain additional financing for working capital, capital expenditures, product development, debt service requirements, acquisitions and general corporate or other purposes; restricting our flexibility and discretion to operate our business; limiting our ability to declare dividends on our common shares; having to dedicate a portion of our cash flows from operations to the payment of interest on our existing indebtedness and not having such cash flows available for other purposes, exposing us to increased interest expense on borrowings at variable rates; limiting our ability to adjust to changing market conditions; placing CAE at a competitive disadvantage compared to our competitors that have incurred less debt; making CAE more vulnerable in a downturn in general economic conditions; increasing our financial expense and reducing our profitability; and making it more difficult for us to satisfy our covenants with respect to our indebtedness. There is no guarantee that we will be able to obtain additional indebtedness or other financing on terms favourable to us or at all in order to repay the principal on such indebtedness when it becomes due.

CAE Financial Report 2023 I 49

Management’s Discussion and Analysis

If we are unable to generate sufficient funds to meet our obligations under our outstanding indebtedness, we may be required to refinance, restructure or otherwise amend or waive some or all of such obligations, sell assets or raise additional cash through additional issuances of our equity. In such case, we cannot make any assurances that we would be able to obtain such refinancing on terms as favourable as our current financing or that amendments or waivers would be obtained, that such restructuring, sales of assets or issuances of equity can be accomplished or, if accomplished, would raise sufficient funds to meet these obligations.

Acquisition and integration costs

We incur a number of costs associated with completing acquisitions and integrating the operations of CAE and acquired companies. The substantial majority of these costs are non-recurring expenses resulting from an acquisition and will consist of transaction costs related to the acquisition, including financial, legal and accounting costs, facilities and systems consolidation costs and employment‑related costs. Such expenses are difficult to estimate accurately and may exceed estimates. We may also fail to accurately forecast the financial impact of an acquisition or other strategic transaction, including tax and accounting charges. Accordingly, the benefits from an acquisition may be offset by unexpected costs incurred in integrating the businesses, which could cause our revenue assumptions to be inaccurate.

Sales of additional common shares

Any future issuance of common shares, or other securities convertible into common shares, may result in dilution to present and prospective common shareholders as well as dilution in earnings per share. CAE cannot predict the size of future issuances of common shares or the effect that future issuances and sales of common shares will have on the market price of the common shares. Issuances of a substantial number of additional common shares (or securities convertible into common shares), or the perception that such issuances could occur, may adversely affect the prevailing market price for the common shares.

Market price and volatility of our common shares

The market price of our common shares may be volatile and subject to wide fluctuations in response to numerous factors, many of which are beyond our control and are unrelated to our performance. There can be no assurance that the market price of the common shares will not experience significant fluctuations in the future, including fluctuations that are unrelated to our performance.

Following a significant decline in the market price of a company’s securities, there may be instances of securities class action litigation being instituted against such company. If we were involved in any similar litigation, we could incur substantial costs, our management’s attention and resources could be diverted and it could harm our business, financial condition, operating results and future prospects.

Seasonality

Our business, revenues and cash flows are affected by certain seasonal trends. In the Civil segment, the level of training delivered is driven by the availability of pilots to train, which tends to be lower in the second quarter as pilots are flying more and training less, thus, driving lower revenues. In the Defense and Security segment, revenue and cash collection is not as consistent across quarters throughout the year as contract awards and availability of funding are influenced by customers’ budget cycles. We expect these trends to continue, but may be disturbed by the volatile geopolitical environment, supply chain and/or labour disruptions.

Taxation matters

We collect and pay significant amounts of taxes to various tax authorities. As our operations are complex and the related tax interpretations, regulations, legislation and jurisprudence that pertain to our activities are subject to continual change and evolving interpretation, the final outcome of the taxation of many transactions is uncertain. Also, a substantial portion of our business is conducted in foreign countries and is thereby subject to numerous countries’ tax laws and fiscal policies. A change in applicable tax laws, treaties or regulations or their interpretation, such as the introduction of Pillar Two Model Rules designed to ensure large multinational enterprises pay a minimum level of tax on income arising in each jurisdiction they operate, could result in a higher effective tax rate on our earnings which could significantly impact our financial results.

Adjusted Backlog

Adjusted backlog represents management’s estimate of the aggregate amount of the revenues expected to be realized in the future. The termination, modification, delay, or suspension of multiple contracts may have a material and adverse effect on future revenues and profitability. We cannot guarantee that the revenues initially anticipated in our new orders will be realized in full, in a timely manner, or at all, or that, even if realized, such revenues will result in profits or cash generation as expected, and any shortfall may be significant.

50 I CAE Financial Report 2023

Management’s Discussion and Analysis

9.5 Regulatory Risks

Data rights and governance

In providing services and solutions to clients, we collect, utilize, store and communicate confidential, personal, classified and proprietary information that may be highly sensitive. Any security breach, improper use and other types of unauthorized access or misappropriation of such information could not only lead to regulatory penalties, audits or investigations by various government agencies relating to our compliance with applicable laws, but also damage to our reputation or loss of confidence in our products and services.

Further, the management, use and protection of personal information (or personal data) are becoming increasingly important, particularly given the high value attributed to such information and the potential exposure to operational risks, reputational risks, and regulatory compliance risks, including compliance with the European Union’s General Data Protection Regulation, the U.K.’s General Data Protection Regulation, Canada’s federal Personal Information Protection and Electronic Documents Act and substantially similar equivalents at the provincial level, the California Consumer Privacy Act, and the proliferation of similar regulatory frameworks in other regions. Compliance with these requirements may prove to be complex and may add to our compliance costs. Further, our use of AI poses evolving risks, including data risks, as we continue to incorporate AI systems into our operations.

U.S. foreign ownership, control or influence mitigation measures

CAE and certain of our subsidiaries are parties to agreements with various departments and agencies of the U.S. government, including the U.S. Department of Defense, which require that these subsidiaries be issued facility security clearances under the U.S. Government National Industrial Security Program. This program requires that any corporation that maintains a facility security clearance be insulated from foreign ownership, control or influence (FOCI) via a mitigation agreement. As a Canadian company, we have entered into a FOCI mitigation agreement with the U.S. Department of Defense that enable these U.S. subsidiaries to obtain and maintain the requisite facility security clearances to enter into and perform on classified contracts with the U.S. government. Specifically, the mitigation agreement is a Special Security Agreement (SSA) for CAE USA Inc. If CAE fails to maintain compliance with the SSA, the facility security clearances for CAE USA Inc. could be terminated. If this occurred, our U.S. subsidiaries would no longer be eligible to enter into new contracts requiring a facility security clearance and could lose the right to perform certain existing contracts with the U.S. government to completion.

Compliance with laws and regulations

CAE operates in a highly regulated environment across many jurisdictions and is subject to, without limitation, laws and regulations relating to import-export controls, trade sanctions, anti-corruption, health and medical devices, national security and aviation safety of each country. These laws and regulations may change without notice, which could impact our sales and operations in ways which we cannot predict. Any change could present opportunities or, to the contrary, have a materially negative effect on our results of operations or financial condition. For instance, changes imposed by a regulatory agency, including changes to safety standards imposed by aviation authorities, could mean that we will not be permitted to sell or licence certain products to customers, which could cause a potential loss of revenue. We could also be required to make unplanned modifications to our products and services, causing delays, higher inventory levels or resulting in postponed or cancelled sales or changes to sales predictions. Our compliance with government import-export regulations (e.g., International Traffic in Arms Regulations) may also be investigated or audited and we can be subject to potential liabilities associated with those matters.

Export control restrictions could also negatively impact our operations. For example, CAE’s technology and services may be subject to export permit approvals and regulatory requirements which could take several months to obtain, thereby resulting in potential delays in obtaining export permits or even preventing us from exporting to certain countries, entities or people in or from a country. Also, failure to comply with export control requirements could lead to fines and/or being excluded from government contracts or subcontracts and reputational damages, which would negatively affect our revenue from operations and profitability and could have a negative effect on our ability to procure other government contracts in the future.

As a contractor to various governments, CAE must comply with procurement regulations and other specific legal requirements. These regulations and other requirements, although often customary in government contracting, increase our contract performance risks and compliance costs and are regularly evolving. In various jurisdictions, governments have been pursuing and may continue to pursue policies that could negatively impact our profitability, including seeking to shift additional responsibility and performance risks to the contractor.

In addition, CAE’s global operations are subject to Canadian and foreign laws and regulations, including, without limitation, the Corruption of Foreign Public Officials Act (Canada), the Foreign Corrupt Practices Act (United States), the U.K. Bribery Act and other anti-corruption laws. Failure by CAE and its employees or by any business partner or supplier working on our behalf to comply with anti-corruption requirements could result in administrative, civil, or criminal liabilities, including suspension and debarment from bidding for or performing government contracts

Insurance coverage potential gaps

CAE products, services and/or operations can result in injury or damage to customers and other third parties, exposing CAE to substantial claims and litigation. Such claims could relate to, among other things, personal injury, loss of life, property damage and financial loss.

CAE Financial Report 2023 I 51

Management’s Discussion and Analysis

As part of its business operations, CAE maintains a certain level of insurance coverage, subject to varying limits, deductibles or retentions. There can be no assurance that the available insurance will be sufficient in limits and comprehensive in scope to respond to potential claims. Our insurance is purchased from a number of third-party insurers, often in layered insurance arrangements. In the event that limits purchased or coverage may be inadequate, CAE may be forced to bear substantial costs, resulting in an adverse impact on our financial condition, cash flows, or operating results. Moreover, any accident, failure of, or defect in our products or services, even if fully indemnified or insured, could significantly impact the cost and availability of adequate insurance in the future.

Product-related liabilities

Simulators, software solutions and other products sold by CAE may contain defects or may be subject to human error which may present a safety risk. Said defects, or human error due to manual input, could result in warranty claims, potential product liability and personal injury claims and/or major disruption in the operations of our customers. CAE may incur significant costs to issue a product recall or to modify or retrofit these products to ensure their safety, whether these are mandated by aviation authorities or otherwise. In addition to litigation and settlement costs related to liability claims, an adverse judgment against CAE or customers’ fleet being grounded due to potential safety risks in our software solutions may cause reputational damage and have a significant adverse effect on our business and operating results.

CAE may also be subject to product liability claims relating to equipment and services of discontinued operations or businesses sold, whereby CAE has retained past liabilities.

Environmental laws and regulations

CAE is exposed to various environmental risks and is subject to complying with environmental laws and regulations which vary from country to country and are subject to change. CAE’s inability to comply with environmental laws and regulations could result in penalties, lawsuits and potential harm to our reputation.

New laws and regulations, stricter enforcement of existing laws and regulations, the discovery of previously unknown contamination, new clean-up requirements or claims on environmental indemnities we committed to may result in us having to incur substantial costs. This could have a materially negative effect on our financial condition and results of operations.

Government audits and investigations

Government agencies routinely audit and investigate government contractors, as well as recipients of government grants and contributions, thereby increasing performance and compliance costs. These agencies may review our performance under our contracts, business processes, cost structure, and compliance with applicable laws, regulations and standards. Our incurred costs for each year are subject to audit by government agencies, which can result in payment demands related to costs they believe should be disallowed or a reduction or reversal of government grants and contributions to R&D programs. Although we work with governments to assess the merits of claims and, where appropriate, reserve for amounts disputed, we could be required to provide repayments to governments which could have a negative effect on our results of operations. We may continue to experience an increased number of audits and challenges to government accounting matters and business systems for current and past years, as well as a lengthened period of time required to close open audits, an increased number of broad requests for information and an increased risk of withholding of payments. If an audit or investigation were to uncover improper or illegal activities, we could be subject to further fines, administrative actions, termination of contracts, forfeiture of profits, suspension of payments or debarment from business with the government. The government could impose additional payment withholds or seek consideration for material not in compliance with associated sourcing standards.

Protection of our intellectual property and brand

We rely, in part, on trade secrets, copyrights and contractual restrictions, such as confidentiality agreements, patents, industrial designs, trademarks, and licences to establish and protect our proprietary rights. These may not be effective in preventing a misuse of our technology or in deterring others from developing similar technologies. We may be limited in our ability to acquire or enforce our intellectual property rights in some countries. Litigation related to our intellectual property rights could be lengthy and costly and could negatively affect our operations or financial results, whether or not we are successful in defending a claim. As the partner of choice elevating safety, efficiency and readiness, our brand is a significant asset. From time to time, we may authorize the use of our brand, under third party licence agreements. Additionally, in certain of our flight training organizations, we outsource some flying to third-party providers, but ultimately remain accountable for their performance operating for our brand. Adverse publicity related to incidents or litigation involving us, our partners or suppliers may impact the value of our brand.

Third-party intellectual property

Our products contain sophisticated software and computer systems that are supplied to us by third parties. Moreover, our production of simulators often depends on receiving confidential or proprietary data on the functions, design and performance of a product or system that our simulators are intended to simulate. Our training systems may also involve the collection and analysis of customer performance data in connection with the use of our training systems. We may not be able to obtain access to such software, systems and data sets on reasonable terms, or at all. Infringement claims could be brought against us or against our customers. We may not be successful in defending these claims and we may not be able to develop certain functionalities, designs, and processes that do not infringe on the rights of third parties, or obtain licences on terms that are commercially acceptable, if at all. The markets in which we operate are subject to extensive patenting by third parties. Our ability to modify existing products or to develop new products and services may be constrained by third-party patents such that we incur incremental costs to licence the use of the patent or design around the claims made therein.

52 I CAE Financial Report 2023

Management’s Discussion and Analysis

Foreign private issuer status

As a “foreign private issuer,” as such term is defined in Rule 405 under the U.S. Securities Act, we are permitted, under a multijurisdictional disclosure system adopted by the securities regulatory authorities in Canada and the U.S., to prepare our disclosure documents filed under the U.S. Securities Exchange Act of 1934, as amended (U.S. Exchange Act), in accordance with Canadian disclosure requirements. Under the U.S. Exchange Act, we are subject to reporting obligations that, in certain respects, are less detailed and less frequent than those of U.S. domestic reporting companies. As a result, we do not file the same reports that a U.S. domestic issuer would file with the U.S. Securities and Exchange Commission (SEC), although we are required to file or furnish to the SEC the continuous disclosure documents that we are required to file in Canada under Canadian securities laws.

In relying on NYSE rules that permit a foreign private issuer to follow the corporate governance practices of its home country, CAE is permitted to follow certain Canadian corporate governance practices instead of those otherwise required under the corporate governance standards for U.S. domestic issuers, except to the extent that such laws would be contrary to U.S. securities laws and provided that we disclose the significant differences between our corporate governance practices and the applicable corporate governance standards applicable to U.S. domestic issuers.

Further, as a foreign private issuer, we are exempt from a number of requirements under U.S. securities laws that apply to public companies that are not foreign private issuers. In particular, we are exempt from the rules and regulations under the Exchange Act related to the furnishing and content of proxy statements, and our officers, directors and principal shareholders are exempt from the reporting and short-swing profit recovery provisions contained in Section 16 of the U.S. Exchange Act. CAE is exempt from the provisions of Regulation FD, which prohibits the selective disclosure of material non-public information to, among others, broker‑dealers and holders of a company’s securities under circumstances in which it is reasonably foreseeable that the holder will trade in our securities on the basis of the information.

Even though Canadian securities law requirements regarding the disclosure of material and non-public information by public companies are similar to U.S. securities law requirements and we voluntarily comply with Regulation FD, these exemptions and leniencies will reduce the frequency and scope of information and protections to which purchasers are entitled as investors. Shareholders should not expect to receive the same information at the same time as such information is provided by U.S. domestic companies. In addition, we have four months after the end of each fiscal year to file our Annual Information Form with the SEC and are not required under the U.S. Exchange Act to file quarterly reports with the SEC as promptly as U.S. domestic companies whose securities are registered under the U.S. Exchange Act would do.

Enforceability of civil liabilities against our directors and officers

CAE is governed by the Canada Business Corporations Act with our principal place of business in Canada. Most of our directors and officers reside in Canada or elsewhere outside the U.S. The majority of our assets and all or a substantial portion of the assets of these directors and officers may be located outside the U.S. Consequently, it may be difficult for investors who reside in the U.S. to effect service of process in the U.S. upon CAE or upon such persons who are not residents of the U.S., or to realize upon judgments of courts of the U.S. predicated upon the civil liability provisions of the U.S. federal securities laws. Similarly, some of CAE’s directors and officers may be residents of countries other than Canada and all or a substantial portion of the assets of such persons may be located outside Canada. As a result, it may be difficult for Canadian investors to initiate a lawsuit within Canada against these persons.

9.6 Environmental, Social & Governance Risks

Extreme climate events and the impact of natural or other disasters (including effects of climate change)

Extreme climate events or natural or other disasters, such as earthquakes, fires, floods and similar events (including effects of climate change) could disrupt our internal operations, damage our infrastructure or properties, endanger our employee's health and safety, impact the availability and cost of materials and resources, decrease air travel, increase insurance and other operating costs and have a material adverse effect on our operating results, financial position or liquidity as well as our business model. In addition, we cannot be certain that our insurance coverage will be sufficient to cover all significant risk exposures. We are exposed to liabilities that are unique to the products and services that we provide. Insurance may not be available, or limits may not be adequate to cover all significant risk exposures.

More acute scrutiny and perception gaps regarding ESG matters

Evolving stakeholder expectations with respect to ESG matters may pose risks to CAE’s competitive advantage, brand and reputation, ability to attract and retain talent, financial outlook, cost of capital, global supply chain and business continuity, which may impact our ability to achieve long-term business objectives. Increased public awareness and growing concerns about climate change (including the “anti-flying” movement and tendencies towards sustainable travel initiatives) and the global transition to a low carbon economy result in a broad range of impacts, including potential risks for CAE and its business partners’ market outlook.

CAE may fail to adequately monitor the emerging risks in a rapidly changing ecosystem and to sufficiently address evolving expectations related to corporate culture, business conduct and ethics, responsible management of its supply chain, transparency, respect for human rights, working and safety conditions as well as diversity and inclusion, among other factors, which could affect corporate profitability and reputation.

Additional ESG-related regulations, changes in reporting frameworks and guidance, emergence of ‘’greenwashing’’ legal actions by activist groups, increasing regulatory expectations as well as continuing reforms pertaining to mandatory disclosure create a new and evolving set of compliance risks. Gaps in perception and acceptability of how ESG factors in shareholder value also call for increased vigilance when it comes to ESG reporting and communication.

CAE Financial Report 2023 I 53

Management’s Discussion and Analysis

More acute generalized scrutiny also adds pressure to secure reliable and precise ESG data with clear accountability across the organization and to deploy robust data collection processes with effective controls that will allow external verification in the near future. A lack of precise, auditable and complete data accurately reflecting the progress on CAE’s multi-year roadmap could hinder our credibility as an ESG leader in the industry.

As CAE’s ESG performance is assessed by proxy advisory agencies, we could also face governance issues if we do not meet their expectations.

9.7 Reputational Risks

Reputational risk

Reputational risk may arise under many situations including, among other things:

–Quality or performance issues on our products or services and new technologies we launch;

–Inability to penetrate new markets or to meet expectations or demand for newly developed products and technologies;

–Failure to maintain ethically and socially responsible operations;

–Relationships or dealings with customers and other counterparties that could expose CAE to ethics, compliance and reputational risks;

–Negative perceptions regarding the defence and security industry and related product and service offerings;

–Injuries or death arising from health and safety incidents during the operation process or training activities; and

–Alleged or proven non-compliance with laws or regulations by our employees, agents, subcontractors, suppliers and/or business partners.

Any negative publicity about CAE or damage to our image and reputation could have a negative adverse impact on customers' and other key stakeholders’ perception and trust, may prevent CAE to recruit necessary talent and may cause the cancellation of current work or negatively influence our ability to obtain contracts. Many of CAE’s other risks intersect with reputational risk and may therefore amplify this risk.

9.8 Technological Risks

Information technology

We depend on information technology infrastructure and systems, hosted internally or outsourced, to conduct day-to-day operations and for the effective operation of our business. In expanding our product portfolio to software solutions and increasing our focus on digital strategy and AI, this dependence on information technology infrastructure and systems has only grown in importance. Our business also requires the appropriate and secure utilization of sensitive and confidential information belonging to third parties such as aircraft OEMs, national defence forces and customers.

Any material interruption in our technology systems could have a material adverse effect on our business, financial condition, prospects and/or results of operations. Similarly, any material technological issue with our software solutions or with the data feeds, infrastructure or systems provided by our suppliers may lead to financial loss and/or impairment in the operations of our customers.

We may, from time to time, replace or update our information technology networks and systems, including the migration of our customers to new environments as part of the transition plan under the AirCentre acquisition. The implementation of, and transition to, new networks and systems can temporarily disrupt our business activities and result in productivity disruptions.

Failure to maintain, upgrade, replace or properly implement such new information technology systems could result in increased risk of a cybersecurity incident and have an adverse effect on operational efficiency, revenue or reputation. In addition, the digital transformation and the adoption of emerging technologies, such as AI and machine learning, call for continued focus and investment to manage our risks effectively.

Reliance on third-party providers for information technology systems and infrastructure management

We have outsourced certain information technology systems maintenance and support services and infrastructure management functions to third-party service providers. If these service providers are disrupted or do not perform effectively, it may have a material adverse impact on our operations and that of our clients. We may also not be able to achieve the expected cost savings and may have to incur additional costs to correct errors made by such service providers. Depending on the function involved, such errors may also lead to business disruption, processing inefficiencies, privacy concerns and/or security vulnerability, and can have a negative impact on our reputation.

Third-party providers services are often subscription-based subjecting us to various subscription pricing models based on market trends, and strategic renegotiation of such agreements can be lengthy.

54 I CAE Financial Report 2023

Management’s Discussion and Analysis

10. RELATED PARTY TRANSACTIONS

A list of principal investments which, in aggregate, significantly impact our results or assets is presented in Note 30 of our consolidated financial statements.

Outstanding balances with our equity accounted investees are as follows:


(amounts in millions)	2023		2022
Accounts receivable	$	59.5	$	49.7
Contract assets	25.6		23.0
Other non-current assets	17.1		12.8
Accounts payable and accrued liabilities	5.7		5.1
Contract liabilities	58.0		46.5
Other non-current liabilities	—		1.5

Transactions with our equity accounted investees are as follows:


(amounts in millions)	2023		2022
Revenue	$	223.0	$	111.8
Purchases	4.6		3.5
Other income	1.2		3.8

Compensation of key management personnel

Key management personnel have the ability and responsibility to make major operational, financial and strategic decisions for CAE and include members of the Board and certain executive officers. The compensation expense of key management for employee services recognized in income are as follows:


(amounts in millions)	2023		2022
Salaries and other short-term employee benefits	$	7.6	$	8.4
Post-employment benefits – defined benefit plans	4.4		2.2

Share-based payments expense	1.7		6.6
	$	13.7	$	17.2

For the year ended March 31, 2023, the compensation earned by non-employee Directors amounted to $2.9 million (2022 – $2.4 million), which include the grant date fair value of deferred share units (DSUs) as well as cash payments.

CAE Financial Report 2023 I 55

Management’s Discussion and Analysis

11. CHANGES IN ACCOUNTING POLICIES

11.1 New and amended standards adopted

Certain amendments to accounting standards were applied for the first time on April 1, 2022 but did not have an impact on our consolidated financial statements.

11.2 New and amended standards not yet adopted

Amendment to IAS 1 and IFRS Practice Statement 2 - Disclosure of accounting policies

In February 2021, the IASB issued an amendment to IAS 1 - Presentation of financial statements and IFRS Practice Statement 2 - Making materiality judgements. The amendments will require the disclosure of material, rather than significant, accounting policy information. For CAE, amendments to IAS 1 and IFRS Practice Statement 2 will be effective for the fiscal period beginning on April 1, 2023.

Amendment to IAS 8 - Accounting policies, changes in accounting estimates and errors

In February 2021, the IASB issued an amendment to IAS 8 - Accounting policies, changes in accounting estimates and errors to introduce a definition of accounting estimates and to help entities distinguish changes in accounting policies from changes in accounting estimates. For CAE, amendments to IAS 8 will be effective for the fiscal period beginning on April 1, 2023.

Amendment to IAS 12 - Income taxes

In May 2021, the IASB issued an amendment to IAS 12 - Income taxes, which narrows the scope exemption when recognizing deferred taxes. In specified circumstances, entities are exempt from recognizing deferred income taxes when they recognize assets or liabilities for the first time. The amendments clarify that the exemption does not apply to transactions in which equal amounts of deductible and taxable temporary differences arise on initial recognition. For CAE, amendments to IAS 12 will be effective for the fiscal period beginning on April 1, 2023. We have concluded our current accounting policies are in line with the amended standard and therefore this amendment will have no impact on its consolidated financial statements.

Amendment to IAS 1 - Presentation of financial statements

In October 2022, the IASB issued an amendment to IAS 1 - Presentation of financial statements, which specifies that covenants to be complied with after the reporting date do not affect the classification of long-term debt as current or non-current at the reporting date. Instead, the standard requires disclosures about these covenants in the notes to the financial statements. For CAE, amendments to IAS 1 will be effective for the fiscal period beginning on April 1, 2023.

11.3 Use of judgements, estimates and assumptions

The preparation of the consolidated financial statements requires management to make judgements, estimates and assumptions that affect the application of accounting policies, the reported amounts of assets and liabilities and disclosures at the date of the consolidated financial statements, as well as the reported amounts of revenues and expenses for the period reported. It also requires management to exercise its judgement in applying accounting policies. The areas involving a high degree of judgement or complexity, or areas where assumptions and estimates are significant to the consolidated financial statements are disclosed below. Actual results could differ from those estimates. Changes will be reported in the period in which they are identified.

Business combinations

Business combinations are accounted for in accordance with the acquisition method as of the date control is transferred. The consideration transferred and the acquiree’s identifiable assets, liabilities and contingent liabilities are measured at their fair value at the date of acquisition, which may be estimated using an income, market or cost valuation method. Depending on the complexity of determining these valuations, we either consult with independent experts or develop the fair value internally by using appropriate valuation techniques which are generally based on a forecast of the total expected future net discounted cash flows. These evaluations are linked closely to the assumptions made by management regarding the future performance of the related assets and the discount rate. Contingent consideration is measured at fair value using a discounted cash flow model.

