CAE plans for the future: increased synergies, improved efficiency, clear accountability and announces third-quarter results

CAE plans for the future: increased synergies, improved
efficiency, clear accountability and announces third-quarter results
Conference call and Webcast to be held at 8:00 a.m. today 


MONTREAL, Feb. 11  /PRNewswire-FirstCall/ -- (NYSE: CGT; TSX: CAE) - CAE today
reported financial results for the third quarter ended December 31, 2004, and
announced a comprehensive restructuring plan aimed at restoring the Company's
profitability, cash flow and return on investment.

CAE recorded a net loss for the quarter of $347.0 million, or $1.40 per share.
This includes a non-cash charge of $443.3 million ($354.5 million net
after-tax) for impairment in the value of goodwill, intangible and tangible
assets. Excluding this charge, earnings from continuing operations for the
third quarter were $8.8 million (or $0.04 per share) compared to $14.5 million
(or $0.05 per share) last year. It should be noted that restructuring costs of
approximately $3.8 million pre-tax ($0.01 per share) have already been charged
to operating earnings in the third quarter. During the fourth quarter ending
March 31, 2005, the Company will record a $30-million charge for workforce
reduction and related expenses. An additional restructuring cost in the range
of $25 to $35 million will be incurred over the course of fiscal year 2006. The
third-quarter financial results do not include the estimated after-tax gain of
$110 million from the sale of the Marine Controls unit, which will be recorded
in the quarter ending March 31, 2005. All financial information is in Canadian
dollars.

New Business Plan

Immediately following his arrival as President and Chief Executive Officer last
August, Mr. Robert E. Brown initiated an extensive six-month strategic review
of CAE's markets, customers and other external stakeholders as well as its
internal resources and capabilities. Following this review, the Company has
reconfirmed its strategic direction. In doing so, it has adopted a plan that
will protect its technological leadership while at the same time fostering
synergies between its various operating units and implementing sound business
practices. The plan maintains a Civil Training Group and a Military Group, both
of which will be devoted to training, simulation, modeling and sales for their
specific markets. A new Simulation Products Group will consolidate all
manufacturing activities and include engineering, program management and global
procurement. These functions had previously existed in the other two groups,
resulting in duplication. The reorganization, which will be effective April 1,
2005, is expected to result in significant savings to the Company and will
position it well to face new market realities.

"Our plan will change the way we do business," said CAE President and Chief
Executive Officer Robert E. Brown. "CAE has sound fundamentals: talented
people, remarkable technical expertise and quality products. Based on these
core strengths, we have put in place a new structure that will encourage a
sharing of expertise between units and make us a more efficient operation. In
addition, it will clarify responsibilities and accountability and improve our
competitive position in the marketplace.

"Our team has the expertise and experience to make our new structure work," Mr.
Brown added. "The Civil Training Group will continue to be led by Jeff Roberts
while the Military Group will remain under the leadership of Don Campbell. Marc
Parent, who joined us last week and who has 20 years' experience in aerospace,
will be the Group President of the new Simulation Products Group.  All three
will have full accountability and P&L responsibility.

"In line with our commitment to be more transparent in both our financial and
operational information, we will, in the next fiscal year, start providing a
full segmentation of CAE's equipment and training performance, enabling
stakeholders to properly assess the condition and prospects of all of our
businesses.

"Effective today, we are also announcing the appointment of Mr. Alain Raquepas,
C.A., LL.B., as Chief Financial Officer. After conducting an extensive internal
and external search for a new CFO, we came to realize that the most qualified
person for the job was already within our midst. Alain's knowledge of CAE and
the industry in general are considerable. He had previously served as
Vice-President, Finance, of our military business and has been acting CFO for
the past four months. In that capacity, he has done an excellent job and has
guided us through this entire restructuring process. We offer our
congratulations to Alain and wish him all the best in his new role."

Other Organizational Changes and Restructuring

"This has been a challenging time, requiring difficult decisions," said Mr.
Brown. "To eliminate duplication and to achieve a more competitive cost
structure, we will be reducing our headcount by some 450 people. I feel deep
regret at the hardship that I know this will cause the employees who will be
leaving, as well as their families, but this is a measure we must take to
assure the long-term stability of the company."

The Civil Training Group will consolidate training centres where duplication
exists and reallocate a number of simulators to maximize yield. The Company
will also be implementing an enterprise resource planning system -- a business
management system that integrates all facets of the business, including
planning, manufacturing, sales, and marketing -- in order to improve
accountability and information flow. In addition, CAE's compensation structure
will be reoriented, effective April 1, 2005, with a specific emphasis on
building shareholder value.

