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<SEC-DOCUMENT>0001173382-06-000020.txt : 20060811
<SEC-HEADER>0001173382-06-000020.hdr.sgml : 20060811
<ACCEPTANCE-DATETIME>20060811142425
ACCESSION NUMBER:		0001173382-06-000020
CONFORMED SUBMISSION TYPE:	6-K
PUBLIC DOCUMENT COUNT:		3
CONFORMED PERIOD OF REPORT:	20060630
FILED AS OF DATE:		20060811
DATE AS OF CHANGE:		20060811

FILER:

	COMPANY DATA:	
		COMPANY CONFORMED NAME:			CAE INC
		CENTRAL INDEX KEY:			0001173382
		STANDARD INDUSTRIAL CLASSIFICATION:	MISCELLANEOUS ELECTRICAL MACHINERY, EQUIPMENT & SUPPLIES [3690]
		IRS NUMBER:				000000000

	FILING VALUES:
		FORM TYPE:		6-K
		SEC ACT:		1934 Act
		SEC FILE NUMBER:	001-31402
		FILM NUMBER:		061024363

	BUSINESS ADDRESS:	
		STREET 1:		2025 LOGISTICS DRIVE
		CITY:			MISSISSAUGA
		STATE:			A6
		ZIP:			L5S 1Z9
		BUSINESS PHONE:		514-341-6780

	MAIL ADDRESS:	
		STREET 1:		8585 COTE DE LIESSE, CP 1800
		STREET 2:		DEPT. 04
		CITY:			ST-LAURENT, QUEBEC
		STATE:			A6
		ZIP:			H4L 4X4
</SEC-HEADER>
<DOCUMENT>
<TYPE>6-K
<SEQUENCE>1
<FILENAME>form6kb.htm
<TEXT>

<HTML>
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   <TITLE>form6kb.htm -- Converted by SEC Publisher, created by BCL Technologies Inc., for SEC Filing</TITLE>
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<A name="page_1"></A>
<P align=center><B><FONT face=serif>SECURITIES AND EXCHANGE COMMISSION</FONT></B></P>
<P align=center><B><FONT face=serif>Washington, DC 20549 </FONT></B></P>
<P align=center><B><FONT face=serif>Form 6-K</FONT></B><BR>
</P>
<P align=center><FONT face=serif>Report of Foreign Issuer </FONT><BR>
<FONT face=serif>Pursuant to Rule 13a-16 or 15d-16 of</FONT><BR>
<FONT face=serif>the Securities Exchange Act of 1934 </FONT><BR>
</P>
<TABLE cellSpacing=0 cellPadding=0 align=center border=0>
<TR vAlign=bottom>
     <TD align=center width="19%"><FONT face=serif>For the month of:</FONT>&nbsp; </TD>
     <TD align=center width="28%"><FONT face=serif>August 2006</FONT>&nbsp; </TD>
     <TD align=center width="52%"><FONT face=serif>Commission File Number: 1-31402</FONT>&nbsp; </TD></TR></TABLE><BR>
<P align=center><B><FONT face=serif>CAE INC. </FONT></B><BR>
<FONT face=serif>(Name of Registrant)</FONT><BR>
</P>
<P align=center><B><FONT face=serif>8585 Cote de Liesse </FONT></B><BR>
<B><FONT face=serif>Saint-Laurent, Quebec </FONT></B><BR>
<B><FONT face=serif>Canada H4T 1G6 </FONT></B><BR>
<FONT face=serif>(Address of Principal Executive Offices)</FONT><BR>
</P>
<P align=center><FONT face=serif>Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F: </FONT></P>
<TABLE cellSpacing=0 cellPadding=0 align=center border=0>
<TR vAlign=bottom>
     <TD align=center width="45%"><FONT face=serif>Form 20-F</FONT>&nbsp; </TD>
     <TD align=center width="47%"><FONT face=serif>Form 40-F</FONT>&nbsp; </TD>
     <TD align=center width="6%"><FONT face=serif>X</FONT>&nbsp; </TD></TR>
<TR>
     <TD width="92%" colSpan=2></TD>
     <TD width="6%">
<HR noShade SIZE=1>
</TD></TR></TABLE><BR>
<P align=center><FONT face=serif>Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1): </FONT><U><FONT face=serif>X</FONT></U></P>
<P align=center><FONT face=serif>Indicate by check mark whether the registrant by furnishing the information contained in this Form is also thereby furnishing the information to the SEC pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934: </FONT></P>
<TABLE cellSpacing=0 cellPadding=0 align=center border=0>
<TR vAlign=bottom>
     <TD align=center width="46%"><FONT face=serif>Yes</FONT>&nbsp; </TD>
     <TD align=center width="46%"><FONT face=serif>No</FONT>&nbsp; </TD>
     <TD align=center width="7%"><FONT face=serif>X</FONT>&nbsp; </TD></TR>
<TR>
     <TD width="92%" colSpan=2></TD>
     <TD width="7%">
<HR noShade SIZE=1>
</TD></TR></TABLE><BR>
<P align=center><FONT face=serif>If &#147;Yes&#148; is marked, indicate the file number assigned to the registrant in connection with Rule 12g3-2(b): N/A </FONT></P>
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<P align=center><B><FONT face=serif>SIGNATURES</FONT></B><BR>
</P>
<P align=left>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT face=serif>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. </FONT></P>
<TABLE cellSpacing=0 cellPadding=0 border=0>
<TR vAlign=bottom>
     <TD align=left width="36%">&nbsp; </TD>
     <TD align=left width="63%" colSpan=2><B><FONT face=serif size=4>CAE Inc.</FONT></B>&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="36%"><FONT face=serif>Date: August 10, 2006</FONT>&nbsp; </TD>
     <TD align=left width="20%"><FONT face=serif>By:</FONT>&nbsp; </TD>
     <TD align=left width="43%"><FONT face=serif>/s/ Hartland Paterson</FONT>&nbsp; </TD></TR>
<TR>
     <TD width="56%" colSpan=2></TD>
     <TD width="43%">
<HR noShade SIZE=1>
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     <TD align=left width="36%">&nbsp; </TD>
     <TD align=left width="20%"><FONT face=serif>Name:</FONT>&nbsp; </TD>
     <TD align=left width="43%"><FONT face=serif>Hartland J. Paterson</FONT>&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="36%">&nbsp; </TD>
     <TD align=left width="20%"><FONT face=serif>Title:</FONT>&nbsp; </TD>
     <TD align=left width="43%"><FONT face=serif>Vice President Legal, General Counsel</FONT>&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="36%">&nbsp; </TD>
     <TD align=left width="20%">&nbsp; </TD>
     <TD align=left width="43%"><FONT face=serif>and Corporate Secretary</FONT>&nbsp; </TD></TR></TABLE><BR>
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<BR>
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<P align=right><B><FONT face=sans-serif size=6>
<TABLE rules=none width="100%" border=0>
<TR>
     <TD width="50%">
<IMG src="form6kbx3x1.jpg" border=0>
</TD>
     <TD align=right width="50%"><STRONG><FONT size=6>Press Release</FONT></STRONG></TD></TR></TABLE></FONT></B><BR>
</P>
<P align=left><B><FONT face=sans-serif>CAE reports first quarter results for fiscal year 2007</FONT></B></P>
<UL>
<LI><B><FONT face=sans-serif size=2>Revenue increased by 13% year over year to CDN$301.8 million</FONT></B>
<LI><B><FONT face=sans-serif size=2>Net earnings increased 57% year over year to CDN$32.7 million</FONT></B> </LI></UL>
<P align=left><B><I><FONT face=sans-serif size=2>Montreal, August 10, 2006 &#150;</FONT></I></B><FONT face=sans-serif size=2> (NYSE: CGT; TSX: CAE) &#150; CAE today reported financial results for the first quarter ended June 30, 2006. Net earnings were $32.7 million (or $0.13 per share) this quarter, compared to $20.8 million ($0.08 per share) in the first quarter of last year. All financial information is in Canadian dollars. </FONT></P>
<P align=left><FONT face=sans-serif size=2>Earnings from continuing operations, excluding non-recurring items, were $31.3 million ($0.12 per share) this quarter, compared to $19.9 million (or $0.08 per share) in the first quarter of last year.</FONT></P>
<P align=left><FONT face=sans-serif size=2>Consolidated revenue was $301.8 million, compared to $266.0 million in the first quarter last year.</FONT></P>
<P align=left><FONT face=sans-serif size=2>First-quarter consolidated earnings before interest and taxes</FONT><SUP><FONT face=sans-serif size=2>(1)</FONT></SUP><FONT face=sans-serif size=2> (EBIT) were $47.5 million, or 15.7% of revenue. Not including the effect of non-recurring items, EBIT was $47.8 million, or 15.8% of revenue. </FONT></P>
<P align=left><FONT face=sans-serif size=2>&#147;Financial results for the first quarter showed continued improvements across all business segments,&#148; said Robert E. Brown, CAE&#146;s President and Chief Executive Officer. &#147;We are now operating from a solid financial base and with an effective structure, which enables us to benefit more fully from improved market conditions. We are experiencing a positive response to our industry-leading solutions and we continue to pursue new growth opportunities.&#148; </FONT></P>
<P align=left><FONT face=sans-serif size=2>CAE won orders for eight full-flight simulators (FFS) during the first quarter. We also announced a number of positive developments for CAE since the end of the quarter: </FONT></P>
<UL>
<LI><FONT face=sans-serif size=2>the launch of the CAE Global Academy, a new training alliance aimed at creating a world-</FONT> <FONT face=sans-serif size=2>class airline pilot training program to address the growing global shortage of pilots;</FONT>
<LI><FONT face=sans-serif size=2>the sale of two A380 FFS to Federal Express;</FONT>
<LI><FONT face=sans-serif size=2>a new contract to design and manufacture MH-60R and SH-60B helicopter simulators for the</FONT> <FONT face=sans-serif size=2>United States Navy; and</FONT>
<LI><FONT face=sans-serif size=2>a new contract to design and manufacture an AW139 helicopter flight simulator for</FONT> <FONT face=sans-serif size=2>AgustaWestland.</FONT> </LI></UL>
<P align=left><B><FONT face=sans-serif size=2>Business segment highlights </FONT></B></P>
<P align=left><FONT face=sans-serif size=2>We manage our business and report our results in four segments:</FONT></P>
<P align=left><FONT face=sans-serif size=2>Civil segments: </FONT></P>
<UL>
<LI><FONT face=sans-serif size=2>Simulation Products/Civil (SP/C)</FONT>
<LI><FONT face=sans-serif size=2>Training &amp; Services/Civil (TS/C)</FONT> </LI></UL>
<P align=left><FONT face=sans-serif size=2>Military segments:</FONT><BR>
</P>
<UL>
<LI><FONT face=sans-serif size=2>Simulation Products/Military (SP/M)</FONT>
<LI><FONT face=sans-serif size=2>Training &amp; Services/Military (TS/M)</FONT> </LI></UL>
<P align=left><FONT face=sans-serif size=2>1</FONT></P>
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<TABLE cellSpacing=0 cellPadding=0 border=0>
<TR vAlign=bottom>
     <TD align=left width="39%"><B><FONT face=sans-serif size=2>Simulation Products/Civil</FONT></B>&nbsp; </TD>
     <TD align=left width="5%">&nbsp; </TD>
     <TD align=left width="11%">&nbsp; </TD>
     <TD align=left width="11%">&nbsp; </TD>
     <TD align=left width="11%">&nbsp; </TD>
     <TD align=left width="10%">&nbsp; </TD>
     <TD align=left width="9%">&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="39%"><B><FONT face=sans-serif size=2>Financial results</FONT></B>&nbsp; </TD>
     <TD align=left width="5%">&nbsp; </TD>
     <TD align=left width="11%">&nbsp; </TD>
     <TD align=left width="11%">&nbsp; </TD>
     <TD align=left width="11%">&nbsp; </TD>
     <TD align=left width="10%">&nbsp; </TD>
     <TD align=left width="9%">&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="39%"><FONT face=sans-serif size=2>(millions, except operating margins)</FONT>&nbsp; </TD>
     <TD align=left width="5%">&nbsp; </TD>
     <TD align=right width="11%"><FONT face=sans-serif size=2>Q1-2007</FONT>&nbsp; </TD>
     <TD align=right width="11%"><FONT face=sans-serif size=2>Q4-2006</FONT>&nbsp; </TD>
     <TD align=right width="11%"><FONT face=sans-serif size=2>Q3-2006</FONT>&nbsp; </TD>
     <TD align=right width="10%"><FONT face=sans-serif size=2>Q2-2006</FONT>&nbsp; </TD>
     <TD align=right width="9%"><FONT face=sans-serif size=2>Q1-2006</FONT>&nbsp; </TD></TR>
<TR>
     <TD width="96%" colSpan=7>
<HR noShade SIZE=1>
</TD></TR>
<TR vAlign=bottom>
     <TD align=left width="39%"><FONT face=sans-serif size=2>Revenue</FONT>&nbsp; </TD>
     <TD align=left width="5%"><FONT face=sans-serif size=2>$</FONT>&nbsp; </TD>
     <TD align=right width="11%"><FONT face=sans-serif size=2>74.2</FONT>&nbsp; </TD>
     <TD align=right width="11%"><FONT face=sans-serif size=2>78.0</FONT>&nbsp; </TD>
     <TD align=right width="11%"><FONT face=sans-serif size=2>63.0</FONT>&nbsp; </TD>
     <TD align=right width="10%"><FONT face=sans-serif size=2>55.8</FONT>&nbsp; </TD>
     <TD align=right width="9%"><FONT face=sans-serif size=2>60.2</FONT>&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="39%"><FONT face=sans-serif size=2>Segment operating income</FONT>&nbsp; </TD>
     <TD align=left width="5%"><FONT face=sans-serif size=2>$</FONT>&nbsp; </TD>
     <TD align=right width="11%"><FONT face=sans-serif size=2>11.0</FONT>&nbsp; </TD>
     <TD align=right width="11%"><FONT face=sans-serif size=2>9.3</FONT>&nbsp; </TD>
     <TD align=right width="11%"><FONT face=sans-serif size=2>10.4</FONT>&nbsp; </TD>
     <TD align=right width="10%"><FONT face=sans-serif size=2>3.4</FONT>&nbsp; </TD>
     <TD align=right width="9%"><FONT face=sans-serif size=2>7.1</FONT>&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="39%"><I><FONT face=sans-serif size=2>Operating margins</FONT></I>&nbsp; </TD>
     <TD align=left width="5%"><I><FONT face=sans-serif size=2>%</FONT></I>&nbsp; </TD>
     <TD align=right width="11%"><I><FONT face=sans-serif size=2>14.8</FONT></I>&nbsp; </TD>
     <TD align=right width="11%"><I><FONT face=sans-serif size=2>11.9</FONT></I>&nbsp; </TD>
     <TD align=right width="11%"><I><FONT face=sans-serif size=2>16.5</FONT></I>&nbsp; </TD>
     <TD align=right width="10%"><I><FONT face=sans-serif size=2>6.1</FONT></I>&nbsp; </TD>
     <TD align=right width="9%"><I><FONT face=sans-serif size=2>11.8</FONT></I>&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="39%"><FONT face=sans-serif size=2>Backlog</FONT>&nbsp; </TD>
     <TD align=left width="5%"><FONT face=sans-serif size=2>$</FONT>&nbsp; </TD>
     <TD align=right width="11%"><FONT face=sans-serif size=2>297.5</FONT>&nbsp; </TD>
     <TD align=right width="11%"><FONT face=sans-serif size=2>284.4</FONT>&nbsp; </TD>
     <TD align=right width="11%"><FONT face=sans-serif size=2>312.3</FONT>&nbsp; </TD>
     <TD align=right width="10%"><FONT face=sans-serif size=2>280.3</FONT>&nbsp; </TD>
     <TD align=right width="9%"><FONT face=sans-serif size=2>276.7</FONT>&nbsp; </TD></TR>
<TR>
     <TD width="96%" colSpan=7>
<HR noShade SIZE=1>
</TD></TR></TABLE><BR>
<P align=left><FONT face=sans-serif size=2>Revenue in the SP/C segment was $74.2 million this quarter, up 23% year over year. The increase was the result of a high level of recent orders, combined with a shorter production cycle.</FONT></P>
<P align=left><FONT face=sans-serif size=2>Segment operating income was $11.0 million, up 55% year over year. Improvement in program execution is the main contributor to better results. </FONT><I><FONT face=sans-serif size=2></FONT></I></P>
<P align=left><FONT face=sans-serif size=2>New orders totalled $87.0 million and segment backlog was $297.5 million at the end of the quarter.</FONT></P>
<TABLE cellSpacing=0 cellPadding=0 border=0>
<TR vAlign=bottom>
     <TD align=left width="39%"><B><FONT face=sans-serif size=2>Training &amp; Services/Civil</FONT></B>&nbsp; </TD>
     <TD align=left width="5%">&nbsp; </TD>
     <TD align=left width="11%">&nbsp; </TD>
     <TD align=left width="11%">&nbsp; </TD>
     <TD align=left width="11%">&nbsp; </TD>
     <TD align=left width="10%">&nbsp; </TD>
     <TD align=left width="9%">&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="39%"><B><FONT face=sans-serif size=2>Financial results</FONT></B>&nbsp; </TD>
     <TD align=left width="5%">&nbsp; </TD>
     <TD align=left width="11%">&nbsp; </TD>
     <TD align=left width="11%">&nbsp; </TD>
     <TD align=left width="11%">&nbsp; </TD>
     <TD align=left width="10%">&nbsp; </TD>
     <TD align=left width="9%">&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="39%"><FONT face=sans-serif size=2>(millions, except operating margins)</FONT>&nbsp; </TD>
     <TD align=left width="5%">&nbsp; </TD>
     <TD align=right width="11%"><FONT face=sans-serif size=2>Q1-2007</FONT>&nbsp; </TD>
     <TD align=right width="11%"><FONT face=sans-serif size=2>Q4-2006</FONT>&nbsp; </TD>
     <TD align=right width="11%"><FONT face=sans-serif size=2>Q3-2006</FONT>&nbsp; </TD>
     <TD align=right width="10%"><FONT face=sans-serif size=2>Q2-2006</FONT>&nbsp; </TD>
     <TD align=right width="9%"><FONT face=sans-serif size=2>Q1-2006</FONT>&nbsp; </TD></TR>
<TR>
     <TD width="96%" colSpan=7>
<HR noShade SIZE=1>
</TD></TR>
<TR vAlign=bottom>
     <TD align=left width="39%"><FONT face=sans-serif size=2>Revenue</FONT>&nbsp; </TD>
     <TD align=left width="5%"><FONT face=sans-serif size=2>$</FONT>&nbsp; </TD>