The judgments made in determining the estimated fair value assigned to the net identifiable assets acquired, as well as the estimated useful life of non-financial assets, could impact the net income of subsequent periods through depreciation and amortization, and in certain instances through impairment charges. We believe that the estimated fair values assigned to the net identifiable assets acquired are based on reasonable assumptions that a marketplace participant would use. While we use our best estimates and assumptions to accurately value the net identifiable assets acquired at the acquisition date, estimates are inherently uncertain and subject to refinement.

To estimate the fair value of the intangible assets of the L3Harris Technologies’ Military Training business and Sabre’s AirCentre airline operations portfolio acquisitions, the multi-period excess earnings method was used to value the customer relationship and the relief from royalty method was used to value the technology and software. Significant judgment is applied in estimating the fair value of customer relationships and the technology acquired, which involves the use of significant assumptions with respect to projected revenue.

56 I CAE Financial Report 2023

Management’s Discussion and Analysis

During the measurement period, for up to 12 months following the acquisition, we recorded adjustments to the initial estimate of the net identifiable assets acquired based on new information obtained that would have existed as of the date of the acquisition. Any adjustment that arises from information obtained that did not exist as of the date of the acquisition will be recorded in the period the adjustment arises.

Development costs

Development costs are recognized as intangible assets and are amortized over their useful lives when they meet the criteria for capitalization. Forecasted revenue and profitability for the relevant projects are used to assess compliance with the capitalization criteria and to assess the recoverable amount of the assets.

Impairment of non-financial assets

Our impairment test for goodwill is based on internal estimates of the recoverable amount of the cash generating unit (CGU) or group of CGUs to which goodwill has been allocated and uses valuation models such as the discounted cash flows model (level 3). Key assumptions on which management based its determination of the recoverable amount include expected growth rates and discount rates. These estimates, including the methodology used, can have a material impact on the respective values and ultimately the amount of any goodwill impairment.

Likewise, whenever property, plant and equipment and intangible assets are tested for impairment, the determination of the assets’ recoverable amount involves the use of estimates by management and can have a material impact on the respective values and ultimately the amount of any impairment.

Revenue recognition

Transaction price allocated to performance obligations

In allocating the transaction price for contracts with multiple performance obligations, we estimate the stand-alone selling price using the expected cost plus a margin approach if they are not directly observable.

Timing of satisfaction of performance obligations

For contracts where revenue is recognized over time using the cost input method, we apply judgement in estimating the work performed to date as a proportion of the total work to be performed. Management conducts monthly reviews of our estimated costs to complete as well as our revenue and margins recognized, on a contract-by-contract basis. The impact of any revisions in cost and revenue estimates is reflected in the period in which the need for a revision becomes known.

Defined benefit pension plans

The cost of defined benefit pension plans and the present value of the employee benefit obligations are determined using actuarial valuations. Actuarial valuations involve, amongst others, making assumptions about discount rates, future salary increases and mortality rates. All assumptions are reviewed at each reporting date. Any changes in these assumptions will impact the carrying amount of the employee benefit obligations and the cost of the defined benefit pension plans. In determining the appropriate discount rate, management considers the interest rates of high quality corporate bonds that are denominated in the currency in which the benefits will be paid, and that have terms to maturity approximating the terms of the related pension liability. The mortality rate is based on publicly available mortality tables for the specific country. Future salary increases and pension increases are based on expected future inflation rates for the specific country. Individual discount rates are derived from the yield curve and are used to determine the service cost and interest cost of the Canadian defined benefit pension plans at the beginning of the year. The present value of the employee benefit obligations for these Canadian plans is determined based on the individual discount rates derived from the yield curve at the end of the year.

Other key assumptions for pension obligations are based, in part, on current market conditions. See Note 19 of our consolidated financial statements for further details regarding assumptions used.

Government royalty repayments

In determining the amount of repayable government royalties, assumptions and estimates are made in relation to expected revenues and the expected timing of revenues. Revenue projections consider past experience and represent management’s best estimate about the future. Revenues after a five-year period are extrapolated using estimated growth rates, ranging from 3.0% to 9.0%, over the period of repayments. These estimates, along with the methodology used to derive the estimates, can have a material impact on the respective values and ultimately any repayable obligation in relation to government participation. A 1% increase to the growth rates would increase the royalty obligations at March 31, 2023 by approximately $1.1 million (2022 - $1.7 million). A 1% decrease to the growth rates would have an opposite impact on the royalty obligations.

Income taxes

We are subject to income tax laws in numerous jurisdictions. Judgement is required in determining the worldwide provision for income taxes. The determination of tax liabilities and assets involves uncertainties in the interpretation of complex tax regulations. We provide for potential tax liabilities based on the weighted average probability of the possible outcomes. Differences between actual results and those estimates could influence the income tax liabilities and deferred tax liabilities in the period in which such determinations are made.

CAE Financial Report 2023 I 57

Management’s Discussion and Analysis

Deferred tax assets are recognized to the extent that it is probable that taxable profit will be available against the losses that can be utilized. Significant management judgement is required to determine the amount of deferred tax assets that can be recognized, based upon the likely timing and the level of future taxable profits together with future tax planning strategies. The recorded amount of total deferred tax assets could be altered if estimates of projected future taxable income and benefits from available tax strategies are lowered, or if changes in current tax regulations are enacted that impose restrictions on the timing or extent of our ability to utilize future tax benefits.

12. INTERNAL CONTROL OVER FINANCIAL REPORTING

The Company has established and maintains disclosure controls and procedures designed to provide reasonable assurance that material information relating to the Company is communicated to the President and Chief Executive Officer and the Executive Vice President, Finance and Chief Financial Officer by others, particularly during the period in which annual and interim filings are prepared, and that information required to be disclosed by the Company in its annual filings, interim filings or other reports filed or submitted by the Company under Canadian and U.S. securities laws is recorded, processed, summarized and reported within the time periods specified under those laws and the related rules.

As of March 31, 2023, management evaluated, under the supervision of and with the participation of the President and Chief Executive Officer and the Executive Vice President, Finance and Chief Financial Officer, the effectiveness of the Company’s disclosure controls and procedures as defined under National Instrument 52-109 adopted by the Canadian Securities Administrators and in Rule 13(a)-15(e) under the U.S. Securities Exchange Act of 1934, as amended, and have concluded that the Company’s disclosure controls and procedures were effective.

The Company has established and maintains internal control over financial reporting, as defined under National Instrument 52-109 and in Rule 13(a)-15(f) under the U.S. Securities Exchange Act of 1934, as amended. The Company’s internal control over financial reporting is a process designed, under the supervision of the President and Chief Executive Officer as well as the Executive Vice President, Finance and Chief Financial Officer, and effected by management and other key CAE personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the Company’s consolidated financial statements for external reporting purposes in accordance with IFRS as issued by the IASB. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Management has assessed the effectiveness of the Company’s internal control over financial reporting as of March 31, 2023 using the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control – Integrated Framework (2013). Based on this assessment, management has determined that the Company’s internal control over financial reporting was effective as of March 31, 2023.

There were no changes in the Company’s internal control over financial reporting that occurred during the fourth quarter and fiscal year 2023 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

13. OVERSIGHT ROLE OF AUDIT COMMITTEE AND BOARD OF DIRECTORS

The Audit Committee reviews our annual MD&A and related consolidated financial statements with management and the external auditor and recommends them to the Board for their approval. Management and our internal auditor also provide the Audit Committee with regular reports assessing our internal controls and procedures for financial reporting. The external auditor reports regularly to management on any weaknesses it finds in our internal control, and these reports are reviewed by the Audit Committee.

14. ADDITIONAL INFORMATION

You will find additional information about CAE, including our most recent AIF, on our website at www.cae.com, or on SEDAR at www.sedar.com or on EDGAR at www.sec.gov.

58 I CAE Financial Report 2023

Management’s Discussion and Analysis

15. SELECTED FINANCIAL INFORMATION

The following table provides selected quarterly financial information for the past three fiscal years.


(amounts in millions, except per share amounts and exchange rates)	Q1		Q2	Q3	Q4	Total
Fiscal 2023
Revenue	$	933.3	993.2	1,020.3	1,256.5	4,203.3
Net income	$	3.7	46.3	80.0	101.9	231.9
Equity holders of the Company	$	1.7	44.5	78.1	98.4	222.7


Non-controlling interests	$	2.0	1.8	1.9	3.5	9.2
Basic and diluted EPS attributable to equity holders of the Company	$	0.01	0.14	0.25	0.31	0.70





Adjusted EPS	$	0.06	0.19	0.28	0.35	0.88

Average number of shares outstanding (basic)	317.1		317.8	317.9	317.9	317.7
Average number of shares outstanding (diluted)	318.2		318.4	318.3	318.7	318.4
Average exchange rate, U.S. dollar to Canadian dollar	1.28		1.30	1.36	1.35	1.32
Average exchange rate, Euro to Canadian dollar	1.36		1.31	1.38	1.45	1.38
Average exchange rate, British pound to Canadian dollar	1.61		1.54	1.59	1.64	1.59
Fiscal 2022
Revenue	$	752.7	814.9	848.7	955.0	3,371.3
Net income	$	47.3	17.2	28.4	57.1	150.0
Equity holders of the Company	$	46.4	14.0	26.2	55.1	141.7


Non-controlling interests	$	0.9	3.2	2.2	2.0	8.3
Basic EPS attributable to equity holders of the Company	$	0.16	0.04	0.08	0.17	0.46


Diluted EPS attributable to equity holders of the Company	$	0.16	0.04	0.08	0.17	0.45


Adjusted EPS	$	0.19	0.17	0.19	0.29	0.84

Average number of shares outstanding (basic)	293.6		316.5	316.9	317.0	311.0
Average number of shares outstanding (diluted)	295.8		318.7	318.7	318.5	312.9
Average exchange rate, U.S. dollar to Canadian dollar	1.23		1.26	1.26	1.27	1.25
Average exchange rate, Euro to Canadian dollar	1.48		1.48	1.44	1.42	1.46
Average exchange rate, British pound to Canadian dollar	1.72		1.74	1.70	1.70	1.71
Fiscal 2021
Revenue	$	550.5	704.7	832.4	894.3	2,981.9
Net (loss) income	$	(110.0)	(6.0)	49.7	18.8	(47.5)
Equity holders of the Company	$	(110.6)	(5.2)	48.8	19.8	(47.2)


Non-controlling interests	$	0.6	(0.8)	0.9	(1.0)	(0.3)
Basic and diluted EPS attributable to equity holders of the Company	$	(0.42)	(0.02)	0.18	0.07	(0.17)





Adjusted EPS	$	(0.11)	0.13	0.22	0.22	0.47
Average number of shares outstanding (basic)	265.7		265.8	271.7	285.2	272.0

Average number of shares outstanding (diluted)	265.7		265.8	273.0	287.3	272.0
Average exchange rate, U.S. dollar to Canadian dollar	1.39		1.33	1.30	1.27	1.32
Average exchange rate, Euro to Canadian dollar	1.53		1.56	1.55	1.53	1.54
Average exchange rate, British pound to Canadian dollar	1.72		1.72	1.72	1.75	1.73

Selected annual information for the past three fiscal years


(amounts in millions, except per share amounts and exchange rates)	2023		2022		2021









Financial position:
Total assets	$	10,436.5	$	9,578.8	$	8,748.4
Total non-current financial liabilities(1)	3,179.6		2,959.9		2,330.3
Total net debt	3,032.5		2,700.1		1,425.4

(1) Includes long-term debt, long-term derivative liabilities and other long-term liabilities meeting the definition of a financial liability.

CAE Financial Report 2023 I 59

CAE INC.

CONSOLIDATED FINANCIAL STATEMENTS


Management’s Report on Internal Control Over Financial Reporting			61
Report of Independent Registered Public Accounting Firm			62
Consolidated Financial Statements
Consolidated income statement			64
Consolidated statement of comprehensive income			65
Consolidated statement of financial position			66
Consolidated statement of changes in equity			67
Consolidated statement of cash flows			68
Notes to the Consolidated Financial Statements
Note 1 - Nature of operations and summary of significant accounting policies			69


Note 2 - Business combinations			84

Note 3 - Operating segments and geographic information			86
Note 4 - Other (gains) and losses			88
Note 5 - Restructuring, integration and acquisition costs			89
Note 6 - Finance expense - net			89
Note 7 - Income taxes			89
Note 8 - Share capital and earnings per share			91
Note 9 - Accounts receivable			92
Note 10 - Balance from contracts with customers			92
Note 11 - Inventories			92
Note 12 - Property, plant and equipment			93
Note 13 - Intangibles assets			93
Note 14 - Leases			95
Note 15 - Other non-current assets			96
Note 16 - Accounts payable and accrued liabilities			96
Note 17 - Provisions			97
Note 18 - Debt facilities			97
Note 19 - Employee benefits obligations			98
Note 20 - Other non-current liabilities			101
Note 21 - Supplementary cash flows information			102
Note 22 - Accumulated other comprehensive income			102
Note 23 - Share-based payments			102
Note 24 - Employee compensation			105
Note 25 - Government participation			105

Note 26 - Contingencies and commitments			105
Note 27 - Fair value of financial instruments			106
Note 28 - Capital risk management			108
Note 29 - Financial risk management			108
Note 30 - Related party relationships			113
Note 31 - Related party transactions			116

60 | CAE Financial Report 2023

Management’s Report on Internal Control Over Financial Reporting

The management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting. The Company’s internal control over financial reporting is a process designed, under the supervision of and with the participation of the President and Chief Executive Officer as well as the Executive Vice President, Finance and Chief Financial Officer, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the Company’s consolidated financial statements for external reporting purposes in accordance with International Financial Reporting Standards (IFRS), as issued by the International Accounting Standards Board (IASB).

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

The effectiveness of the Company’s internal control over financial reporting as of March 31, 2023 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report included herein.

/s/ Marc Parent /s/ Sonya Branco

President and Chief Executive Officer Executive Vice President, Finance and Chief Financial Officer

May 31, 2023

CAE Financial Report 2023 | 61

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Shareholders of CAE Inc.

Opinions on the Financial Statements and Internal Control over Financial Reporting

We have audited the accompanying consolidated statements of financial position of CAE Inc. and its subsidiaries (together, the Company) as of March 31, 2023 and 2022, and the related consolidated statements of income, comprehensive income, changes in equity and cash flows for the years then ended, including the related notes (collectively referred to as the consolidated financial statements). We also have audited the Company’s internal control over financial reporting as of March 31, 2023, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of March 31, 2023 and 2022, and its financial performance and its cash flows for the years then ended in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of March 31, 2023, based on criteria established in Internal Control – Integrated Framework (2013) issued by the COSO.

Basis for Opinions

The Company’s management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.

Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

Definition and Limitations of Internal Control over Financial Reporting

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

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

62 | CAE Financial Report 2023

Critical Audit Matters

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Revenue recognition – Estimated costs to complete certain contracts in the Defense and Security and Civil Aviation segments

As described in Notes 1, 3 and 10 to the consolidated financial statements, the Company recognizes revenue from contracts with customers for the design, engineering, and manufacturing of training devices over time using the cost input method when the Company determines that these devices have a sufficient level of customization such that they have no alternative use and the Company has enforceable rights to payment for work completed to date. For the year ended March 31, 2023, a portion of total consolidated revenue of the Defense and Security and Civil Aviation segments in the amounts of $1,844.2 million and $2,166.4 million respectively were related to revenue recognized from contracts with customers over time using the cost input method. The measure of progress toward complete satisfaction of the performance obligation is generally determined by comparing the actual direct costs incurred to date to the total estimated direct costs for the entire contract. Management applies judgment in estimating the work performed to date as a proportion of the total work to be performed.

The principal considerations for our determination that performing procedures relating to revenue recognition for estimated costs to complete certain contracts in the Defense and Security and Civil Aviation segments is a critical audit matter are that there was judgment applied by management in determining the estimated costs to complete the contracts. This in turn led to a high degree of auditor judgment and effort in performing procedures and evaluating audit evidence related to the cost assumptions applied by management in determining the estimated costs to complete the contracts.

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to the revenue recognition process including controls over the determination of estimated costs to complete the contracts. These procedures also included, among others, testing management’s process for determining estimated costs to complete the contracts in the Defense and Security and Civil Aviation segments for a sample of contracts, which included testing the completeness, accuracy and relevance of the data used in the estimate of the work performed to date as a proportion of the total work to be performed, and evaluating the reasonableness of cost assumptions used by management.

Evaluating the reasonableness of cost assumptions used by management involved assessing, on a sample basis, management’s ability to reasonably estimate costs to complete contracts by comparing changes in estimated costs with the prior year estimate or estimated costs to complete contracts for new contracts; performing a lookback analysis to assess variances between actual and estimated costs for completed contracts; and performing procedures to evaluate the timely identification of circumstances which may warrant a modification to a previous cost estimate.

/s/PricewaterhouseCoopers LLP1

Montréal, Canada

May 31, 2023

We have served as the Company’s auditor since 1991.

_____________________________________________________________________________________________

1 CPA auditor, public accountancy permit No. A123498

CAE Financial Report 2023 | 63

Consolidated Financial Statements

Consolidated Income Statement



Years ended March 31
(amounts in millions of Canadian dollars, except per share amounts)	Notes		2023		2022
Revenue	3	$	4,203.3	$	3,371.3
Cost of sales			3,037.0		2,415.8
Gross profit		$	1,166.3	$	955.5
Research and development expenses			143.1		120.8
Selling, general and administrative expenses			560.9		489.1
Other (gains) and losses	4		(22.8)		(37.0)
Share of after-tax profit of equity accounted investees	3		(53.2)		(48.5)
Restructuring, integration and acquisition costs	5		64.3		146.9
Operating income		$	474.0	$	284.2


Finance expense – net	6		177.7		130.6
Earnings before income taxes		$	296.3	$	153.6
Income tax expense	7		64.4		3.6


Net income		$	231.9	$	150.0
Attributable to:
Equity holders of the Company		$	222.7	$	141.7
Non-controlling interests			9.2		8.3

Earnings per share attributable to equity holders of the Company
Basic	8	$	0.70	$	0.46


Diluted	8	$	0.70	$	0.45

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

64 | CAE Financial Report 2023

Consolidated Financial Statements

Consolidated Statement of Comprehensive Income



Years ended March 31
(amounts in millions of Canadian dollars)	Notes		2023		2022
Net income		$	231.9	$	150.0
Items that may be reclassified to net income
Foreign currency exchange differences on translation of foreign operations		$	331.1	$	(101.4)
Net (loss) gain on hedges of net investment in foreign operations			(112.6)		15.8
Reclassification to income of gains on foreign currency exchange differences			(6.4)		(4.7)
Net loss on cash flow hedges			(14.0)		(6.0)
Reclassification to income of gains on cash flow hedges			(5.5)		(7.0)
Income taxes	7		9.9		(2.0)
		$	202.5	$	(105.3)
Items that will never be reclassified to net income
Remeasurement of defined benefit pension plan obligations	19	$	74.2	$	125.6
Net loss on financial assets carried at fair value through OCI			—		(0.1)
Income taxes	7		(19.7)		(33.4)
		$	54.5	$	92.1
Other comprehensive income (loss)		$	257.0	$	(13.2)
Total comprehensive income		$	488.9	$	136.8
Attributable to:
Equity holders of the Company		$	475.6	$	129.8
Non-controlling interests			13.3		7.0

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

CAE Financial Report 2023 | 65

Consolidated Financial Statements

Consolidated Statement of Financial Position



As at March 31
(amounts in millions of Canadian dollars)	Notes		2023		2022
Assets
Cash and cash equivalents		$	217.6	$	346.1

Accounts receivable	9		615.7		556.9
Contract assets	10		693.8		608.3
Inventories	11		583.4		519.8
Prepayments			64.1		56.7
Income taxes recoverable			48.3		33.2
Derivative financial assets			12.1		27.6

Total current assets		$	2,235.0	$	2,148.6
Property, plant and equipment	12		2,387.1		2,129.3
Right-of-use assets	14		426.9		373.0
Intangible assets	13		4,050.8		3,796.3
Investment in equity accounted investees	30		530.7		454.0
Employee benefits assets	19		51.1		—
Deferred tax assets	7		125.1		117.4
Derivative financial assets			9.2		10.5
Other non-current assets	15		620.6		549.7
Total assets		$	10,436.5	$	9,578.8

Liabilities and equity
Accounts payable and accrued liabilities	16	$	1,036.7	$	975.1
Provisions	17		26.7		36.7
Income taxes payable			21.1		22.7
Contract liabilities	10		905.7		788.3
Current portion of long-term debt	18		214.6		241.8

Derivative financial liabilities			41.9		26.6

Total current liabilities		$	2,246.7	$	2,091.2
Provisions	17		20.1		20.6
Long-term debt	18		3,035.5		2,804.4
Royalty obligations			119.4		126.0
Employee benefits obligations	19		91.9		109.7
Deferred tax liabilities	7		129.3		93.7
Derivative financial liabilities			6.5		1.0
Other non-current liabilities	20		198.2		245.6
Total liabilities		$	5,847.6	$	5,492.2
Equity
Share capital	8	$	2,243.6	$	2,224.7
Contributed surplus			42.1		38.6
Accumulated other comprehensive income	22		167.2		(31.2)
Retained earnings			2,054.8		1,777.6
Equity attributable to equity holders of the Company		$	4,507.7	$	4,009.7
Non-controlling interests			81.2		76.9
Total equity		$	4,588.9	$	4,086.6
Total liabilities and equity		$	10,436.5	$	9,578.8

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

66 | CAE Financial Report 2023

Consolidated Financial Statements

Consolidated Statement of Changes in Equity


		Attributable to equity holders of the Company
		Common shares					Accumulated other							Non-
(amounts in millions of Canadian dollars,		Number of	Stated		Contributed		comprehensive			Retained			controlling			Total
except number of shares)	Notes	shares	value		surplus		income (Note 22)			earnings		Total	interests			equity


Balances as at March 31, 2021		293,355,463	$	1,516.2	$	22.5	$	58.1	$	1,543.7	$	3,140.5	$	72.3	$	3,212.8
Net income		—	$	—	$	—	$	—	$	141.7	$	141.7	$	8.3	$	150.0
Other comprehensive (loss) income		—		—		—		(104.1)		92.2		(11.9)		(1.3)		(13.2)






Total comprehensive (loss) income		—	$	—	$	—	$	(104.1)	$	233.9	$	129.8	$	7.0	$	136.8
Issuance of common shares upon conversion of
subscription receipts	8	22,400,000		677.2		12.5		—		—		689.7		—		689.7

Exercise of stock options	23	1,268,660		31.3		(4.2)		—		—		27.1		—		27.1
Share-based payments expense	23	—		—		7.8		—		—		7.8		—		7.8
Transfer of realized cash flow hedge losses related
to business combinations		—		—		—		14.8		—		14.8		—		14.8
Transactions with non-controlling interests		—		—		—		—		—		—		(2.4)		(2.4)


Balances as at March 31, 2022		317,024,123	$	2,224.7	$	38.6	$	(31.2)	$	1,777.6	$	4,009.7	$	76.9	$	4,086.6


Net income		—	$	—	$	—	$	—	$	222.7	$	222.7	$	9.2	$	231.9
Other comprehensive income		—		—		—		198.4		54.5		252.9		4.1		257.0






Total comprehensive income		—	$	—	$	—	$	198.4	$	277.2	$	475.6	$	13.3	$	488.9


Exercise of stock options	23	882,167		18.9		(2.6)		—		—		16.3		—		16.3


Share-based payments expense	23	—		—		6.1		—		—		6.1		—		6.1


Transactions with non-controlling interests		—		—		—		—		—		—		(9.0)		(9.0)


Balances as at March 31, 2023		317,906,290	$	2,243.6	$	42.1	$	167.2	$	2,054.8	$	4,507.7	$	81.2	$	4,588.9

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

CAE Financial Report 2023 | 67

Consolidated Financial Statements

Consolidated Statement of Cash Flows


Years ended March 31
(amounts in millions of Canadian dollars)	Notes		2023		2022
Operating activities
Net income		$	231.9	$	150.0
Adjustments for:
Depreciation and amortization	3		342.2		310.5
Impairment (reversal) of non-financial assets – net	3		(2.4)		41.8
Share of after-tax profit of equity accounted investees			(53.2)		(48.5)
Deferred income taxes			10.4		(32.4)
Investment tax credits			(5.4)		(27.5)
Share-based payments expense			(10.3)		6.4
Defined benefit pension plans			4.8		13.7
Other non-current liabilities			(15.9)		(65.9)
Derivative financial assets and liabilities – net			(2.5)		11.3


Other			23.3		36.3
Changes in non-cash working capital	21		(114.5)		22.5
Net cash provided by operating activities		$	408.4	$	418.2
Investing activities
Business combinations, net of cash acquired	2	$	(6.4)	$	(1,883.7)

Acquisition of investment in equity accounted investees	30		—		(4.3)

Property, plant and equipment expenditures	12		(268.8)		(272.2)
Proceeds from disposal of property, plant and equipment			5.7		8.4
Advance payments for property, plant and equipment			(30.1)		—


Intangible assets expenditures	13		(126.4)		(90.6)
Net payments to equity accounted investees			(10.9)		(19.4)
Dividends received from equity accounted investees			40.9		27.1
Other			(4.7)		(2.4)
Net cash used in investing activities		$	(400.7)	$	(2,237.1)
Financing activities


Net proceeds from borrowing under revolving credit facilities	18	$	44.5	$	344.6
Proceeds from long-term debt	18		31.2		429.1
Repayment of long-term debt	18		(161.0)		(132.1)
Repayment of lease liabilities	18		(83.4)		(89.5)

Net proceeds from the issuance of common shares			16.3		696.1


Other			(0.2)		7.4
Net cash (used in) provided by financing activities		$	(152.6)	$	1,255.6
Effect of foreign currency exchange differences on cash and cash equivalents		$	16.4	$	(16.7)
Net decrease in cash and cash equivalents		$	(128.5)	$	(580.0)
Cash and cash equivalents, beginning of year			346.1		926.1
Cash and cash equivalents, end of year		$	217.6	$	346.1

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

68 | CAE Financial Report 2023

Notes to the Consolidated Financial Statements

(Unless otherwise stated, all tabular amounts are in millions of Canadian dollars)

The consolidated financial statements were authorized for issue by the board of directors on May 31, 2023.