Balance Sheet

CAE has determined that it is necessary to record a pre-tax write-down of
assets of $443.3 million. Of this amount, $205.2 million represents a reduction
in goodwill following CAE's annual goodwill impairment test, which is conducted
every year as at December 31. Due to the strengthening of the Canadian dollar
and continuing negative market conditions in civil aviation, more tests were
conducted. These resulted in an additional write-down of $238.1 million: of
this, $107.1 million is a reduction of identifiable intangible assets
(primarily related to training acquisitions), and $131.0 million is a reduction
for non-performing simulators and other assets including deferred research and
development costs.

CAE is recording a deferred tax benefit of $88.8 million related to this
impairment, which results in a net after-tax charge to income in the third
quarter of $354.5 million, or $1.43 per share. These non-cash adjustments have
no impact on previously reported revenues or operating income and will not
result in any future cash expenditures.

The valuation principles used by the Company for the goodwill impairment test
were consistent with those of prior years. The increased clarity of current and
expected weak market conditions --  including the continued lack of
profitability of the civil aviation market, a decline in demand for 30-to- 50
seat passenger regional jets, and the higher Canadian dollar -- triggered
changes in assumptions that led CAE to lower estimates of the future cash flows
expected from its investments in its civil business. The reduction in carrying
value of intangible and tangible assets will result in a decrease in the
amortization charge of approximately $14.0 million on an annualized basis,
commencing in the fourth quarter of fiscal 2005.

"The recent sale of our Marine Controls division and the impairment charge will
strengthen our balance sheet," said Mr. Brown. "The full benefit of the sale of
Marine Controls will be recorded in the fourth quarter of this fiscal year.

"Management and the Board realize that a write-down of the magnitude announced
represents a substantial reduction in the retained earnings of the company.
However, the charge is non-cash, and as such, does not have a consequential
impact on our debt covenants. CAE has obtained an amendment to certain
financial covenants from its banking syndicate and senior note holders to allow
for a write-down of this nature not to constitute an event of default.

"The measures announced today as well as the recently announced sale of the
Marine Controls business unit underscore our priorities of strengthening the
balance sheet and generating positive free cash flow. Consistent with these
priorities and after serious consideration, the Board has made the decision to
reduce the dividend to $0.04 per share on an annualized basis, which more
appropriately reflects the funding requirements of a capital- intensive
business. This more conservative dividend will make available to the Company
approximately $20 million in additional cash annually. We also intend to take a
much more disciplined approach to new capital expenditures in the future,
recognizing that the majority of our capital expenditure for the 2006 fiscal
year has already been committed."

Mr. Brown concluded, "The next twelve months are going to be challenging. Much
of the immediate savings from the actions being announced today are offset by
low-margin contracts in our civil equipment backlog, reflecting the new market
reality in civil aviation, and a stronger Canadian dollar. This reorganization
process is intended to fundamentally change the way we do business, and should
ensure that the company's financial position is strengthened by the end of the
next fiscal year. Most of the major benefits of our plan will be realized in
the medium to long-term."

Directors

With deepest regret, CAE recognizes the passing of R. Fraser Elliott, C.M.,
Q.C., and acknowledges his exceptional leadership and contributions as a former
Chairman of the Board and as a Director of CAE for more than 50 years.

Two new members have joined CAE's Board of Directors: Brian Barents, former CEO
of both Learjet and Galaxy Aerospace, and former Chairman of the General
Aviation Manufacturers Association; and Paul Gagne, former CEO of Avenor.

Discontinued Operations

On February 4, 2005, CAE announced that it had completed the major portion of
the sale of its Marine Controls unit to L-3 Communications, for a payment of
C$245 (US$200) million in cash. The remaining elements of the sale, including
L-3's assumption of C$52 (pnds stlg 23) million of project finance debt, are
expected to close in the coming months, upon receipt of final approvals. CAE
will record an estimated after-tax gain of $110 million in its quarter ending
March 31, 2005. Therefore, the financial results of Marine Controls continue to
be reported as Discontinued Operations, and the gain on sale is not reflected
in the third-quarter financial statements.

Operating Results

Consolidated revenue from continuing operations for the third quarter increased
1.0% to $257.5 million from the $255.2 million generated in the prior year.
Civil's revenue increased by 14.0% as a result of higher average revenue per
simulator in the training centre network, while Military's revenue decreased by
9.4% due to a lower level of activity during the quarter.

Earnings Before Interest and Taxes ("EBIT") from continuing operations, before
the impairment charge of $443.3 million, decreased 26.4% to $17.3 million from
the $23.5 million generated in the prior year. The decrease from the prior year
is due to lower earnings in both Civil and Military. CS&T's overall operating
margin was 4.7%. In MS&T, the operating margin was 8.7%, the same level as last
year, but down from 12.3% last quarter.