     <TD align=right width="11%"><FONT face=sans-serif size=2>83.7</FONT>&nbsp; </TD>
     <TD align=right width="11%"><FONT face=sans-serif size=2>81.1</FONT>&nbsp; </TD>
     <TD align=right width="11%"><FONT face=sans-serif size=2>78.0</FONT>&nbsp; </TD>
     <TD align=right width="10%"><FONT face=sans-serif size=2>79.4</FONT>&nbsp; </TD>
     <TD align=right width="9%"><FONT face=sans-serif size=2>83.8</FONT>&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="39%"><FONT face=sans-serif size=2>Segment operating income</FONT>&nbsp; </TD>
     <TD align=left width="5%"><FONT face=sans-serif size=2>$</FONT>&nbsp; </TD>
     <TD align=right width="11%"><FONT face=sans-serif size=2>18.4</FONT>&nbsp; </TD>
     <TD align=right width="11%"><FONT face=sans-serif size=2>15.1</FONT>&nbsp; </TD>
     <TD align=right width="11%"><FONT face=sans-serif size=2>14.3</FONT>&nbsp; </TD>
     <TD align=right width="10%"><FONT face=sans-serif size=2>11.6</FONT>&nbsp; </TD>
     <TD align=right width="9%"><FONT face=sans-serif size=2>16.9</FONT>&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="39%"><I><FONT face=sans-serif size=2>Operating margins</FONT></I>&nbsp; </TD>
     <TD align=left width="5%"><I><FONT face=sans-serif size=2>%</FONT></I>&nbsp; </TD>
     <TD align=right width="11%"><I><FONT face=sans-serif size=2>22.0</FONT></I>&nbsp; </TD>
     <TD align=right width="11%"><I><FONT face=sans-serif size=2>18.6</FONT></I>&nbsp; </TD>
     <TD align=right width="11%"><I><FONT face=sans-serif size=2>18.3</FONT></I>&nbsp; </TD>
     <TD align=right width="10%"><I><FONT face=sans-serif size=2>14.6</FONT></I>&nbsp; </TD>
     <TD align=right width="9%"><I><FONT face=sans-serif size=2>20.2</FONT></I>&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="39%"><FONT face=sans-serif size=2>Backlog</FONT>&nbsp; </TD>
     <TD align=left width="5%"><FONT face=sans-serif size=2>$</FONT>&nbsp; </TD>
     <TD align=right width="11%"><FONT face=sans-serif size=2>817.6</FONT>&nbsp; </TD>
     <TD align=right width="11%"><FONT face=sans-serif size=2>809.0</FONT>&nbsp; </TD>
     <TD align=right width="11%"><FONT face=sans-serif size=2>805.2</FONT>&nbsp; </TD>
     <TD align=right width="10%"><FONT face=sans-serif size=2>830.4</FONT>&nbsp; </TD>
     <TD align=right width="9%"><FONT face=sans-serif size=2>831.7</FONT>&nbsp; </TD></TR>
<TR>
     <TD width="96%" colSpan=7>
<HR noShade SIZE=1>
</TD></TR></TABLE><BR>
<P align=left><FONT face=sans-serif size=2>Revenue in the TS/C segment was $83.7 million, steady year over year and up 3% from last quarter. We experienced increased activity at our training centres compared to last year but this was offset by the appreciation of the Canadian dollar by approximately 10% against the Euro and the US dollar over the same period. </FONT></P>
<P align=left><FONT face=sans-serif size=2>Segment operating income was $18.4 million (22.0% of revenue), up 22% compared to $15.1 million (18.6% of revenue) in the fourth quarter and was up 9% compared to $16.9 million (20.2% of revenue) last year. Profitability increased as a result of an improved business mix, leveraging gains from a higher level of training activity, and efficiency gains realized from streamlining operations and workforce improvements. </FONT></P>
<P align=left><FONT face=sans-serif size=2>As a result of simulator redeployments within our global training network, the average number of revenue simulator equivalent units (RSEUs) operating in our fleet remained level with last year at 98 units.</FONT></P>
<P align=left><FONT face=sans-serif size=2>With a number of redeployments still underway, the average number of RSEUs for fiscal year 2007 as a whole is expected to remain in line with last year. We expect the number of RSEUs to be approximately 5 to 10% higher on average for fiscal 2008, once simulator redeployments are complete and new simulators have been added. Plans are on track for moving forward with the remaining 12 of the 28 planned FFS relocations. </FONT></P>
<P align=left><FONT face=sans-serif size=2>New orders totalled $110.9 million and segment backlog was $817.6 million at the end of the quarter. </FONT></P>
<P align=left><FONT face=sans-serif size=2>2</FONT></P>
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<TABLE cellSpacing=0 cellPadding=0 border=0>
<TR vAlign=bottom>
     <TD align=left width="39%"><B><FONT face=sans-serif size=2>Simulation Products/Military</FONT></B>&nbsp; </TD>
     <TD align=left width="5%">&nbsp; </TD>
     <TD align=left width="11%">&nbsp; </TD>
     <TD align=left width="11%">&nbsp; </TD>
     <TD align=left width="11%">&nbsp; </TD>
     <TD align=left width="10%">&nbsp; </TD>
     <TD align=left width="9%">&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="39%"><FONT face=sans-serif size=2>(millions, except operating margins)</FONT>&nbsp; </TD>
     <TD align=left width="5%">&nbsp; </TD>
     <TD align=right width="11%"><FONT face=sans-serif size=2>Q1-2007</FONT>&nbsp; </TD>
     <TD align=right width="11%"><FONT face=sans-serif size=2>Q4-2006</FONT>&nbsp; </TD>
     <TD align=right width="11%"><FONT face=sans-serif size=2>Q3-2006</FONT>&nbsp; </TD>
     <TD align=right width="10%"><FONT face=sans-serif size=2>Q2-2006</FONT>&nbsp; </TD>
     <TD align=right width="9%"><FONT face=sans-serif size=2>Q1-2006</FONT>&nbsp; </TD></TR>
<TR>
     <TD width="96%" colSpan=7>
<HR noShade SIZE=1>
</TD></TR>
<TR vAlign=bottom>
     <TD align=left width="39%"><FONT face=sans-serif size=2>Revenue</FONT>&nbsp; </TD>
     <TD align=left width="5%"><FONT face=sans-serif size=2>$</FONT>&nbsp; </TD>
     <TD align=right width="11%"><FONT face=sans-serif size=2>95.8</FONT>&nbsp; </TD>
     <TD align=right width="11%"><FONT face=sans-serif size=2>77.5</FONT>&nbsp; </TD>
     <TD align=right width="11%"><FONT face=sans-serif size=2>82.8</FONT>&nbsp; </TD>
     <TD align=right width="10%"><FONT face=sans-serif size=2>94.4</FONT>&nbsp; </TD>
     <TD align=right width="9%"><FONT face=sans-serif size=2>72.7</FONT>&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="39%"><FONT face=sans-serif size=2>Segment operating income</FONT>&nbsp; </TD>
     <TD align=left width="5%"><FONT face=sans-serif size=2>$</FONT>&nbsp; </TD>
     <TD align=right width="11%"><FONT face=sans-serif size=2>11.2</FONT>&nbsp; </TD>
     <TD align=right width="11%"><FONT face=sans-serif size=2>6.9</FONT>&nbsp; </TD>
     <TD align=right width="11%"><FONT face=sans-serif size=2>6.3</FONT>&nbsp; </TD>
     <TD align=right width="10%"><FONT face=sans-serif size=2>9.7</FONT>&nbsp; </TD>
     <TD align=right width="9%"><FONT face=sans-serif size=2>4.8</FONT>&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="39%"><I><FONT face=sans-serif size=2>Operating margins</FONT></I>&nbsp; </TD>
     <TD align=left width="5%"><I><FONT face=sans-serif size=2>%</FONT></I>&nbsp; </TD>
     <TD align=right width="11%"><I><FONT face=sans-serif size=2>11.7</FONT></I>&nbsp; </TD>
     <TD align=right width="11%"><I><FONT face=sans-serif size=2>8.9</FONT></I>&nbsp; </TD>
     <TD align=right width="11%"><I><FONT face=sans-serif size=2>7.6</FONT></I>&nbsp; </TD>
     <TD align=right width="10%"><I><FONT face=sans-serif size=2>10.3</FONT></I>&nbsp; </TD>
     <TD align=right width="9%"><I><FONT face=sans-serif size=2>6.6</FONT></I>&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="39%"><FONT face=sans-serif size=2>Backlog</FONT>&nbsp; </TD>
     <TD align=left width="5%"><FONT face=sans-serif size=2>$</FONT>&nbsp; </TD>
     <TD align=right width="11%"><FONT face=sans-serif size=2>475.2</FONT>&nbsp; </TD>
     <TD align=right width="11%"><FONT face=sans-serif size=2>540.5</FONT>&nbsp; </TD>
     <TD align=right width="11%"><FONT face=sans-serif size=2>453.0</FONT>&nbsp; </TD>
     <TD align=right width="10%"><FONT face=sans-serif size=2>493.1</FONT>&nbsp; </TD>
     <TD align=right width="9%"><FONT face=sans-serif size=2>535.1</FONT>&nbsp; </TD></TR>
<TR>
     <TD width="96%" colSpan=7>
<HR noShade SIZE=1>
</TD></TR></TABLE><BR>
<P align=left><FONT face=sans-serif size=2>Revenue in the SP/M segment was $95.8 million this quarter, up 32% year over year. This was mainly because of higher activity on some European programs, particularly the German NH90 equipment program where we reached important milestones during the quarter. Conversely, performance in the first quarter last year was adversely affected by delays in some European and US programs.</FONT></P>
<P align=left><FONT face=sans-serif size=2>In addition to higher volumes this quarter, the segment also benefited from the sale of a licence to the UK Government for intellectual property as the Ministry of Defence looks beyond AVTS for future procurement solutions for its ground-based training requirements.</FONT></P>
<P align=left><FONT face=sans-serif size=2>Segment operating income this quarter was $11.2 million, compared to $4.8 million a year ago. The increase was partly owing to the write-down of $1.5 million in deferred bid costs in the first quarter of last year.</FONT></P>
<P align=left><FONT face=sans-serif size=2>New orders totalled $36.4 million and segment backlog was $475.2 million at the end of the quarter. Variations in the level of order bookings between quarters in both Military segments are normally expected because of the unique nature and irregular timing of the awarding of military contracts.</FONT><B><FONT face=sans-serif size=2> </FONT></B></P>
<TABLE cellSpacing=0 cellPadding=0 border=0>
<TR vAlign=bottom>
     <TD align=left width="39%"><B><FONT face=sans-serif size=2>Training &amp; Services/Military</FONT></B>&nbsp; </TD>
     <TD align=left width="5%">&nbsp; </TD>
     <TD align=left width="11%">&nbsp; </TD>
     <TD align=left width="11%">&nbsp; </TD>
     <TD align=left width="11%">&nbsp; </TD>
     <TD align=left width="10%">&nbsp; </TD>
     <TD align=left width="9%">&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="39%"><B><FONT face=sans-serif size=2>Financial results</FONT></B>&nbsp; </TD>
     <TD align=left width="5%">&nbsp; </TD>
     <TD align=left width="11%">&nbsp; </TD>
     <TD align=left width="11%">&nbsp; </TD>
     <TD align=left width="11%">&nbsp; </TD>
     <TD align=left width="10%">&nbsp; </TD>
     <TD align=left width="9%">&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="39%"><FONT face=sans-serif size=2>(millions, except operating margins)</FONT>&nbsp; </TD>
     <TD align=left width="5%">&nbsp; </TD>
     <TD align=right width="11%"><FONT face=sans-serif size=2>Q1-2007</FONT>&nbsp; </TD>
     <TD align=right width="11%"><FONT face=sans-serif size=2>Q4-2006</FONT>&nbsp; </TD>
     <TD align=right width="11%"><FONT face=sans-serif size=2>Q3-2006</FONT>&nbsp; </TD>
     <TD align=right width="10%"><FONT face=sans-serif size=2>Q2-2006</FONT>&nbsp; </TD>
     <TD align=right width="9%"><FONT face=sans-serif size=2>Q1-2006</FONT>&nbsp; </TD></TR>
<TR>
     <TD width="96%" colSpan=7>
<HR noShade SIZE=1>
</TD></TR>
<TR vAlign=bottom>
     <TD align=left width="39%"><FONT face=sans-serif size=2>Revenue</FONT>&nbsp; </TD>
     <TD align=left width="5%"><FONT face=sans-serif size=2>$</FONT>&nbsp; </TD>
     <TD align=right width="11%"><FONT face=sans-serif size=2>48.1</FONT>&nbsp; </TD>
     <TD align=right width="11%"><FONT face=sans-serif size=2>47.7</FONT>&nbsp; </TD>
     <TD align=right width="11%"><FONT face=sans-serif size=2>52.8</FONT>&nbsp; </TD>
     <TD align=right width="10%"><FONT face=sans-serif size=2>50.7</FONT>&nbsp; </TD>
     <TD align=right width="9%"><FONT face=sans-serif size=2>49.3</FONT>&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="39%"><FONT face=sans-serif size=2>Segment operating income</FONT>&nbsp; </TD>
     <TD align=left width="5%"><FONT face=sans-serif size=2>$</FONT>&nbsp; </TD>
     <TD align=right width="11%"><FONT face=sans-serif size=2>11.6</FONT>&nbsp; </TD>
     <TD align=right width="11%"><FONT face=sans-serif size=2>3.3</FONT>&nbsp; </TD>
     <TD align=right width="11%"><FONT face=sans-serif size=2>8.4</FONT>&nbsp; </TD>
     <TD align=right width="10%"><FONT face=sans-serif size=2>5.4</FONT>&nbsp; </TD>
     <TD align=right width="9%"><FONT face=sans-serif size=2>2.0</FONT>&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="39%"><I><FONT face=sans-serif size=2>Operating margins</FONT></I>&nbsp; </TD>
     <TD align=left width="5%"><I><FONT face=sans-serif size=2>%</FONT></I>&nbsp; </TD>
     <TD align=right width="11%"><I><FONT face=sans-serif size=2>24.1</FONT></I>&nbsp; </TD>
     <TD align=right width="11%"><I><FONT face=sans-serif size=2>6.9</FONT></I>&nbsp; </TD>
     <TD align=right width="11%"><I><FONT face=sans-serif size=2>15.9</FONT></I>&nbsp; </TD>
     <TD align=right width="10%"><I><FONT face=sans-serif size=2>10.7</FONT></I>&nbsp; </TD>
     <TD align=right width="9%"><I><FONT face=sans-serif size=2>4.1</FONT></I>&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="39%"><FONT face=sans-serif size=2>Backlog</FONT>&nbsp; </TD>
     <TD align=left width="5%"><FONT face=sans-serif size=2>$</FONT>&nbsp; </TD>
     <TD align=right width="11%"><FONT face=sans-serif size=2>842.9</FONT>&nbsp; </TD>
     <TD align=right width="11%"><FONT face=sans-serif size=2>826.1</FONT>&nbsp; </TD>
     <TD align=right width="11%"><FONT face=sans-serif size=2>797.8</FONT>&nbsp; </TD>
     <TD align=right width="10%"><FONT face=sans-serif size=2>829.4</FONT>&nbsp; </TD>
     <TD align=right width="9%"><FONT face=sans-serif size=2>904.0</FONT>&nbsp; </TD></TR>
<TR>
     <TD width="96%" colSpan=7>
<HR noShade SIZE=1>
</TD></TR></TABLE><BR>
<P align=left><FONT face=sans-serif size=2>Revenue in the TS/M segment was $48.1 million this quarter, down 2% year over year, mainly because of lower revenue in our training centre in the UK. This was partially offset by the sale of a licence of intellectual property to the UK Government. </FONT></P>
<P align=left><FONT face=sans-serif size=2>Segment operating income was $11.6 million, up $9.6 million year over year. This included a non-recurring payment of $4.4 million for the release of claims on the UK Government relating to the AVTS project. As well, in the same quarter last year, segment operating income included a write-down of deferred bid costs of $4.4 million for AVTS.</FONT></P>
<P align=left><FONT face=sans-serif size=2>New orders totalled $62.4 million this quarter, and segment backlog was $842.9 million at the end of the quarter.</FONT></P>
<P align=left><FONT face=sans-serif size=2>In the Military business as a whole, combined revenue for the quarter was $143.9 million and operating income was $22.8 million, resulting in an operating margin of 15.8% . Normalizing for one-time items, the operating margin was</FONT><B><FONT face=sans-serif size=2> </FONT></B><FONT face=sans-serif size=2>12.8% </FONT><B><FONT face=sans-serif size=2>.</FONT></B></P>
<P align=left><FONT face=sans-serif size=2>3</FONT></P>
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<P align=left><B><FONT face=sans-serif size=2>Cash flow and financial position</FONT></B><BR>
</P>
<P align=left><FONT face=sans-serif size=2>As of the end of the quarter, we generated $59.1 million of cash from continuing operations. The level of payables and accruals decreased from year-end, resulting in a reversal of working capital of $27.1 million. This, together with $40.7 million of capital expenditures, resulted in free cash flow</FONT><SUP><FONT face=sans-serif size=2>(2)</FONT></SUP><FONT face=sans-serif size=2> for the quarter of negative $5.5 million. We continue to forecast positive free cash flow for the fiscal year. </FONT></P>
<P align=left><FONT face=sans-serif size=2>Net debt</FONT><SUP><FONT face=sans-serif size=2>(3) </FONT></SUP><FONT face=sans-serif size=2>was $198.3 million for the quarter, up 4% over last quarter.</FONT></P>
<P align=left><FONT face=sans-serif size=2>CAE will pay a dividend of $0.01 per share on September 30, 2006, to shareholders of record on September 15, 2006. </FONT></P>
<P align=left><B><FONT face=sans-serif size=2>Additional consolidated financial results</FONT></B><BR>
</P>