NOTE 1 – NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of operations

CAE equips people in critical roles with the expertise and solutions to create a safer world. As a technology company, CAE digitalizes the physical world, deploying software-based simulation training and critical operations support solutions.

CAE Inc. and its subsidiaries’ (CAE or the Company) operations are managed through three segments:

(i)Civil Aviation – Provides comprehensive training solutions for flight, cabin, maintenance and ground personnel in commercial, business and helicopter aviation, a complete range of flight simulation training devices, ab initio pilot training and crew sourcing services, as well as aircraft flight operations solutions;

(ii)Defense and Security – A platform-independent training and simulation solutions provider, preparing global defence and security forces for the mission ahead;

(iii)Healthcare – Provides healthcare students and clinical professionals integrated physical, digital and virtual education and training solutions, including interventional and imaging simulations, curricula, mixed-reality and digital learning, audiovisual debriefing solutions, centre management platforms and patient simulators.

CAE Inc. is a limited liability company incorporated and domiciled in Canada. The address of the main office is 8585 Côte-de-Liesse, Saint-Laurent, Québec, Canada, H4T 1G6. CAE common shares are traded on the Toronto Stock Exchange (TSX) and on the New York Stock Exchange (NYSE).

Basis of preparation

The key accounting policies applied in the preparation of these consolidated financial statements are described below. These policies have been consistently applied to all years presented, unless otherwise stated.

The consolidated financial statements have been prepared in accordance with Part I of the CPA Canada Handbook – Accounting and International Financial Reporting Standards (IFRS), as issued by the International Accounting Standards Board (IASB).

The consolidated financial statements have been prepared under the historical cost convention, except for the following items measured at fair value: contingent consideration, derivative financial instruments, financial instruments at fair value through profit and loss, financial instruments at fair value through other comprehensive income (OCI) and liabilities for cash-settled share-based arrangements.

Basis of consolidation

Subsidiaries

Subsidiaries are all entities over which the Company has control. Control exists when the Company is exposed to, or has the right to, variable returns from its involvement with the entity and has the ability to affect those returns through the power over the entity. Subsidiaries are fully consolidated from the date control is obtained and they are no longer consolidated on the date control ceases. All intercompany accounts and transactions have been eliminated.

Joint arrangements

Joint arrangements are arrangements in which the Company exercises joint control as established by contracts requiring unanimous consent for decisions about the activities that significantly affect the arrangement’s returns. When the Company has the rights to the net assets of the arrangement, the arrangement is classified as a joint venture and is accounted for using the equity method. When the Company has rights to the assets and obligations for the liabilities relating to an arrangement, the arrangement is classified as a joint operation and the Company accounts for each of its assets, liabilities and transactions, including its share of those held or incurred jointly, in relation to the joint operation.

Under the equity method of accounting, interests in joint ventures are initially recognized at cost and adjusted thereafter to recognize the Company’s share of the profits or losses and movements in OCI of the investee. When the Company’s share of losses in a joint venture equals or exceeds its interests in the joint ventures, the Company does not recognize further losses, unless it will incur obligations or make payments on behalf of the joint ventures.

Unrealized gains resulting from transactions with joint ventures are eliminated, to the extent of the Company’s share in the joint venture. For sales of products or services from the Company to its joint ventures, the elimination of unrealized profits is considered in the carrying value of the investment in equity accounted investees in the consolidated statement of financial position and in the share in profit or loss of equity accounted investees in the consolidated income statement.

CAE Financial Report 2023 | 69

Notes to the Consolidated Financial Statements

Business combinations

Business combinations are accounted for under the acquisition method. The consideration transferred for the acquisition of a subsidiary is the fair value of the assets transferred, the liabilities incurred and the equity interests issued by the Company, if any, at the date control is obtained. The consideration transferred includes the fair value of any liability resulting from a contingent consideration arrangement. Acquisition-related costs, other than share and debt issue costs incurred to issue financial instruments that form part of the consideration transferred, are expensed as incurred. Identifiable assets acquired and liabilities assumed in a business combination are measured initially at their fair value at the acquisition date. If a business combination is achieved in stages, the Company remeasures its previously held interest in the acquiree at its acquisition-date fair value and recognizes the resulting gain or loss, if any, in income.

Contingent consideration classified as a liability is measured at fair value, with subsequent changes recognized in income. If the contingent consideration is classified as equity, it is not remeasured and its subsequent settlement is recorded within equity.

New information obtained during the measurement period, up to 12 months following the acquisition date, about facts and circumstances existing at the acquisition date affect the acquisition accounting.

Non-controlling interests

Non-controlling interests (NCI) represent equity interests in subsidiaries owned by outside parties. The share of net assets of subsidiaries attributable to non-controlling interests is presented as a component of equity. Changes in the Company’s ownership interest in subsidiaries that do not result in a loss of control are accounted for as equity transactions.

The Company treats transactions with non-controlling interests as transactions with equity owners of the Company. For interests purchased from non-controlling interests, the difference between any consideration paid and the relevant share acquired of the carrying value of net assets of the subsidiary is recorded in equity. Gains or losses on disposals of non-controlling interests are also recorded in equity.

Financial instruments and hedging relationships

Recognition, classification and measurement

A financial instrument is any contract that gives rise to a financial asset in one entity and a financial liability or equity instrument in another entity. Financial assets and financial liabilities, including derivatives, are recognized in the consolidated statement of financial position when the Company becomes a party to the contractual provisions of the financial instrument. On initial recognition, all financial instruments are measured at fair value.

Financial instruments are subsequently measured based on their classification, which are:

–Financial instruments measured at amortized cost;

–Financial instruments measured at fair value through profit or loss (FVTPL);

–Financial instruments measured at fair value through other comprehensive income (FVOCI).

Financial assets

A financial asset is measured at amortized cost if it meets both of the following conditions:

– The asset is held within a business model whose objective is to hold assets to collect contractual cash flows; and

– The contractual terms of the financial asset give rise, on specific dates, to cash flows that are solely payments of principal and interest (SPPI) on the principal amount outstanding.

Financial assets at amortized cost are subsequently measured using the effective interest rate (EIR) method and are subject to impairment. Gains and losses are recognized in income when the asset is derecognized, modified or impaired. The Company’s financial assets at amortized cost include accounts receivable and advances to a portfolio investment.

Financial assets at FVTPL include financial assets held for trading, financial assets designated upon initial recognition at fair value through profit or loss, and financial assets mandatorily required to be measured at fair value. Financial assets are classified as held for trading if they are acquired for the purpose of selling or repurchasing in the near term. Derivatives, including separated embedded derivatives, are also classified as held for trading unless they are designated as effective hedging instruments. Financial assets with cash flows that are not SPPI are classified and measured at FVTPL, irrespective of the business model. Financial assets at FVTPL are carried in the statement of financial position at fair value with net changes in fair value recognized in the income statement. The Company’s financial assets at FVTPL include cash and cash equivalents, and derivative instruments not designated as hedging instruments in a hedge relationship.

Financial assets at FVOCI are equity investments the Company has irrevocably elected to classify at FVOCI. This classification is determined on an instrument-by-instrument basis. Gains and losses on these financial assets are never transferred to income. Dividends are recognized in the income statement when the right of payment has been established, except when the Company benefits from such proceeds as a recovery of part of the cost of the financial asset, in which case, such gains are recorded in OCI.

Financial assets are not reclassified subsequent to their initial recognition, unless the Company changes its business model for managing a specific financial asset.

70 | CAE Financial Report 2023

Notes to the Consolidated Financial Statements

Financial liabilities

Financial liabilities at FVTPL include financial liabilities held for trading and financial liabilities designated upon initial recognition at FVTPL. Financial liabilities are classified as held for trading if they are incurred for the purpose of repurchasing in the near term. This category also includes derivative financial instruments that are not designated as hedging instruments in a hedge relationship. Separated embedded derivatives are also classified as held for trading unless they are designated as effective hedging instruments.

Financial liabilities at FVTPL are carried in the statement of financial position at fair value with net changes in fair value recognized in the income statement. The Company’s financial liabilities measured at FVTPL include contingent liabilities arising on business combinations and also derivative instruments not designated as hedging instruments in a hedge relationship.

Financial liabilities at amortized cost are subsequently measured using the EIR method. Gains and losses are recognized in income when the liabilities are derecognized as well as through the EIR amortization process. The Company’s financial liabilities at amortized cost include accounts payables, accrued liabilities, long-term debt, including interest payable, and royalty obligations.

Transaction costs

Transaction costs that are directly related to the acquisition or issuance of financial assets and financial liabilities (other than those classified as FVTPL and FVOCI) are included in the fair value initially recognized for those financial instruments. These costs are amortized to income using the EIR method.

Offsetting of financial assets and financial liabilities

Financial assets and financial liabilities are offset and the net amount is presented in the consolidated statement of financial position when the Company has an unconditional and legally enforceable right to set off the recognized amounts and intends to settle on a net basis or to realize the assets and settle the liabilities simultaneously.

Hedge accounting

The Company uses derivative financial instruments, such as forward currency contracts, cross currency swaps and interest rate swaps to hedge its foreign currency risks and interest rate risks, respectively. A hedging relationship qualifies for hedge accounting when it meets all of the following effectiveness requirements:

–There is ‘an economic relationship’ between the hedged item and the hedging instrument;

–The effect of credit risk does not ‘dominate the value changes’ that result from that economic relationship;

–The hedge ratio of the hedging relationship is the same as that resulting from the quantities of:

–The hedged item that the Company actually hedges; and

–The hedging instrument that the Company actually uses to hedge that quantity of hedged item.

For the purpose of hedge accounting, hedges are classified as:

–Cash flow hedges when hedging the exposure to variability in cash flows that is either attributable to a particular risk associated with a recognized asset or liability or a highly probably forecast transaction or the foreign currency risk in an unrecognized firm commitment;

–Hedges of a net investment in a foreign operation;

–Fair value hedges when hedging the exposure to changes in the fair value of a recognized asset or liability or an unrecognized firm commitment.

Documentation

At the inception of a hedge relationship, the Company formally documents the designation of the hedge, the risk management objectives and strategy, the hedging relationship between the hedged item and hedging item and the method for testing the effectiveness of the hedge, which must be reasonably assured over the term of the hedging relationship and can be reliably measured. The Company formally assesses, both at inception of the hedge relationship and on an ongoing basis, whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in fair values or cash flows of hedged items in relation to the hedged risk.

Cash flow hedge

The effective portion of changes in the fair value of derivative instruments that are designated and qualify as cash flow hedges is recognized in OCI, while the ineffective portion is recognized immediately in income. Amounts accumulated in OCI are reclassified to income in the period in which the hedged item affects income. However, when the forecasted transactions that are hedged items result in recognition of non-financial items, gains and losses previously recognized in OCI are included in the initial carrying value of the related non-financial assets acquired or liabilities incurred. The deferred amounts are ultimately recognized in income as the related non-financial items are derecognized or amortized.

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

CAE Financial Report 2023 | 71

Notes to the Consolidated Financial Statements

Hedge of net investments in foreign operations

The Company has designated certain long-term debts as a hedging item of the Company’s overall net investments in foreign operations whose activities are denominated in a currency other than the Company’s functional currency. The portion of gains or losses on the hedging item that is determined to be an effective hedge is recognized in OCI and is limited to the translation gain or loss on the net investment.

Derecognition

Financial assets

A financial asset is derecognized when:

–The rights to receive cash flows from the asset have expired; or

–The Company has transferred its rights to receive cash flows from the asset and either has transferred substantially all the risks and rewards of the asset or has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset.

The Company is involved in a program in which it sells interests in certain of its accounts receivable. The Company continues to act as a collection agent. Under the program the Company transfers some significant risks and rewards of the accounts receivable it sells and retains others. The accounts receivable are derecognized up to an amount corresponding to the extent of the Company's continuing involvement, which represents its maximum retained exposure.

Impairment of financial assets

The Company uses the expected credit loss (ECL) model for calculating impairment of financial assets and recognizes expected credit losses as loss allowances for assets measured at amortized cost. ECLs are based on the difference between the contractual cash flows due in accordance with the contract and all the cash flows that the Company expects to receive, discounted at the original or credit adjusted effective interest rate. ECLs are recognized in two stages. For credit exposures for which there has not been a significant increase in credit risk since initial recognition, ECLs are provided for credit losses that result from default events that are possible within the next 12-months (a 12-month ECL). For those credit exposures for which there has been a significant increase in credit risk since initial recognition, a loss allowance is required for credit losses expected over the remaining life of the exposure, irrespective of the timing of the default (a lifetime ECL).

For trade receivables and contract assets, the Company applies the simplified approach permitted by IFRS 9, which requires expected lifetime losses to be recognized from initial recognition of the assets.

Financial liabilities

A financial liability is derecognized when the obligation under the liability is discharged, cancelled or expired.

When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and the recognition of a new liability, and the difference in the respective carrying amounts is recognized in the income statement.

Foreign currency translation

Foreign operations

CAE Inc.’s consolidated financial statements are presented in Canadian dollars, which is also the parent company’s functional currency. The functional currency of each of the Company’s subsidiaries is the currency of the primary economic environment in which they operate. Determination of the functional currency may involve certain judgements to determine the primary economic environment in which the subsidiary operates. Assets and liabilities of subsidiaries that have a functional currency other than the Canadian dollar are translated from their functional currency to Canadian dollars at exchange rates in effect at the reporting date. Revenue and expenses are translated at the average exchange rates. The resulting translation adjustments are included in OCI.

When CAE Inc. and its subsidiaries have a long-term intercompany balance receivable from or payable to a foreign operation for which settlement is not planned in the foreseeable future, such item is considered, in substance, a part of the Company’s net investment in that foreign operation. Gains or losses arising from the translation of those intercompany balances denominated in foreign currencies are also included in OCI.

Transactions and balances

Monetary assets and liabilities denominated in foreign currencies are translated at the prevailing exchange rate at the reporting date. Non-monetary assets and liabilities, and revenue and expense items denominated in foreign currencies are translated into the functional currency using the exchange rate prevailing at the dates of the respective transactions. Foreign exchange gains and losses resulting from the settlement of such transactions are recognized in income, except when deferred in OCI as qualifying cash flow hedges and qualifying net investment hedges.

72 | CAE Financial Report 2023

Notes to the Consolidated Financial Statements

Cash and cash equivalents

Cash and cash equivalents consist of cash and highly-liquid investments with original terms to maturity of 90 days or less at the date of purchase.

Accounts receivable

Receivables are initially recognized at fair value and are subsequently carried at amortized cost, net of credit loss allowances, based on expected recoverability. The amount of the allowance is the difference between the asset’s carrying amount and the present value of the estimated future cash flows, discounted at the original effective interest rate. The loss is recognized in income. Subsequent recoveries of amounts previously provided for or written-off are recognized in income.

Inventories

Raw materials are valued at the lower of average cost and net realizable value. Spare parts to be used in the normal course of business are valued at the lower of cost, determined on a specific identification basis, and net realizable value.

Work in progress is stated at the lower of cost, determined on a specific identification basis, and net realizable value. The cost of work in progress includes material, labour and an allocation of manufacturing overhead, which is based on normal operating capacity.

Net realizable value is the estimated selling price in the ordinary course of business, less estimated costs of completion and the estimated costs necessary to generate revenue. In the case of raw materials and spare parts, the replacement cost is the best measure of net realizable value.

Property, plant and equipment

Property, plant and equipment are recorded at cost less any accumulated depreciation and impairment losses. Costs include expenditures that are directly attributable to the acquisition or manufacturing of the item. The cost of an item of property, plant and equipment that is initially recognized includes, when applicable, the initial present value estimate of the costs required to dismantle and remove the asset and restore the site on which it is located at the end of its useful life. Purchased software that is integral to the functionality of the related equipment is capitalized as part of that equipment. Subsequent costs, such as updates on training devices, are included in the asset’s carrying amount or recognized as a separate asset only when it is probable that future economic benefits will flow to the Company and the cost of the item can be reliably measured; otherwise, they are expensed.

A loss on disposal is recognized in income when the carrying value of a replaced item is derecognized, unless the item is transferred to inventories. If it is not practicable to determine the carrying value, the cost of the replacement and the accumulated depreciation calculated by reference to that cost will be used to derecognize the replaced part. The costs of day-to-day servicing of property, plant and equipment are recognized in income as incurred. Gains and losses on disposal of property, plant and equipment are determined by comparing the proceeds from disposal with its carrying amount, and are recognized within other gains and losses.

The different components of property, plant and equipment are recognized separately when their useful lives are materially different and such components are depreciated separately in income.

Land is not depreciated. The estimated useful lives, residual values and depreciation methods are as follows:


	Method	Depreciation rate/period
Buildings and improvements	Declining balance/Straight-line	2.5% to 10%/3 to 40 years
Simulators	Straight-line (10% residual)	Not exceeding 25 years
Machinery and equipment	Declining balance/Straight-line	20% to 35%/2 to 15 years
Aircraft	Straight-line (residual not exceeding 15%)	Not exceeding 25 years
Aircraft engines	Based on utilization	Not exceeding 3500 hours

As at March 31, 2023, the average remaining depreciation period for full-flight simulators is 11.6 years (2022 – 11.8 years).

Depreciation methods, useful lives and residual values are reviewed and adjusted, if appropriate, on a prospective basis at each reporting date.

Leases

At inception of a contract, the Company assesses whether a contract is, or contains, a lease. A contract is, or contains, a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration.

The Company as a lessee

The Company recognizes a right-of-use asset and liability at the lease commencement date. The right-of-use asset is initially measured at cost, which comprises the initial amount of the lease liability adjusted for any lease payments made at or before the commencement date, plus any initial direct costs incurred and an estimate of costs to dismantle and remove the underlying asset or to restore the underlying asset or the site on which it is located, less any lease incentives received.

CAE Financial Report 2023 | 73

Notes to the Consolidated Financial Statements

The right-of-use asset is subsequently depreciated from the commencement date to the earlier of the end of the useful life of the right-of-use asset or the end of the lease term. If it is reasonably certain that the Company will obtain ownership by the end of the lease term through a purchase option, the leased asset is depreciated over its useful life. The depreciation periods, residual values (only applicable when it is reasonably certain that the Company will obtain ownership by the end of the lease term) and depreciation methods are as follows:


	Method	Depreciation period
Buildings and land	Straight-line	Not exceeding 40 years
Simulators	Straight-line (10% residual)	Not exceeding 25 years
Machinery and equipment	Straight-line	Not exceeding 7 years
Aircraft	Straight-line (residual not exceeding 15%)	Not exceeding 25 years
Aircraft engines	Based on utilization	Not exceeding 3500 hours

In addition, the right-of-use asset is reduced by impairment losses, if any, and adjusted for certain remeasurements of the lease liability.

The lease liability is initially measured at the present value of the lease payments at the commencement date, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, the lessee’s incremental borrowing rate. Lease payments comprise of fixed payments, including in-substance fixed payments, variable lease payments that depend on an index or a rate, amounts expected to be payable under a residual value guarantee, the exercise price under a purchase option that the Company is reasonably certain to exercise, lease payments in an optional renewal period that the Company is reasonably certain to exercise and penalties for early termination of a lease if the Company is reasonably certain to terminate.

The lease liability is subsequently measured at amortized cost using the effective interest method and is remeasured when there is a change in future lease payments arising from a change in an index or rate, the estimate of the amount expected to be payable under a residual value guarantee or the Company’s assessment of whether it will exercise a purchase, renewal or termination option. When the lease liability is remeasured in this way, a corresponding adjustment is made to the carrying amount of the right-of-use asset or is recorded in profit or loss if the carrying amount of the right-of-use asset has been reduced to zero.

Lease modifications

A lease modification is a change in the scope of a lease, or the consideration for a lease, that was not part of its original terms and conditions. A lease modification is accounted for as a separate lease if the modification increases the scope of the lease by adding the right to use one or more underlying assets and the consideration for the lease increases by an amount commensurate with the stand-alone price that reflects the circumstances of the contract. Any other modification is not accounted for as a separate lease.

For a lease modification resulting in a decrease in the scope of the lease, the lease liability is remeasured, using a revised discount rate, to reflect the modified lease payments and the carrying amount of the right-of-use asset is reduced to reflect the partial or full termination of the lease. The difference between the reduction in the lease liability and the reduction in the corresponding right-of-use asset’s carrying value is recognized in profit or loss.

For all other lease modifications, the lease liability is remeasured, using a revised discount rate, to reflect the modified lease payments, with a corresponding adjustment to the right-of-use asset.

Short-term leases and leases of low-value assets

The Company recognizes the payments associated with short-term leases and leases of low-value assets as an expense on a straight-line basis over the lease term.

Sale and leaseback transaction

In a sale and leaseback transaction the transfer of an asset is recognized as a sale when the customer has obtained control of the underlying asset which is aligned with the Company’s revenue recognition policy, otherwise the Company continues to recognize the transferred asset on the balance sheet and record a financial liability equal to the proceeds transferred. When the transfer of an asset satisfies the Company’s revenue recognition policy to be accounted for as revenue, a partial recognition of the profit from the sale is recorded immediately after the sale, which is equivalent to the proportion of the asset not retained by the Company through the lease. The proportion of the asset retained by the Company through the lease is recognized as a right-of-use asset and the lease liability is measured as the present value of future lease payments.

The Company as a lessor

The Company determines, at lease commencement, whether each lease is a finance or an operating lease. Leases in which substantially all the risks and rewards of ownership are transferred are classified as finance leases. All other leases are accounted for as operating leases.

With regards to finance leases, the asset is derecognized at the commencement of the lease. The net present value of the minimum lease payments and any discounted unguaranteed residual values of leased assets are presented as investment in finance leases. Finance income is recognized over the term of the lease based on the effective interest method. Revenue from operating leases is recognized on a straight-line basis over the term of the corresponding lease.

74 | CAE Financial Report 2023

Notes to the Consolidated Financial Statements

When the Company subleases one of its leases it accounts for its interests in the head lease and the sub-lease separately. It assesses the lease classification of a sub-lease with reference to the right-of-use asset arising from the head lease, not with reference to the underlying asset.

Intangible assets

Goodwill

Goodwill is measured at cost less accumulated impairment losses, if any.

Goodwill arises on the acquisition of subsidiaries. Goodwill represents the excess of the aggregate of the cost of an acquisition, including the Company’s best estimate of the fair value of contingent consideration and the acquisition-date fair value of any previous held equity interest in the acquiree, over the fair value of the net identifiable assets of the acquiree at the acquisition date.

Gains and losses on the disposal of an entity include the carrying amount of goodwill allocated to the entity sold.

Research and development (R&D)

Research costs are expensed as incurred. Development costs are also charged to income in the period incurred unless they meet all the specific capitalization criteria established in IAS 38, Intangible Assets. Capitalized development costs are stated at cost and net of accumulated amortization and accumulated impairment losses, if any. Amortization of the capitalized development costs commences when the asset is available for use as intended by management and is included in research and development expenses.

Other intangible assets

Intangible assets acquired separately are measured at cost upon initial recognition. The cost of intangible assets acquired in a business combination is the fair value as at the acquisition date. Following initial recognition, intangible assets are carried at cost, net of accumulated amortization and accumulated impairment losses, if any.

The cost of an internally generated intangible asset comprises all directly attributable costs necessary to create, produce, and prepare the asset to be capable of operating in the manner intended by management.

Gains and losses on disposal of intangible assets are determined by comparing the proceeds from disposal with its carrying amount and are recognized within other gains and losses.

Configuration or customization costs in a cloud computing arrangement are also included when they meet the specific capitalization criteria.

Amortization

Amortization is calculated using the straight-line method for all intangible assets over their estimated useful lives as follows:


			Amortization period
Capitalized development costs			3 to 10 years
Customer relationships			3 to 20 years
Licenses			3 to 20 years
Technology, software and ERP			3 to 12 years
Other intangible assets			2 to 40 years

As at March 31, 2023, the average remaining amortization period for the capitalized development costs is 6.3 years (2022 ‑ 5.8 years). Amortization methods and useful lives are reviewed and adjusted, if appropriate, on a prospective basis at each reporting date.

Impairment of non-financial assets

The carrying amounts of the Company’s non-financial assets subject to amortization are tested for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Goodwill and assets that are not yet available for use are tested for impairment annually or at any time if an indicator of impairment exists.

The recoverable amount of an asset or a cash-generating unit (CGU) is the greater of its value in use and its fair value less costs of disposal. The recoverable amount is determined for an individual asset; unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets. In such cases, the CGU that the asset belongs to is used to determine the recoverable amount.

For the purposes of impairment testing, the goodwill acquired in a business combination is allocated to CGUs or groups of CGUs, which generally corresponds to its operating segments or one level below, that are expected to benefit from the synergies of the combination, irrespective of whether other assets or liabilities of the acquiree are assigned to those units.

CAE Financial Report 2023 | 75

Notes to the Consolidated Financial Statements

An impairment loss is recognized if the carrying amount of an asset or CGU exceeds its estimated recoverable amount. Where the recoverable amount of a CGU to which goodwill has been allocated is lower than the CGU’s carrying amount, the related goodwill is impaired. Any remaining amount of impairment exceeding the impaired goodwill is recognized on a pro rata basis of the carrying amount of each asset in the respective CGU. Impairment losses are recognized in income.

The Company evaluates impairment losses, other than goodwill impairment, for potential reversals at each reporting date. An impairment loss is reversed if there is any indication that the loss has decreased or no longer exists due to changes in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortization, if no impairment loss had been recognized. Such reversal is recognized in income.

Borrowing costs

Borrowing costs that are directly attributable to the acquisition or construction of a qualifying asset are capitalized as part of the cost of the asset. A qualifying asset is one that takes a substantial period of time to get ready for its intended use. Capitalization of borrowing costs ceases when the asset is completed and ready for use as intended by management. All other borrowing costs are recognized as finance expense in income, as incurred.

Other assets

Restricted cash

The Company is required to hold a defined amount of cash as collateral under the terms of certain subsidiaries’ external bank financing, government-related sales contracts and business combination arrangements.

Deferred financing costs

Deferred financing costs related to the revolving credit facilities, when it is probable that some or all of the facilities will be drawn down, and deferred financing costs related to sale and leaseback agreements are included in other assets at cost and are amortized on a straight-line basis over the term of the related financing agreements.