The net loss for the third quarter was $347.0 million, or $1.40 per share. This
includes a non-cash charge of $443.3 million ($354.5 million net after-tax) for
impairment in the value of goodwill, intangible and tangible assets. Excluding
this charge, earnings from continuing operations for the third quarter were
$8.8 million (or $0.04 per share) compared to $14.5 million (or $0.05 per
share) last year. Also excluding the impairment charge, net earnings were $7.5
million, or $0.03 per share compared to earnings of $21.4 million (or $0.09 per
share), last year. A restructuring cost of approximately $3.8 million ($0.01
per share) associated with the Company's restructuring exercise occurred during
the third quarter.

Year-to-date, revenue from continuing operations increased by 6.8% to $723.5
million, despite a cumulative negative foreign exchange impact of approximately
$15.1 million. The increase is attributable primarily to the CS&T business.
Cumulative EBIT from CAE's continuing operations, excluding the asset
impairment charge, increased to $71.0 million from $63.3 million last year,
with Civil's EBIT up by 35.3% and Military's EBIT down by 5.3%. Year-to- date
EBIT in both business segments was affected positively by the first- quarter
recognition of investment tax credits (ITC) totalling $14.2 million and
negatively by adverse foreign exchange impacts on operating earnings totalling
approximately $2.6 million. Year-to-date EBIT margins in the CS&T were 9.5%.

The year-to-date net loss was $308.7 million, or $1.25 per share. Excluding the
impact of the impairment write-down, net earnings for the nine months were
$45.8 million, or $0.19 per share, compared to net earnings of $49.7 million,
or $0.22 per share, in the same period last year.

The free cash flow position from continuing operations for the quarter and
year-to-date improved by $124.2 million and $58.6 million, respectively,
compared to the prior year, as a result of positive variances in non-cash
working capital offset by an increase in capital expenditures, which amounted
to $103.5 million year-to-date compared to $61.0 million in the prior year. The
majority of the latter expenditure was for the expansion of the Civil training
network. CAE defines free cash flow as net cash provided by continuing
operating activities less capital expenditures and dividends paid, plus
proceeds from sales and leaseback.

At December 31, 2004, CAE's balance sheet included cash and cash equivalents of
$63.2 million. CAE's net debt, defined as long-term debt less cash and cash
equivalents, was $549.6 million as at December 31, 2004. Total shareholders'
equity at December 31, 2004 of $555.3 million reflects the impairment charge
but excludes the gain on the sale of Marine, which will be included in the
fourth-quarter financial results.

CAE's consolidated backlog from continuing operations at December 31, 2004 was
$2.5 billion, compared to $2.2 billion last year.

Outlook

CAE foresees a slow improvement in the civil aviation market and is preparing
itself to meet the growing needs of this market. At the same time, CAE will aim
at increasing revenue per simulator in its training centers around the world
and at containing fixed costs. The Company also sees good opportunities in the
military market, driven in large part by military and Homeland Security
opportunities in the USA and elsewhere. In that context, CAE has outlined a
number of objectives. It intends to sustain double digit margins in its
Military business unit and to substantially reduce its manufacturing costs for
simulators sold by both civil and military units.

CAE has a well diversified, high-quality product portfolio and intends to end
the year with a restructured and solid earnings base that can lead to
meaningful earnings growth over the medium and long term.

A more detailed discussion of business unit highlights can be found in the
Management's Discussion & Analysis posted at http://www.cae.com/financialsQ3 .

Conference Call

CAE will host a conference call today at 8:00 a.m. E.T. for analysts,
institutional investors and the media. North American participants can access
the call by dialling 1-800-564-3880 or 1-514-397-8625. Overseas participants
can dial [phone] or [phone]. The conference call will also be
audio Webcast live for the public at http://www.cae.com/ .

CAE is a leading provider of simulation and modelling technologies as well as
integrated training services for commercial and business aviation, and defence
customers worldwide. The company has annual revenues of approximately C$1
billion, with operations and training facilities in 17 countries on five
continents.

This press release includes forward-looking statements that are based on
certain assumptions and reflects CAE's current expectations. These forward-
looking statements are subject to a number of risks and uncertainties that
could cause actual results or events to differ materially from current
expectations. Additional factors are discussed in CAE's materials filed with
the securities regulatory authorities in Canada and the United States from time
to time. CAE disclaims any intention or obligation to update or revise any
forward-looking statements.

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DATASOURCE: CAE INC.



CONTACT: On the Web: http://www.cae.com/; Media contacts:

Nathalie Bourque, Vice-President, Corporate Communications, [phone],

; Anne von Finckenstein, Manager, Media Relations,

[phone], ext. 4889, ; Investor

relations: Andrew Arnovitz, Director, Investor Relations, [phone],

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