<P align=left><FONT face=sans-serif size=2>The consolidated backlog from continuing operations was $2.43 billion at the end of this quarter, compared to $2.46 billion at the end of last year. During the quarter, new orders of $296.7 million were added to backlog, but they were offset by $301.8 million of revenues generated from backlog and by $21.7 million in adjustments from foreign exchange movements.</FONT></P>
<P align=left><FONT face=sans-serif size=2>Capital expenditures for the quarter were $40.7 million. Total capital expenditures in 2007 are expected to be higher than the level reached last year as we are experiencing favourable market conditions and are looking into a number of growth initiatives requiring additional investment.</FONT></P>
<P align=left><FONT face=sans-serif size=2>Income taxes were $11.2 million this quarter, representing an effective tax rate of 25%. We expect the effective income tax rate for fiscal 2007 to be approximately 31%. </FONT></P>
<P align=left><FONT face=sans-serif size=2>Excluding non-recurring items, earnings per share from continuing operations were $0.12, compared to $0.09 last quarter and $0.08 in the first quarter of last year. Our first quarter results included a non-recurring charge of $3.1 million after-tax for restructuring and related costs. These costs were offset by after-tax gains on the release of claims with the UK Government for $3.1 million and a $2.0 million recognition of certain tax assets.</FONT></P>
<P align=left><FONT face=sans-serif size=2>You will find a more detailed discussion of our results by segment in the Management&#146;s discussion and analysis (MD&amp;A) which appears below. It is also posted on our website at </FONT><U><FONT face=sans-serif color=#0000ff size=2>http://www.cae.com/financialsQ1FY07</FONT></U><FONT face=sans-serif size=2>.</FONT><B><FONT face=sans-serif size=2> </FONT></B></P>
<P align=left><B><FONT face=sans-serif size=2>Conference Call</FONT></B><BR>
</P>
<P align=left><FONT face=sans-serif size=2>CAE will host a conference call today at 12:00 p.m. EST for analysts, institutional investors and the media. North American participants can listen to the conference by dialling 1-866-542-4236 or (514) 868-1042. Overseas participants can dial +800-6578-9868 or 1(514) 868-1042. The conference call will also be audio Webcast live for the public at </FONT><U><FONT face=sans-serif color=#0000ff size=2>www.cae.com</FONT></U><FONT face=sans-serif size=2>. </FONT></P>
<P align=left><FONT face=sans-serif size=2>CAE is a world leader in providing simulation and modelling technologies, and integrated training services to the civil aviation industry and defence forces around the globe. We design, manufacture and supply simulation equipment and offer training and services. This includes integrated modelling, simulation and training solutions for commercial airlines, business aircraft operators, aircraft manufacturers and military organizations and a global network of training centres for pilots, and in some instances, cabin crew and maintenance workers.</FONT></P>
<P align=left><FONT face=sans-serif size=2>With annual revenues of over CDN$1 billion, CAE operates in 19 countries around the world. CAE has sold nearly 700 simulators and training devices to airlines, aircraft manufacturers, training centres and defence forces for air and ground purposes in more than 40 countries. We have over 100 full-flight simulators in more than 20 aviation training centres, serving approximately 3,500 airlines, aircraft operators and manufacturers across the globe, CAE</FONT></P>
<P align=left><FONT face=sans-serif size=2>4</FONT></P>
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<P align=left><FONT face=sans-serif size=2>licenses its simulation software to various market segments and has a professional services division assisting customers with a wide range of simulation-based needs. </FONT></P>
<P align=left><FONT face=sans-serif size=2>Certain statements made in this news release, including, but not limited to, statements that are not historical facts, are forward-looking and are subject to important risks, uncertainties and assumptions. The results or events predicted in these forward-looking statements may differ materially from actual results or events. These statements do not reflect the potential impact of any non-recurring or other special items or events that are announced or completed after the date of this news release, including mergers, acquisitions, or other business combinations and divestitures.</FONT></P>
<P align=left><FONT face=sans-serif size=2>You will find more information about the risks and uncertainties associated with our business in the MD&amp;A section of our annual report and annual information form for the year ended March 31, 2006. These documents have been filed with the Canadian securities commissions and are available on our website (</FONT><U><FONT face=sans-serif color=#0000ff size=2>www.cae.com</FONT></U><FONT face=sans-serif size=2>) and on SEDAR (</FONT><U><FONT face=sans-serif color=#0000ff size=2>www.sedar.com</FONT></U><FONT face=sans-serif size=2>). They have also been filed with the US Securities and Exchange Commission under Form 40-F and are available on EDGAR (</FONT><U><FONT face=sans-serif color=#0000ff size=2>www.sec.gov)</FONT></U><FONT face=sans-serif size=2>. The forward-looking statements contained in this news release represent our expectations as of August 10, 2006 and, accordingly, are subject to change after this date.</FONT></P>
<P align=left><FONT face=sans-serif size=2>We do not update or revise forward-looking information even if new information becomes available. You should not place undue reliance on forward-looking statements.</FONT></P>
<P align=left><B><FONT face=sans-serif size=2>Notes</FONT></B><BR>
</P>
<P align=left><FONT face=sans-serif size=2>(1) Earnings before interest and taxes (EBIT) does not have any standardized meaning prescribed by Canadian generally accepted accounting principles (GAAP). Please refer to CAE Inc.&#146;s 2007 First Quarter MD&amp;A dated August 10, 2006 for more details</FONT><B><FONT face=sans-serif size=2>.</FONT></B></P>
<P align=left><FONT face=sans-serif size=2>(2)</FONT><B><FONT face=sans-serif size=2> </FONT></B><FONT face=sans-serif size=2>Free cash flow is a measure that tells us how much cash we have available to build the business, repay debt and meet ongoing 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 capital expenditures (including capitalized costs) and dividends paid, and then adding the proceeds from sales and leaseback and other asset-specific financing. Free cash flow does not have any standardized meaning prescribed by Canadian generally accepted accounting principles (GAAP). Please refer to CAE Inc.&#146;s 2007 First Quarter MD&amp;A dated August 10, 2006 for more details. </FONT></P>
<P align=left><FONT face=sans-serif size=2>(3) Net debt is a measure we use to monitor how much debt we have after taking into account liquid assets such as cash and cash equivalents. Net debt does not have any standardized meaning prescribed by Canadian generally accepted accounting principles (GAAP). Please refer to CAE Inc.&#146;s 2007 First Quarter MD&amp;A dated August 10, 2006 for more details.</FONT></P>
<P align=center><FONT face=sans-serif size=2>&#150; 30 &#150;</FONT><BR>
</P>
<P align=left><FONT face=sans-serif size=2>On the Web: </FONT><U><FONT face=sans-serif color=#0000ff size=2>www.cae.com</FONT></U><BR>
<BR>
<B><FONT face=sans-serif size=2>Media contact: </FONT></B><BR>
</P>
<P align=left><FONT face=sans-serif size=2>Nathalie Bourque, Vice President, Global Communications, (514) 734-5788, </FONT><U><FONT face=sans-serif color=#0000ff size=2>nathalie.bourque@cae.com</FONT></U></P>
<P align=left><B><FONT face=sans-serif size=2>Investor relations</FONT></B><FONT face=sans-serif size=2>:</FONT><BR>
</P>
<P align=left><FONT face=sans-serif size=2>Andrew Arnovitz, Director, Investor Relations, (514) 734-5760,</FONT></P>
<P align=left><U><FONT face=sans-serif color=#0000ff size=2>andrew.arnovitz@cae.com</FONT></U><BR>
</P>
<P align=left><FONT face=sans-serif size=2>5</FONT></P>
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<P align=left><B><FONT face=sans-serif size=5>First quarter report 2007 </FONT></B></P>
<P align=left><FONT face=sans-serif>Management&#146;s discussion and analysis for the three months ended June 30, 2006</FONT></P>
<P align=left><FONT face=sans-serif>August 10, 2006</FONT><BR>
</P>
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<P align=left><B><FONT face=sans-serif size=2>MANAGEMENT&#146;S DISCUSSION AND ANALYSIS</FONT></B><BR>
</P>
<P align=left><FONT face=sans-serif size=2>FIRST QUARTER REPORT 2007</FONT><BR>
</P>
<TABLE cellSpacing=0 cellPadding=0 border=0>
<TR vAlign=bottom>
     <TD align=left width="3%">
<A href="#page_3"><B><FONT face=sans-serif size=2>1</FONT></B>&nbsp; </A></TD>
     <TD align=left width="85%" colSpan=2>
<A href="#page_3"><B><FONT face=sans-serif size=2>HIGHLIGHTS</FONT></B>&nbsp; </A></TD>
     <TD align=right width="10%">
<A href="#page_3"><B><FONT face=sans-serif size=2>3</FONT></B>&nbsp; </A></TD></TR>
<TR vAlign=bottom>
     <TD align=left width="3%">
<A href="#page_5"><B><FONT face=sans-serif size=2>2</FONT></B>&nbsp; </A></TD>
     <TD align=left width="85%" colSpan=2>
<A href="#page_5"><B><FONT face=sans-serif size=2>INTRODUCTION</FONT></B>&nbsp; </A></TD>
     <TD align=right width="10%">
<A href="#page_5"><B><FONT face=sans-serif size=2>5</FONT></B>&nbsp; </A></TD></TR>
<TR vAlign=bottom>
     <TD align=left width="3%">
<A href="#page_6"><B><FONT face=sans-serif size=2>3</FONT></B>&nbsp; </A></TD>
     <TD align=left width="85%" colSpan=2>
<A href="#page_6"><B><FONT face=sans-serif size=2>ABOUT CAE</FONT></B>&nbsp; </A></TD>
     <TD align=right width="10%">
<A href="#page_6"><B><FONT face=sans-serif size=2>6</FONT></B>&nbsp; </A></TD></TR>
<TR vAlign=bottom>
     <TD align=left width="3%">
<A href="#page_6">&nbsp; </A></TD>
     <TD align=left width="6%">
<A href="#page_6"><FONT face=sans-serif size=2>3.1</FONT>&nbsp; </A></TD>
     <TD align=left width="79%">
<A href="#page_6"><FONT face=sans-serif size=2>Who we are</FONT>&nbsp; </A></TD>
     <TD align=right width="10%">
<A href="#page_6"><FONT face=sans-serif size=2>6</FONT>&nbsp; </A></TD></TR>
<TR vAlign=bottom>
     <TD align=left width="3%">
<A href="#page_6">&nbsp; </A></TD>
     <TD align=left width="6%">
<A href="#page_6"><FONT face=sans-serif size=2>3.2</FONT>&nbsp; </A></TD>
     <TD align=left width="79%">
<A href="#page_6"><FONT face=sans-serif size=2>Our operations</FONT>&nbsp; </A></TD>
     <TD align=right width="10%">
<A href="#page_6"><FONT face=sans-serif size=2>6</FONT>&nbsp; </A></TD></TR>
<TR vAlign=bottom>
     <TD align=left width="3%">
<A href="#page_10">&nbsp; </A></TD>
     <TD align=left width="6%">
<A href="#page_10"><FONT face=sans-serif size=2>3.3</FONT>&nbsp; </A></TD>
     <TD align=left width="79%">
<A href="#page_10"><FONT face=sans-serif size=2>Our vision</FONT>&nbsp; </A></TD>
     <TD align=right width="10%">
<A href="#page_10"><FONT face=sans-serif size=2>10</FONT>&nbsp; </A></TD></TR>
<TR vAlign=bottom>
     <TD align=left width="3%">
<A href="#page_11"><B><FONT face=sans-serif size=2>4</FONT></B>&nbsp; </A></TD>
     <TD align=left width="85%" colSpan=2>
<A href="#page_11"><B><FONT face=sans-serif size=2>CONDOLIDATED RESULTS</FONT></B>&nbsp; </A></TD>
     <TD align=right width="10%">
<A href="#page_11"><B><FONT face=sans-serif size=2>11</FONT></B>&nbsp; </A></TD></TR>
<TR vAlign=bottom>
     <TD align=left width="3%">
<A href="#page_11">&nbsp; </A></TD>
     <TD align=left width="6%">
<A href="#page_11"><FONT face=sans-serif size=2>4.1</FONT>&nbsp; </A></TD>
     <TD align=left width="79%">
<A href="#page_11"><FONT face=sans-serif size=2>Results of our operations</FONT>&nbsp; </A></TD>
     <TD align=right width="10%">
<A href="#page_11"><FONT face=sans-serif size=2>11</FONT>&nbsp; </A></TD></TR>
<TR vAlign=bottom>
     <TD align=left width="3%">
<A href="#page_14">&nbsp; </A></TD>
     <TD align=left width="6%">
<A href="#page_14"><FONT face=sans-serif size=2>4.2</FONT>&nbsp; </A></TD>
     <TD align=left width="79%">
<A href="#page_14"><FONT face=sans-serif size=2>Earnings before non-recurring items</FONT>&nbsp; </A></TD>
     <TD align=right width="10%">
<A href="#page_14"><FONT face=sans-serif size=2>14</FONT>&nbsp; </A></TD></TR>
<TR vAlign=bottom>
     <TD align=left width="3%">
<A href="#page_17">&nbsp; </A></TD>
     <TD align=left width="6%">
<A href="#page_17"><FONT face=sans-serif size=2>4.3</FONT>&nbsp; </A></TD>
     <TD align=left width="79%">
<A href="#page_17"><FONT face=sans-serif size=2>Consolidated orders and backlog</FONT>&nbsp; </A></TD>
     <TD align=right width="10%">
<A href="#page_17"><FONT face=sans-serif size=2>17</FONT>&nbsp; </A></TD></TR>
<TR vAlign=bottom>
     <TD align=left width="3%">
<A href="#page_18"><B><FONT face=sans-serif size=2>5</FONT></B>&nbsp; </A></TD>
     <TD align=left width="85%" colSpan=2>
<A href="#page_18"><B><FONT face=sans-serif size=2>RESULTS BY SEGMENT</FONT></B>&nbsp; </A></TD>
     <TD align=right width="10%">
<A href="#page_18"><B><FONT face=sans-serif size=2>18</FONT></B>&nbsp; </A></TD></TR>
<TR vAlign=bottom>
     <TD align=left width="3%">&nbsp; </TD>
     <TD align=left width="6%">
<A href="#page_19"><FONT face=sans-serif size=2>5.1</FONT>&nbsp; </A></TD>
     <TD align=left width="79%">
<A href="#page_19"><FONT face=sans-serif size=2>Civil segments</FONT>&nbsp; </A></TD>
     <TD align=right width="10%">
<A href="#page_19"><FONT face=sans-serif size=2>19</FONT>&nbsp; </A></TD></TR>
<TR vAlign=bottom>
     <TD align=left width="3%">&nbsp; </TD>
     <TD align=left width="6%">
<A href="#page_19">&nbsp; </A></TD>
     <TD align=left width="79%">
<A href="#page_19"><FONT face=sans-serif size=2>Simulation Products/Civil</FONT>&nbsp; </A></TD>
     <TD align=right width="10%">
<A href="#page_19"><FONT face=sans-serif size=2>19</FONT>&nbsp; </A></TD></TR>
<TR vAlign=bottom>
     <TD align=left width="3%">&nbsp; </TD>
     <TD align=left width="6%">&nbsp; </TD>
     <TD align=left width="79%">
<A href="#page_27"><FONT face=sans-serif size=2>Training &amp; Services/Civil</FONT></A>&nbsp; </TD>
     <TD align=right width="10%">
<A href="#page_27"><FONT face=sans-serif size=2>20</FONT></A>&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="3%">
<A href="#page_21">&nbsp; </A></TD>
     <TD align=left width="6%">
<A href="#page_21"><FONT face=sans-serif size=2>5.2</FONT>&nbsp; </A></TD>
     <TD align=left width="79%">
<A href="#page_21"><FONT face=sans-serif size=2>Military segments</FONT>&nbsp; </A></TD>
     <TD align=right width="10%">
<A href="#page_21"><FONT face=sans-serif size=2>21</FONT>&nbsp; </A></TD></TR>
<TR vAlign=bottom>
     <TD align=left width="3%">
<A href="#page_21">&nbsp; </A></TD>
     <TD align=left width="6%">
<A href="#page_21">&nbsp; </A></TD>
     <TD align=left width="79%">
<A href="#page_21"><FONT face=sans-serif size=2>Simulation Products/Military</FONT>&nbsp; </A></TD>
     <TD align=right width="10%">
<A href="#page_21"><FONT face=sans-serif size=2>21</FONT>&nbsp; </A></TD></TR>
<TR vAlign=bottom>
     <TD align=left width="3%">&nbsp; </TD>
     <TD align=left width="6%">&nbsp; </TD>
     <TD align=left width="79%">
<A href="#page_29"><FONT face=sans-serif size=2>Training &amp; Services/Military</FONT></A>&nbsp; </TD>
     <TD align=right width="10%">
<A href="#page_29"><FONT face=sans-serif size=2>22</FONT></A>&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="3%">
<A href="#page_31"><B><FONT face=sans-serif size=2>6</FONT></B></A>&nbsp; </TD>
     <TD align=left width="85%" colSpan=2>
<A href="#page_31"><B><FONT face=sans-serif size=2>CONSOLIDATED CASH MOVEMENTS AND LIQUIDITY</FONT></B></A>&nbsp; </TD>
     <TD align=right width="10%">
<A href="#page_31"><B><FONT face=sans-serif size=2>24</FONT></B></A>&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="3%">
<A href="#page_32"><B><FONT face=sans-serif size=2>7</FONT></B></A>&nbsp; </TD>
     <TD align=left width="85%" colSpan=2>