Accounts payable and accrued liabilities

Accounts payable and accrued liabilities are recognized initially at fair value and subsequently measured at amortized cost using the effective interest method.

Provisions

Provisions are recognized when the Company has a present legal or constructive obligation as a result of past events, it is probable that an outflow of resources will be required to settle the obligation and the amount can be reliably estimated. Provisions are measured at the present value of the expenditures expected to be required to settle the obligation using a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the obligation. The increase in the provision due to passage of time is recognized as a finance expense. When there are a number of similar obligations, the likelihood that an outflow will be required in settlement is determined by considering the class of obligations as a whole.

Provisions for estimated contract losses are recognized as an onerous contract provision in the period in which the loss is determined. Contract losses are measured at the amount by which the estimated total costs exceed the estimated total revenue from the contract. Warranty provisions are recorded when revenue is recognized based on historical experience, current trends and other assumptions that are believed to be reasonable under the circumstances.

Restoration and simulator removal

In certain situations, simulators are installed at locations that are not owned by the Company. In some of these cases, the Company has an obligation to dismantle and remove the simulators from these sites and to restore the location to its original condition. A provision is recognized for the present value of estimated costs to be incurred to dismantle and remove the simulators from these sites and restore the location. The provision also includes amounts relating to leased land and building where restoration costs are contractually required at the end of the lease. Where such costs arise as a result of capital expenditure, these restoration costs are also capitalized.

Restructuring

Restructuring costs consist mainly of severances and other related costs.

Legal claims

The amount represents a provision for certain legal claims brought against the Company. The corresponding charge is recognized in income. Management’s best estimate is that the outcome of these legal claims will not give rise to any significant loss beyond the amounts provided at March 31, 2023.

76 | CAE Financial Report 2023

Notes to the Consolidated Financial Statements

Warranties

A provision is recognized for expected warranty claims on products sold based on historical experience of the level of repairs and returns. It is expected that most of these costs will be incurred in a period ranging from 1 to 7 years. Assumptions used to calculate the provision for warranties were based on current sales levels and current information available about returns based on the warranty period of products sold.

Long-term debt

Long-term debt is recognized initially at fair value, net of transaction costs incurred. They are subsequently stated at amortized cost. Any difference between the proceeds, net of transaction costs, and the redemption value is recognized in income over the period of borrowings using the effective interest method.

Fees paid on the establishment of loan facilities are recognized as transaction costs of the loan to the extent that it is probable that some or all of the facility will be drawn down. In these cases, the fee is deferred until the drawdown occurs. To the extent that there is no evidence that it is probable that some or all of the facility will be drawn down, the fee is capitalized as a pre-payment for liquidity services and amortized over the period of the facility to which it relates.

Share capital

Common shares are classified as equity. Incremental costs directly attributable to the issue of new shares or stock options are shown in equity as a deduction, net of tax, from the proceeds.

When share capital recognized as equity is repurchased, the amount of the consideration paid, which includes directly attributable costs, net of tax, is recognized as a deduction from equity.

Revenue recognition

The Company recognizes revenue when it transfers the control of the promised goods or services to the customer. The transaction price is the amount of consideration to which the Company is expected to be entitled to in exchange for transferring promised goods or services. Variable consideration is included in the transaction price when it is highly probable that there will be no significant reversal of revenue in the future. Variable consideration is usually derived from sales incentives, in the form of discounts or volume rebates, and penalties. The Company identifies the various performance obligations of the contract and allocates the transaction price based on the estimated relative stand-alone selling prices of the promised goods or services underlying each performance obligation.

The Company’s performance obligations are satisfied over time or at a point in time depending on the transfer of control to the customer.

Sales of goods and services

Customized training devices

Revenue from contracts with customers for the design, engineering, and manufacturing of training devices are recognized over time using the cost input method when the Company determines that these devices have a sufficient level of customization such that they have no alternative use and the Company has enforceable rights to payment for work completed to date. The measure of progress toward complete satisfaction of the performance obligation is generally determined by comparing the actual direct costs incurred to date to the total estimated direct costs for the entire contract. When the Company determines that there is an alternative use for these devices, revenue is recognized at a point in time, when the customer obtains control of the device.

Standardized training and medical devices

Revenue from contracts with customers for the manufacturing of standardized training and medical devices is recognized at a point in time, when the customer obtains control of the device.

Training services

Revenue from the sale of training hours or training courses are recognized at a point in time, when services are rendered.

For flight schools, cadet training courses are offered mainly by way of ground school and live aircraft flight. For both phases, revenue is recognized over time, using the time elapsed input method.

Product maintenance, support and updates

Revenue from the sale of product maintenance services and post-delivery customer support are recognized over time, using the time elapsed output method or costs incurred method. Revenue from update services, to enhance a training device currently owned by a customer, are recognized over time, using the cost input method.

Spare parts

Revenue from the sale of spare parts is recognized at a point in time, which is generally on delivery to the customer.

CAE Financial Report 2023 | 77

Notes to the Consolidated Financial Statements

Software arrangements

Revenue from software arrangements that provide the Company’s customers with the right to use the software without any significant development or integration work is recognized at a point in time, on delivery. Revenue from fixed-price software arrangements and software customization contracts that require significant production, modification, or customization of software is recognized over time using the cost input method. Revenue from Software as a service (SaaS) arrangements provide the Company's customers with the right to access a cloud-based environment that the Company provides and manages, the right to receive support and to use the software, however the customer does not have the right to take possession of the software. Revenue from SaaS arrangements is recognized over time, using the time elapsed output method.

Other

Significant financing component

The Company accounts for a significant financing component on contracts of more than 12 months where timing of cash receipts and revenue recognition differ substantially. The transaction price for such contracts is adjusted for the time value of money, using the rate that would be reflected in a separate financing transaction between the Company and its customers at contract inception, to take into consideration the significant financing component.

Non-monetary transactions

The Company may also enter into sales arrangements where little or no monetary consideration is involved. The non-monetary transactions are measured at the most reliable measure of the fair value of the asset or service given up or fair value of the asset or service received.

Contract modifications

Contract modifications, which consist of an increase in the scope or price of a contract, are accounted for as a separate contract when the additional goods or services to be delivered are distinct from those delivered prior to the contract modification and when the price increases by an amount of consideration that reflects its stand-alone selling price. Contract modifications are treated prospectively when the additional goods or services are distinct, but the price increase does not reflect the stand-alone selling price. When the remaining goods or services are not distinct, the Company recognizes an adjustment to revenue of the initial contract on a cumulative catch-up basis at the date of the contract modification.

Costs to obtain and to fulfill a contract

The Company recognizes incremental costs of obtaining a contract as an asset when they are expected to be recovered over a period of more than one year. The Company recognizes costs directly related to fulfilling a contract with a customer as an asset when they generate or enhance resources that will be used to satisfy the performance obligation in the future, and they are expected to be recovered. These assets are amortized on a systematic basis that is consistent with the Company’s transfer of the related goods or services to the customer.

Right to invoice

If the Company has the right to invoice a customer in an amount that directly corresponds with the value of the Company’s performance to date, then revenue can be recognized at the invoice amount.

Contract balances

The timing of revenue recognition, billing and cash collections results in accounts receivable, contract assets and contract liabilities on the consolidated financial position.

Contract assets are recognized when revenue is recognized in excess of billings or when the Company has a right to consideration and that right is conditional to something other than the passage of time. Contract assets are subsequently transferred to accounts receivable when the right to payment becomes unconditional.

Contract liabilities are recognized when payments received from customers are in excess of revenue recognized. Contract liabilities are subsequently recognized in revenue when the Company satisfies its performance obligations.

Contract assets and contract liabilities are reported in a net position on a contract-by-contract basis at the end of each reporting period and are classified as current based on the Company's normal operating cycle.

Employee benefits

Defined benefit pension plans

The Company maintains defined benefit pension plans that provide benefits based on length of service and final average earnings.

The defined benefit asset or liability comprises the present value of the defined benefit obligation at the reporting date less the fair value of plan assets out of which the obligations are to be settled. The defined benefit obligations are actuarially determined for each plan using the projected unit credit method. The present value of the defined benefit obligation is determined by discounting the estimated future cash flows using the interest rate of high-quality corporate bonds that are denominated in the currency in which the benefit will be paid and that have terms to maturity approximating the terms of the related pension obligation. In countries where there is no deep market in such bonds, the market rates on government bonds are used.

78 | CAE Financial Report 2023

Notes to the Consolidated Financial Statements

The value of any employee benefit asset recognized is restricted to the present value of any economic benefits available in the form of refunds from the plan or reductions in the future contributions to the plan (asset ceiling test). Minimum funding requirements may give rise to an additional liability to the extent that they require paying contributions to cover an existing shortfall. Plan assets can only be used to fund employee benefits, are not available to the creditors of the Company, nor can they be paid directly to the Company. Fair value of plan assets is based on market price information.

The Company determines the net pension cost of its Canadian defined benefit plans utilizing individual discount rates derived from the yield curve.

Actuarial gains and losses arising from experience adjustments, changes in actuarial assumptions and the effect of any asset ceiling and minimum liability are recognized to OCI in the period in which they arise. Past service costs are recognized as an expense as incurred at the earlier of when the plan amendment or curtailment occurs and when the entity recognizes related termination benefits.

Defined contribution pension plans

The Company also maintains defined contribution plans for which the Company pays fixed contributions to publicly or privately administered pension insurance plans on a mandatory, contractual or voluntary basis. The Company has no legal or constructive obligation to pay further amounts if the fund does not hold sufficient assets to pay the benefits to all employees. Obligations for contributions to defined contribution pension plans are recognized as an employee benefit expense in income as the services are provided.

Termination benefits

Termination benefits are recognized as an expense when the Company is demonstrably committed, without realistic possibility of withdrawal, to a formal detailed plan to either terminate employment before the normal retirement date, or to provide termination benefits as a result of an offer made to encourage voluntary redundancy. Termination benefits for voluntary redundancies are recognized as an expense, if the Company has made an offer of voluntary redundancy, based on the number of employees expected to accept the offer. Benefits falling due more than 12 months after the reporting date are discounted to their present value.

Share-based payment transactions

The Company’s share-based payment plans consist of two categories: an equity-settled share-based payment plan comprised of the stock option plan; and cash-settled share-based payments plans that include the stock purchase plan, deferred share units (DSU) plans, restricted share units (RSU) plans and the performance share units (PSU) plan.

For both categories, the fair value of the employee services received in exchange is recognized as an expense in income. Service and non-market performance conditions attached to the transactions are not taken into account in determining fair value.

For the equity-settled plan, the cost of equity-settled transactions is measured at fair value using the Black-Scholes option pricing model. The compensation expense is measured at the grant date and recognized over the service period with a corresponding increase to contributed surplus. The cumulative expenses recognized for equity-settled transactions at each reporting date represents the extent to which the vesting period has expired and management’s best estimate of the number of equity instruments that will ultimately vest. For options with graded vesting, each tranche is considered a separate grant with a different vesting date and fair value, and each tranche is accounted for separately. When the stock options are exercised, the Company issues new common shares and the proceeds received net of any directly attributable transaction costs are credited to share capital.

For cash-settled plans, a corresponding liability is recognized. The fair value of employee services received is calculated by multiplying the number of units expected to vest with the fair value of one unit as of grant date based on the market price of the Company’s common shares. The fair value of the stock purchase plan is a function of the Company’s contributions. Until the liability is settled, the Company re-measures the fair value of the liability at the end of each reporting period and at the date of settlement, with any changes in fair value recognized in income for the period. The Company has entered into equity swap agreements in order to reduce its earnings exposure related to the fluctuation in the Company’s share price relating to the DSU plans, RSU plans and PSU plan.

Restructuring, integration and acquisition costs

Restructuring costs

Restructuring costs are part of a program that is planned and controlled by management, and materially changes either the scope of a business undertaken by the Company or the manner in which that business is conducted. Restructuring costs include costs directly related to significant exit activities, such as the sale or termination of a line of business, the closure of business locations or the relocation of business activities, significant changes in management structure, or fundamental reorganizations that have a material effect on the nature and focus of the Company’s operations.

For the Company, restructuring costs include severances and other employee related costs, cost associated with the impairment (or reversal of impairment) of non-financial assets, including property, plant and equipment, right-of-use assets, intangible assets and inventory, and other direct costs associated with the closing or relocation of facilities, the closing of a product line or activity, or the downsizing of operations.

CAE Financial Report 2023 | 79

Notes to the Consolidated Financial Statements

Restructuring costs are expensed when incurred, or when a legal or constructive obligation exists. A restructuring provision is only recognized when an obligating event has arisen.

Integration costs

Integration costs represent incremental costs directly related to the integration of acquired businesses in the Company’s ongoing activities. This primarily includes expenditures related to regulatory and process standardization, systems integration and other activities.

Acquisition costs

Acquisition costs represent costs directly related to business combinations, successful or not. These costs include expenses, fees, commissions and other costs associated with the collection of information, negotiation of contracts, risk assessments, and the services of lawyers, advisors and specialists.

Current and deferred income tax

Income tax expense comprises current and deferred tax. An income tax expense is recognized in income except to the extent that it relates to items recognized in OCI or directly in equity, in which case it is recognized in OCI or directly in equity, respectively.

Current tax is the amount expected to be paid or recovered from taxation authorities on the taxable income or loss for the year, using tax rates enacted or substantively enacted at the reporting date in the countries where the Company and its subsidiaries operate and generate taxable income, and any adjustment to tax payable or receivable in respect of previous years.

Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation. It establishes provisions, where appropriate, on the basis of amounts expected to be paid to the tax authorities.

Deferred tax is recognized using the financial position liability method, providing for temporary differences between the tax bases of assets or liabilities and their carrying amounts in the consolidated financial statements, except for temporary differences on the initial recognition of assets and liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable income.

Deferred income tax is provided on temporary differences arising on investments in subsidiaries, and jointly controlled entities, except where the timing of the reversal of the temporary difference is controlled by the Company and it is probable that the temporary difference will not reverse in the foreseeable future.

Deferred tax is measured on an undiscounted basis at the tax rates that are expected to be applied to temporary differences when they reverse, based on the laws that have been enacted or substantively enacted by the reporting date.

Deferred tax assets are recognized for all deductible temporary differences and carry forward of unused tax losses. The recognition of deferred tax assets are limited to the amount which is probable to be realized.

Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that a recognized deferred tax asset will be realized. Unrecognized deferred tax assets are reassessed at each reporting date and are recognized to the extent that it has become probable that an unrecognized deferred tax asset will be realized.

Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities and assets, and they relate to income taxes levied by the same tax authority on the same taxable entity, or on different taxable entities which intend to settle current tax liabilities and assets on a net basis or if their tax assets and liabilities will be realized simultaneously.

Taxes on income in the interim periods are accrued by jurisdiction using the effective tax rate that would be applicable to expected total annual profit or loss of the jurisdiction.

Earnings per share

Earnings per share is calculated by dividing the net income for the period attributable to the equity holders of the Company by the weighted average number of common shares outstanding during the period. The diluted weighted average number of common shares outstanding is calculated by taking into account the dilution that would occur if the securities or other agreements for the issuance of common shares were exercised or converted into common shares at the later of the beginning of the period or the issuance date unless it is anti-dilutive. The treasury stock method is used to determine the dilutive effect of the stock options. The treasury stock method is a method of recognizing the use of proceeds that could be obtained upon the exercise of stock options in computing diluted earnings per share. It assumes that any proceeds would be used to purchase common shares at the average market price during the period. Only the Company’s stock options have a dilutive potential on common shares.

Government participation

Government contributions are recognized when there is reasonable assurance that the contributions will be received, and all attached conditions will be complied with by the Company. Government contributions related to the acquisition of non-financial assets are recorded as a reduction of the cost of the related asset while government contributions related to current expenses are recorded as a reduction of the related expenses.

80 | CAE Financial Report 2023

Notes to the Consolidated Financial Statements

Royalty obligations

The Company receives partial funding from government entities for eligible spending related to specified R&D projects. In exchange, the Company repays a percentage of certain revenue during specified years. The initial measurement of the royalty obligation is discounted using the prevailing market rates of interest, at that time, for a similar instrument (similar as to currency, term, type of interest rate, guarantees or other factors) with a similar credit rating and range from 6.0% to 10.2%. The difference between the funding received and the discounted value of the royalty obligation is accounted for as a government contribution. The current portion of the royalty obligation is included as part of accrued liabilities.

R&D obligations

The Company enters into loans with below market interest rates with government entities to fund a portion of eligible spending related to specified R&D projects. The initial measurement of the R&D obligation is discounted using the prevailing market rates of interest, at that time, for a similar instrument (similar as to currency, term, type of interest rate, guarantees or other factors) with a similar credit rating. The difference between the funding received and the discounted value of the R&D obligation is accounted for as a government contribution. R&D obligations are presented as part of the long-term debt.

Investment tax credits

Investment tax credits are deemed to be equivalent to government contributions. These government contributions are received for costs incurred in R&D projects. Investment tax credits expected to be recovered beyond 12 months are classified in Other non-current assets.

Comparative figures

Certain comparative figures in the notes to the consolidated financial statements have been reclassified to conform to the presentation adopted in the current year.

New and amended standards adopted by the Company

Certain amendments to accounting standards were applied for the first time on April 1, 2022 but did not have an impact on the consolidated financial statements of the Company.

New and amended standards not yet adopted by the Company

Amendment to IAS 1 and IFRS Practice Statement 2 - Disclosure of accounting policies

In February 2021, the IASB issued an amendment to IAS 1 - Presentation of financial statements and IFRS Practice Statement 2 - Making materiality judgements. The amendments will require the disclosure of material, rather than significant, accounting policy information. For the Company, amendments to IAS 1 and IFRS Practice Statement 2 will be effective for the fiscal period beginning on April 1, 2023.

Amendment to IAS 8 - Accounting policies, changes in accounting estimates and errors

In February 2021, the IASB issued an amendment to IAS 8 - Accounting policies, changes in accounting estimates and errors to introduce a definition of accounting estimates and to help entities distinguish changes in accounting policies from changes in accounting estimates. For the Company, amendments to IAS 8 will be effective for the fiscal period beginning on April 1, 2023.

Amendment to IAS 12 - Income taxes

In May 2021, the IASB issued an amendment to IAS 12 - Income taxes, which narrows the scope exemption when recognizing deferred taxes. In specified circumstances, entities are exempt from recognizing deferred income taxes when they recognize assets or liabilities for the first time. The amendments clarify that the exemption does not apply to transactions in which equal amounts of deductible and taxable temporary differences arise on initial recognition. For the Company, amendments to IAS 12 will be effective for the fiscal period beginning on April 1, 2023. The Company has concluded its current accounting policies are in line with the amended standard and therefore this amendment will have no impact on its consolidated financial statements.

Amendment to IAS 1 - Presentation of financial statements

In October 2022, the IASB issued an amendment to IAS 1 - Presentation of financial statements, which specifies that covenants to be complied with after the reporting date do not affect the classification of long-term debt as current or non-current at the reporting date. Instead, the amendment requires disclosures about these covenants in the notes to the financial statements. For the Company, amendments to IAS 1 will be effective for the fiscal period beginning on April 1, 2023.

CAE Financial Report 2023 | 81

Notes to the Consolidated Financial Statements

Use of judgements, estimates and assumptions

The preparation of the consolidated financial statements requires management to make judgements, estimates and assumptions that affect the application of accounting policies, the reported amounts of assets and liabilities and disclosures at the date of the consolidated financial statements, as well as the reported amounts of revenues and expenses for the period reported. It also requires management to exercise its judgement in applying the Company’s accounting policies. The areas involving a high degree of judgement or complexity, or areas where assumptions and estimates are significant to the consolidated financial statements are disclosed below. Actual results could differ from those estimates. Changes will be reported in the period in which they are identified.

Business combinations

Business combinations are accounted for in accordance with the acquisition method as of the date control is transferred. The consideration transferred and the acquiree’s identifiable assets, liabilities and contingent liabilities are measured at their fair value at the date of acquisition, which may be estimated using an income, market or cost valuation method. Depending on the complexity of determining these valuations, the Company either consults with independent experts or develops the fair value internally by using appropriate valuation techniques which are generally based on a forecast of the total expected future net discounted cash flows. These evaluations are linked closely to the assumptions made by management regarding the future performance of the related assets and the discount rate. Contingent consideration is measured at fair value using a discounted cash flow model.

The judgments made in determining the estimated fair value assigned to the net identifiable assets acquired, as well as the estimated useful life of non-financial assets, could impact the net income of subsequent periods through depreciation and amortization, and in certain instances through impairment charges. The Company believes that the estimated fair values assigned to the net identifiable assets acquired are based on reasonable assumptions that a marketplace participant would use. While the Company uses its best estimates and assumptions to accurately value the net identifiable assets acquired at the acquisition date, estimates are inherently uncertain and subject to refinement.

During the measurement period, for up to 12 months following the acquisition, the Company records adjustments to the initial estimate of the net identifiable assets acquired based on new information obtained that would have existed as of the date of the acquisition. Any adjustment that arises from information obtained that did not exist as of the date of the acquisition will be recorded in the period the adjustment arises.

Development costs

Impairment of non-financial assets

The Company’s impairment test for goodwill is based on internal estimates of the recoverable amount of the CGU or group of CGUs to which goodwill has been allocated and uses valuation models such as the discounted cash flows model (level 3). Key assumptions on which management based its determination of the recoverable amount include expected growth rates and discount rates. These estimates, including the methodology used, can have a material impact on the respective values and ultimately the amount of any goodwill impairment.

Revenue recognition

Transaction price allocated to performance obligations

In allocating the transaction price for contracts with multiple performance obligations, the Company estimates the stand-alone selling price using the expected cost plus a margin approach if they are not directly observable.

Timing of satisfaction of performance obligations

For contracts where revenue is recognized over time using the cost input method, the Company applies judgement in estimating the work performed to date as a proportion of the total work to be performed. Management conducts monthly reviews of its estimated costs to complete as well as its revenue and margins recognized, on a contract-by-contract basis. The impact of any revisions in cost and revenue estimates is reflected in the period in which the need for a revision becomes known.

82 | CAE Financial Report 2023

Notes to the Consolidated Financial Statements

Defined benefit pension plans

The cost of defined benefit pension plans and the present value of the employee benefit obligations are determined using actuarial valuations. Actuarial valuations involve, amongst others, making assumptions about discount rates, future salary increases and mortality rates. All assumptions are reviewed at each reporting date. Any changes in these assumptions will impact the carrying amount of the employee benefit obligations and the cost of the defined benefit pension plans. In determining the appropriate discount rate, management considers the interest rates of high-quality corporate bonds that are denominated in the currency in which the benefits will be paid, and that have terms to maturity approximating the terms of the related pension liability. The mortality rate is based on publicly available mortality tables for the specific country. Future salary increases and pension increases are based on expected future inflation rates for the specific country. Individual discount rates are derived from the yield curve and are used to determine the service cost and interest cost of the Canadian defined benefit pension plans at the beginning of the year. The present value of the employee benefit obligations for these Canadian plans is determined based on the individual discount rates derived from the yield curve at the end of the year. Other key assumptions for pension obligations are based, in part, on current market conditions. See Note 19 for further details regarding assumptions used.

Government royalty repayments

In determining the amount of repayable government royalties, assumptions and estimates are made in relation to expected revenues and the expected timing of revenues. Revenue projections consider past experience and represent management’s best estimate about the future. Revenues after a five-year period are extrapolated using estimated growth rates, ranging from 3.0% to 9.0%, over the period of repayments. These estimates, along with the methodology used to derive the estimates, can have a material impact on the respective values and ultimately any repayable obligation in relation to government participation. A 1% increase to the growth rates would increase the royalty obligations at March 31, 2023 by approximately $1.1 million (2022 – $1.7 million). A 1% decrease to the growth rates would have an opposite impact on the royalty obligations.

Income taxes

The Company is subject to income tax laws in numerous jurisdictions. Judgement is required in determining the worldwide provision for income taxes. The determination of tax liabilities and assets involves uncertainties in the interpretation of complex tax regulations. The Company provides for potential tax liabilities based on the weighted average probability of the possible outcomes. Differences between actual results and those estimates could influence the income tax liabilities and deferred tax liabilities in the period in which such determinations are made.

CAE Financial Report 2023 | 83

Notes to the Consolidated Financial Statements

NOTE 2 – BUSINESS COMBINATIONS

Year ended March 31, 2023

During the year ended March 31, 2023, the Company completed its assessment of the fair value of assets acquired and liabilities assumed of L3Harris Technologies’ Military Training business (L3H MT) and Sabre’s AirCentre airline operations portfolio (AirCentre) acquired in fiscal 2022.

During the year ended March 31, 2023, cash consideration of $6.4 million was paid for an acquisition realized in fiscal 2021.

Year ended March 31, 2022

L3Harris Technologies’ Military Training business

On July 2, 2021, the Company concluded the acquisition of L3Harris Technologies’ Military Training business (L3H MT) for cash consideration of $1,337.7 million, subject to additional purchase price adjustments. L3H MT includes Link Simulation & Training, Doss Aviation and AMI. Link Simulation & Training is one of the leading providers of military training solutions in the U.S., Doss Aviation is the provider of initial flight training to the United States Air Force, and AMI is a design and manufacturing facility for simulator hardware. The acquisition expands the Company’s position as a platform-agnostic training systems integrator by diversifying its training and simulation leadership in the air domain, complementing land and naval training solutions, and enhancing its training and simulation capabilities in space and cyber.

In March 2021, in order to mitigate the potential impact on the purchase price of variations in the foreign exchange rate, the Company entered into forward foreign currency contracts to hedge a portion of the purchase price of the L3H MT acquisition (US$800 million). The Company applied hedge accounting and the change in fair value of these financial instruments prior to the L3H MT acquisition date was recorded in other comprehensive income. On July 2, 2021, these financial instruments were exercised in connection with the closing of the L3H MT acquisition, and the realized cash flow hedge losses of $17.1 million, less income tax recovery of $2.3 million, were transferred from accumulated other comprehensive income and included as an adjustment to the purchase consideration.