<A href="#page_32"><B><FONT face=sans-serif size=2>CONSOLIDATED FINANCIAL POSITION</FONT></B></A>&nbsp; </TD>
     <TD align=right width="10%">
<A href="#page_32"><B><FONT face=sans-serif size=2>25</FONT></B></A>&nbsp; </TD></TR></TABLE><BR>
<P align=left><FONT face=sans-serif size=2>2</FONT></P>
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<P align=left><B><FONT face=sans-serif size=2>MANAGEMENT&#146;S DISCUSSION AND ANALYSIS</FONT></B><BR>
</P>
<P align=left><FONT face=sans-serif size=2>FIRST QUARTER REPORT 2007</FONT><BR>
</P>
<P align=left><B><FONT face=sans-serif size=2>1. FIRST QUARTER HIGHLIGHTS</FONT></B><BR>
<BR>
<FONT face=sans-serif size=2>FINANCIAL</FONT><BR>
<BR>
<B><FONT face=sans-serif size=2>Higher revenue </FONT></B><BR>
</P>
<UL>
<LI><FONT face=sans-serif size=2>Consolidated revenue was $302 million, $18 million higher than last quarter and $36 million higher</FONT> <FONT face=sans-serif size=2>than the same quarter last year.</FONT> </LI></UL>
<P align=left><B><FONT face=sans-serif size=2>Higher earnings, net earnings and earnings per share</FONT></B></P>
<UL>
<LI><FONT face=sans-serif size=2>Earnings from continuing operations were $33 million (or $0.13 per share) this quarter, compared to</FONT> <FONT face=sans-serif size=2>$15 million (or $0.06 per share) last quarter and $21 million (or $0.08 per share) in the first quarter of</FONT> <FONT face=sans-serif size=2>last year.</FONT>
<LI><FONT face=sans-serif size=2>Excluding non-recurring items, these numbers were $31 million (or $0.12 per share) this quarter,</FONT> <FONT face=sans-serif size=2>$23 million (or $0.09 per share) last quarter and $20 million (or $0.08 per share) in the first quarter of</FONT> <FONT face=sans-serif size=2>last year.</FONT> </LI></UL>
<P align=left><B><FONT face=sans-serif size=2>Cash from continuing operations up, but offset by an increase in non-cash working capital</FONT></B></P>
<UL>
<LI><FONT face=sans-serif size=2>Net cash from continuing operations was $32 million this quarter, compared to $70 million last quarter</FONT> <FONT face=sans-serif size=2>and $22 million in the first quarter of last year.</FONT> </LI></UL>
<P align=left><B><FONT face=sans-serif size=2>Capital employed up</FONT></B><BR>
</P>
<UL>
<LI><FONT face=sans-serif size=2>Non-cash working capital increased by $24 million this quarter, ending at negative $51 million.</FONT>
<LI><FONT face=sans-serif size=2>Capital employed increased by 3% this quarter, ending at $895 million.</FONT>
<LI><FONT face=sans-serif size=2>Net debt increased by $8 million this quarter, ending at $198 million.</FONT> </LI></UL>
<P align=left><FONT face=sans-serif size=2>ORDERS</FONT></P>
<P align=left><B><I><FONT face=sans-serif size=2>Civil segments </FONT></I></B></P>
<P align=left><B><FONT face=sans-serif size=2>Simulation Products/Civil won orders for eight full-flight simulators (FFS)</FONT></B></P>
<UL>
<LI><FONT face=sans-serif size=2>One ATR 72-500 FFS to Air Deccan</FONT>
<LI><FONT face=sans-serif size=2>One A320 FFS to Air Deccan</FONT>
<LI><FONT face=sans-serif size=2>One B777 FFS to Cathay Pacific</FONT>
<LI><FONT face=sans-serif size=2>One A320 FFS to Flight Simulation Company</FONT>
<LI><FONT face=sans-serif size=2>Two B737-800NG FFS to Flight Simulation Company</FONT>
<LI><FONT face=sans-serif size=2>One EMB-170 FFS to Flight Training Finance</FONT>
<LI><FONT face=sans-serif size=2>One B737 FFS to Ryanair</FONT> </LI></UL>
<P align=left><B><FONT face=sans-serif size=2>Training &amp; Services/Civil (TS/C) awarded more than $110 million in contracts</FONT></B></P>
<UL>
<LI><FONT face=sans-serif size=2>Over 50 new business aviation training contracts signed with clients including Reebok, Southwest</FONT> <FONT face=sans-serif size=2>Bell Communications, CHC Helicopters and the US Navy.</FONT>
<LI><FONT face=sans-serif size=2>Over 20 new commercial and regional aviation training contracts signed with airline operators from</FONT> <FONT face=sans-serif size=2>around the world.</FONT>
<LI><FONT face=sans-serif size=2>We were also successful in renewing a number of existing contracts.</FONT> </LI></UL>
<P align=left><FONT face=sans-serif size=2>3</FONT></P>
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<P align=left><B><FONT face=sans-serif size=2>MANAGEMENT&#146;S DISCUSSION AND ANALYSIS</FONT></B><BR>
</P>
<P align=left><FONT face=sans-serif size=2>FIRST QUARTER REPORT 2007</FONT><BR>
</P>
<P align=left><B><I><FONT face=sans-serif size=2>Military segments </FONT></I></B></P>
<P align=left><B><FONT face=sans-serif size=2>Simulation Products/Military won orders for new training systems and upgrades</FONT></B></P>
<UL>
<LI><FONT face=sans-serif size=2>One C-130J Fuselage Trainer (FuT) for the United States Air Force (USAF)</FONT>
<LI><FONT face=sans-serif size=2>Various C-130J simulator upgrades for the USAF</FONT>
<LI><FONT face=sans-serif size=2>Tornado Visual System integration for the German Air Force</FONT>
<LI><FONT face=sans-serif size=2>Part Task Trainer (PTT) for EADS CASA&#146;s multi-role tanker transport aircraft to be used by the Royal</FONT> <FONT face=sans-serif size=2>Australian Air Force</FONT> </LI></UL>
<P align=left><B><FONT face=sans-serif size=2>Training &amp; Services/Military awarded significant contracts</FONT></B></P>
<UL>
<LI><FONT face=sans-serif size=2>A one-year contract to continue providing avionic software upgrades, integrated logistics support and</FONT> <FONT face=sans-serif size=2>data management services for the Canadian Forces&#146; CF-18 aircraft.</FONT>
<LI><FONT face=sans-serif size=2>A contract spanning four and a half years to provide on-site maintenance and support services for the</FONT> <FONT face=sans-serif size=2>UK Royal Air Forces&#146; C-130J training systems at RAF Lyneham.</FONT> </LI></UL>
<P align=left><FONT face=sans-serif size=2>OPERATIONS </FONT><BR>
<BR>
<B><FONT face=sans-serif size=2>Final phase of restructuring activities on track</FONT></B><BR>
</P>
<UL>
<LI><FONT face=sans-serif size=2>We have completed the rationalization of our Montreal facilities.</FONT>
<LI><FONT face=sans-serif size=2>The Madrid facility expansion is on schedule, and all Madrid operations will be consolidated into this</FONT> <FONT face=sans-serif size=2>single location by the end of fiscal 2007.</FONT>
<LI><FONT face=sans-serif size=2>Simulator relocations in Central Europe from the closing of the Maastricht facility, and in South</FONT> <FONT face=sans-serif size=2>America, are now complete.</FONT>
<LI><FONT face=sans-serif size=2>16 of the 28 planned FFS relocations were complete by the end of the quarter.</FONT>
<LI><FONT face=sans-serif size=2>The expansion of TS/C&#146;s business aviation operations in Morristown, NJ and Burgess Hill, UK are</FONT> <FONT face=sans-serif size=2>both proceeding on schedule to open in fiscal 2007. These locations will offer a variety of platforms,</FONT> <FONT face=sans-serif size=2>including factory-authorized training for the new Dassault 7X aircraft program, as well as the Dassault</FONT> <FONT face=sans-serif size=2>900 and 2000 aircraft platforms.</FONT>
<LI><FONT face=sans-serif size=2>We will deploy TS/C&#146;s phase of our enterprise resource planning (ERP) project in the near future.</FONT> </LI></UL>
<P align=left><FONT face=sans-serif size=2>4</FONT></P>
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<P align=left><B><FONT face=sans-serif size=2>MANAGEMENT&#146;S DISCUSSION AND ANALYSIS</FONT></B><BR>
</P>
<P align=left><FONT face=sans-serif size=2>FIRST QUARTER REPORT 2007</FONT><BR>
</P>
<P align=left><B><FONT face=sans-serif size=2>2. INTRODUCTION</FONT></B><BR>
</P>
<P align=left><FONT face=sans-serif size=2>In this report, </FONT><I><FONT face=sans-serif size=2>we, us, our, CAE</FONT></I><FONT face=sans-serif size=2> and </FONT><I><FONT face=sans-serif size=2>company</FONT></I><FONT face=sans-serif size=2> refer to CAE Inc. and its subsidiaries. Unless we&#146;ve indicated otherwise: </FONT></P>
<UL>
<LI><I><FONT face=sans-serif size=2>this year </FONT></I><FONT face=sans-serif size=2>and </FONT><I><FONT face=sans-serif size=2>2007 </FONT></I><FONT face=sans-serif size=2>mean the fiscal year ending March 31, 2007.</FONT>
<LI><I><FONT face=sans-serif size=2>last year, prior year </FONT></I><FONT face=sans-serif size=2>and </FONT><I><FONT face=sans-serif size=2>a year ago </FONT></I><FONT face=sans-serif size=2>mean the fiscal year ended March 31, 2006.</FONT>
<LI><FONT face=sans-serif size=2>all dollar amounts are in Canadian dollars.</FONT> </LI></UL>
<P align=left><FONT face=sans-serif size=2>This report was prepared on August 10, 2006, and includes our management&#146;s discussion and analysis (MD&amp;A), financial statements and notes for the first quarter ended June 30, 2006. We have written it to help you understand our business, performance and financial conditions during the first quarter of fiscal 2007. All financial information has been reported according to Canadian generally accepted accounting principles (GAAP). </FONT></P>
<P align=left><FONT face=sans-serif size=2>For additional information, please refer to our financial statements for the quarter ended June 30, 2006, and our annual consolidated financial statements, which you will find in our annual report for the year ended March 31, 2006. The MD&amp;A section of the annual report for fiscal 2006 also contains more information about: </FONT></P>
<UL>
<LI><FONT face=sans-serif size=2>our strategy and key strengths</FONT>
<LI><FONT face=sans-serif size=2>business risks and uncertainties</FONT>
<LI><FONT face=sans-serif size=2>foreign exchange</FONT>
<LI><FONT face=sans-serif size=2>non-GAAP and other financial measures</FONT>
<LI><FONT face=sans-serif size=2>acquisitions, business combinations and divestitures</FONT>
<LI><FONT face=sans-serif size=2>systems, procedures and controls</FONT>
<LI><FONT face=sans-serif size=2>the oversight role of the audit committee and board of directors</FONT> </LI></UL>
<P align=left><FONT face=sans-serif size=2>You will find our most recent annual report and annual information form (AIF), on our website at www.cae.com or on SEDAR at www.sedar.com or on Edgar at www.sec.gov. </FONT></P>
<P align=left><FONT face=sans-serif size=2>ABOUT MATERIAL INFORMATION</FONT><BR>
</P>
<P align=left><FONT face=sans-serif size=2>This report includes the information we believe is material to investors after considering all circumstances, including potential market sensitivity. We consider something to be material if:</FONT></P>
<UL>
<LI><FONT face=sans-serif size=2>it results in, or would reasonably be expected to result in, a significant change in the market price or</FONT> <FONT face=sans-serif size=2>value of our shares, or</FONT>
<LI><FONT face=sans-serif size=2>it is quite likely that a reasonable investor would consider the information to be important in making an</FONT> <FONT face=sans-serif size=2>investment decision.</FONT> </LI></UL>
<P align=left><FONT face=sans-serif size=2>ABOUT FORWARD-LOOKING STATEMENTS</FONT><BR>
</P>
<P align=left><FONT face=sans-serif size=2>This report includes forward-looking statements about our markets, future financial performance, business strategy, plans, goals and objectives. Forward-looking statements normally contain words like </FONT><I><FONT face=sans-serif size=2>believe, expect, anticipate, intend, continue, estimate, may, will, should</FONT></I><FONT face=sans-serif size=2> and similar expressions. </FONT></P>
<P align=left><FONT face=sans-serif size=2>We have based these statements on estimates and assumptions that we believed were reasonable when the statements were prepared. Our actual results could be substantially different because of the risks and uncertainties associated with our business, or because of events that are announced or completed after the date of this report, including mergers, acquisitions, other business combinations and divestitures. You will find more information about the risks and uncertainties associated with our business in our 2006 annual report. </FONT></P>
<P align=left><FONT face=sans-serif size=2>We do not update or revise forward-looking information even if new information becomes available unless required by applicable legislation. You should not place undue reliance on forward-looking statements. </FONT></P>
<P align=left><FONT face=sans-serif size=2>5</FONT></P>
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<P align=left><B><FONT face=sans-serif size=2>MANAGEMENT&#146;S DISCUSSION AND ANALYSIS</FONT></B><BR>
</P>
<P align=left><FONT face=sans-serif size=2>FIRST QUARTER REPORT 2007</FONT><BR>
</P>
<TABLE cellSpacing=0 cellPadding=0 border=0>
<TR>
     <TD vAlign=top noWrap><B><FONT face=sans-serif size=2>3.</FONT></B>&nbsp; &nbsp; &nbsp; </TD>
     <TD width="100%"><B><FONT face=sans-serif size=2>ABOUT CAE</FONT></B> </TD></TR>
<TR>
     <TD colSpan=2>&nbsp;</TD></TR>
<TR>
     <TD vAlign=top noWrap><FONT face=sans-serif size=2>3.1</FONT>&nbsp; &nbsp; &nbsp; </TD>
     <TD width="100%"><FONT face=sans-serif size=2>WHO WE ARE</FONT> </TD></TR>
<TR>
     <TD colSpan=2>&nbsp;</TD></TR></TABLE>
<P align=left><FONT face=sans-serif size=2>CAE is a world leader in providing simulation and modelling technologies, and integrated training services to the civil aviation industry and defence forces around the globe. </FONT></P>
<P align=left><FONT face=sans-serif size=2>We design, manufacture and supply simulation equipment and provide training and services. This includes integrated modelling, simulation and training solutions for commercial airlines, business aircraft operators, aircraft manufacturers and military organizations and a global network of training centres for pilots, and in some instances, cabin crew and maintenance workers.</FONT></P>
<P align=left><FONT face=sans-serif size=2>Our full-flight simulators (FFSs) replicate aircraft performance in a full array of situations and environmental conditions. Sophisticated visual systems simulate hundreds of airports around the world, as well as a wide range of landing areas and flying environments. These work with motion and sound to create a realistic training environment for pilots and crews at all levels.</FONT></P>
<P align=left><FONT face=sans-serif size=2>Founded in 1947 and headquartered in Montreal, CAE has built an excellent reputation and long-standing customer relationships based on nearly 60 years of experience, strong technical capabilities, a highly trained workforce and global reach. Approximately 5,000 employees work in manufacturing operations and training facilities in 19 countries around the world. More than 90% of CAE&#146;s annual revenues come from worldwide exports and international activities.</FONT></P>
<P align=left><FONT face=sans-serif size=2>CAE&#146;s common shares are listed on the following exchanges: </FONT></P>
<UL>
<LI><FONT face=sans-serif size=2>Toronto Stock Exchange, under the symbol </FONT><I><FONT face=sans-serif size=2>CAE</FONT></I><FONT face=sans-serif size=2>.</FONT>
<LI><FONT face=sans-serif size=2>New York Stock Exchange, under the symbol </FONT><I><FONT face=sans-serif size=2>CGT</FONT></I><FONT face=sans-serif size=2>.</FONT> </LI></UL>
<P align=left><FONT face=sans-serif size=2>3.2 OUR OPERATIONS </FONT><BR>
<BR>
<FONT face=sans-serif size=2>CAE serves two markets globally:</FONT><BR>
</P>
<UL>
<LI><FONT face=sans-serif size=2>The civil market includes aircraft manufacturers, major commercial airlines, regional airlines, business</FONT> <FONT face=sans-serif size=2>aircraft operators, helicopter operators, training centres and pilot provisioning.</FONT>
<LI><FONT face=sans-serif size=2>The military market includes the defence forces worldwide.</FONT> </LI></UL>
<P align=left><FONT face=sans-serif size=2>We manage our operations and report our results in two segments, one for products and one for services, for each market. Each segment is a significant contributor to our overall results.</FONT><FONT face=serif> </FONT></P>
<P align=left><FONT face=sans-serif size=2>CIVIL MARKET</FONT><BR>
</P>
<P align=left><B><FONT face=sans-serif size=2>Simulation Products/Civil (SP/C) </FONT></B></P>
<P align=left><I><FONT face=sans-serif size=2>Designs, manufactures and supplies civil flight simulation training devices and visual systems </FONT></I></P>
<P align=left><FONT face=sans-serif size=2>Our SP/C segment is the world leader in flight simulation. We design and manufacture more civil FFSs and visual systems for major and regional carriers and business jet operators than any other company. We also have a wealth of experience in developing prototype simulators for new types of aircraft. We also offer a full range of support services including sales of spare parts, simulator updates and relocations. </FONT></P>
<P align=left><FONT face=sans-serif size=2>6</FONT></P>
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<P align=left><B><FONT face=sans-serif size=2>MANAGEMENT&#146;S DISCUSSION AND ANALYSIS</FONT></B><BR>
</P>
<P align=left><FONT face=sans-serif size=2>FIRST QUARTER REPORT 2007</FONT><BR>
</P>
<P align=left><B><FONT face=sans-serif size=2>Training &amp; Services/Civil (TS/C)</FONT></B></P>
<P align=left><I><FONT face=sans-serif size=2>Provides business and commercial aviation training for all flight and ground personnel and all associated services </FONT></I></P>
<P align=left><FONT face=sans-serif size=2>Our TS/C segment is the second largest provider of aviation training services in the world, and serves all segments of the market including general aviation, regional airlines, commercial airlines and business aviation. We also offer a full range of support services, such as training centre management, simulator maintenance services, spare parts and inventory management, curriculum development and consulting services. We have achieved our leading position through acquisitions, joint ventures and by building new facilities. We currently have 110 FFSs installed in 22 training centres around the world.</FONT></P>
<P align=left><B><FONT face=sans-serif size=2>Market trends and outlook </FONT></B></P>
<P align=left><FONT face=sans-serif size=2>We continue to have a positive outlook for the civil market because of the following trends: </FONT></P>
<UL>
<LI><FONT face=sans-serif size=2>positive economic indicators</FONT>
<LI><FONT face=sans-serif size=2>continued growth in Revenue Passenger Miles</FONT>
<LI><FONT face=sans-serif size=2>strong aircraft orders and new platforms</FONT>
<LI><FONT face=sans-serif size=2>growing demand for trained pilots</FONT> </LI></UL>
<P align=left><B><I><FONT face=sans-serif size=2>Positive economic indicators</FONT></I></B><BR>
</P>
<P align=left><I><FONT face=sans-serif size=2>GDP and Corporate Profit Growth Driving Business aviation market</FONT></I></P>
<P align=left><FONT face=sans-serif size=2>Business aviation is experiencing a robust and growing training market because fleets are active and new operators are entering the market. We expect the development of the very light jet (VLJ) and light jet (LJ) segments to lead to opportunities for training and other services in the future. Most aircraft are expected to be launched in calendar 2006.</FONT></P>
<P align=left><I><FONT face=sans-serif size=2>New and emerging markets</FONT></I></P>
<P align=left><FONT face=sans-serif size=2>Emerging markets such as Asia-Pacific and the Middle East continue to experience high growth in air traffic, strong economic growth and increased liberalization of air policy and bilateral air agreements. As a result, we expect these markets to drive the demand for FFS and training centres demand in calendar 2006.</FONT></P>
<P align=left><B><I><FONT face=sans-serif size=2>Continued growth in Revenue Passenger Miles</FONT></I></B><BR>
</P>
<P align=left><I><FONT face=sans-serif size=2>Steady growth in air travel </FONT></I></P>
<P align=left><FONT face=sans-serif size=2>We anticipate the modest, steady growth in passenger traffic that started in late calendar 2005 to continue over the next three years slightly above the average annual growth of 5.2% from 1995 to 2005. This is barring any major developments such as excessive fuel prices, regional political instability, acts of terrorism or other world events.</FONT></P>
<P align=left><I><FONT face=sans-serif size=2>Continued growth of low-cost airlines </FONT></I></P>
<P align=left><FONT face=sans-serif size=2>The continued growth of low-cost airlines is also a major factor driving activity in the civil aviation market, and is driving the demand for existing simulator products. A low-cost carrier is an airline that flies point-to-point intra-regional scheduled services with no interlining. The airline has a separate stand alone management team and markets itself on price and offers with a single class of service. In 2005, the top 25 low cost carriers grew 23% in revenue per passenger kilometre.</FONT></P>
<P align=left><I><FONT face=sans-serif size=2>Slower activity in mature markets </FONT></I></P>
<P align=left><FONT face=sans-serif size=2>High fuel costs and intense domestic competition are affecting the performance of many commercial airlines in mature markets like North America and Europe. While capital spending may be limited, some airlines may decide to replace their fleet sooner with more fuel-efficient aircraft to manage operating costs and be more competitive. In addition, we expect legacy airlines in the US emerging from Chapter 11, or restructuring phases, to order new equipment as they confirm details of their fleet. </FONT></P>
<P align=left><FONT face=sans-serif size=2>7</FONT></P>
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<P align=left><B><FONT face=sans-serif size=2>MANAGEMENT&#146;S DISCUSSION AND ANALYSIS</FONT></B><BR>
</P>
<P align=left><FONT face=sans-serif size=2>FIRST QUARTER REPORT 2007</FONT><BR>
</P>
<P align=left><B><I><FONT face=sans-serif size=2>Strong orders and new aircraft platforms</FONT></I></B><BR>
</P>
<P align=left><I><FONT face=sans-serif size=2>New aircraft platforms </FONT></I></P>
<P align=left><FONT face=sans-serif size=2>Original equipment manufacturers are introducing new platforms, which will drive worldwide demand for simulators and training. In civil aviation for example, Airbus is launching the A380 while Embraer, the 190 and Boeing, the 787. Embraer and Eclipse are leading the development of the VLJ and LJ aircraft for business aviation.</FONT></P>
<P align=left><FONT face=sans-serif size=2>The introduction of new platforms will fuel the demand for new types of simulators. One of our strategic priorities is to partner with manufacturers to strengthen relationships and position ourselves for future opportunities.</FONT></P>
<P align=left><I><FONT face=sans-serif size=2>New aircraft orders</FONT></I></P>
<P align=left><FONT face=sans-serif size=2>In the first half of calendar 2006, Airbus and Boeing received a total of 610 orders for new aircraft.</FONT><I><FONT face=serif> </FONT></I><FONT face=sans-serif size=2>Their strong delivery forecast is generating demand for training on narrow-body aircraft used in the European and South American markets. This is an area we&#146;re actively exploring to capitalize on the trend.</FONT></P>
<P align=left><B><I><FONT face=sans-serif size=2>The need for qualified pilots is growing</FONT></I></B><BR>
</P>
<P align=left><I><FONT face=sans-serif size=2>Worldwide demand is increasing </FONT></I></P>
<P align=left><FONT face=sans-serif size=2>Growth in the civil aviation market is driving the demand for pilots worldwide, but its also fuelling a pilot shortage. This is due mainly to aging demographics and fewer military pilots available for service. The shortage is more severe in emerging markets like India and China where air traffic is growing more quickly than in developed countries and there is less of an infrastructure to meet the current and projected demand for pilots. </FONT></P>
<P align=left><FONT face=sans-serif size=2>This shortage, however, creates opportunities for pilot provisioning, our turnkey service that includes recruiting, screening, selection and training. It is also prompting us to seek out partners to develop a global pipeline for developing and supplying pilots to meet market demands. On July 19, we formally introduced the CAE Global Academy, a new training alliance that is aimed at addressing the global shortage of pilots. </FONT></P>
<P align=left><I><FONT face=sans-serif size=2>New pilot certification process requires simulation-based training </FONT></I></P>
<P align=left><FONT face=sans-serif size=2>The aviation industry is expected to adopt a new certification process for training pilots in late 2006. The International Civil Aviation Organization (ICAO) multi-crew pilot licence (MPL) requires more simulation-based training, which is very positive for our business. </FONT></P>
<P align=left><FONT face=sans-serif size=2>8</FONT></P>
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<P align=left><B><FONT face=sans-serif size=2>MANAGEMENT&#146;S DISCUSSION AND ANALYSIS</FONT></B><BR>
</P>
<P align=left><FONT face=sans-serif size=2>FIRST QUARTER REPORT 2007</FONT><BR>
</P>
<P align=left><FONT face=sans-serif size=2>MILITARY MARKET</FONT><BR>
</P>
<P align=left><B><FONT face=sans-serif size=2>Simulation Products/Military (SP/M)</FONT></B></P>
<P align=left><I><FONT face=sans-serif size=2>Designs, manufactures and supplies advanced military training equipment for air forces, armies and navies </FONT></I></P>
<P align=left><FONT face=sans-serif size=2>Our SP/M segment is a world leader in the design and production of military flight simulation equipment. We develop simulation equipment and training for a variety of military aircraft, including fighter jets, helicopters and marine patrol and transport aircraft. We have designed the broadest range of helicopter simulators in the world. Our military simulators provide high fidelity combat environments that include interactive enemy and friendly forces, as well as weapons and military sensors. We have delivered simulation products and training to the military forces of more than 30 countries, including all of the US services. We have also developed more training systems for the C-130 Hercules than any other company. </FONT></P>
<P align=left><B><FONT face=sans-serif size=2>Training &amp; Services/Military (TS/M)</FONT></B></P>
<P align=left><I><FONT face=sans-serif size=2>Supplies turnkey training and operations solutions, support services, systems maintenance and modelling and simulation solutions </FONT></I></P>
<P align=left><FONT face=sans-serif size=2>Our TS/M segment provides contractor logistics support, maintenance services and simulator training at over 60 sites around the world. It also provides a variety of modelling and simulation-based services. </FONT></P>
<P align=left><B><FONT face=sans-serif size=2>Market trends and outlook </FONT></B></P>
<P align=left><FONT face=sans-serif size=2>While we expect defence budgets around the world to continue to grow modestly by 2 to 3% a year, we believe that our share of that spending will increase for the following reasons: </FONT></P>
<UL>
<LI><FONT face=sans-serif size=2>Demand for products and services is growing.</FONT>
<LI><FONT face=sans-serif size=2>The nature of warfare is changing.</FONT> </LI></UL>
<P align=left><B><I><FONT face=sans-serif size=2>Demand for products and services is growing</FONT></I></B><BR>
</P>
<P align=left><I><FONT face=sans-serif size=2>New aircraft platforms </FONT></I></P>
<P align=left><FONT face=sans-serif size=2>Original equipment manufacturers are also introducing new platforms in the military market, which will also drive worldwide demand for simulators and training. For example, NH Industries launched the NH90 helicopter. The launch of AugustaWestland AW139 and EADS-CASA C-295 will fuel the demand for new types of simulators. One of our strategic priorities is to partner with manufacturers for the military market to strengthen relationships and position ourselves for future opportunities. </FONT></P>
<P align=left><I><FONT face=sans-serif size=2>Trend towards outsourcing </FONT></I></P>
<P align=left><FONT face=sans-serif size=2>With finite defence budgets and resources, defence forces and governments continue to scrutinize expenditures to find ways to save money. There has been a growing trend among defence forces to outsource a variety of training services and we expect this trend to continue. Governments are outsourcing training services because they can be delivered more quickly and more cost-effectively. </FONT></P>
<P align=left><FONT face=sans-serif size=2>For example, last quarter, we won an outsourcing contract to develop a turnkey training capability and five years of support services for the Royal Australian Air Force's (RAAF) new A330 Multi-Role Tanker Transport (MRTT) aircraft, from prime contractor EADS CASA and the Commonwealth of Australia.</FONT></P>
<P align=left><FONT face=sans-serif size=2>9</FONT></P>
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<P align=left><B><FONT face=sans-serif size=2>MANAGEMENT&#146;S DISCUSSION AND ANALYSIS</FONT></B><BR>
</P>
<P align=left><FONT face=sans-serif size=2>FIRST QUARTER REPORT 2007</FONT><BR>
</P>
<P align=left><I><FONT face=sans-serif size=2>Greater use of simulation </FONT></I></P>
<P align=left><FONT face=sans-serif size=2>More defence forces and governments are adopting simulation in training programs because of improved realism, significantly lower costs, less operational demands on aircraft, and lower risk compared to operating actual weapon systems platforms. Using a simulator for training also reduces actual aircraft flying hours. </FONT><FONT face=sans-serif color=#ff0000 size=2></FONT></P>
<P align=left><I><FONT face=sans-serif size=2>Extension and upgrade of existing weapon systems platforms </FONT></I></P>
<P align=left><FONT face=sans-serif size=2>Original equipment manufacturers are extending the life of existing weapon systems platforms by introducing upgrades or adding new features, which increases the demand to upgrade simulators to meet the new standards. Some recent examples include contracts won for the P-3C and the NATO Lynx helicopter (full mission flight trainer) to match the upgrades to the actual helicopter. These contracts were awarded at the end of last quarter.</FONT></P>
<P align=left><B><I><FONT face=sans-serif size=2>The nature of warfare is changing</FONT></I></B><BR>
</P>
<P align=left><I><FONT face=sans-serif size=2>Demand for networking </FONT></I></P>
<P align=left><FONT face=sans-serif size=2>The nature of warfare is changing. Allies are cooperating and creating joint and coalition forces, which is driving a demand for joint and networked training and operations. For example, this quarter we received a contract to upgrade USAF C-130J simulators to provide additional networking capabilities. </FONT></P>
<P align=left><I><FONT face=sans-serif size=2>Growing acceptance of synthetic training </FONT></I></P>
<P align=left><FONT face=sans-serif size=2>There is a growing trend among defence forces to use synthetic training to meet more of their training requirements. Synthetic environment software allows defence clients to plan sophisticated missions and carry out full mission rehearsals as a complement to traditional live training or mission preparation. Synthetic training offers militaries a cost-effective way to provide realistic training for a wide variety of scenarios while ensuring they maintain a high state of readiness. For example, last quarter, we were awarded a contract with the United States Army to develop a Synthetic Environment Core (SE-Core) Database Virtual Environment Development (DVED). </FONT></P>
<P align=left><B><FONT face=sans-serif size=2>3.3 OUR VISION</FONT></B><BR>
</P>
<P align=left><FONT face=sans-serif size=2>Our vision is to be the world leader in simulation and modelling technologies and integrated training services for the civil aviation industry and defence forces around the world.</FONT></P>
<P align=left><FONT face=sans-serif size=2>We are ranked number one or two in most of our core businesses, but competition is intense and maintaining our lead in technology is key. We have been successful at changing the way we do business, strengthening our financial position and building a solid foundation for creating shareholder value in the future.</FONT></P>