As at March 31, 2022, the preliminary determination of the fair value of the net assets acquired and liabilities assumed arising from the L3H MT acquisition are as follows:


		L3H MT
Current assets	$	110.0
Current liabilities		(130.8)
Property, plant and equipment		96.3
Right-of-use assets		31.6
Intangible assets		1,342.8
Deferred tax		41.2
Other non-current assets		7.7
Long-term debt, including current portion		(33.9)
Other non-current liabilities		(104.0)


Total purchase consideration, including the hedge of the purchase price	$	1,360.9
Purchase price adjustment payable		(8.4)


Total cash consideration paid on acquisition date	$	1,352.5

During the year ended March 31, 2022, the purchase price adjustment of $8.4 million was paid to the seller.

The preliminary fair value of the acquired intangible assets amounts to $1,342.8 million and consists of goodwill of $1,025.6 million ($868.3 million is deductible for tax purposes), customer relationships of $217.7 million and technology of $99.5 million.

The fair value and the gross contractual amount of the acquired accounts receivable were $41.9 million.

The revenue and adjusted segment operating income included in the fiscal 2022 consolidated income statement from L3H MT since the acquisition date was $409.9 million and $49.1 million respectively. Had L3H MT been consolidated from April 1, 2021, the fiscal 2022 consolidated income statement would have shown revenue and adjusted segment operating income of approximately $549.0 million and $65.3 million respectively. These pro-forma amounts are estimated based on the operations of the acquired businesses prior to the business combinations by the Company and assuming that the purchase price allocations were effective April 1, 2021.

The net assets acquired, including intangibles, of L3H MT are included in the Defense and Security segment.

The purchase price allocation was preliminary as at March 31, 2022.

84 | CAE Financial Report 2023

Notes to the Consolidated Financial Statements

Sabre’s AirCentre airline operations portfolio

On February 28, 2022, the Company concluded the acquisition of Sabre’s AirCentre airline operations portfolio (AirCentre), a suite of flight and crew management and optimization solutions, for cash consideration (net of cash acquired) of $498.9 million. The transaction provides the Company with the Sabre AirCentre product portfolio, related technology and intellectual property as well as the transfer of its highly talented workforce. The acquisition further expands the Company’s reach across its broad customer base beyond pilot training and establishes itself as a technology leader in the growing market for industry-leading, digitally‑enabled flight and crew operations solutions.

As at March 31, 2022, the preliminary determination of the fair value of the net assets acquired and liabilities assumed arising from the AirCentre acquisition are as follows:


		AirCentre
Current assets	$	42.0
Current liabilities		(3.4)

Right-of-use assets		0.3
Intangible assets		423.2
Deferred tax		1.2
Other non-current assets		36.9
Long-term debt, including current portion		(0.3)
Other non-current liabilities		(1.0)
Fair value of net assets acquired, excluding cash acquired	$	498.9
Cash acquired		3.8




Total cash consideration paid on acquisition date	$	502.7

The preliminary fair value of the acquired intangible assets amounts to $423.2 million and consists of goodwill of $257.8 million ($191.0 million is deductible for tax purposes), customer relationships of $101.8 million and technology and software of $63.6 million.

The revenue and adjusted segment operating income included in the fiscal 2022 consolidated income statement from AirCentre since the acquisition date was $10.5 million and $2.2 million respectively. Had AirCentre been consolidated from April 1, 2021, the fiscal 2022 consolidated income statement would have shown revenue and adjusted segment operating income of approximately $151.5 million and $18.9 million respectively. These pro-forma amounts are estimated based on the operations of the acquired businesses prior to the business combinations by the Company and assuming that the purchase price allocations were effective April 1, 2021.

The net assets acquired, including intangibles, of AirCentre are included in the Civil Aviation segment.

The purchase price allocation was preliminary as at March 31, 2022.

Other fiscal 2022 business combinations

RB Group

On April 1, 2021, the Company acquired the remaining 79% equity interest in the RB Group, a leading provider of fully integrated solutions that modernize the way airlines and business aircraft operators interact with their crew. This acquisition further supports the Company’s expansion into digital flight crew management in its goal to drive additional software-enabled Civil aviation services. Prior to this transaction, the Company's 21% ownership interest in the RB Group was accounted for using the equity method.

GlobalJet Services

On June 10, 2021, the Company acquired GlobalJet Services (GlobalJet), a provider of aviation maintenance training that is recognized around the world for its services for both business and helicopter sectors. This acquisition expands the Company’s aircraft platform addressability in the maintenance training market through world-class, regulatory approved training programs.

Medicor Lab Inc.

On July 5, 2021, the Company acquired the shares of Medicor Lab Inc. (Medicor), a company which specializes in task trainer and realistic synthetic skin production. This acquisition augments the Company’s portfolio of products and expands its capabilities to offer improved quality simulators for a better customer experience.

The aggregate purchase price for the acquisitions of the RB Group, GlobalJet and Medicor consist of cash consideration (net of cash acquired) of $19.0 million, a long‑term payable of $1.2 million and a contingent consideration of up to $4.0 million if certain targets are met, and are mainly allocated to goodwill and intangible assets.

The net assets acquired, including intangibles, of the RB Group and GlobalJet are included in the Civil Aviation segment, and those of Medicor are included in the Healthcare segment.

CAE Financial Report 2023 | 85

Notes to the Consolidated Financial Statements

Other

During the year ended March 31, 2022, the Company completed its assessment of the fair value of assets acquired and liabilities assumed of Flight Simulation Company B.V., Merlot Aero Limited and TRU Simulation + Training Canada acquired in fiscal 2021 as well as the RB Group, GlobalJet and Medicor acquired in fiscal 2022.

Total acquisition costs of $38.4 million were incurred during fiscal 2022 relating to the Company's acquisitions and are included in Restructuring, integration and acquisition costs in the consolidated income statement (Note 5).

During the year ended March 31, 2022, adjustments to preliminary purchase price allocations of acquisitions realized in fiscal 2021 resulted in increases of intangible assets of $19.2 million, current liabilities of $15.2 million, and deferred tax assets of $3.8 million, and a decrease of current assets of $7.8 million.

During the year ended March 31, 2022, net cash considerations of $4.9 million were paid for acquisitions realized in prior years.

NOTE 3 – OPERATING SEGMENTS AND GEOGRAPHIC INFORMATION

The Company elected to organize its operating segments principally on the basis of its customer markets. The Company manages its operations through its three segments. Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-maker.

The Company has decided to disaggregate revenue from contracts with customers by segment, by products and services and by geographic regions as the Company believes it best depicts how the nature, amount, timing and uncertainty of its revenue and cash flows are affected by economic factors.

Results by segment

The profitability measure employed by the Company for making decisions about allocating resources to segments and assessing segment performance is adjusted segment operating income. Adjusted segment operating income is calculated by taking operating income and adjusting for restructuring, integration and acquisition costs, and impairments and other gains and losses arising from significant strategic transactions or specific events, which gives an indication of the profitability of each segment because it does not include the impact of items not specifically related to the segment’s performance. For the years ended March 31, 2023 and 2022, impairments and other gains and losses arising from significant strategic transactions or specific events consist of the impairment reversal of non-financial assets following their repurposing and optimization (Note 5) and the cloud computing transition adjustment (Note 4).

The accounting principles used to prepare the information by operating segments are the same as those used to prepare the Company’s consolidated financial statements. The method used for the allocation of assets jointly used by operating segments and costs and liabilities jointly incurred (mostly corporate costs) between operating segments is based on the level of utilization when determinable and measurable, otherwise the allocation is based on a proportion of each segment’s cost of sales and revenue.


					Defense
	Civil Aviation				and Security				Healthcare						Total
	2023		2022		2023		2022		2023		2022		2023		2022
External revenue	$	2,166.4	$	1,617.8	$	1,844.2	$	1,602.1	$	192.7	$	151.4	$	4,203.3	$	3,371.3
Depreciation and amortization	243.4		224.1		86.8		73.4		12.0		13.0		342.2		310.5



Impairment (reversal) of non-financial assets – net	1.2		34.5		(3.5)		3.0		(0.1)		4.3		(2.4)		41.8

Share of after-tax profit of equity accounted investees	47.0		42.1		6.2		6.4		—		—		53.2		48.5
Operating income	430.3		224.1		35.7		56.0		8.0		4.1		474.0		284.2
Adjusted segment operating income	485.3		314.7		53.1		119.2		9.7		10.6		548.1		444.5

Reconciliation of adjusted segment operating income is as follows:


					Defense
	Civil Aviation				and Security				Healthcare						Total
	2023		2022		2023		2022		2023		2022		2023		2022
Operating income	$	430.3	$	224.1	$	35.7	$	56.0	$	8.0	$	4.1	$	474.0	$	284.2
Restructuring, integration and acquisition costs (Note 5)	52.0		79.0		10.6		61.4		1.7		6.5		64.3		146.9
Impairments and other gains and losses arising from
significant strategic transactions or specific events:
Impairment reversal of non-financial assets following
their repurposing and optimization (Note 5)	3.0		—		6.8		—		—		—		9.8		—
Cloud computing transition adjustment (Note 4)	—		11.6		—		1.8		—		—		—		13.4



Adjusted segment operating income	$	485.3	$	314.7	$	53.1	$	119.2	$	9.7	$	10.6	$	548.1	$	444.5

86 | CAE Financial Report 2023

Notes to the Consolidated Financial Statements

Capital expenditures by segment, which consist of property, plant and equipment expenditures and intangible assets expenditures (excluding those acquired in business combinations), are as follows:


	2023		2022
Civil Aviation	$	329.2	$	300.7
Defense and Security	53.6		46.5
Healthcare	12.4		15.6
Total capital expenditures	$	395.2	$	362.8

Assets and liabilities employed by segment

The Company uses assets employed and liabilities employed to assess resources allocated to each segment. Assets employed include accounts receivable, contract assets, inventories, prepayments, property, plant and equipment, right-of-use assets, intangible assets, investment in equity accounted investees, derivative financial assets and other non-current assets. Liabilities employed include accounts payable and accrued liabilities, provisions, contract liabilities, derivative financial liabilities and other non-current liabilities.

Assets and liabilities employed by segment are reconciled to total assets and liabilities as follows:


		2023		2022
Assets employed
Civil Aviation	$	5,852.4	$	5,269.6
Defense and Security		3,436.2		3,163.1
Healthcare		310.1		269.2

Assets not included in assets employed		837.8		876.9
Total assets	$	10,436.5	$	9,578.8
Liabilities employed
Civil Aviation	$	1,142.0	$	1,012.7
Defense and Security		871.2		824.8
Healthcare		69.3		64.9

Liabilities not included in liabilities employed		3,765.1		3,589.8
Total liabilities	$	5,847.6	$	5,492.2

Products and services information

The Company's revenue from external customers for its products and services are as follows:


		2023		2022
Products	$	1,570.8	$	1,403.6
Training, software and services		2,632.5		1,967.7
Total external revenue	$	4,203.3	$	3,371.3

CAE Financial Report 2023 | 87

Notes to the Consolidated Financial Statements

Geographic information

The Company markets its products and services globally. Revenues are attributed to geographical regions based on the location of customers. Non-current assets other than financial instruments and deferred tax assets are attributed to geographical regions based on the location of the assets, excluding goodwill. Goodwill is presented by geographical regions based on the Company’s allocation of the related purchase price.


		2023		2022
External revenue
Canada	$	372.0	$	366.8
United States		2,184.7		1,682.5
United Kingdom		264.2		208.5
Rest of Americas		89.6		78.4
Europe		574.0		473.4
Asia		627.0		472.2
Oceania and Africa		91.8		89.5
	$	4,203.3	$	3,371.3

		2023		2022
Non-current assets other than financial instruments, deferred tax assets and employee benefits assets
Canada	$	1,641.2	$	1,570.8
United States		4,049.8		3,554.2
United Kingdom		383.9		370.4
Rest of Americas		180.8		177.0
Europe		982.4		916.3
Asia		519.8		498.1
Oceania and Africa		112.5		79.5
	$	7,870.4	$	7,166.3

NOTE 4 – OTHER (GAINS) AND LOSSES


		2023		2022

Net gain on foreign currency exchange differences	$	(11.7)	$	(0.9)
Cloud computing transition adjustment		—		13.4
Remeasurement of royalty obligations		(8.8)		(23.8)
Remeasurement of contingent consideration arising on business combinations		2.6		(11.4)
Other		(4.9)		(14.3)
Other (gains) and losses	$	(22.8)	$	(37.0)

Cloud computing transition adjustment

In fiscal 2022, the IFRS Interpretations Committee published a final agenda decision that clarified how to recognize certain configuration and customization expenditures related to cloud computing arrangements with retrospective application. Costs that do not meet the capitalization criteria should be expensed as incurred. The Company modified its accounting policy to align with the agenda decision and previously capitalized costs of $13.4 million that no longer qualified for capitalization were expensed in fiscal 2022.

88 | CAE Financial Report 2023

Notes to the Consolidated Financial Statements

NOTE 5 – RESTRUCTURING, INTEGRATION AND ACQUISITION COSTS


		2023		2022
Integration and acquisition costs	$	66.3	$	87.8
Impairment of non-financial assets – net		2.3		37.1
Severances and other employee related costs		2.7		6.9
Other costs		2.8		15.1
Impairment reversal of non-financial assets following their repurposing and optimization		(9.8)		—
Total restructuring, integration and acquisition costs	$	64.3	$	146.9

Impairment reversal of non-financial assets following their repurposing and optimization

NOTE 6 – FINANCE EXPENSE – NET


		2023		2022
Finance expense:
Long-term debt (other than lease liabilities)	$	141.6	$	104.1
Lease liabilities		18.3		16.0
Royalty obligations		10.9		11.9
Employee benefits obligations (Note 19)		3.3		5.3
Other		24.9		13.2
Borrowing costs capitalized		(7.9)		(7.1)
Finance expense	$	191.1		143.4
Finance income:
Loans and investment in finance leases	$	(10.3)	$	(9.1)
Other		(3.1)		(3.7)
Finance income	$	(13.4)	$	(12.8)
Finance expense – net	$	177.7	$	130.6

NOTE 7 – INCOME TAXES

Income tax expense

The reconciliation of income taxes at Canadian statutory rates with the income tax expense is as follows:



		2023			2022
Earnings before income taxes	$	296.3		$	153.6
Canadian statutory income tax rates		26.53	%		26.54	%
Income taxes at Canadian statutory rates	$	78.6		$	40.8
Effect of differences in tax rates in other jurisdictions		(3.5)			(16.8)
Unrecognized tax benefits and tax benefits not previously recognized		1.4			2.2
(Non-taxable revenues) Non-deductible expenses		(2.8)			1.5
Tax impact on after-tax profit of equity accounted investees		(13.0)			(12.1)
Prior years' tax adjustments		0.5			(1.5)
Other		3.2			(10.5)
Income tax expense	$	64.4		$	3.6
Effective tax rate		22	%		2	%

The Company's applicable tax rate corresponds to the combined Canadian tax rates applicable in the provinces where the Company operates.

CAE Financial Report 2023 | 89

Notes to the Consolidated Financial Statements

Significant components of the provision for the income tax expense are as follows:



		2023		2022
Current income tax expense :
Current year	$	53.2	$	30.4
Prior years' tax adjustments		0.8		3.1
Deferred income tax (recovery) expense:
Tax benefit not previously recognized used to reduce the deferred tax expense		(2.2)		(4.1)
Change in income tax rates		—		(6.6)
Origination and reversal of temporary differences		12.6		(19.2)

Income tax expense	$	64.4	$	3.6

Deferred tax assets and liabilities

During the year ended March 31, 2023, movements in temporary differences are as follows:






															Foreign
	Balance												currency
	beginning		Recognized			Recognized			Recognized			Business			exchange			Balance
	of year		in income				in OCI		in equity	combinations			differences			end of year
Non-capital loss carryforwards	$	96.9		$	(3.3)		$	—		$	—		$	—		$	5.7	$	99.3

Unclaimed research & development expenditures	86.6			75.8			—			—			—			(0.1)		162.3
Capital loss carryforwards	4.4			4.9			—			—			—			—		9.3
Investment tax credits	(85.4)			3.3			—			—			—			—		(82.1)
Property, plant and equipment and right-of-use of assets	(86.2)			(23.8)			—			—			(2.8)			(7.0)		(119.8)
Intangible assets	(90.2)			(19.6)			—			—			—			(4.9)		(114.7)
Deferred revenues, contract assets and contract liabilities	1.2			(21.6)			—			—			1.5			(0.3)		(19.2)
Foreign currency exchange difference	2.6			(8.9)			4.2			—			—			(0.3)		(2.4)
Derivative financial assets and liabilities	(0.2)			5.0			5.7			—			(0.8)			(1.1)		8.6
Defined benefit obligation	27.2			0.2			(19.7)			—			—			—		7.7
Amounts not currently deductible	83.1			(4.7)			—			—			—			1.9		80.3
Other	(16.3)			(17.7)			—			—			—			0.5		(33.5)
Net deferred tax assets (liabilities)	$	23.7		$	(10.4)		$	(9.8)		$	—		$	(2.1)		$	(5.6)	$	(4.2)

During the year ended March 31, 2022, movements in temporary differences are as follows:






																	Foreign
	Balance															currency
	beginning		Recognized				Recognized			Recognized			Business			exchange				Balance
	of year			in income				in OCI		in equity			combinations			differences			end of year
Non-capital loss carryforwards	$	48.1			$	48.3		$	—		—			$	0.2		$	0.3		$	96.9
Unclaimed research & development expenditures	70.8				15.9			—			—			(0.1)			—			86.6
Capital loss carryforwards	1.1				1.0			—			—			2.3			—			4.4
Investment tax credits	(76.4)				(9.0)			—			—			—			—			(85.4)
Property, plant and equipment and right-of-use of assets	(75.2)				(6.5)			—			—			(4.6)			0.1			(86.2)
Intangible assets	(92.5)				8.3			—			—			(5.9)			(0.1)			(90.2)
Deferred revenues, contract assets and contract liabilities	1.5				(42.2)			—			—			41.6			0.3			1.2
Foreign currency exchange difference	(1.4)				9.2			(4.9)			—			—			(0.3)			2.6
Derivative financial assets and liabilities	(6.5)				6.2			0.6			—			—			(0.5)			(0.2)
Defined benefit obligation	57.2				4.3			(33.4)			—			—			(0.9)			27.2
Amounts not currently deductible	65.0				4.6			—			—			13.5			—			83.1
Other	(10.3)				(10.2)			—			3.7			—			0.5			(16.3)
Net deferred tax (liabilities) assets	$	(18.6)			$	29.9		$	(37.7)		$	3.7		$	47.0		$	(0.6)		$	23.7

As at March 31, 2023, net deferred tax assets of $81.5 million (2022 – $88.7 million) were recognized in jurisdictions that incurred losses this fiscal year or the preceding fiscal year. Based upon the level of historical taxable income or projections for future taxable income, management believes it is probable that the Company will realize the benefits of these net deferred tax assets.

As at March 31, 2023, a deferred income tax liability on taxable temporary differences of $2,866.1 million (2022 – $2,468.6 million) related to investments in subsidiaries and interests in joint ventures has not been recognized, because the Company controls whether the liability will be incurred and it is satisfied that it will not be incurred in the foreseeable future.

90 | CAE Financial Report 2023

Notes to the Consolidated Financial Statements

The non-capital losses incurred in various jurisdictions expire as follows:


Expiry date	Unrecognized		Recognized






2024-2028	$	31.4	$	18.4
2029-2043		26.8		149.9
No expiry date		146.0		212.2
	$	204.2	$	380.5

As at March 31, 2023, the Company has $115.5 million (2022 – $118.8 million) of deductible temporary differences for which deferred tax assets have not been recognized. The Company also has $19.9 million of capital losses for which deferred tax assets have not been recognized with no expiry date.

NOTE 8 – SHARE CAPITAL AND EARNINGS PER SHARE

Share capital

Authorized and issued shares

The Company is authorized to issue an unlimited number of common shares without par value and an unlimited number of preferred shares without par value, issuable in series.

The preferred shares may be issued with rights and conditions to be determined by the Board of Directors, prior to their issue. To date, the Company has not issued any preferred shares.

As at March 31, 2023, the number of common shares issued and fully paid was 317,906,290 (2022 – 317,024,123).

Issuance of common shares upon conversion of subscription receipts

On July 2, 2021, concurrent with the completion of the fiscal 2022 acquisition of L3H MT, 22,400,000 outstanding subscription receipts were converted into CAE common shares in accordance with the terms of the subscription receipts, on a one‑for‑one basis. Proceeds from the issuance of the subscription receipts of $700.0 million together with interest earned of $0.4 million were released from escrow and used to fund the L3H MT acquisition. Total issuance-related costs amounted to $31.0 million, less income tax recovery of $8.2 million.

Earnings per share computation

The denominators for the basic and diluted earnings per share computations are as follows:


	2023	2022
Weighted average number of common shares outstanding	317,660,608	311,016,278
Effect of dilutive stock options	756,871	1,885,078
Weighted average number of common shares outstanding for diluted earnings per share calculation	318,417,479	312,901,356

As at March 31, 2023, stock options to acquire 2,176,800 common shares (2022 – 663,430) have been excluded from the above calculation since their inclusion would have had an anti-dilutive effect.

CAE Financial Report 2023 | 91

Notes to the Consolidated Financial Statements

NOTE 9 – ACCOUNTS RECEIVABLE

Details of accounts receivable are as follows:


		2023		2022
Current trade receivables	$	280.6	$	230.4
Past due trade receivables
1-30 days		68.4		50.4
31-60 days		28.3		29.0
61-90 days		16.8		15.0
Greater than 90 days		85.2		121.2
Total trade receivables	$	479.3	$	446.0
Investment in finance leases (Note 14)		13.5		21.6
Receivables from related parties (Note 31)		57.5		40.3
Other receivables		90.9		76.9
Credit loss allowances		(25.5)		(27.9)
Total accounts receivable	$	615.7	$	556.9

Changes in credit loss allowances are as follows:


		2023		2022
Credit loss allowances, beginning of year	$	(27.9)	$	(34.4)
Additions		(3.2)		(4.7)
Amounts charged off		4.7		8.9
Unused amounts reversed		1.9		0.8
Foreign currency exchange differences		(1.0)		1.5
Credit loss allowances, end of year	$	(25.5)	$	(27.9)

NOTE 10 – BALANCE FROM CONTRACTS WITH CUSTOMERS

Net contract liabilities are as follows:


		2023		2022
Contract assets - current	$	693.8	$	608.3
Contract assets - non-current (Note 15)		41.9		34.1
Contract liabilities - current		(905.7)		(788.3)
Contract liabilities - non-current (Note 20)		(94.0)		(130.3)
Net contract liabilities	$	(264.0)	$	(276.2)

During the year ended March 31, 2023, the Company recognized revenue of $632.2 million (2022 – $482.6 million) that was included in the contract liability balance at the beginning of the year.

During the year ended March 31, 2023, the Company recognized a reduction of revenue of $11.3 million (2022 – recognized revenue of $55.5 million) related to performance obligations partially satisfied in previous years. This primarily relates to estimate at completion adjustments that impacted revenue and measures of completion.

Remaining performance obligations

As at March 31, 2023, the amount of the revenues expected to be realized in future years from performance obligations that are unsatisfied, or partially unsatisfied, was $5,956.0 million. The Company expects to recognize approximately 40% of these remaining performance obligations as revenue by March 31, 2024, an additional 26% by March 31, 2025 and the balance thereafter.

NOTE 11 – INVENTORIES


		2023		2022
Work in progress	$	282.4	$	291.5
Raw materials, supplies and manufactured products		301.0		228.3
Total inventories	$	583.4	$	519.8

During the year ended March 31, 2023, the use of inventory recognized in cost of sales amounted to $494.0 million (2022 ⁃ $413.9 million), and the impairment of inventories to net realizable value amounted to $5.6 million (2022 – $5.2 million).

92 | CAE Financial Report 2023

Notes to the Consolidated Financial Statements

NOTE 12 – PROPERTY, PLANT AND EQUIPMENT


					Machinery					Assets
	Buildings					and				under
(amounts in millions)		and land	Simulators		equipment			Aircraft	construction			Total
Net book value as at March 31, 2021	$	282.1	$	1,423.1	$	48.3	$	76.1	$	139.8	$	1,969.4
Additions		29.4		14.5		15.5		1.6		211.2		272.2


Business combinations (Note 2)		52.1		18.7		21.5		2.1		2.1		96.5
Disposals		(2.2)		(0.4)		(0.1)		(1.1)		—		(3.8)
Depreciation		(21.4)		(101.1)		(19.3)		(5.2)		—		(147.0)
Impairment		(13.8)		(10.5)		—		—		—		(24.3)
Purchase of assets under lease (Note 14)		—		21.7		—		—		—		21.7
Transfers and others		1.1		97.6		1.1		(1.0)		(95.5)		3.3
Foreign currency exchange differences		(7.2)		(48.5)		(0.8)		(1.0)		(1.2)		(58.7)


Net book value as at March 31, 2022	$	320.1	$	1,415.1	$	66.2	$	71.5	$	256.4	$	2,129.3
Additions		34.6		20.1		16.7		0.2		197.2		268.8


Disposals		(3.6)		(3.2)		(0.1)		(0.6)		—		(7.5)
Depreciation		(23.3)		(113.2)		(21.2)		(5.4)		—		(163.1)
(Impairment) reversal – net		—		2.1		(0.1)		(0.3)		—		1.7
Purchase of assets under lease (Note 14)		—		34.6		—		—		—		34.6
Transfers and others		27.6		208.8		(5.5)		6.0		(231.5)		5.4
Foreign currency exchange differences		13.7		88.6		3.1		5.1		7.4		117.9
Net book value as at March 31, 2023	$	369.1	$	1,652.9	$	59.1	$	76.5	$	229.5	$	2,387.1


					Machinery					Assets
	Buildings					and				under
(amounts in millions)		and land	Simulators		equipment			Aircraft	construction			Total
Cost	$	561.9	$	2,180.7	$	209.2	$	89.4	$	256.4	$	3,297.6
Accumulated depreciation and impairment		(241.8)		(765.6)		(143.0)		(17.9)		—		(1,168.3)


Net book value as at March 31, 2022	$	320.1	$	1,415.1	$	66.2	$	71.5	$	256.4	$	2,129.3
Cost	$	623.9	$	2,558.1	$	208.9	$	103.1	$	229.5	$	3,723.5
Accumulated depreciation and impairment		(254.8)		(905.2)		(149.8)		(26.6)		—		(1,336.4)
Net book value as at March 31, 2023	$	369.1	$	1,652.9	$	59.1	$	76.5	$	229.5	$	2,387.1

During the year ended March 31, 2023, depreciation of $161.5 million (2022 – $145.0 million) has been recorded in cost of sales, nil (2022 – $0.5 million) in research and development expenses and $1.6 million (2022 – $1.5 million) in selling, general and administrative expenses.