<P align=left><FONT face=sans-serif size=2>Our focus this quarter and for the rest of the year is to position our company for growth and move ahead in achieving our vision. </FONT></P>
<P align=left><FONT face=sans-serif size=2>To do this, we have set six objectives for 2007:</FONT><BR>
</P>
<UL>
<LI><FONT face=sans-serif size=2>complete the remaining elements of our restructuring plan</FONT>
<LI><FONT face=sans-serif size=2>continue to strengthen relationships with customers and original equipment manufacturers</FONT>
<LI><FONT face=sans-serif size=2>continue to improve our financial performance</FONT>
<LI><FONT face=sans-serif size=2>continue to re-engage our employees around the world</FONT>
<LI><FONT face=sans-serif size=2>maintain our technological leadership</FONT>
<LI><FONT face=sans-serif size=2>target growth in our core markets</FONT> </LI></UL>
<P align=left><FONT face=sans-serif size=2>10</FONT></P>
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<P align=left><B><FONT face=sans-serif size=2>MANAGEMENT&#146;S DISCUSSION AND ANALYSIS</FONT></B><BR>
</P>
<P align=left><FONT face=sans-serif size=2>FIRST QUARTER REPORT 2007</FONT><BR>
</P>
<P align=left><B><FONT face=sans-serif size=2>Innovation for the future</FONT></B><BR>
</P>
<P align=left><FONT face=sans-serif size=2>Innovation is at the heart of our business and our success over many years, and is key to helping chart our future.</FONT></P>
<P align=left><FONT face=sans-serif size=2>A core group of people are exploring different opportunities to build on our key strengths and tap new, emerging and adjacent markets. This year we&#146;re investing in this area. </FONT></P>
<P align=left><FONT face=sans-serif size=2>Opportunities that build on our technology, leverage customer intimacy and capitalize on our knowledge of training and developing course curriculum are the main focus. As the world leader in simulation, we are well positioned to find ways that capitalize on the need for visualization to deal with different complexities, reduce risk and guide decision-making.</FONT></P>
<P align=left><FONT face=sans-serif size=2>We are currently exploring other areas such as medical simulation, transportation and others where we can apply our capabilities to mitigate risks and improve operational efficiencies. </FONT></P>
<TABLE cellSpacing=0 cellPadding=0 border=0>
<TR>
     <TD vAlign=top noWrap><B><FONT face=sans-serif size=2>4.</FONT></B>&nbsp; &nbsp; &nbsp; </TD>
     <TD width="100%"><B><FONT face=sans-serif size=2>CONSOLIDATED RESULTS</FONT></B> </TD></TR>
<TR>
     <TD colSpan=2>&nbsp;</TD></TR>
<TR>
     <TD vAlign=top noWrap><FONT face=sans-serif size=2>4.1</FONT>&nbsp; &nbsp; &nbsp; </TD>
     <TD width="100%"><FONT face=sans-serif size=2>RESULTS OF OUR OPERATIONS</FONT> </TD></TR>
<TR>
     <TD colSpan=2>&nbsp;</TD></TR></TABLE>
<TABLE cellSpacing=0 cellPadding=0 border=0>
<TR vAlign=bottom>
     <TD align=left width="33%"><B><FONT face=sans-serif size=2>Summary of consolidated results</FONT></B>&nbsp; </TD>
     <TD align=left width="4%">&nbsp; </TD>
     <TD align=left width="10%"></TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=left width="10%"></TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=left width="9%"></TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=left width="9%"></TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=left width="8%"></TD>
     <TD align=left width="2%">&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="33%"><FONT face=sans-serif size=2>(millions, except per share amounts)</FONT>&nbsp; </TD>
     <TD align=left width="4%">&nbsp; </TD>
     <TD align=right width="10%"><FONT face=sans-serif size=2>Q1-2007</FONT> </TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=right width="10%"><FONT face=sans-serif size=2>Q4-2006</FONT> </TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=right width="9%"><FONT face=sans-serif size=2>Q3-2006</FONT> </TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=right width="9%"><FONT face=sans-serif size=2>Q2-2006</FONT> </TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=right width="8%"><FONT face=sans-serif size=2>Q1-2006</FONT> </TD>
     <TD align=left width="2%">&nbsp; </TD></TR>
<TR>
     <TD width="93%" colSpan=12>
<HR noShade SIZE=1>
</TD></TR>
<TR vAlign=bottom>
     <TD align=left width="33%"><FONT face=sans-serif size=2>Revenue</FONT>&nbsp; </TD>
     <TD align=left width="4%"><FONT face=sans-serif size=2>$</FONT>&nbsp; </TD>
     <TD align=right width="10%"><FONT face=sans-serif size=2>301.8</FONT> </TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=right width="10%"><FONT face=sans-serif size=2>284.3</FONT> </TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=right width="9%"><FONT face=sans-serif size=2>276.6</FONT> </TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=right width="9%"><FONT face=sans-serif size=2>280.3</FONT> </TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=right width="8%"><FONT face=sans-serif size=2>266.0</FONT> </TD>
     <TD align=left width="2%">&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="37%" colSpan=2><FONT face=sans-serif size=2>Earnings before income and taxes (EBIT) $</FONT>&nbsp; </TD>
     <TD align=right width="10%"><FONT face=sans-serif size=2>47.5</FONT> </TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=right width="10%"><FONT face=sans-serif size=2>9.5</FONT> </TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=right width="9%"><FONT face=sans-serif size=2>32.7</FONT> </TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=right width="9%"><FONT face=sans-serif size=2>28.1</FONT> </TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=right width="8%"><FONT face=sans-serif size=2>35.9</FONT> </TD>
     <TD align=left width="2%">&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=center width="33%"><I><FONT face=sans-serif size=2>As a % of revenue</FONT></I>&nbsp; </TD>
     <TD align=left width="4%"><I><FONT face=sans-serif size=2>%</FONT></I>&nbsp; </TD>
     <TD align=right width="10%"><I><FONT face=sans-serif size=2>15.7</FONT></I> </TD>
     <TD align=left width="2%"><I><FONT face=sans-serif size=2>%</FONT></I>&nbsp; </TD>
     <TD align=right width="10%"><I><FONT face=sans-serif size=2>3.3</FONT></I> </TD>
     <TD align=left width="2%"><I><FONT face=sans-serif size=2>%</FONT></I>&nbsp; </TD>
     <TD align=right width="9%"><I><FONT face=sans-serif size=2>11.8</FONT></I> </TD>
     <TD align=left width="2%"><I><FONT face=sans-serif size=2>%</FONT></I>&nbsp; </TD>
     <TD align=right width="9%"><I><FONT face=sans-serif size=2>10.0</FONT></I> </TD>
     <TD align=left width="2%"><I><FONT face=sans-serif size=2>%</FONT></I>&nbsp; </TD>
     <TD align=right width="8%"><I><FONT face=sans-serif size=2>13.5</FONT></I> </TD>
     <TD align=left width="2%"><I><FONT face=sans-serif size=2>%</FONT></I>&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="33%"><FONT face=sans-serif size=2>Interest expense, net</FONT>&nbsp; </TD>
     <TD align=left width="4%"><FONT face=sans-serif size=2>$</FONT>&nbsp; </TD>
     <TD align=right width="10%"><FONT face=sans-serif size=2>3.0</FONT> </TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=right width="10%"><FONT face=sans-serif size=2>0.9</FONT> </TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=right width="9%"><FONT face=sans-serif size=2>6.1</FONT> </TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=right width="9%"><FONT face=sans-serif size=2>4.4</FONT> </TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=right width="8%"><FONT face=sans-serif size=2>4.8</FONT> </TD>
     <TD align=left width="2%">&nbsp; </TD></TR>
<TR>
     <TD width="93%" colSpan=12>
<HR noShade SIZE=1>
</TD></TR>
<TR vAlign=bottom>
     <TD align=left width="33%"><FONT face=sans-serif size=2>Earnings from continuing operations</FONT>&nbsp; </TD>
     <TD align=left width="4%"><FONT face=sans-serif size=2>$</FONT>&nbsp; </TD>
     <TD align=right width="10%"><FONT face=sans-serif size=2>44.5</FONT> </TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=right width="10%"><FONT face=sans-serif size=2>8.6</FONT> </TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=right width="9%"><FONT face=sans-serif size=2>26.6</FONT> </TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=right width="9%"><FONT face=sans-serif size=2>23.7</FONT> </TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=right width="8%"><FONT face=sans-serif size=2>31.1</FONT> </TD>
     <TD align=left width="2%">&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="33%"><FONT face=sans-serif size=2>(before taxes)</FONT>&nbsp; </TD>
     <TD align=left width="4%">&nbsp; </TD>
     <TD align=left width="10%"></TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=left width="10%"></TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=left width="9%"></TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=left width="9%"></TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=left width="8%"></TD>
     <TD align=left width="2%">&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="33%"><FONT face=sans-serif size=2>Income tax expense (recovery)</FONT>&nbsp; </TD>
     <TD align=left width="4%"><FONT face=sans-serif size=2>$</FONT>&nbsp; </TD>
     <TD align=right width="10%"><FONT face=sans-serif size=2>11.2</FONT> </TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=right width="10%"><FONT face=sans-serif size=2>(6.2</FONT> </TD>
     <TD align=left width="2%"><FONT face=sans-serif size=2>)</FONT>&nbsp; </TD>
     <TD align=right width="9%"><FONT face=sans-serif size=2>9.1</FONT> </TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=right width="9%"><FONT face=sans-serif size=2>5.9</FONT> </TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=right width="8%"><FONT face=sans-serif size=2>10.3</FONT> </TD>
     <TD align=left width="2%">&nbsp; </TD></TR>
<TR>
     <TD width="93%" colSpan=12>
<HR noShade SIZE=1>
</TD></TR>
<TR vAlign=bottom>
     <TD align=left width="33%"><FONT face=sans-serif size=2>Earnings from continuing operations</FONT>&nbsp; </TD>
     <TD align=left width="4%"><FONT face=sans-serif size=2>$</FONT>&nbsp; </TD>
     <TD align=right width="10%"><FONT face=sans-serif size=2>33.3</FONT> </TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=right width="10%"><FONT face=sans-serif size=2>14.8</FONT> </TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=right width="9%"><FONT face=sans-serif size=2>17.5</FONT> </TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=right width="9%"><FONT face=sans-serif size=2>17.8</FONT> </TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=right width="8%"><FONT face=sans-serif size=2>20.8</FONT> </TD>
     <TD align=left width="2%">&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="33%"><FONT face=sans-serif size=2>Earnings (loss) from discontinued</FONT>&nbsp; </TD>
     <TD align=left width="4%"><FONT face=sans-serif size=2>$</FONT>&nbsp; </TD>
     <TD align=right width="10%"><FONT face=sans-serif size=2>(0.6</FONT> </TD>
     <TD align=left width="2%"><FONT face=sans-serif size=2>)</FONT>&nbsp; </TD>
     <TD align=right width="10%"><FONT face=sans-serif size=2>(5.4</FONT> </TD>
     <TD align=left width="2%"><FONT face=sans-serif size=2>)</FONT>&nbsp; </TD>
     <TD align=right width="9%"><FONT face=sans-serif size=2>0.1</FONT> </TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=right width="9%"><FONT face=sans-serif size=2>(0.7</FONT> </TD>
     <TD align=left width="2%"><FONT face=sans-serif size=2>)</FONT>&nbsp; </TD>
     <TD align=right width="8%"><FONT face=sans-serif size=2>-</FONT> </TD>
     <TD align=left width="2%">&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="33%"><FONT face=sans-serif size=2>operations</FONT>&nbsp; </TD>
     <TD align=left width="4%">&nbsp; </TD>
     <TD align=left width="10%"></TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=left width="10%"></TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=left width="9%"></TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=left width="9%"></TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=left width="8%"></TD>
     <TD align=left width="2%">&nbsp; </TD></TR>
<TR>
     <TD width="93%" colSpan=12>
<HR noShade SIZE=1>
</TD></TR>
<TR vAlign=bottom>
     <TD align=left width="33%"><FONT face=sans-serif size=2>Net earnings</FONT>&nbsp; </TD>
     <TD align=left width="4%"><FONT face=sans-serif size=2>$</FONT>&nbsp; </TD>
     <TD align=right width="10%"><FONT face=sans-serif size=2>32.7</FONT> </TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=right width="10%"><FONT face=sans-serif size=2>9.4</FONT> </TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=right width="9%"><FONT face=sans-serif size=2>17.6</FONT> </TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=right width="9%"><FONT face=sans-serif size=2>17.1</FONT> </TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=right width="8%"><FONT face=sans-serif size=2>20.8</FONT> </TD>
     <TD align=left width="2%">&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="33%"><FONT face=sans-serif size=2>Basic and diluted EPS from continuing</FONT>&nbsp; </TD>
     <TD align=left width="4%"><FONT face=sans-serif size=2>$</FONT>&nbsp; </TD>
     <TD align=right width="10%"><FONT face=sans-serif size=2>0.13</FONT> </TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=right width="10%"><FONT face=sans-serif size=2>0.06</FONT> </TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=right width="9%"><FONT face=sans-serif size=2>0.07</FONT> </TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=right width="9%"><FONT face=sans-serif size=2>0.07</FONT> </TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=right width="8%"><FONT face=sans-serif size=2>0.08</FONT> </TD>
     <TD align=left width="2%">&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="33%"><FONT face=sans-serif size=2>operations</FONT>&nbsp; </TD>
     <TD align=left width="4%">&nbsp; </TD>
     <TD align=left width="10%"></TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=left width="10%"></TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=left width="9%"></TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=left width="9%"></TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=left width="8%"></TD>
     <TD align=left width="2%">&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="33%"><FONT face=sans-serif size=2>Basic and diluted EPS</FONT>&nbsp; </TD>
     <TD align=left width="4%"><FONT face=sans-serif size=2>$</FONT>&nbsp; </TD>
     <TD align=right width="10%"><FONT face=sans-serif size=2>0.13</FONT> </TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=right width="10%"><FONT face=sans-serif size=2>0.04</FONT> </TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=right width="9%"><FONT face=sans-serif size=2>0.07</FONT> </TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=right width="9%"><FONT face=sans-serif size=2>0.07</FONT> </TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=right width="8%"><FONT face=sans-serif size=2>0.08</FONT> </TD>
     <TD align=left width="2%">&nbsp; </TD></TR>
<TR>
     <TD width="93%" colSpan=12>
<HR noShade SIZE=1>
</TD></TR></TABLE><BR>
<P align=left><FONT face=sans-serif size=2>11</FONT></P>
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<BR>
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<A name="page_19"></A>
<P align=left><B><FONT face=sans-serif size=2>MANAGEMENT&#146;S DISCUSSION AND ANALYSIS</FONT></B><BR>
</P>
<P align=left><FONT face=sans-serif size=2>FIRST QUARTER REPORT 2007</FONT><BR>
</P>
<TABLE cellSpacing=0 cellPadding=0 border=0>
<TR vAlign=bottom>
     <TD align=left width="55%" colSpan=3><B><FONT face=sans-serif size=2>Summary of results excluding non-recurring items</FONT></B>&nbsp; </TD>
     <TD align=left width="11%">&nbsp; </TD>
     <TD align=left width="11%">&nbsp; </TD>
     <TD align=left width="10%">&nbsp; </TD>