NOTE 13 – INTANGIBLE ASSETS


			Capitalized						Technology,			Other
(amounts in millions)			development		Customer				software		intangible
	Goodwill			costs	relationships		Licenses		and ERP			assets		Total
Net book value as at March 31, 2021	$	1,173.2	$	215.7	$	297.5	$	279.4	$	71.5	$	18.5	$	2,055.8
Additions – internal development		—		55.6		—		—		35.0		—		90.6

Business combinations (Note 2)		1,316.8		2.2		323.7		—		169.7		—		1,812.4


Amortization		—		(32.7)		(40.7)		(16.0)		(18.3)		(1.8)		(109.5)
Impairment		—		(4.2)		—		—		—		—		(4.2)
Cloud computing transition adjustment (Note 5)		—		—		—		—		(13.4)		—		(13.4)
Transfers and others		—		(2.1)		(0.1)		(0.1)		0.4		—		(1.9)
Foreign currency exchange differences		(25.7)		(0.1)		(5.4)		(0.5)		(1.2)		(0.6)		(33.5)
Net book value as at March 31, 2022	$	2,464.3	$	234.4	$	575.0	$	262.8	$	243.7	$	16.1	$	3,796.3
Additions – internal development		—		87.1		—		—		39.3		—		126.4

Business combinations (Note 2)		35.8		—		(11.8)		—		3.0		—		27.0
Amortization		—		(31.1)		(44.4)		(16.1)		(29.5)		(1.8)		(122.9)
Impairment reversal – net		—		6.3		—		—		—		—		6.3

Transfers and others		—		(3.7)		(1.3)		—		(0.9)		0.4		(5.5)
Foreign currency exchange differences		163.2		1.7		36.8		6.7		14.0		0.8		223.2
Net book value as at March 31, 2023	$	2,663.3	$	294.7	$	554.3	$	253.4	$	269.6	$	15.5	$	4,050.8

CAE Financial Report 2023 | 93

Notes to the Consolidated Financial Statements



			Capitalized						Technology,			Other
			development		Customer				software		intangible
	Goodwill			costs	relationships		Licenses			and ERP		assets		Total
Cost	$	2,501.8	$	480.9	$	794.7	$	312.8	$	445.4	$	51.1	$	4,586.7
Accumulated amortization and impairment		(37.5)		(246.5)		(219.7)		(50.0)		(201.7)		(35.0)		(790.4)
Net book value as at March 31, 2022	$	2,464.3	$	234.4	$	575.0	$	262.8	$	243.7	$	16.1	$	3,796.3
Cost	$	2,699.7	$	573.3	$	829.6	$	320.9	$	513.2	$	54.0	$	4,990.7
Accumulated amortization and impairment		(36.4)		(278.6)		(275.3)		(67.5)		(243.6)		(38.5)		(939.9)
Net book value as at March 31, 2023	$	2,663.3	$	294.7	$	554.3	$	253.4	$	269.6	$	15.5	$	4,050.8

During the year ended March 31, 2023, amortization of $92.9 million (2022 – $77.2 million) has been recorded in cost of sales, $29.0 million (2022 – $30.6 million) in research and development expenses and $1.0 million (2022 – $1.7 million) in selling, general and administrative expenses.

Goodwill

The carrying amount of goodwill allocated to the Company's CGUs per operating segment is as follows:


			Defense
	Civil Aviation		and Security		Healthcare			Total
Net book value as at March 31, 2021	$	789.2	$	279.3	$	104.7	$	1,173.2
Business combinations (Note 2)		283.4		1,025.6		7.8		1,316.8

Foreign currency exchange differences		(25.8)		0.9		(0.8)		(25.7)
Net book value as at March 31, 2022	$	1,046.8	$	1,305.8	$	111.7	$	2,464.3
Business combinations (Note 2)		25.6		10.2		—		35.8

Foreign currency exchange differences		53.2		101.3		8.7		163.2
Net book value as at March 31, 2023	$	1,125.6	$	1,417.3	$	120.4	$	2,663.3

Goodwill is allocated to CGUs or a group of CGUs, which generally corresponds to the Company’s operating segments or one level below.

The Company performed its annual impairment test for goodwill during the fourth quarter of fiscal 2023. The Company determined the recoverable amount of the Civil Aviation, Defense and Security and Healthcare CGUs based on fair value less costs of disposal calculations. The recoverable amount of each CGU is calculated using estimated cash flows derived from the Company's five-year strategic plan as approved by the Board of Directors. The cash flows derived from the Company's five-year strategic plan are based on management’s expectations of market growth, industry reports and trends, and past performance. Cash flows subsequent to the five‑year period were extrapolated using a constant growth rate of 2% to 3%. These growth rates were consistent with forecasts included in industry reports specific to the industry in which each CGU operates. The discount rates used to calculate the recoverable amounts reflect each CGUs’ specific risks and market conditions and range from 8% to 15%.

During the year ended March 31, 2023, the estimated recoverable amount of each CGU exceeded their carrying amount. As a result, there was no impairment identified.

Variations in the Company assumptions and estimates, particularly in the expected growth rates embedded in its cash flow projections and the discount rate could have a significant impact on fair value. For the year ended March 31, 2023, an increase of 1% in the discount rate or a decrease of 1% in the growth rate would not have resulted in an impairment charge in any of our CGUs or group of CGUs.

94 | CAE Financial Report 2023

Notes to the Consolidated Financial Statements

NOTE 14 – LEASES

Leases as lessee

Right-of-use assets



					Machinery
	Buildings					and
	and land		Simulators		equipment			Aircraft	Total











Net book value as at March 31, 2021	$	212.0	$	65.9	$	18.1	$	12.5	$	308.5
Additions and remeasurements		59.4		60.0		0.2		—		119.6
Business combinations (Note 2)		32.7		—		—		—		32.7
Depreciation		(31.2)		(13.8)		(2.6)		(0.8)		(48.4)
Impairment		(8.1)		—		—		—		(8.1)
Purchase of assets under lease (Note 12)		—		(21.7)		—		—		(21.7)
Transfers and others		(3.3)		0.5		(0.2)		—		(3.0)
Foreign currency exchange differences		(6.2)		(0.4)		—		—		(6.6)
Net book value as at March 31, 2022	$	255.3	$	90.5	$	15.5	$	11.7	$	373.0
Additions and remeasurements		120.9		7.3		—		—		128.2

Depreciation		(36.6)		(9.9)		(2.8)		(0.8)		(50.1)

Purchase of assets under lease (Note 12)		—		(34.6)		—		—		(34.6)
Transfers and others		(6.1)		(2.3)		(0.3)		—		(8.7)
Foreign currency exchange differences		13.2		5.9		—		—		19.1
Net book value as at March 31, 2023	$	346.7	$	56.9	$	12.4	$	10.9	$	426.9

During the year ended March 31, 2023, depreciation of $47.5 million (2022 – $46.0 million) has been recorded in cost of sales and $2.6 million (2022 – $2.4 million) in selling, general and administrative expenses.

Short-term leases, leases of low-value assets and variable lease payments

During the year ended March 31, 2023, expenses of $16.8 million (2022 – $15.4 million) have been recognized in net income relating to short-term leases, leases of low-value assets and variable lease payments not included in the measurement of lease liabilities.

Leases as lessor

Operating Leases

As at March 31, 2023, the net book value of property, plant and equipment leased under operating leases to third parties was $76.1 million (2022 – $51.8 million).

Undiscounted lease payments to be received under operating leases are as follows:


		2023		2022
Less than 1 year	$	33.0	$	36.3
Between 1 and 2 years		32.6		24.1
Between 2 and 3 years		30.0		23.3
Between 3 and 4 years		21.7		21.0
Between 4 and 5 years		16.5		13.6
More than 5 years		13.8		26.8
Total undiscounted lease payments receivable	$	147.6	$	145.1

CAE Financial Report 2023 | 95

Notes to the Consolidated Financial Statements

Finance Leases

Undiscounted lease payments to be received under finance leases are as follows:


		2023		2022
Less than 1 year	$	16.6	$	24.9
Between 1 and 2 years		14.6		12.0
Between 2 and 3 years		15.1		12.9
Between 3 and 4 years		16.3		11.1
Between 4 and 5 years		13.6		11.8
More than 5 years		128.2		114.5
Total undiscounted lease payments receivable	$	204.4	$	187.2
Unearned finance income		(68.0)		(59.1)
Discounted unguaranteed residual values of leased assets		(10.7)		(9.4)
Total investment in finance leases	$	125.7	$	118.7
Current portion (Note 9)		13.5		21.6
Non-current portion (Note 15)	$	112.2	$	97.1

NOTE 15 – OTHER NON-CURRENT ASSETS


		2023		2022

Contract assets (Note 10)	$	41.9	$	34.1
Prepaid rent to a portfolio investment		13.4		18.2
Advances to a portfolio investment		10.7		10.5
Advance payments for property, plant and equipment		30.7		—
Investment in finance leases (Note 14)		112.2		97.1
Non-current receivables		42.8		42.0
Investment tax credits		325.3		315.1
Other		43.6		32.7
	$	620.6	$	549.7

NOTE 16 – ACCOUNTS PAYABLE AND ACCRUED LIABILITIES


		2023		2022
Accounts payable trade	$	522.1	$	436.2
Accrued and other liabilities		498.6		514.7

Amount due to related parties (Note 31)		5.7		5.1
Current portion of royalty obligations		10.3		19.1
	$	1,036.7	$	975.1

96 | CAE Financial Report 2023

Notes to the Consolidated Financial Statements

NOTE 17 – PROVISIONS

Changes in provisions are as follows:


	Restoration
	and simulator		Restructuring
	removal		(Note 5)			Legal	Warranties			Other		Total


Provisions, as at March 31, 2022	$	9.4	$	9.2	$	8.0	$	25.0	$	5.7	$	57.3
Additions		0.2		4.3		0.1		9.8		1.7		16.1

Amount used		—		(10.8)		(5.8)		(11.3)		—		(27.9)
Reversal of unused amounts		(1.0)		(1.6)		(0.6)		(0.1)		(0.6)		(3.9)
Foreign currency exchange differences		0.4		0.2		0.1		0.2		0.4		1.3
Transfers and others		0.2		(0.2)		—		0.3		3.6		3.9
Provisions, as at March 31, 2023	$	9.2	$	1.1	$	1.8	$	23.9	$	10.8	$	46.8
Current portion		—		1.1		1.5		15.5		8.6		26.7
Non-current portion	$	9.2	$	—	$	0.3	$	8.4	$	2.2	$	20.1

NOTE 18 – DEBT FACILITIES

Long-term debt, net of transaction costs is as follows:


			Repayment					2023				2022
Notional amount				period		Current	Non-current			Current	Non-current
Unsecured senior notes
U.S. dollar, fixed rate - 3.60% to 4.90%	US$	947.0		2024-2034	$	18.5	$	1,257.9	$	17.4	$	1,176.5
Canadian dollar, fixed rate - 4.15%	$	24.3		2024-2027		2.9		21.4		2.9		24.2

Term loans
U.S. dollar, variable rate	US$	350.0		2024-2025		67.0		405.4		69.7		443.1
Canadian dollar, variable rate	$	29.6		2023-2028		5.6		23.8		5.6		29.4
Other				2023-2026		15.2		47.4		14.1		58.4
Lease liabilities
U.S. dollar				2023-2053		55.7		241.3		66.1		164.6
Other				2023-2043		25.5		133.4		32.9		131.4

R&D obligations
Canadian dollar				2023-2042		24.2		471.9		33.1		439.9
Revolving credit facilities
U.S. dollar, variable rate						—		433.0		—		336.9

Total long-term debt					$	214.6	$	3,035.5	$	241.8	$	2,804.4

Term loans

In September 2022, the Company extended the maturity of a US$175.0 million variable interest-bearing term loan from July 2023 to July 2024.

In March 2023, the Company repaid a term loan of US$50.0 million.

Revolving credit facility amendments

In October 2022, the Company amended its US$850.0 million unsecured revolving credit facility to increase the total capacity to US$1.0 billion and extended the maturity by one year to September 2027. In addition, the Company terminated its $300.0 million Sidecar unsecured revolving credit facility, which had no borrowings and was coming to maturity in April 2023.

CAE Financial Report 2023 | 97

Notes to the Consolidated Financial Statements

Information on the change in long-term debt for which cash flows have been classified as financing activities in the statement of cash flows are as follows:


	Unsecured								Revolving
		senior		Term		Lease		R&D		credit
		notes		loans		liabilities	obligations			facility		Total
Net book value as at March 31, 2021	$	1,249.5	$	331.2	$	347.2	$	423.6	$	—	$	2,351.5
Changes from financing cash flows
Net repayment from borrowing under
revolving credit facilities		—		—		—		—		344.6		344.6
Proceeds from long-term debt		—		402.3		—		26.8		—		429.1
Repayment of long-term debt		(20.5)		(110.8)		—		(0.8)		—		(132.1)
Repayment of lease liabilities		—		—		(89.5)		—		—		(89.5)
Total changes from financing cash flows	$	(20.5)	$	291.5	$	(89.5)	$	26.0	$	344.6	$	552.1
Non-cash changes
Business combinations (Note 2)		—		0.2		34.9		—		—		35.1
Foreign currency exchange differences		(8.5)		(4.1)		(7.8)		—		(7.7)		(28.1)
Additions and remeasurement of lease liabilities		—		—		119.6		—		—		119.6
Accretion		—		—		—		25.3		—		25.3
Other		0.5		1.5		(9.4)		(1.9)		—		(9.3)
Total non-cash changes	$	(8.0)	$	(2.4)	$	137.3	$	23.4	$	(7.7)	$	142.6


Net book value as at March 31, 2022	$	1,221.0	$	620.3	$	395.0	$	473.0	$	336.9	$	3,046.2
Changes from financing cash flows
Net proceeds from borrowing under
revolving credit facilities		—		—		—		—		44.5		44.5
Proceeds from long-term debt		—		—		—		31.2		—		31.2
Repayment of long-term debt		(21.8)		(106.1)		—		(33.1)		—		(161.0)
Repayment of lease liabilities		—		—		(83.4)		—		—		(83.4)
Total changes from financing cash flows	$	(21.8)	$	(106.1)	$	(83.4)	$	(1.9)	$	44.5	$	(168.7)
Non-cash changes

Foreign currency exchange differences		101.1		48.9		21.7		—		51.6		223.3
Additions and remeasurement of lease liabilities		—		—		128.2		—		—		128.2
Accretion		—		—		—		25.0		—		25.0
Other		0.4		1.3		(5.6)		—		—		(3.9)
Total non-cash changes	$	101.5	$	50.2	$	144.3	$	25.0	$	51.6	$	372.6
Net book value as at March 31, 2023	$	1,300.7	$	564.4	$	455.9	$	496.1	$	433.0	$	3,250.1

The Company's unsecured senior notes, term loans and revolving credit facility include standard events of default and covenant provisions whereby accelerated repayment and/or termination of the agreements may result if the Company were to default on payment or violate certain covenants. As at March 31, 2023, the Company is in compliance with all of its covenants, as amended from time to time.

NOTE 19 – EMPLOYEE BENEFITS OBLIGATIONS

Defined benefit pension plans

The Company has three registered funded defined benefit pension plans in Canada (two for employees and one for designated executives) that provide benefits based on length of service and final average earnings. The Company also maintains a funded pension plan for employees in the United Kingdom that provides benefits based on similar provisions.

The Company’s annual contributions, to fund both benefits accruing in the year and deficits accumulated over prior years, and the plans’ financial position are determined based on actuarial valuations. Applicable pension legislations prescribe minimum funding requirements.

In addition, the Company maintains unfunded plans in Canada, United States and Germany that provide defined benefits based on length of service and final average earnings. These unfunded plans are the sole obligation of the Company, and there is no requirement to fund them. However, the Company is obligated to pay the benefits when they become due. As at March 31, 2023, the Company has issued letters of credit totalling $56.5 million (2022 – $67.0 million) to collateralize the obligations under the Canadian plans.

The funded plans are trustee administered funds. Plan assets held in trusts are governed by local regulations and practices in each country, as is the nature of the relationship between the Company and the trustees and their composition. Responsibility for governance of the plans, including investment decisions and contribution schedules, lies jointly with the Company and the board of trustees.

98 | CAE Financial Report 2023

Notes to the Consolidated Financial Statements

The employee benefits obligations are as follows:


		2023		2022
Funded defined benefit pension obligations	$	590.7	$	638.7
Fair value of plan assets		641.7		623.9
Funded defined benefit pension obligations – net	$	(51.0)	$	14.8
Unfunded defined benefit pension obligations		91.8		94.9
Employee benefits obligations - net	$	40.8	$	109.7
Employee benefit assets	$	(51.1)	$	—
Employee benefit obligations	$	91.9	$	109.7

Changes in funded defined benefit pension obligations and fair value of plan assets are as follows:


						2023						2022
Canadian				Foreign		Total	Canadian			Foreign		Total
Pension obligations, beginning of year	$	631.8	$	6.9	$	638.7	$	687.0	$	74.5	$	761.5
Current service cost		32.5		—		32.5		35.0		1.4		36.4
Interest cost		23.9		0.2		24.1		19.2		0.6		19.8
Past service cost		—		—		—		—		(5.9)		(5.9)
Actuarial loss (gain) arising from:
Experience adjustments		25.5		0.2		25.7		(2.6)		0.2		(2.4)
Economic assumptions		(102.8)		(1.8)		(104.6)		(92.1)		(1.7)		(93.8)
Demographic assumptions		2.6		(0.1)		2.5		—		—		—
Employee contributions		9.2		—		9.2		7.8		0.3		8.1
Pension benefits paid		(25.5)		(0.2)		(25.7)		(22.5)		(1.2)		(23.7)
Settlements		(11.7)		—		(11.7)		—		(60.3)		(60.3)

Foreign currency exchange differences		—		—		—		—		(1.0)		(1.0)
Pension obligations, end of year	$	585.5	$	5.2	$	590.7	$	631.8	$	6.9	$	638.7
Fair value of plan assets, beginning of year	$	617.1	$	6.8	$	623.9	$	574.7	$	67.2	$	641.9
Interest income		23.9		0.2		24.1		16.4		0.5		16.9
Return on plan assets, excluding amounts
included in interest income		(10.1)		(0.9)		(11.0)		16.6		1.6		18.2
Employer contributions		33.0		0.4		33.4		25.1		(0.1)		25.0
Employee contributions		9.2		—		9.2		7.8		0.3		8.1
Pension benefits paid		(25.5)		(0.2)		(25.7)		(22.5)		(1.2)		(23.7)
Settlements		(11.7)		—		(11.7)		—		(60.3)		(60.3)

Administrative costs		(0.6)		—		(0.6)		(1.0)		(0.1)		(1.1)
Foreign currency exchange differences		—		0.1		0.1		—		(1.1)		(1.1)
Fair value of plan assets, end of year	$	635.3	$	6.4	$	641.7	$	617.1	$	6.8	$	623.9

Changes in unfunded defined benefit pension obligations are as follows:


						2023						2022
Canadian				Foreign		Total	Canadian			Foreign		Total
Pension obligations, beginning of year	$	82.6	$	12.3	$	94.9	$	88.6	$	14.0	$	102.6
Current service cost		4.1		1.0		5.1		4.4		0.8		5.2
Interest cost		3.0		0.3		3.3		2.2		0.2		2.4
Past service cost		—		0.2		0.2		—		0.3		0.3
Actuarial loss (gain) arising from:
Experience adjustments		5.5		(0.6)		4.9		0.3		(0.4)		(0.1)
Economic assumptions		(11.0)		(2.7)		(13.7)		(9.8)		(1.3)		(11.1)

Pension benefits paid		(2.9)		(0.6)		(3.5)		(3.1)		(0.6)		(3.7)

Foreign currency exchange differences		—		0.6		0.6		—		(0.7)		(0.7)
Pension obligations, end of year	$	81.3	$	10.5	$	91.8	$	82.6	$	12.3	$	94.9

CAE Financial Report 2023 | 99

Notes to the Consolidated Financial Statements

Net pension cost is as follows:


						2023						2022
Canadian				Foreign		Total	Canadian			Foreign		Total
Funded plans
Current service cost	$	32.5	$	—	$	32.5	$	35.0	$	1.4	$	36.4
Interest cost		23.9		0.2		24.1		19.2		0.6		19.8
Interest income		(23.9)		(0.2)		(24.1)		(16.4)		(0.5)		(16.9)
Past service cost		—		—		—		—		(5.9)		(5.9)
Administrative cost		0.6		—		0.6		1.0		0.1		1.1
Net pension cost of funded plans	$	33.1	$	—	$	33.1	$	38.8	$	(4.3)	$	34.5
Unfunded plans
Current service cost	$	4.1	$	1.0	$	5.1	$	4.4	$	0.8	$	5.2
Interest cost		3.0		0.3		3.3		2.2		0.2		2.4
Past service cost		—		0.2		0.2		—		0.3		0.3
Net pension cost of unfunded plans	$	7.1	$	1.5	$	8.6	$	6.6	$	1.3	$	7.9
Total net pension cost	$	40.2	$	1.5	$	41.7	$	45.4	$	(3.0)	$	42.4

During the year ended March 31, 2023, pension costs of $20.9 million (2022 – $17.9 million) have been charged in cost of sales, $5.8 million (2022 – $7.7 million) in research and development expenses, $8.5 million (2022 – $9.8 million) in selling, general and administrative expenses, and $3.3 million (2022 – $5.3 million) in finance expense. In addition, pension costs of $3.2 million (2022 – $1.7 million) were capitalized.

Fair value of the plan assets, by major categories, are as follows:


(amounts in millions)						2023						2022
		Quoted	Unquoted			Total		Quoted	Unquoted			Total
Canadian plans
Equity funds
Canadian	$	—	$	45.6	$	45.6	$	—	$	72.9	$	72.9
Foreign		—		174.8		174.8		—		145.4		145.4
Bond funds
Government		—		133.3		133.3		—		115.4		115.4
Corporate		—		74.4		74.4		—		105.7		105.7

Private and property investments		—		191.7		191.7		—		164.8		164.8
Cash and cash equivalents		—		14.4		14.4		—		12.1		12.1
Other		—		1.1		1.1		—		0.8		0.8
Total Canadian plans	$	—	$	635.3	$	635.3	$	—	$	617.1	$	617.1
Foreign plans

Equity instruments	$	2.3	$	—	$	2.3	$	2.6	$	—	$	2.6
Debt instruments

Corporate		3.3		—		3.3		3.6		—		3.6

Other		—		0.8		0.8		—		0.6		0.6
Total Foreign plans	$	5.6	$	0.8	$	6.4	$	6.2	$	0.6	$	6.8
Total plans	$	5.6	$	636.1	$	641.7	$	6.2	$	617.7	$	623.9

As at March 31, 2023 and March 31, 2022, there were no common shares of the Company in the pension plan assets.

Significant assumptions (weighted average) used are as follows:


			Canadian					Foreign
	2023			2022		2023		2022
Pension obligations as at March 31:
Discount rate	5.05	%		4.14	%	4.70	%	2.41	%
Compensation rate increases	3.66	%		3.65	%	2.54	%	2.66	%
Net pension cost for years ended March 31:
Discount rate	4.14	%		3.32	%	2.41	%	1.06	%
Compensation rate increases	3.65	%		3.65	%	2.66	%	2.06	%

100 | CAE Financial Report 2023

Notes to the Consolidated Financial Statements

Assumptions regarding future mortality are based on actuarial advice in accordance with published statistics and mortality tables and experience in each territory. The mortality tables and the average life expectancy in years for a member age 45 and 65 are as follows:


As at March 31, 2023			Life expectancy over 65 for a member
(in years)					Male				Female
Country	Mortality table	at age 45		at age 65		at age 45		at age 65
Canada	CPM private tables		23.7		22.2		26.1		24.8



Germany	Heubeck RT2018G		23.4		20.6		26.3		24.0
United Kingdom	S2PxA CMI 2020		22.6		21.6		24.6		23.4
United States	CPM private tables		24.9		23.5		26.4		25.1


As at March 31, 2022			Life expectancy over 65 for a member
(in years)					Male				Female
Country	Mortality table	at age 45		at age 65		at age 45		at age 65
Canada	CPM private tables		23.6		22.1		25.7		24.4



Germany	Heubeck RT2018G		23.2		20.5		26.2		23.9

United Kingdom	S2PxA CMI 2020		23.1		22.1		25.2		24.0
United States	CPM private tables		24.9		23.4		26.4		25.0

As at March 31, 2023, the weighted average duration of the defined benefit obligation is 16 years.

The impact on the defined benefit obligation as a result of a 0.25% change in the significant assumptions as at March 31, 2023 are as follows:


			Funded plans			Unfunded plans
Canadian				Foreign	Canadian			Foreign		Total
Discount rate:
Increase	$	(22.7)	$	(0.1)	$	(2.3)	$	(0.3)	$	(25.4)
Decrease		24.1		0.1		2.4		0.3		26.9
Compensation rate:
Increase		8.4		—		0.3		—		8.7
Decrease		(8.0)		—		(0.3)		—		(8.3)

Through its defined benefit plans, the Company is exposed to a number of risks, the most significant being the exposure to asset volatility, to changes in bond yields and to changes in life expectancy. The plan liabilities are calculated using a discount rate set with reference to corporate bond yields, if plan assets underperform against this yield, this will create a deficit. A decrease in corporate bond yields will increase plan liabilities, although this will be partially offset by an increase in the value of the plans’ bond holdings. The plans’ obligations are to provide benefits for the duration of the life of its members, therefore, increases in life expectancy will result in an increase in the plans’ liabilities.