     <TD align=left width="9%">&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="39%"><FONT face=sans-serif size=2>(millions, except per share amounts)</FONT>&nbsp; </TD>
     <TD align=left width="4%">&nbsp; </TD>
     <TD align=right width="12%"><FONT face=sans-serif size=2>Q1-2007</FONT>&nbsp; </TD>
     <TD align=right width="11%"><FONT face=sans-serif size=2>Q4-2006</FONT>&nbsp; </TD>
     <TD align=right width="11%"><FONT face=sans-serif size=2>Q3-2006</FONT>&nbsp; </TD>
     <TD align=right width="10%"><FONT face=sans-serif size=2>Q2-2006</FONT>&nbsp; </TD>
     <TD align=right width="9%"><FONT face=sans-serif size=2>Q1-2006</FONT>&nbsp; </TD></TR>
<TR>
     <TD width="96%" colSpan=7>
<HR noShade SIZE=1>
</TD></TR>
<TR vAlign=bottom>
     <TD align=left width="39%"><FONT face=sans-serif size=2>Earnings from continuing operations</FONT>&nbsp; </TD>
     <TD align=right width="4%"><FONT face=sans-serif size=2>$</FONT>&nbsp; </TD>
     <TD align=right width="12%"><FONT face=sans-serif size=2>44.8</FONT>&nbsp; </TD>
     <TD align=right width="11%"><FONT face=sans-serif size=2>32.1</FONT>&nbsp; </TD>
     <TD align=right width="11%"><FONT face=sans-serif size=2>34.3</FONT>&nbsp; </TD>
     <TD align=right width="10%"><FONT face=sans-serif size=2>26.8</FONT>&nbsp; </TD>
     <TD align=right width="9%"><FONT face=sans-serif size=2>31.9</FONT>&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="39%"><FONT face=sans-serif size=2>(before taxes)</FONT>&nbsp; </TD>
     <TD align=left width="4%">&nbsp; </TD>
     <TD align=left width="12%">&nbsp; </TD>
     <TD align=left width="11%">&nbsp; </TD>
     <TD align=left width="11%">&nbsp; </TD>
     <TD align=left width="10%">&nbsp; </TD>
     <TD align=left width="9%">&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="39%"><FONT face=sans-serif size=2>Net earnings from continuing operations</FONT>&nbsp; </TD>
     <TD align=right width="4%"><FONT face=sans-serif size=2>$</FONT>&nbsp; </TD>
     <TD align=right width="12%"><FONT face=sans-serif size=2>31.3</FONT>&nbsp; </TD>
     <TD align=right width="11%"><FONT face=sans-serif size=2>23.2</FONT>&nbsp; </TD>
     <TD align=right width="11%"><FONT face=sans-serif size=2>23.7</FONT>&nbsp; </TD>
     <TD align=right width="10%"><FONT face=sans-serif size=2>20.0</FONT>&nbsp; </TD>
     <TD align=right width="9%"><FONT face=sans-serif size=2>19.9</FONT>&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="39%"><FONT face=sans-serif size=2>Basic and diluted EPS from continuing</FONT>&nbsp; </TD>
     <TD align=left width="4%">&nbsp; </TD>
     <TD align=left width="12%">&nbsp; </TD>
     <TD align=left width="11%">&nbsp; </TD>
     <TD align=left width="11%">&nbsp; </TD>
     <TD align=left width="10%">&nbsp; </TD>
     <TD align=left width="9%">&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="39%"><FONT face=sans-serif size=2>operations</FONT>&nbsp; </TD>
     <TD align=right width="4%"><FONT face=sans-serif size=2>$</FONT>&nbsp; </TD>
     <TD align=right width="12%"><FONT face=sans-serif size=2>0.12</FONT>&nbsp; </TD>
     <TD align=right width="11%"><FONT face=sans-serif size=2>0.09</FONT>&nbsp; </TD>
     <TD align=right width="11%"><FONT face=sans-serif size=2>0.09</FONT>&nbsp; </TD>
     <TD align=right width="10%"><FONT face=sans-serif size=2>0.08</FONT>&nbsp; </TD>
     <TD align=right width="9%"><FONT face=sans-serif size=2>0.08</FONT>&nbsp; </TD></TR>
<TR>
     <TD width="96%" colSpan=7>
<HR noShade SIZE=1>
</TD></TR></TABLE><BR>
<P align=left><B><FONT face=sans-serif size=2>Revenue was 6% higher than last quarter and 13% higher year over year </FONT></B></P>
<P align=left><FONT face=sans-serif size=2>Revenue was higher than last quarter mainly because of the SP/M segment, which increased its revenue by $18.3 million driven mainly by the NH90 program where we have a co-lead position. </FONT></P>
<P align=left><FONT face=sans-serif size=2>Revenue was higher year over year mainly because:</FONT><BR>
</P>
<UL>
<LI><FONT face=sans-serif size=2>SP/C revenue was 23% or $14 million higher because of a high recent order intake and a shorter</FONT> <FONT face=sans-serif size=2>production cycle.</FONT>
<LI><FONT face=sans-serif size=2>SP/M revenue was 32% or $23.1 million higher because of a different mix of contracts, and in</FONT> <FONT face=sans-serif size=2>particular, the contribution of the above NH90 helicopter program.</FONT> </LI></UL>
<P align=left><FONT face=sans-serif size=2>You will find more detail in </FONT><I><FONT face=sans-serif size=2>Results by segment</FONT></I><FONT face=sans-serif size=2>, below. </FONT></P>
<P align=left><B><FONT face=sans-serif size=2>EBIT</FONT></B>
<A href="#page_19"><B><SUP><FONT face=sans-serif size=2>*</FONT></SUP></B></A><B><FONT face=sans-serif size=2> was $38.0 million higher than last quarter and $11.6 million higher year over year </FONT></B></P>
<P align=left><FONT face=sans-serif size=2>EBIT for this quarter was $47.5 million, or 15.7% of revenue. Not including the effect of non-recurring items EBIT was $47.8 million, or 15.8% of revenue.</FONT></P>
<P align=left><FONT face=sans-serif size=2>Compared to last quarter, EBIT was up by $38.0 million because: </FONT></P>
<UL>
<LI><FONT face=sans-serif size=2>Restructuring expenses were $20.4 million lower.</FONT>
<LI><FONT face=sans-serif size=2>All segments performed better, accounting for a $13.2 million improvement.</FONT>
<LI><FONT face=sans-serif size=2>We received a release of claims payment of $4.4 million related to the UK Armoured Vehicles</FONT> <FONT face=sans-serif size=2>Training Services (AVTS) program.</FONT> </LI></UL>
<P align=left><FONT face=sans-serif size=2>Year over year, EBIT was up by $11.6 million or 32%, mainly because of better performance from all segments ($11.1 million) and a small contribution from the net effect of non-recurring items. </FONT></P>
<P align=left><FONT face=sans-serif size=2>You will find more detail in </FONT><I><FONT face=sans-serif size=2>Reconciliation of non-recurring items</FONT></I><FONT face=sans-serif size=2> and </FONT><I><FONT face=sans-serif size=2>Results by segment</FONT></I><FONT face=sans-serif size=2>, below. </FONT></P>
<P align=left><SUP><FONT face=monospace size=1>*</FONT></SUP><FONT face=monospace size=1> </FONT><FONT face=sans-serif size=1>Earnings before interest and taxes (EBIT) is a non-GAAP measure that shows us how we have performed before the effects of certain financing decisions and tax structures. We track EBIT because we believe it makes it easier to compare our performance with previous periods, and with companies and industries that do not have the same capital structure or tax laws.</FONT></P>
<P align=left><FONT face=sans-serif size=2>12</FONT></P>
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<A name="page_20"></A>
<P align=left><B><FONT face=sans-serif size=2>MANAGEMENT&#146;S DISCUSSION AND ANALYSIS</FONT></B><BR>
</P>
<P align=left><FONT face=sans-serif size=2>FIRST QUARTER REPORT 2007</FONT><BR>
</P>
<P align=left><FONT face=sans-serif size=2>Net interest expense was $2.1 million higher than last quarter but down 37% year over year Summary of net interest expense variation </FONT></P>
<TABLE cellSpacing=0 cellPadding=0 border=0>
<TR vAlign=bottom>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=left width="44%">&nbsp; </TD>
     <TD align=left width="10%">&nbsp; </TD>
     <TD align=right width="18%"><FONT face=sans-serif size=2>Quarter-over-</FONT> </TD>
     <TD align=left width="3%">&nbsp; </TD>
     <TD align=right width="17%"><FONT face=sans-serif size=2>Year-over-</FONT> </TD>
     <TD align=left width="3%">&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="46%" colSpan=2><FONT face=sans-serif size=2>(millions)</FONT>&nbsp; </TD>
     <TD align=left width="10%">&nbsp; </TD>
     <TD align=right width="18%"><FONT face=sans-serif size=2>quarter</FONT> </TD>
     <TD align=left width="3%">&nbsp; </TD>
     <TD align=right width="17%"><FONT face=sans-serif size=2>year</FONT> </TD>
     <TD align=left width="3%">&nbsp; </TD></TR>
<TR>
     <TD width="97%" colSpan=7>
<HR noShade SIZE=1>
</TD></TR>
<TR vAlign=bottom>
     <TD align=left width="46%" colSpan=2><FONT face=sans-serif size=2>Net interest, comparative period</FONT>&nbsp; </TD>
     <TD align=left width="10%"><FONT face=sans-serif size=2>$</FONT>&nbsp; </TD>
     <TD align=right width="18%"><FONT face=sans-serif size=2>0.9</FONT> </TD>
     <TD align=left width="3%">&nbsp; </TD>
     <TD align=right width="17%"><FONT face=sans-serif size=2>4.8</FONT> </TD>
     <TD align=left width="3%">&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="2%"><FONT face=sans-serif size=2>+/-</FONT>&nbsp; </TD>
     <TD align=left width="44%"><FONT face=sans-serif size=2>interest on long-term debt</FONT>&nbsp; </TD>
     <TD align=left width="10%">&nbsp; </TD>
     <TD align=right width="18%"><FONT face=sans-serif size=2>0.1</FONT> </TD>
     <TD align=left width="3%">&nbsp; </TD>
     <TD align=right width="17%"><FONT face=sans-serif size=2>(2.3</FONT> </TD>
     <TD align=left width="3%"><FONT face=sans-serif size=2>)</FONT>&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="2%"><FONT face=sans-serif size=2>+/-</FONT>&nbsp; </TD>
     <TD align=left width="44%"><FONT face=sans-serif size=2>interest income</FONT>&nbsp; </TD>
     <TD align=left width="10%">&nbsp; </TD>
     <TD align=right width="18%"><FONT face=sans-serif size=2>3.1</FONT> </TD>
     <TD align=left width="3%">&nbsp; </TD>
     <TD align=right width="17%"><FONT face=sans-serif size=2>0.1</FONT> </TD>
     <TD align=left width="3%">&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="2%"><FONT face=sans-serif size=2>+/-</FONT>&nbsp; </TD>
     <TD align=left width="44%"><FONT face=sans-serif size=2>amortization of deferred financing charges</FONT>&nbsp; </TD>
     <TD align=left width="10%">&nbsp; </TD>
     <TD align=right width="18%"><FONT face=sans-serif size=2>-</FONT> </TD>
     <TD align=left width="3%">&nbsp; </TD>
     <TD align=right width="17%"><FONT face=sans-serif size=2>(0.3</FONT> </TD>
     <TD align=left width="3%"><FONT face=sans-serif size=2>)</FONT>&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="2%"><FONT face=sans-serif size=2>+/-</FONT>&nbsp; </TD>
     <TD align=left width="44%"><FONT face=sans-serif size=2>capitalized interest and other</FONT>&nbsp; </TD>
     <TD align=left width="10%">&nbsp; </TD>
     <TD align=right width="18%"><FONT face=sans-serif size=2>(1.1</FONT> </TD>
     <TD align=left width="3%"><FONT face=sans-serif size=2>)</FONT>&nbsp; </TD>
     <TD align=right width="17%"><FONT face=sans-serif size=2>0.7</FONT> </TD>
     <TD align=left width="3%">&nbsp; </TD></TR>
<TR>
     <TD width="97%" colSpan=7>
<HR noShade SIZE=1>
</TD></TR>
<TR vAlign=bottom>
     <TD align=left width="46%" colSpan=2><FONT face=sans-serif size=2>Net interest, current period</FONT>&nbsp; </TD>
     <TD align=left width="10%"><FONT face=sans-serif size=2>$</FONT>&nbsp; </TD>
     <TD align=right width="18%"><FONT face=sans-serif size=2>3.0</FONT> </TD>
     <TD align=left width="3%">&nbsp; </TD>
     <TD align=right width="17%"><FONT face=sans-serif size=2>3.0</FONT> </TD>
     <TD align=left width="3%">&nbsp; </TD></TR>
<TR>
     <TD width="97%" colSpan=7>
<HR noShade SIZE=1>
</TD></TR>
<TR vAlign=bottom>
     <TD align=left width="46%" colSpan=2><I><FONT face=sans-serif size=2>Interest on long-term debt</FONT></I>&nbsp; </TD>
     <TD align=left width="10%">&nbsp; </TD>
     <TD align=left width="18%"></TD>
     <TD align=left width="3%">&nbsp; </TD>
     <TD align=left width="17%"></TD>
     <TD align=left width="3%">&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="56%" colSpan=3><FONT face=sans-serif size=2>Interest on long-term debt was 38% lower than last year</FONT>&nbsp; </TD>
     <TD align=right width="38%" colSpan=3><FONT face=sans-serif size=2>mainly because of lower debt level.</FONT> </TD>
     <TD align=left width="3%">&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="46%" colSpan=2><FONT face=sans-serif size=2>This was the result of three things:</FONT>&nbsp; </TD>
     <TD align=left width="10%">&nbsp; </TD>
     <TD align=left width="18%"></TD>
     <TD align=left width="3%">&nbsp; </TD>
     <TD align=left width="17%"></TD>
     <TD align=left width="3%">&nbsp; </TD></TR></TABLE><BR>
<UL>
<LI><FONT face=sans-serif size=2>We repaid the Amsterdam asset-backed financing at the end of the third quarter of fiscal 2006.</FONT>
<LI><FONT face=sans-serif size=2>We repaid the $20 million senior note tranche in June 2005.</FONT>
<LI><FONT face=sans-serif size=2>We reduced the revolving credit facility to a zero balance.</FONT> </LI></UL>
<P align=left><I><FONT face=sans-serif size=2>Interest income </FONT></I></P>
<P align=left><FONT face=sans-serif size=2>Interest income was 82% lower than last quarter mainly because we recognized revenues last quarter on a note receivable owed to us by the acquirers of one of our discontinued operations. The decrease was mainly made up of $2.0 million from the amortization of the discount and $0.4 million of annual income. </FONT></P>
<P align=left><B><FONT face=sans-serif size=2>Effective income tax rate is lower</FONT></B><BR>
</P>
<P align=left><FONT face=sans-serif size=2>Income taxes this quarter were $11.2 million, representing an effective tax rate of 25%. The effective tax rate for the same quarter last year was 33%. The tax rate was lower for two reasons: </FONT></P>
<UL>
<LI><FONT face=sans-serif size=2>We reduced the valuation allowance on net operating losses in the UK, which allowed us to recognize</FONT> <FONT face=sans-serif size=2>$2.0 million in tax assets.</FONT>
<LI><FONT face=sans-serif size=2>The statutory Canadian tax rate was lowered during the period.</FONT> </LI></UL>
<P align=left><FONT face=sans-serif size=2>The $6.2 million tax recovery last quarter was mainly from a reduction of the valuation allowance on our net operating losses in the US, along with other recoveries, which resulted in tax assets of $9.0 million. </FONT></P>
<P align=left><FONT face=sans-serif size=2>Before non-recurring items, income tax expense would have been:</FONT></P>
<UL>
<LI><FONT face=sans-serif size=2>$13.5 million this quarter, representing an effective tax rate of 30%.</FONT>
<LI><FONT face=sans-serif size=2>$12.0 million for the first quarter last year, representing an effective tax rate of 38%. The difference</FONT> <FONT face=sans-serif size=2>was due to higher income in jurisdictions with higher tax rates.</FONT>
<LI><FONT face=sans-serif size=2>$8.9 million last quarter, representing an effective tax rate of 28%.</FONT> </LI></UL>
<P align=left><FONT face=sans-serif size=2>We expect the effective income tax rate for fiscal 2007 to be approximately 31% (not including the effect of non-recurring items). </FONT></P>
<P align=left><FONT face=sans-serif size=2>You will find more detail in </FONT><I><FONT face=sans-serif size=2>Reconciliation of non-recurring items</FONT></I><FONT face=sans-serif size=2>, below. </FONT></P>
<P align=left><FONT face=sans-serif size=2>13</FONT></P>
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<A name="page_21"></A>
<P align=left><B><FONT face=sans-serif size=2>MANAGEMENT&#146;S DISCUSSION AND ANALYSIS</FONT></B><BR>
</P>
<P align=left><FONT face=sans-serif size=2>FIRST QUARTER REPORT 2007</FONT><BR>
</P>
<P align=left><B><FONT face=sans-serif size=2>Results from discontinued operations</FONT></B><BR>
</P>
<P align=left><FONT face=sans-serif size=2>The $0.6 million net loss this quarter was mainly the net result of various adjustments we made after completing the working capital audit related to the sale of Marine Controls. The Company made subsequent to the end of the quarter a working capital adjustment payment of about $10.1 million, including interest, to the buyer of the Marine Controls segment. Furthermore, the Company recently received from this buyer notices of claims for indemnification pursuant to the Sale and Purchase Agreement (SPA), including in respect of allegations that CAE was in breach of certain representations and warranties in the SPA. Management is evaluating these matters, including the merits of these claims and the Company's insurance coverage for the subject matter of one of them. At this time, neither the outcome of these matters nor the potential future payments, if any, are determinable. The Company intends to assert all available defences against these claims. The aggregate liabil