Contributions reflect actuarial assumptions of future investment returns, salary projections and future service benefits. The expected employer contributions and expected benefits paid for the next fiscal year are as follows:


	Canadian			Foreign		Total
Expected employer contributions in funded plans	$	31.9	$	—	$	31.9
Expected benefits paid in unfunded plans		2.9		0.7		3.6

NOTE 20 – OTHER NON-CURRENT LIABILITIES


		2023		2022
Contract liabilities (Note 10)	$	94.0	$	130.3
Share-based payments liabilities (Note 23)		63.2		70.0
Contingent consideration arising on business combinations		—		3.7
Interest payable		8.8		14.4
Other		32.2		27.2
	$	198.2	$	245.6

CAE Financial Report 2023 | 101

Notes to the Consolidated Financial Statements

NOTE 21 – SUPPLEMENTARY CASH FLOWS INFORMATION

Changes in non-cash working capital are as follows:


		2023		2022
Cash provided by (used in) non-cash working capital:
Accounts receivable	$	4.1	$	34.2
Contract assets		(66.6)		(49.3)
Inventories		(65.6)		107.3
Prepayments		(9.7)		(5.6)
Income taxes		(13.2)		(11.5)
Accounts payable and accrued liabilities		21.8		(24.6)
Provisions		(15.3)		(25.8)
Contract liabilities		30.0		(2.2)
	$	(114.5)	$	22.5

Supplemental information:


		2023		2022
Interest paid	$	174.7	$	93.8
Interest received		13.3		13.1
Income taxes paid		34.7		44.5

NOTE 22 – ACCUMULATED OTHER COMPREHENSIVE INCOME


	Foreign currency
	exchange differences								Net changes in
	on translation of				Net changes in				financial assets
	foreign operations				cash flow hedges				carried at FVOCI						Total
	2023		2022		2023		2022		2023		2022		2023		2022
Balances, beginning of year	$	(29.4)	$	64.5	$	(0.5)	$	(5.2)	$	(1.3)	$	(1.2)	$	(31.2)	$	58.1
Other comprehensive (loss) income	212.2		(93.9)		(13.8)		4.7		—		(0.1)		198.4		(89.3)
Balances, end of year	$	182.8	$	(29.4)	$	(14.3)	$	(0.5)	$	(1.3)	$	(1.3)	$	167.2	$	(31.2)

NOTE 23 – SHARE-BASED PAYMENTS

Share-based payments expense are as follows:


		2023		2022
Equity-settled plan
Stock option plan	$	6.1	$	7.8
Cash-settled plans
Stock purchase plan		12.8		11.6
Deferred share unit (DSU) plans		3.3		1.1
Restricted share unit (RSU) plans		5.9		1.3
Performance share unit (PSU) plan		0.4		9.2
Total share-based payments expense	$	28.5	$	31.0
Impact of equity swap agreements (Note 29)		5.3		9.2
Amount capitalized		(0.9)		(0.5)
Share-based payments expense, net of equity swap (Note 24)	$	32.9	$	39.7

102 | CAE Financial Report 2023

Notes to the Consolidated Financial Statements

Carrying amount of share-based payments liabilities are as follows:


		2023		2022
Cash-settled plans
Deferred share unit (DSU) plans	$	21.3	$	20.6
Restricted share unit (RSU) plans		40.5		42.4
Performance share unit (PSU) plan		12.7		26.8
Total carrying amount of share-based payments liabilities	$	74.5	$	89.8
Current portion		11.3		19.8
Non-current portion (Note 20)	$	63.2	$	70.0

Stock option plan

Stock options to purchase common shares of the Company are granted to certain employees, officers and executives of the Company. The stock option exercise price is equal to the common shares weighted average price on the TSX of the five days of trading prior to the grant date. Stock options vest over four years of continuous employment from the grant date. The stock options must be exercised within a seven-year period, but are not exercisable during the first year after the grant date. As at March 31, 2023, a total of 9,054,276 common shares (2022 – 9,936,443) remained authorized for issuance under the stock option plan.

Changes in outstanding stock options are as follows:


			2023			2022
		Weighted			Weighted
	Number of	average exercise		Number of	average exercise
stock options		price		stock options	price
Stock options outstanding, beginning of year	6,783,444	$	25.08	7,476,902	$	23.39
Granted	624,700		32.92	712,477		36.79
Exercised	(882,167)		18.49	(1,268,660)		21.37
Forfeited	(202,440)		29.28	(134,275)		28.57
Expired	—		—	(3,000)		14.66
Stock options outstanding, end of year	6,323,537	$	26.63	6,783,444	$	25.08
Stock options exercisable, end of year	3,877,399	$	25.62	3,395,732	$	23.35

During the year ended March 31, 2023, the weighted average market share price for stock options exercised was $31.95 (2022 ⁃ $38.13).

As at March 31, 2023, summarized information about the stock options issued and outstanding is as follows:


		Options Outstanding				Options Exercisable
		Weighted
	Number of	average remaining		Weighted		Number of	Weighted
Range of	stock options	contractual life		average exercise		stock options	average exercise
exercise prices	outstanding	(years)		price		exercisable	price
$16.15 to $20.86	2,168,433		3.83	$	20.22	1,073,383	$	19.87
$21.61 to $27.14	1,978,304		1.79		24.80	1,952,804		24.83
$28.95 to $38.01	2,176,800		4.57		34.69	851,212		34.66
Total	6,323,537		3.44	$	26.63	3,877,399	$	25.62

During the year ended March 31, 2023, the weighted average fair value of stock options granted was $10.85 (2022 – $11.53).

The assumptions used in the calculation of the fair value of the stock options on the grant date using the Black-Scholes option pricing model are as follows:


		2023			2022
Common share price	$	30.87		$	37.24
Exercise price	$	32.92		$	36.79
Dividend yield		0.65	%		0.64	%
Expected volatility		42.12	%		40.51	%
Risk-free interest rate		3.30	%		0.76	%
Expected stock option life		4.5 years			4.0 years

Expected volatility is estimated by considering historical average common share price volatility over the expected life of the stock options.

CAE Financial Report 2023 | 103

Notes to the Consolidated Financial Statements

Stock purchase plan

Employees of the Company and its participating subsidiaries can acquire common shares through regular payroll deductions. The Company contributes $1 for every $2 of employee contributions, up to a maximum of 3% of the employee’s base salary. The employee and Company’s contributions are remitted to an independent plan administrator who purchases common shares on the market on behalf of the employee.

Deferred share unit (DSU) plans

Non-employee directors holding less than the minimum required holdings of common shares of the Company receive their Board retainer compensation in the form of deferred share units (DSUs). A non-employee director holding no less than the minimum required holdings of common shares may also elect to participate in the DSU plan in respect of part or all of his or her retainer. Such retainer amount is converted to DSUs based on the common shares price on the TSX on the date such retainer becomes payable to the non‑employee director.

Certain executives can elect to defer a portion or entire short-term incentive payment to the DSU plan on an annual basis. Such deferred short-term incentive amount is converted to DSUs based on the common shares weighted average price on the TSX of the five days of trading prior to the date such incentive becomes payable to the executives.

DSUs entitle the holders to receive a cash payment equal to the common shares closing price on the TSX on the payment date, or, in certain cases, the weighted average price of the five days prior to the payment date. Holders are also entitled to dividend equivalents payable in additional DSUs in an amount equal to the dividends paid on the common shares from the date of issuance to the payment date.

DSUs vest immediately and are paid upon any termination of employment or when a non-employee director ceases to act as a director.

Changes in outstanding DSUs are as follows:


	2023	2022
DSUs outstanding, beginning of year	634,342	550,742
Granted	143,206	86,876
Redeemed	(79,568)	(3,276)

DSUs vested and outstanding, end of year	697,980	634,342

Restricted share unit (RSU) plans

Restricted share units (RSUs) are granted to certain employees, officers and executives of the Company. RSUs entitle the holders to receive a cash payment based on the average closing price on the TSX for the 20 trading days preceding the vesting date, if restriction criteria are met. Restriction criteria include continuing employment for a period of up to three years. RSUs are paid three years after the grant date.

Changes in outstanding RSUs are as follows:


	2023	2022
RSUs outstanding, beginning of year	1,529,704	1,430,524
Granted	285,279	289,745
Cancelled	(31,505)	(13,690)
Redeemed	(248,843)	(176,875)

RSUs outstanding, end of year	1,534,635	1,529,704
RSUs vested, end of year	1,289,049	1,303,042

As at March 31, 2023, vested and outstanding RSUs includes 850,393 RSUs granted under the previous plan (2022 – 922,665), which are paid upon any termination of employment of the holder. Under the previous plan, holders are also entitled to dividend equivalents payable in additional RSUs in an amount equal to the dividends paid on the common shares from the date of issuance to the payment date.

Performance share unit (PSU) plan

Performance share units (PSUs) are granted to certain employees, officers and executives of the Company. PSUs entitle the holders to receive a cash payment equal to the average closing price on the TSX of the common shares for the 20 trading days preceding the vesting date multiplied by a factor which ranges from 0% to 200% based on the attainment of performance criteria set out pursuant to the plan, if restriction criteria are met. Restriction criteria include continuing employment for a period of up to three years. PSUs are paid three years after the grant date.

104 | CAE Financial Report 2023

Notes to the Consolidated Financial Statements

Changes in outstanding PSUs are as follows:


	2023	2022
PSUs outstanding, beginning of year	847,171	820,090
Granted	817,218	571,459
Cancelled	(48,601)	(23,135)
Redeemed	(467,486)	(521,243)
PSUs outstanding, end of year	1,148,302	847,171
PSUs vested, end of year	687,120	570,457

NOTE 24 – EMPLOYEE COMPENSATION

Total employee compensation expense recognized in income is as follows:


(amounts in millions)		2023		2022
Salaries and other short-term employee benefits	$	1,564.5	$	1,326.2
Share-based payments expense, net of equity swap (Note 23)		32.9		39.7
Post-employment benefits – defined benefit plans (Note 19)		38.5		40.7
Post-employment benefits – defined contribution plans		25.4		17.9
Termination benefits		2.7		6.9
Total employee compensation	$	1,664.0	$	1,431.4

NOTE 25 – GOVERNMENT PARTICIPATION

Government contributions were recognized as follows:


		2023		2022
Credited to non-financial assets	$	19.6	$	15.9
Credited to income		26.1		33.1
	$	45.7	$	49.0

NOTE 26 – CONTINGENCIES AND COMMITMENTS

Contingencies

From time to time, the Company is involved in legal proceedings, audits, litigations and claims arising in the ordinary course of its business. The Company operates in a highly regulated environment across many jurisdictions and is subject to, without limitation, laws and regulations relating to import-export controls, trade sanctions, anti-corruption, health and medical devices, national security and aviation safety of each country. In addition, contracts with government agencies are subject to procurement regulations and other specific legal requirements. The Company is also required to comply with tax laws and regulations of any country in which it operates.

The Company is subject to investigations and audits from various government and regulatory agencies. In addition, the Company may identify, investigate, remediate and voluntarily disclose potential non-compliance with those laws and regulations. As a result, the Company can be subject to potential liabilities associated with those matters. Although it is possible that liabilities may be incurred in instances for which no accruals have been made, the Company does not believe that the ultimate outcome of these matters will have a material impact on its consolidated financial statements.

During fiscal 2015, the Company received tax notices of reassessment from the Canada Revenue Agency (CRA) in connection with the Company’s characterization of amounts received under the Strategic Aerospace and Defence Initiative (SADI) program during its 2012 and 2013 taxation years. Under the SADI program, the Company received funding from the Government of Canada for its eligible spending in R&D projects, in the form of an unconditionally repayable interest-bearing loan, for which the Company commenced repayment of the principal and interest in fiscal 2016 in accordance with the terms of the agreement. The CRA has taken the position that amounts received under the SADI program qualify as government assistance. The Company filed notices of objection against the CRA’s reassessments and subsequently filed a notice of appeal to the Tax Court of Canada.

In September 2021, the Tax Court of Canada ruled in favour of the CRA’s contention and held that the amounts received under the SADI program qualified as government assistance. The Company subsequently filed an appeal to the Federal Court of Appeal against the Tax Court’s decision. In October 2022, the Federal Court of Appeal issued a decision in which it rejected the appeal. In December 2022, the Company filed an application for leave to appeal to the Supreme Court of Canada.

In May 2023, the Supreme Court of Canada denied the application for leave to appeal. The Company considers this matter closed as the Supreme Court’s decision cannot be appealed. The outcome did not have a material impact on the Company’s consolidated financial statements as at March 31, 2023.

CAE Financial Report 2023 | 105

Notes to the Consolidated Financial Statements

Commitments

Contractual purchase commitments that are not recognized as liabilities are as follows:


		2023		2022
Less than 1 year	$	297.5	$	290.9
Between 1 and 5 years		249.6		210.0
Later than 5 years		1.9		3.6
Total contractual purchase commitments	$	549.0	$	504.5

As at March 31, 2023, the Company had additional commitments of $80.2 million related to leases not yet commenced that have not been recognized as a lease liability nor included in the table above.

NOTE 27 – FAIR VALUE OF FINANCIAL INSTRUMENTS

The fair value of a financial instrument is determined by reference to the available market information at the reporting date. When no active market exists for a financial instrument, the Company determines the fair value of that instrument based on valuation methodologies as discussed below. In determining assumptions required under a valuation model, the Company primarily uses external, readily observable market data inputs. Assumptions or inputs that are not based on observable market data incorporate the Company’s best estimates of market participant assumptions. Counterparty credit risk and the Company’s own credit risk are taken into account in estimating the fair value of financial assets and financial liabilities.

The following assumptions and valuation methodologies have been used to measure the fair value of financial instruments:

(i)The fair value of cash and cash equivalents, accounts receivable and accounts payable and accrued liabilities approximate their carrying values due to their short-term maturities;

(ii)The fair value of derivative instruments, which include forward contracts, swap agreements and embedded derivatives accounted for separately and is calculated as the present value of the estimated future cash flows using an appropriate interest rate yield curve and forward foreign exchange rate. Assumptions are based on market conditions prevailing at each reporting date. The fair value of derivative instruments reflect the estimated amounts that the Company would receive or pay to settle the contracts at the reporting date;

(iii)The fair value of the equity investments, which does not have a readily available market value, is estimated using a discounted cash flow model, which includes some assumptions that are not based on observable market prices or rates;

(iv)The fair value of non-current receivables is estimated based on discounted cash flows using current interest rates for instruments with similar risks and remaining maturities;

(v)The fair value of long-term debts, royalties obligations and other non-current liabilities are estimated based on discounted cash flows using current interest rates for instruments with similar risks and remaining maturities;

(vi)The fair value of the contingent considerations arising on business combinations are based on the estimated amount and timing of projected cash flows, the probability of the achievement of the criteria on which the contingency is based and the risk-adjusted discount rate used to present value the probability-weighted cash flows.

Fair value hierarchy

The fair value hierarchy reflects the significance of the inputs used in making the measurements and has the following levels:

Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities;

Level 2: Inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (i.e. as prices in markets that are not active) or indirectly (i.e. quoted prices for similar assets or liabilities);

Level 3: Inputs for the asset or liability that are not based on observable market data (unobservable inputs).

106 | CAE Financial Report 2023

Notes to the Consolidated Financial Statements

Each type of fair value is categorized based on the lowest level input that is significant to the fair value measurement in its entirety.

The carrying values and fair values of financial instruments, by category, are as follows:


					2023				2022
	Level	Carrying value		Fair value		Carrying value		Fair value
			Total		Total		Total		Total
Financial assets (liabilities) measured at FVTPL
Cash and cash equivalents	Level 1	$	217.6	$	217.6	$	346.1	$	346.1


Equity swap agreements	Level 2		(11.8)		(11.8)		(13.0)		(13.0)
Forward foreign currency contracts	Level 2		(5.3)		(5.3)		7.0		7.0
Contingent consideration arising on business combinations	Level 3		—		—		(3.7)		(3.7)

Derivatives assets (liabilities) designated in a hedge relationship
Foreign currency and interest rate swap agreements	Level 2		10.5		10.5		8.2		8.2
Forward foreign currency contracts	Level 2		(20.5)		(20.5)		8.3		8.3
Financial assets (liabilities) measured at amortized cost
Accounts receivable(1)	Level 2		555.3		555.3		501.7		501.7
Investment in finance leases	Level 2		125.7		126.1		118.7		124.4
Advances to a portfolio investment	Level 2		10.7		10.7		10.5		10.5
Other assets(2)	Level 2		21.4		21.4		26.9		26.9
Accounts payable and accrued liabilities(3)	Level 2		(799.3)		(799.3)		(696.6)		(696.6)

Total long-term debt(4)	Level 2		(2,800.3)		(2,788.2)		(2,658.8)		(2,765.4)
Other non-current liabilities(5)	Level 2		(137.6)		(125.1)		(151.8)		(164.5)
Financial assets measured at FVOCI
Equity investments	Level 3		1.4		1.4		1.4		1.4
		$	(2,832.2)	$	(2,807.2)	$	(2,495.0)	$	(2,608.6)

(1) Includes trade receivables, accrued receivables and certain other receivables.

(2) Includes non-current receivables and certain other non-current assets.

(3) Includes trade accounts payable, accrued liabilities, interest payable and current royalty obligations.

(4) Excludes lease liabilities. The carrying value of long-term debt excludes transaction costs.

(5) Includes non-current royalty obligations and other non-current liabilities.

Changes in level 3 financial instruments are as follows:


		Contingent
		consideration
		arising on
		business		Equity
		combinations		investments		Total
Balances as at March 31, 2022	$	(3.7)	$	1.4	$	(2.3)


Total realized and unrealized losses included in income		(2.7)		—		(2.7)
Settlement		6.4		—		6.4
Balances as at March 31, 2023	$	—	$	1.4	$	1.4

CAE Financial Report 2023 | 107

Notes to the Consolidated Financial Statements

NOTE 28 – CAPITAL RISK MANAGEMENT

The Company’s capital allocation priorities are focused on:

(i) Organic investments for sustainable and accretive growth;

(ii) Maintaining a strong balance sheet for optimal resiliency and financial flexibility;

(iii) Balancing returns to shareholders with leverage targets and growth investment opportunities.

The Company manages its capital structure and makes corresponding adjustments based on changes in economic conditions and the risk characteristics of the underlying assets. In order to maintain or adjust the capital structure, the Company may adjust the amount of dividends paid to shareholders, issue new shares or debt, use cash to reduce debt or repurchase shares.

To accomplish its objectives stated above, the Company monitors its capital on the basis of the net debt to capital. This ratio is calculated as net debt divided by the sum of total equity plus net debt. Net debt is calculated as total long-term debt, including the current portion of long-term debt less cash and cash equivalents. Total equity comprises share capital, contributed surplus, accumulated other comprehensive income, retained earnings and non-controlling interests.

The level of debt versus equity in the capital structure is monitored, and the ratios are as follows:


		2023		2022
Total long-term debt (Note 18)	$	3,250.1	$	3,046.2
Less: cash and cash equivalents		(217.6)		(346.1)
Net debt	$	3,032.5	$	2,700.1
Equity		4,588.9		4,086.6
Total net debt plus equity	$	7,621.4	$	6,786.7
Net debt-to-capital	%	39.8	%	39.8

NOTE 29 – FINANCIAL RISK MANAGEMENT

Due to the nature of the activities that the Company carries out and as a result of holding financial instruments, the Company is exposed to credit risk, liquidity risk and market risk, including foreign currency risk and interest rate risk. The Company’s exposure to credit risk, liquidity risk and market risk is managed within risk management parameters documented in corporate policies. These risk management parameters remain unchanged since the previous period, unless otherwise indicated.

Credit risk

Credit risk is defined as the Company’s exposure to a financial loss if a debtor fails to meet its obligations in accordance with the terms and conditions of its arrangements with the Company. The Company is exposed to credit risk on its accounts receivable and certain other assets through its normal commercial activities. The Company is also exposed to credit risk through its normal treasury activities on its cash and cash equivalents and derivative financial assets. Credit risks arising from the Company’s normal commercial activities are managed with regards to customer credit risk.

The Company’s customers are mainly established companies, some of which have publicly available credit ratings, as well as government agencies, which facilitates risk assessment and monitoring. In addition, the Company typically receives substantial non‑refundable advance payments for contracts with customers. The Company closely monitors its exposure to major airline companies in order to mitigate its risk to the extent possible. Furthermore, the Company’s trade receivables are held with a wide range of commercial and government organizations and agencies. As well, the Company’s credit exposure is further reduced by the sale of certain of its accounts receivable to third-party financial institutions for cash consideration on a limited recourse basis (receivable purchase facility). The Company does not hold any collateral as security. The credit risk on cash and cash equivalents is mitigated by the fact that they are mainly in place with a diverse group of major North American and European financial institutions.

The Company is exposed to credit risk in the event of non-performance by counterparties to its derivative financial instruments. The Company uses several measures to minimize this exposure. First, the Company enters into contracts with counterparties that are of high credit quality. The Company signed International Swaps & Derivatives Association, Inc. (ISDA) Master Agreements with all the counterparties with whom it trades derivative financial instruments. These agreements make it possible to offset when a contracting party defaults on the agreement, for each of the transactions covered by the agreement and in force at the time of default. Also, collateral or other security to support derivative financial instruments subject to credit risk can be requested by the Company or its counterparties (or both parties, if need be) when the net balance of gains and losses on each transaction exceeds a threshold defined in the ISDA Master Agreement. Finally, the Company monitors the credit standing of counterparties on a regular basis to help minimize credit risk exposure.

The carrying amounts presented in Note 9 and Note 27 represent the maximum exposure to credit risk for each respective financial asset as at the relevant dates.

108 | CAE Financial Report 2023

Notes to the Consolidated Financial Statements

Exposure to credit risk and credit loss allowances for accounts receivable and contract assets by segment are as follows:


As at March 31, 2023		Civil Aviation			Defense and Security			Healthcare			Amounts not allocated to a segment			Total
Gross accounts receivable	$	354.1		$	198.1		$	65.4		$	23.6		$	641.2
Gross contract assets		160.6			571.6			3.5			—			735.7
Total	$	514.7		$	769.7		$	68.9		$	23.6		$	1,376.9
Credit loss allowances	$	(23.1)		$	(1.0)		$	(1.4)		$	—		$	(25.5)
As a %		4.5	%		0.1	%		2.0	%		—	%		1.9	%


As at March 31, 2022		Civil Aviation			Defense and Security			Healthcare			Amounts not allocated to a segment			Total
Gross accounts receivable	$	293.4		$	219.9		$	53.2		$	18.3		$	584.8
Gross contract assets		137.2			500.9			4.3			—			642.4
Total	$	430.6		$	720.8		$	57.5		$	18.3		$	1,227.2
Credit loss allowances	$	(25.7)		$	(0.8)		$	(1.4)		$	—		$	(27.9)
As a %		6.0	%		0.1	%		2.4	%		—	%		2.3	%

Client concentration risk

Liquidity risk

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

The Company manages this risk by establishing cash forecasts, as well as long-term operating and strategic plans. The management of consolidated liquidity requires a regular monitoring of expected cash inflows and outflows which is achieved through a forecast of the Company’s consolidated liquidity position, for efficient use of cash resources. Liquidity adequacy is assessed in view of seasonal needs, stress-test results, growth requirements and capital expenditures, and the maturity profile of indebtedness, including availability of credit facilities, working capital requirements, compliance with financial covenants and the funding of financial commitments. The Company manages its liquidity risk to maintain sufficient liquid financial resources to fund its operations and meet its commitments and obligations. The Company also regularly monitors any financing opportunities to optimize its capital structure and maintain appropriate financial flexibility.

In managing its liquidity risk, the Company has access to a committed unsecured revolving credit facility of US$1.0 billion (2022 – US$850.0 million and $300.0 million available through a Sidecar unsecured revolving credit facility). As well, the Company has agreements to sell interests in certain of its accounts receivable (receivable purchase facility) for an amount of up to US$400.0 million (2022 – US$400.0 million). As at March 31, 2023, the carrying amount of the original accounts receivable sold to a financial institution pursuant to the receivable purchase facility totaled $266.7 million (2022 – $213.9 million) of which $42.4 million (2022 – $21.0 million), corresponding to the extent of the Company’s continuing involvement, remains in accounts receivable with a corresponding liability included in accounts payable and accrued liabilities.

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

CAE Financial Report 2023 | 109

Notes to the Consolidated Financial Statements


							Between		Between		Between		Between
	Carrying		Contractual		Less than			1 and		2 and		3 and		4 and	More than
As at March 31, 2023	amount		cash flows			1 year		2 years		3 years		4 years		5 years		5 years
Non-derivative financial liabilities
Accounts payable and accrued liabilities (1)	$	799.3	$	799.3	$	799.3	$	—	$	—	$	—	$	—	$	—
Total long-term debt (2)
Long-term debt (other than lease liabilities)		2,794.2		2,794.2		133.4		486.7		264.2		171.5		562.7		1,175.7
Interest and accretion		—		734.5		120.2		93.8		73.9		67.5		53.9		325.2
Lease liabilities		455.9		724.6		104.5		62.7		55.9		51.5		47.6		402.4
Other non-current liabilities (3)		137.6		277.7		—		28.5		27.6		26.0		33.2		162.4
	$	4,187.0	$	5,330.3	$	1,157.4	$	671.7	$	421.6	$	316.5	$	697.4	$	2,065.7
Net derivative financial liabilities (assets)

Forward foreign currency contracts (4)	$	25.8
Outflow			$	2,119.4	$	1,852.8	$	186.3	$	66.5	$	13.8	$	—	$	—
Inflow				(2,092.2)		(1,832.5)		(182.2)		(64.1)		(13.4)		—		—
Foreign currency and
interest rate swap agreements		(10.5)		(11.3)		(6.5)		(3.2)		(1.1)		(0.4)		(0.1)		—


Equity swap agreements		11.8		11.8		11.8		—		—		—		—		—
	$	27.1	$	27.7	$	25.6	$	0.9	$	1.3	$	—	$	(0.1)	$	—
	$	4,214.1	$	5,358.0	$	1,183.0	$	672.6	$	422.9	$	316.5	$	697.3	$	2,065.7


							Between		Between		Between		Between
		Carrying	Contractual		Less than			1 and		2 and		3 and		4 and	More than
As at March 31, 2022		amount	cash flows			1 year		2 years		3 years		4 years		5 years		5 years
Non-derivative financial liabilities
Accounts payable and accrued liabilities (1)	$	696.6	$	696.6	$	696.6	$	—	$	—	$	—	$	—	$	—
Total long-term debt (2)
Long-term debt (other than lease liabilities)		2,651.2		2,651.2		142.8		345.3		232.5		238.4		489.9		1,202.3
Interest and accretion		—		741.3		81.9		80.3		70.6		59.7		48.7		400.1
Lease liabilities		395.0		487.8		113.0		66.7		44.2		39.1		34.4		190.4
Other non-current liabilities (3)		155.5		330.1		—		35.5		31.2		30.8		30.2		202.4
	$	3,898.3	$	4,907.0	$	1,034.3	$	527.8	$	378.5	$	368.0	$	603.2	$	1,995.2
Net derivative financial liabilities (assets)

Forward foreign currency contracts (4)	$	(15.3)
Outflow			$	1,320.5	$	1,175.3	$	118.1	$	15.4	$	11.7	$	—	$	—
Inflow				(1,336.9)		(1,188.6)		(121.0)		(15.7)		(11.6)		—		—
Foreign currency and
interest rate swap agreements		(8.2)		(2.9)		(1.4)		(0.9)		(0.3)		(0.1)		(0.2)		—


Equity swap agreements		13.0		13.0		13.0		—		—		—		—		—
	$	(10.5)	$	(6.3)	$	(1.7)	$	(3.8)	$	(0.6)	$	—	$	(0.2)	$	—
	$	3,887.8	$	4,900.7	$	1,032.6	$	524.0	$	377.9	$	368.0	$	603.0	$	1,995.2

(1) Includes trade accounts payable, accrued liabilities, interest payable, current portion of royalty obligations and certain payroll-related liabilities.

(2) Contractual cash flows include contractual interest and principal payments related to debt obligations. Contractual interests on debt obligations with variable interest rate are presented using the period-end rate.

(3) Includes non-current royalty obligations and other non-current liabilities.

(4) Outflows and inflows are presented in Canadian dollar equivalent using the contractual forward foreign currency rate.

The Company is party to an agreement that includes a put option, that if exercised, requires CAE to purchase the remaining equity interest in a joint venture. Under the terms of the agreement, the counterparty has the option to sell its shares in the joint venture at fair value. As at March 31, 2023, no value has been ascribed to the put option as the purchase price for the shares corresponds to their fair value.

Market risk

Market risk is defined as the Company’s exposure to a gain or a loss in the value of its financial instruments as a result of changes in market prices, whether those changes are caused by factors specific to the individual financial instruments or its issuer, or factors affecting all similar financial instruments traded in the market. The Company is mainly exposed to foreign currency risk and interest rate risk.

Derivative instruments are utilized by the Company to manage market risk against the volatility in foreign exchange rates, interest rates and share-based payments in order to minimize their impact on the Company’s results and financial position. The Company’s policy is not to utilize any derivative financial instruments for trading or speculative purposes.

110 | CAE Financial Report 2023

Notes to the Consolidated Financial Statements

Foreign currency risk

Foreign currency risk is defined as the Company’s exposure to a gain or a loss in the value of its financial instruments as a result of fluctuations in foreign exchange rates. The Company is exposed to foreign exchange rate variability primarily in relation to certain sale commitments, expected purchase transactions and debt denominated in a foreign currency, as well as on the net investment from its foreign operations which have functional currencies other than the Canadian dollar (in particular the U.S. dollar (USD), Euro (€ or EUR) and British pound (GBP or £). In addition, these operations have exposures to foreign exchange rates primarily through cash and cash equivalents and other working capital accounts denominated in currencies other than their functional currencies.

The Company mitigates foreign currency risks by having its foreign operations transact in their functional currency for material procurement, sale contracts and financing activities.

The Company uses forward foreign currency contracts and foreign currency swap agreements to manage the Company’s exposure from transactions in foreign currencies. These transactions include forecasted transactions and firm commitments denominated in foreign currencies.

The forward foreign currency contracts outstanding are as follows:


(amounts in millions, except average rate)				2023				2022
		Notional		Average		Notional		Average
Currencies (sold/bought)		amount	(1)	rate		amount	(1)	rate
USD/CDN
Less than 1 year	$	864.6		0.74	$	514.5		0.80
Between 1 and 3 years		179.1		0.76		85.0		0.78
Between 3 and 5 years		12.8		0.77		11.5		0.79




EUR/CDN
Less than 1 year		249.5		0.68		169.9		0.67
Between 1 and 3 years		61.8		0.71		15.7		0.65
Between 3 and 5 years		1.0		0.70		0.2		0.64

GBP/CDN
Less than 1 year		73.4		0.62		72.0		0.59
Between 1 and 3 years		1.2		0.61		2.3		0.58




CDN/USD
Less than 1 year		323.4		1.35		132.1		1.29
Between 1 and 3 years		10.7		1.31		30.3		1.28



Other currencies
Less than 1 year		341.9		n.a.		286.8		n.a.
Between 1 and 3 years		—		n.a.		0.3		n.a.
Total	$	2,119.4			$	1,320.6

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

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

Foreign currency risk sensitivity analysis

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


	USD					€					GBP
	Net income			OCI		Net income			OCI		Net income			OCI
2023		$	0.5	$	(10.9)		$	0.6	$	(5.0)		$	0.2	$	(0.1)
2022		(5.6)		(8.0)			(2.1)		(0.7)			—		0.1

A weakening of 5% in the relevant foreign currency against the Canadian dollar would have an opposite impact on pre-tax income and OCI.

Interest rate risk

Interest rate risk is defined as the Company’s exposure to a gain or a loss to the value of its financial instruments as a result of fluctuations in interest rates. The Company bears some interest rate fluctuation risk on its floating rate long-term debt and some fair value risk on its fixed interest long-term debt. The Company mainly manages interest rate risk by fixing project-specific floating rate debt in order to reduce cash flow variability. The Company has floating rate debts through its revolving credit facility and other specific floating rate debts. A mix of fixed and floating interest rate debt is sought to reduce the net impact of fluctuating interest rates.

CAE Financial Report 2023 | 111

Notes to the Consolidated Financial Statements

Derivative financial instruments used to manage interest rate exposures are mainly interest rate swap agreements. As at March 31, 2023, 73% (2022 – 75%) of the long-term debt bears fixed interest rates.

The Company’s interest rate hedging programs are typically unaffected by changes in market conditions, as related derivative financial instruments are generally held until their maturity to establish asset and liability management matching, consistent with the objective to reduce risks arising from interest rate movements.

Interest rate risk sensitivity analysis

During the year ended March 31, 2023, a 1% increase in interest rates would decrease net income by $8.8 million (2022 – $5.0 million) and would not have a significant impact on OCI (2022 – not significant) assuming all other variables remained constant. A 1% decrease in interest rates would have an opposite impact on net income.

Hedge of share-based payments expense

The Company has entered into equity swap agreements with major Canadian financial institutions to reduce its exposure to fluctuations in its share price relating to the cash-settled share-based payments plans. Pursuant to the agreement, the Company receives the economic benefit of dividends and share price appreciation while providing payments to the financial institutions for the institution’s cost of funds and any share price depreciation. The net effect of the equity swap agreements partly offset movements in the Company’s share price impacting the cost of the cash-settled share-based payments plans. As at March 31, 2023, the equity swap agreements covered 2,700,000 common shares (2022 – 2,700,000) of the Company.

Hedge of net investments in foreign operations

As at March 31, 2023, the Company has designated a portion of its unsecured senior notes, term loans and revolving credit facility totaling US$1,054.8 million (2022 – US$1,068.8 million) as a hedge of its net investments in U.S. entities. Gains or losses on the translation of the designated portion of these USD denominated long-term debts are recognized in OCI to offset any foreign exchange gains or losses on translation of the financial statements of those U.S. entities.

Letters of credit and guarantees

As at March 31, 2023, the Company had outstanding letters of credit and performance guarantees in the amount of $242.5 million (2022 – $216.1 million) issued in the normal course of business. These guarantees are issued under the revolving credit facility and the Performance Securities Guarantee (PSG).

The advance payment guarantees are related to progress/milestone payments made by the Company’s customers and are reduced or eliminated upon delivery of the product. The contract performance guarantees are linked to the completion of the intended product or service rendered by the Company and to the customer’s requirements. The customer releases the Company from these guarantees at the signing of a certificate of completion. The letter of credit for the lease obligation provides credit support for the benefit of the owner participant on a sale and leaseback transaction and varies according to the payment schedule of the lease agreement.


		2023		2022
Advance payments	$	50.8	$	42.0
Contract performance		106.7		83.9
Lease obligations		21.4		19.5
Financial obligations		59.7		69.2
Other		3.9		1.5
	$	242.5	$	216.1

Indemnifications

In certain instances when the Company sells businesses, it may retain certain liabilities for known exposures and provide indemnification to the buyer with respect to future claims for certain unknown liabilities that exist, or arise from events occurring, prior to the sale date, including liabilities for taxes, legal matters, environmental exposures, product liability, and other obligations. The terms of the indemnifications vary in duration, from one to two years for certain types of indemnities, terms for tax indemnifications that are generally aligned to the applicable statute of limitations for the jurisdiction in which the divestiture occurred, and terms for environmental liabilities that typically do not expire. The maximum potential future payments that the Company could be required to make under these indemnifications are either contractually limited to a specified amount or unlimited.

The Company believes that other than the liabilities already accrued, the maximum potential future payments that it could be required to make under these indemnifications are not determinable at this time, as any future payments would be dependent on the type and extent of the related claims, and all available defences, including insurance, which cannot be estimated. However, historically, costs incurred to settle claims related to these indemnifications have not been material to the Company’s consolidated financial position, net income or cash flows.

112 | CAE Financial Report 2023

Notes to the Consolidated Financial Statements

NOTE 30 – RELATED PARTY RELATIONSHIPS

The following tables include principal investments which, in aggregate, significantly impact the results or assets of the Company:

Investments in subsidiaries consolidated in the Company’s financial statements:


		% equity			% equity
			interest		interest
Name	Country of incorporation		2023		2022
CAE Academia de Aviacion (Espana) S.L.	Spain		100.0	%	100.0	%
CAE Arabia LLC	Saudi Arabia		50.0	%	50.0	%
CAE (UK) plc	United Kingdom		100.0	%	100.0	%
CAE (US) Inc.	United States		100.0	%	100.0	%
CAE Aircrew Training Services plc	United Kingdom		76.5	%	76.5	%
CAE Australia Pty Ltd.	Australia		100.0	%	100.0	%
CAE Aviation Services Pte Ltd.	Singapore		100.0	%	100.0	%
CAE Aviation Training Australia Pty Ltd.	Australia		100.0	%	—	%
CAE Aviation Training B.V.	Netherlands		100.0	%	100.0	%
CAE Aviation Training Peru S.A.	Peru		100.0	%	100.0	%
CAE Bangkok Co., Ltd.	Thailand		100.0	%	100.0	%
CAE Brunei Multi Purpose Training Centre Sdn Bhd	Brunei		60.0	%	60.0	%
CAE Center Amsterdam B.V.	Netherlands		100.0	%	100.0	%
CAE Center Brussels N.V.	Belgium		100.0	%	100.0	%
CAE Centre Copenhagen A/S	Denmark		100.0	%	100.0	%
CAE Centre Hong Kong Limited	China		100.0	%	100.0	%
CAE Centre Oslo AS	Norway		100.0	%	100.0	%
CAE Centre Stockholm AB	Sweden		100.0	%	100.0	%
CAE CFT B.V.	Netherlands		100.0	%	100.0	%
CAE Civil Aviation Training Solutions, Inc.	United States		100.0	%	100.0	%
CAE Colombia Flight Training S.A.S.	Colombia		100.0	%	100.0	%
CAE Crew Solutions B.V	Netherlands		100.0	%	100.0	%

CAE Doss Aviation, Inc.	United States		100.0	%	100.0	%
CAE El Salvador Flight Training S.A. de C.V.	El Salvador		99.5	%	99.5	%
CAE Engineering Korlatolt Felelossegu Tarsasag	Hungary		100.0	%	100.0	%
CAE Entrenamiento de Vuelo Chile Limitada	Chile		100.0	%	100.0	%
CAE Flight Services Austria GmbH	Austria		100.0	%	100.0	%
CAE Flight Services New Zealand Limited.	New Zealand		100.0	%	100.0	%
CAE Flight Services Poland Sp z.o.o	Poland		100.0	%	100.0	%
CAE Flight Services Sweden AB	Sweden		100.0	%	100.0	%
CAE Flight Services USA, Inc.	United States		100.0	%	100.0	%
CAE Flight & Simulator Services Sdn. Bhd.	Malaysia		100.0	%	100.0	%
CAE Flight Training (India) Private Limited	India		100.0	%	100.0	%
CAE Flight Training Center Mexico, S.A. de C.V.	Mexico		100.0	%	100.0	%
CAE France SAS	France		100.0	%	100.0	%
CAE Global Academy Évora, SA	Portugal		100.0	%	100.0	%
CAE GmbH	Germany		100.0	%	100.0	%
CAE Healthcare Canada Inc.	Canada		100.0	%	100.0	%
CAE Healthcare, Inc.	United States		100.0	%	100.0	%
CAE India Private Limited	India		100.0	%	100.0	%
CAE Integrated Enterprise Solutions Australia Pty Ltd.	Australia		100.0	%	100.0	%
CAE International Holdings Limited	Canada		100.0	%	100.0	%

CAE Financial Report 2023 | 113

Notes to the Consolidated Financial Statements

Investments in subsidiaries consolidated in the Company’s financial statements (continued):


		% equity			% equity
			interest		interest
Name	Country of incorporation		2023		2022
CAE Kuala Lumpur Sdn. Bhd.	Malaysia		100.0	%	100.0	%
CAE Luxembourg Acquisition, S.à r.l.	Luxembourg		100.0	%	100.0	%
CAE Maritime Middle East L.L.C.	UAE		49.0	%	49.0	%
CAE Middle East L.L.C.	UAE		49.0	%	49.0	%
CAE Military Aviation Training Inc.	Canada		100.0	%	100.0	%
CAE New Zealand Pty Limited	New Zealand		100.0	%	100.0	%
CAE North East Training Inc.	United States		100.0	%	100.0	%
CAE Oslo - Aviation Academy AS	Norway		100.0	%	100.0	%
CAE Oxford Aviation Academy Phoenix Inc.	United States		100.0	%	100.0	%
CAE Services GmbH	Germany		100.0	%	100.0	%
CAE Services Italia S.r.l.	Italy		100.0	%	100.0	%
CAE Servicios Globales de Instrucción de Vuelo (España), S.L.	Spain		100.0	%	100.0	%
CAE Shanghai Company, Limited	China		100.0	%	100.0	%
CAE SimuFlite Inc.	United States		100.0	%	100.0	%
CAE Simulation Technologies Private Limited	India		100.0	%	100.0	%
CAE Simulator Services Inc.	Canada		100.0	%	100.0	%
CAE Singapore (S.E.A.) Pte Ltd.	Singapore		100.0	%	100.0	%
CAE South America Flight Training do Brasil Ltda.	Brazil		100.0	%	100.0	%
CAE STS Limited	United Kingdom		100.0	%	100.0	%

CAE Training & Services Brussels N.V.	Belgium		100.0	%	100.0	%
CAE Training & Services UK Ltd.	United Kingdom		100.0	%	100.0	%
CAE Training Norway AS	Norway		100.0	%	100.0	%
CAE TSP Inc.	Canada		100.0	%	100.0	%
CAE USA Inc.	United States		100.0	%	100.0	%

CAE Vietnam Limited Liability Company	Vietnam		100.0	%	100.0	%
Medicor Lab Inc.	Canada		100.0	%	100.0	%

Oxford Aviation Academy (Oxford) Limited	United Kingdom		100.0	%	100.0	%

Parc Aviation Engineering Services Ltd.	Ireland		100.0	%	100.0	%
Parc Aviation Limited	Ireland		100.0	%	100.0	%
Parc Aviation (UK) Ltd.	United Kingdom		100.0	%	100.0	%
Parc Interim Ltd.	Ireland		100.0	%	100.0	%
Pelesys Aviation Maintenance Training Inc.	Canada		100.0	%	100.0	%
Pelesys Learning Systems Inc.	Canada		100.0	%	100.0	%
Presagis Canada Inc.	Canada		100.0	%	100.0	%
Presagis Europe (S.A.S)	France		100.0	%	100.0	%
Presagis USA Inc.	United States		100.0	%	100.0	%
Servicios de Instrucción de Vuelo, S.L.	Spain		80.0	%	80.0	%
SIV Ops Training, S.L.	Spain		80.0	%	80.0	%

114 | CAE Financial Report 2023

Notes to the Consolidated Financial Statements

Investments in joint ventures and affiliates accounted for under the equity method:


		% equity			% equity
			interest		interest
Name	Country of incorporation		2023		2022
Aviation Training Northeast Asia B.V.	Netherlands		50.0	%	50.0	%
CAE Flight and Simulator Services Korea, Ltd.	Korea		50.0	%	50.0	%
CAE Icelandair Flight Training ehf	Iceland		33.3	%	33.3	%
CAE-LIDER Training do Brasil Ltda.	Brazil		50.0	%	50.0	%
CAE Melbourne Flight Training Pty Ltd	Australia		50.0	%	50.0	%
CAE Middle East Pilot Services L.L.C	United Arab Emirates		49.0	%	49.0	%
CAE Simulation Training Private Limited	India		50.0	%	50.0	%
Embraer CAE Training Services, LLC	United States		49.0	%	49.0	%
Emirates-CAE Flight Training (LLC)	UAE		49.0	%	49.0	%
Flight Training Alliance GmbH	Germany		50.0	%	50.0	%
Hatsoff Helicopter Training Private Limited	India		50.0	%	50.0	%
Helicopter Training Media International GmbH	Germany		50.0	%	50.0	%
HFTS Helicopter Flight Training Services GmbH	Germany		25.0	%	25.0	%
JAL CAE Flight Training Co. Ltd.	Japan		50.0	%	50.0	%
Leonardo CAE Advanced Jet Training S.r.l.	Italy		50.0	%	50.0	%
National Flying Training Institute Private Limited	India		51.0	%	51.0	%
Pegasus Uçus Egitim Merkezi A.S.	Turkey		49.9	%	49.9	%
Philippine Academy for Aviation Training, Inc.	Philippines		40.0	%	40.0	%
Rotorsim s.r.l.	Italy		50.0	%	50.0	%
Rotorsim USA LLC	United States		50.0	%	50.0	%
SimCom Holdings Inc.	United States		50.0	%	50.0	%
Singapore CAE Flight Training Pte Ltd.	Singapore		50.0	%	50.0	%
SkyWarrior Flight Training LLC	United States		37.0	%	37.0	%

Xebec Government Services, LLC	United States		49.0	%	49.0	%

When the Company’s share of losses in a joint venture equals or exceeds its interests in the joint ventures, the Company does not recognize further losses, unless it will incur obligations or make payments on behalf of the joint ventures. During the year ended March 31, 2023, the Company's unrecognized share of losses in joint ventures was $0.1 million (2022 – profit of $1.6 million). As at March 31, 2023, the cumulative unrecognized share of losses for these joint ventures was $12.3 million (2022 – $12.2 million) and the cumulative unrecognized share of comprehensive loss of these joint ventures was $11.4 million (2022 – $11.2 million).

SkyWarrior Flight Training LLC

In August 2021, the Company acquired a 37% equity interest in SkyWarrior Flight Training LLC (SkyWarrior) for cash consideration of $4.3 million. SkyWarrior is a flight training operation which primarily delivers Phase 1 initial flight training to U.S. and international military customers.

CAE Financial Report 2023 | 115

Notes to the Consolidated Financial Statements

NOTE 31 – RELATED PARTY TRANSACTIONS

The Company’s outstanding balances with its equity accounted investees are as follows:


		2023		2022
Accounts receivable (Note 9)	$	59.5	$	49.7
Contract assets		25.6		23.0
Other non-current assets		17.1		12.8
Accounts payable and accrued liabilities (Note 16)		5.7		5.1
Contract liabilities		58.0		46.5
Other non-current liabilities		—		1.5

The Company’s transactions with its equity accounted investees are as follows:


		2023		2022
Revenue	$	223.0	$	111.8
Purchases		4.6		3.5
Other income		1.2		3.8

Compensation of key management personnel

Key management personnel have the ability and responsibility to make major operational, financial and strategic decisions for the Company and include members of the Board of Directors and certain executive officers. The compensation expense of key management for employee services recognized in income are as follows:


		2023		2022
Salaries and other short-term employee benefits	$	7.6	$	8.4
Post-employment benefits – defined benefit plans		4.4		2.2

Share-based payments expense		1.7		6.6
	$	13.7	$	17.2

For the year ended March 31, 2023, the compensation earned by non-employee Directors of the Company amounted to $2.9 million (2022 – $2.4 million), which include the grant date fair value of deferred share units (DSUs) as well as cash payments.

116 | CAE Financial Report 2023

CAE Financial Report 2023 | 117 Board of Directors and Executive Officers BOARD OF DIRECTORS EXECUTIVE OFFICERS Ayman Antoun 1 Corporate Director Oakville, Ontario Margaret S. (Peg) Billson 1, 3* Corporate Director Albuquerque, New Mexico Elise Eberwein 1, 2 Corporate Director Scottsdale, Arizona The Honourable Michael M. Fortier, P.C. 1* Vice Chair RBC Capital Markets Montreal, Quebec Marianne Harrison 2*, 3 Corporate Director Boston, Massachusetts Alan N. MacGibbon Chair of the Board, CAE Inc. and Corporate Director Toronto, Ontario Mary Lou Maher 1, 2 Corporate Director Toronto, Ontario François Olivier 2, 3 Corporate Director Montreal, Quebec 1 Member of the Human Resources Committee 2 Member of the Audit Committee 3 Member of the Governance Committee (*) indicates Chair of the Committee Marc Parent, C.M. President and Chief Executive Officer, CAE Inc. Montreal, Quebec Gen. David G. Perkins, USA (Ret.) 1, 3 Corporate Director Jackson, New Hampshire Michael E. Roach 2, 3 Corporate Director Montreal, Quebec The Honourable Patrick M. Shanahan 2, 3 Corporate Director Seattle, Washington Andrew J. Stevens 1, 3 Corporate Director Cheltenham, Gloucestershire Marc Parent, C. M. President and Chief Executive Officer Andrew Arnovitz Senior Vice President, Investor Relations and Enterprise Risk Management Sonya Branco Executive Vice President, Finance and Chief Financial Officer Carter Copeland Senior Vice President, Global Strategy Abha Dogra Chief Technology and Product Officer Hélène V. Gagnon Chief Sustainability Officer and Senior Vice President, Stakeholder Engagement Daniel Gelston Group President, Defense and Security Pascal Grenier Senior Vice President, Flight Services and Global Operations Mark Hounsell General Counsel, Chief Compliance Officer and Corporate Secretary Nick Leontidis Group President, Civil Aviation Bob Lockett Chief People Officer

118 | CAE Financial Report 2023 Shareholder and Investor Information CAE SHARES CAE’s shares are traded on the Toronto Stock Exchange (TSX) and on the New York Stock Exchange (NYSE) under the symbol “CAE”. TRANSFER AGENT AND REGISTRAR Computershare Trust Company of Canada 100 University Avenue, 8th Floor Toronto, Ontario M5J 2Y1 Tel. 1-800-564-6253 (toll free in Canada and the U.S.) www.computershare.com DUPLICATE MAILINGS To eliminate duplicate mailings by consolidating accounts, registered shareholders must contact Computershare Trust Company of Canada; non-registered shareholders must contact their investment brokers. INVESTOR RELATIONS Quarterly and annual reports as well as other corporate documents are available on our website at www.cae.com. These documents can also be obtained from our Investor Relations department. Investor Relations CAE Inc. 8585 Côte-de-Liesse Saint-Laurent, Quebec H4T 1G6 Tel. : 1-866-999-6223 investor.relations@cae.com Version française Pour obtenir la version française du rapport financier, s’adresser à investisseurs@cae.com. 2023 ANNUAL MEETING The Annual Shareholders Meeting will be held at 11 a.m. (Eastern Time), on Wednesday, August 9, 2023 via live webcast that will be available at cae.com/investors/. AUDITORS PricewaterhouseCoopers LLP Chartered Professional Accountants Montreal, Quebec CORPORATE GOVERNANCE The following documents pertaining to CAE’s corporate governance practices may be accessed either from CAE’s website (www.cae.com) or by request from the Corporate Secretary:  Board and Board Committee charters  Position descriptions for the Board Chair, the Committee Chairs and the Chief Executive Officer  CAE’s Code of Business Conduct  Corporate Governance Guidelines Most of the New York Exchange’s (NYSE) corporate governance listing standards are not mandatory for CAE. Significant differences between CAE’s practices and the requirements applicable to U.S. companies listed on the NYSE are summarized on CAE’s website. CAE is otherwise in compliance with the NYSE requirements in all significant respects. TRADEMARKS Trademarks and/or registered trademarks of CAE Inc. and/or its affiliates include but are not limited to CAE, CAE Medallion 6000, CAE Simfinity, CAE Healthcare, CAE Fidelis Lucina, CAE VimedixAR, CAE Juno, CAE Lucina AR, CAE Luna, CAE Ares, CAE Ares AR, CAE Rise, CAE Vïvo, Dynamic Synthetic Environment (DSE), CAE 7000XR Series, CAE 3000 Series, CAE 600XR Series FTD, CAE Trax Academy, CAE Sprint Virtual Reality, CAE Air1 and PRESAGIS. All other brands and product names are trademarks or registered trademarks of their respective owners. All logos, tradenames and trademarks referred to and used herein remain the property of their respective owners and may not be used, changed, copied, altered, or quoted without the written consent of the respective owner. All rights reserved.

As an eTree member, CAE Inc. is committed to meeting shareholder needs while being environmentally friendly. For each shareholder that receives electronic copies of shareholder communications, CAE will plant a tree through Tree Canada, the leader in Canadian urban reforestation. To date CAE has helped plant 5,274 trees. Contains FSC® certified post-consumer and 70% virgin fibre Certified EcoLogo and FSC® Mixed Sources Manufactured using biogas energy

CAE.COM Financial Report FISCAL YEAR ENDED MARCH 31, 2023