ity for claims made under the SPA is limited to US$25 million.</FONT><FONT face=sans-serif> </FONT></P>
<P align=left><FONT face=sans-serif size=2>4.2 EARNINGS BEFORE NON-RECURRING ITEMS </FONT></P>
<P align=left><FONT face=sans-serif size=2>The table below shows how certain non-recurring items have affected our results in each of the reporting periods. We consider an item to be non-recurring when it is outside the normal course of business, either because it appears infrequently, is unusual or does not represent a normal business trend.</FONT></P>
<P align=left><FONT face=sans-serif size=2>We believe this supplemental information is a useful indication of our performance before these non-recurring items. It is important, however, not to confuse this information with, or use it as an alternative for, net earnings calculated according to GAAP as an indicator of performance. </FONT></P>
<P align=left><FONT face=sans-serif size=2>14</FONT></P>
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<A name="page_22"></A>
<TABLE cellSpacing=0 cellPadding=0 border=0>
<TR vAlign=bottom>
     <TD align=left width="28%" colSpan=6>&nbsp;<B><FONT face=sans-serif size=2>MANAGEMENT&#146;S DISCUSSION AND ANALYSIS</FONT></B> </TD>
     <TD align=left width="1%">&nbsp; </TD>
     <TD align=left width="1%"></TD>
     <TD align=left width="4%"></TD>
     <TD align=left width="1%">&nbsp; </TD>
     <TD align=left width="1%"></TD>
     <TD align=left width="5%"></TD>
     <TD align=left width="1%">&nbsp; </TD>
     <TD align=left width="1%"></TD>
     <TD align=left width="6%"></TD>
     <TD align=left width="1%">&nbsp; </TD>
     <TD align=left width="1%"></TD>
     <TD align=right width="22%" colSpan=7><FONT face=sans-serif size=2>FIRST QUARTER REPORT 2007</FONT> </TD>
     <TD align=left width="1%">&nbsp; </TD>
     <TD align=left width="1%"></TD>
     <TD align=left width="4%"></TD>
     <TD align=left width="1%">&nbsp; </TD></TR>
<TR>
     <TD width="74%" colSpan=25>
<HR noShade SIZE=1>
</TD>
     <TD width="6%" colSpan=3></TD></TR>
<TR vAlign=bottom>
     <TD align=left width="28%" colSpan=6>&nbsp;<B><FONT face=sans-serif size=2>Reconciliation of non-recurring items</FONT></B> </TD>
     <TD align=left width="1%">&nbsp; </TD>
     <TD align=left width="1%"></TD>
     <TD align=left width="4%"></TD>
     <TD align=left width="1%">&nbsp; </TD>
     <TD align=left width="1%"></TD>
     <TD align=left width="5%"></TD>
     <TD align=left width="1%">&nbsp; </TD>
     <TD align=left width="1%"></TD>
     <TD align=left width="6%"></TD>
     <TD align=left width="1%">&nbsp; </TD>
     <TD align=left width="1%"></TD>
     <TD align=left width="6%"></TD>
     <TD align=left width="1%">&nbsp; </TD>
     <TD align=left width="1%"></TD>
     <TD align=left width="5%"></TD>
     <TD align=left width="1%">&nbsp; </TD>
     <TD align=left width="1%"></TD>
     <TD align=left width="7%"></TD>
     <TD align=left width="1%">&nbsp; </TD>
     <TD align=left width="1%"></TD>
     <TD align=left width="4%"></TD>
     <TD align=left width="1%">&nbsp; </TD></TR>
<TR>
     <TD width="80%" colSpan=28>
<HR noShade SIZE=1>
</TD></TR>
<TR vAlign=bottom>
     <TD align=left width="28%" colSpan=6><FONT face=sans-serif size=2>(millions, except per share amounts)</FONT> </TD>
     <TD align=left width="1%">&nbsp; </TD>
     <TD align=left width="1%"></TD>
     <TD align=left width="4%"></TD>
     <TD align=left width="1%">&nbsp; </TD>
     <TD align=left width="1%"></TD>
     <TD align=left width="5%"></TD>
     <TD align=left width="1%">&nbsp; </TD>
     <TD align=left width="1%"></TD>
     <TD align=left width="6%"></TD>
     <TD align=left width="1%">&nbsp; </TD>
     <TD align=left width="1%"></TD>
     <TD align=left width="6%"></TD>
     <TD align=left width="1%">&nbsp; </TD>
     <TD align=left width="1%"></TD>
     <TD align=left width="5%"></TD>
     <TD align=left width="1%">&nbsp; </TD>
     <TD align=left width="1%"></TD>
     <TD align=left width="7%"></TD>
     <TD align=left width="1%">&nbsp; </TD>
     <TD align=left width="1%"></TD>
     <TD align=left width="4%"></TD>
     <TD align=left width="1%">&nbsp; </TD></TR>
<TR>
     <TD width="80%" colSpan=28>
<HR noShade SIZE=1>
</TD></TR>
<TR vAlign=bottom>
     <TD align=left width="13%">&nbsp; </TD>
     <TD align=left width="1%"></TD>
     <TD align=left width="5%"></TD>
     <TD align=left width="1%">&nbsp; </TD>
     <TD align=left width="1%"></TD>
     <TD align=right width="7%"><FONT face=sans-serif size=2>Q1-2007</FONT> </TD>
     <TD align=left width="1%">&nbsp; </TD>
     <TD align=left width="1%"></TD>
     <TD align=left width="4%"></TD>
     <TD align=left width="1%">&nbsp; </TD>
     <TD align=left width="1%"></TD>
     <TD align=left width="5%"></TD>
     <TD align=left width="1%">&nbsp; </TD>
     <TD align=left width="1%"></TD>
     <TD align=right width="6%"><FONT face=sans-serif size=2>Q4-2006</FONT> </TD>
     <TD align=left width="1%">&nbsp; </TD>
     <TD align=left width="1%"></TD>
     <TD align=left width="6%"></TD>
     <TD align=left width="1%">&nbsp; </TD>
     <TD align=left width="1%"></TD>
     <TD align=left width="5%"></TD>
     <TD align=left width="1%">&nbsp; </TD>
     <TD align=left width="1%"></TD>
     <TD align=right width="7%"><FONT face=sans-serif size=2>Q1-2006</FONT> </TD>
     <TD align=left width="1%">&nbsp; </TD>
     <TD align=left width="1%"></TD>
     <TD align=left width="4%"></TD>
     <TD align=left width="1%">&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="13%">&nbsp; </TD>
     <TD align=left width="1%"></TD>
     <TD align=right width="5%"><FONT face=sans-serif size=2>before</FONT> </TD>
     <TD align=left width="1%">&nbsp; </TD>
     <TD align=left width="1%"></TD>
     <TD align=right width="7%"><FONT face=sans-serif size=2>after</FONT> </TD>
     <TD align=left width="1%">&nbsp; </TD>
     <TD align=left width="1%"></TD>
     <TD align=right width="4%"><FONT face=sans-serif size=2>per</FONT> </TD>
     <TD align=left width="1%">&nbsp; </TD>
     <TD align=left width="1%"></TD>
     <TD align=right width="5%"><FONT face=sans-serif size=2>before</FONT> </TD>
     <TD align=left width="1%">&nbsp; </TD>
     <TD align=left width="1%"></TD>
     <TD align=right width="6%"><FONT face=sans-serif size=2>after</FONT> </TD>
     <TD align=left width="1%">&nbsp; </TD>
     <TD align=left width="1%"></TD>
     <TD align=right width="6%"><FONT face=sans-serif size=2>per</FONT> </TD>
     <TD align=left width="1%">&nbsp; </TD>
     <TD align=left width="1%"></TD>
     <TD align=right width="5%"><FONT face=sans-serif size=2>before</FONT> </TD>
     <TD align=left width="1%">&nbsp; </TD>
     <TD align=left width="1%"></TD>
     <TD align=right width="7%"><FONT face=sans-serif size=2>after</FONT> </TD>
     <TD align=left width="1%">&nbsp; </TD>
     <TD align=left width="1%"></TD>
     <TD align=right width="4%"><FONT face=sans-serif size=2>per</FONT> </TD>
     <TD align=left width="1%">&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="13%">&nbsp; </TD>
     <TD align=left width="1%"></TD>
     <TD align=right width="5%"><FONT face=sans-serif size=2>tax</FONT> </TD>
     <TD align=left width="1%">&nbsp; </TD>
     <TD align=left width="1%"></TD>
     <TD align=right width="7%"><FONT face=sans-serif size=2>tax</FONT> </TD>
     <TD align=left width="1%">&nbsp; </TD>
     <TD align=left width="1%"></TD>
     <TD align=right width="4%"><FONT face=sans-serif size=2>share</FONT> </TD>
     <TD align=left width="1%">&nbsp; </TD>
     <TD align=left width="1%"></TD>
     <TD align=right width="5%"><FONT face=sans-serif size=2>tax</FONT> </TD>
     <TD align=left width="1%">&nbsp; </TD>
     <TD align=left width="1%"></TD>
     <TD align=right width="6%"><FONT face=sans-serif size=2>tax</FONT> </TD>
     <TD align=left width="1%">&nbsp; </TD>
     <TD align=left width="1%"></TD>
     <TD align=right width="6%"><FONT face=sans-serif size=2>share</FONT> </TD>
     <TD align=left width="1%">&nbsp; </TD>
     <TD align=left width="1%"></TD>
     <TD align=right width="5%"><FONT face=sans-serif size=2>tax</FONT> </TD>
     <TD align=left width="1%">&nbsp; </TD>
     <TD align=left width="1%"></TD>
     <TD align=right width="7%"><FONT face=sans-serif size=2>tax</FONT> </TD>
     <TD align=left width="1%">&nbsp; </TD>
     <TD align=left width="1%"></TD>
     <TD align=right width="4%"><FONT face=sans-serif size=2>share</FONT> </TD>
     <TD align=left width="1%">&nbsp; </TD></TR>
<TR>
     <TD width="80%" colSpan=28>
<HR noShade SIZE=1>
</TD></TR>
<TR vAlign=bottom>
     <TD align=left width="13%"><FONT face=sans-serif size=2>Earnings from</FONT>&nbsp; </TD>
     <TD align=left width="1%"></TD>
     <TD align=left width="5%"></TD>
     <TD align=left width="1%">&nbsp; </TD>
     <TD align=left width="1%"></TD>
     <TD align=left width="7%"></TD>
     <TD align=left width="1%">&nbsp; </TD>
     <TD align=left width="1%"></TD>
     <TD align=left width="4%"></TD>
     <TD align=left width="1%">&nbsp; </TD>
     <TD align=left width="1%"></TD>
     <TD align=left width="5%"></TD>
     <TD align=left width="1%">&nbsp; </TD>
     <TD align=left width="1%"></TD>
     <TD align=left width="6%"></TD>
     <TD align=left width="1%">&nbsp; </TD>
     <TD align=left width="1%"></TD>
     <TD align=left width="6%"></TD>
     <TD align=left width="1%">&nbsp; </TD>
     <TD align=left width="1%"></TD>
     <TD align=left width="5%"></TD>
     <TD align=left width="1%">&nbsp; </TD>
     <TD align=left width="1%"></TD>
     <TD align=left width="7%"></TD>
     <TD align=left width="1%">&nbsp; </TD>
     <TD align=left width="1%"></TD>
     <TD align=left width="4%"></TD>
     <TD align=left width="1%">&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="13%"><FONT face=sans-serif size=2>continuing operations</FONT>&nbsp; </TD>
     <TD align=right width="1%"><FONT face=sans-serif size=2>$</FONT> </TD>
     <TD align=right width="5%"><FONT face=sans-serif size=2>44.5</FONT> </TD>
     <TD align=left width="1%">&nbsp; </TD>
     <TD align=right width="1%"><FONT face=sans-serif size=2>$</FONT> </TD>
     <TD align=right width="7%"><FONT face=sans-serif size=2>33.3</FONT> </TD>
     <TD align=left width="1%">&nbsp; </TD>
     <TD align=right width="1%"><FONT face=sans-serif size=2>$</FONT> </TD>
     <TD align=right width="4%"><FONT face=sans-serif size=2>0.13</FONT> </TD>
     <TD align=left width="1%">&nbsp; </TD>
     <TD align=right width="1%"><FONT face=sans-serif size=2>$</FONT> </TD>
     <TD align=right width="5%"><FONT face=sans-serif size=2>8.6</FONT> </TD>
     <TD align=left width="1%">&nbsp; </TD>
     <TD align=right width="1%"><FONT face=sans-serif size=2>$</FONT> </TD>
     <TD align=right width="6%"><FONT face=sans-serif size=2>14.8</FONT> </TD>
     <TD align=left width="1%">&nbsp; </TD>
     <TD align=right width="1%"><FONT face=sans-serif size=2>$</FONT> </TD>
     <TD align=right width="6%"><FONT face=sans-serif size=2>0.06</FONT> </TD>
     <TD align=left width="1%">&nbsp; </TD>
     <TD align=right width="1%"><FONT face=sans-serif size=2>$</FONT> </TD>
     <TD align=right width="5%"><FONT face=sans-serif size=2>31.1</FONT> </TD>
     <TD align=left width="1%">&nbsp; </TD>
     <TD align=right width="1%"><FONT face=sans-serif size=2>$</FONT> </TD>
     <TD align=right width="7%"><FONT face=sans-serif size=2>20.8</FONT> </TD>
     <TD align=left width="1%">&nbsp; </TD>
     <TD align=right width="1%"><FONT face=sans-serif size=2>$</FONT> </TD>
     <TD align=right width="4%"><FONT face=sans-serif size=2>0.08</FONT> </TD>
     <TD align=left width="1%">&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="13%"><FONT face=sans-serif size=2>Restructuring plan</FONT>&nbsp; </TD>
     <TD align=left width="1%"></TD>
     <TD align=left width="5%"></TD>
     <TD align=left width="1%">&nbsp; </TD>
     <TD align=left width="1%"></TD>
     <TD align=left width="7%"></TD>
     <TD align=left width="1%">&nbsp; </TD>
     <TD align=left width="1%"></TD>
     <TD align=left width="4%"></TD>
     <TD align=left width="1%">&nbsp; </TD>
     <TD align=left width="1%"></TD>
     <TD align=left width="5%"></TD>
     <TD align=left width="1%">&nbsp; </TD>
     <TD align=left width="1%"></TD>
     <TD align=left width="6%"></TD>
     <TD align=left width="1%">&nbsp; </TD>
     <TD align=left width="1%"></TD>
     <TD align=left width="6%"></TD>
     <TD align=left width="1%">&nbsp; </TD>
     <TD align=left width="1%"></TD>
     <TD align=left width="5%"></TD>
     <TD align=left width="1%">&nbsp; </TD>
     <TD align=left width="1%"></TD>
     <TD align=left width="7%"></TD>
     <TD align=left width="1%">&nbsp; </TD>
     <TD align=left width="1%"></TD>
     <TD align=left width="4%"></TD>
     <TD align=left width="1%">&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="13%"><FONT face=sans-serif size=2>- restructuring charge</FONT>&nbsp; </TD>
     <TD align=left width="1%"></TD>
     <TD align=right width="5%"><FONT face=sans-serif size=2>0.2</FONT> </TD>
     <TD align=left width="1%">&nbsp; </TD>
     <TD align=left width="1%"></TD>
     <TD align=right width="7%"><FONT face=sans-serif size=2>0.1</FONT> </TD>
     <TD align=left width="1%">&nbsp; </TD>
     <TD align=left width="1%"></TD>
     <TD align=right width="4%"><FONT face=sans-serif size=2>-</FONT> </TD>
     <TD align=left width="1%">&nbsp; </TD>
     <TD align=left width="1%"></TD>
     <TD align=right width="5%"><FONT face=sans-serif size=2>13.8</FONT> </TD>
     <TD align=left width="1%">&nbsp; </TD>
     <TD align=left width="1%"></TD>
     <TD align=right width="6%"><FONT face=sans-serif size=2>10.3</FONT> </TD>
     <TD align=left width="1%">&nbsp; </TD>
     <TD align=left width="1%"></TD>
     <TD align=right width="6%"><FONT face=sans-serif size=2>0.04</FONT> </TD>
     <TD align=left width="1%">&nbsp; </TD>
     <TD align=left width="1%"></TD>
     <TD align=right width="5%"><FONT face=sans-serif size=2>0.9</FONT> </TD>
     <TD align=left width="1%">&nbsp; </TD>
     <TD align=left width="1%"></TD>
     <TD align=right width="7%"><FONT face=sans-serif size=2>0.7</FONT> </TD>
     <TD align=left width="1%">&nbsp; </TD>
     <TD align=left width="1%"></TD>
     <TD align=right width="4%"><FONT face=sans-serif size=2>-</FONT> </TD>
     <TD align=left width="1%">&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="13%"><FONT face=sans-serif size=2>- other costs</FONT>&nbsp; </TD>
     <TD align=left width="1%"></TD>
     <TD align=left width="5%"></TD>
     <TD align=left width="1%">&nbsp; </TD>
     <TD align=left width="1%"></TD>
     <TD align=left width="7%"></TD>
     <TD align=left width="1%">&nbsp; </TD>
     <TD align=left width="1%"></TD>
     <TD align=left width="4%"></TD>
     <TD align=left width="1%">&nbsp; </TD>
     <TD align=left width="1%"></TD>
     <TD align=left width="5%"></TD>
     <TD align=left width="1%">&nbsp; </TD>
     <TD align=left width="1%"></TD>
     <TD align=left width="6%"></TD>
     <TD align=left width="1%">&nbsp; </TD>
     <TD align=left width="1%"></TD>
     <TD align=left width="6%"></TD>
     <TD align=left width="1%">&nbsp; </TD>
     <TD align=left width="1%"></TD>
     <TD align=left width="5%"></TD>
     <TD align=left width="1%">&nbsp; </TD>
     <TD align=left width="1%"></TD>
     <TD align=left width="7%"></TD>
     <TD align=left width="1%">&nbsp; </TD>
     <TD align=left width="1%"></TD>
     <TD align=left width="4%"></TD>
     <TD align=left width="1%">&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=right width="13%"><FONT face=sans-serif size=2>associated with the</FONT>&nbsp; </TD>
     <TD align=left width="1%"></TD>
     <TD align=left width="5%"></TD>
     <TD align=left width="1%">&nbsp; </TD>
     <TD align=left width="1%"></TD>
     <TD align=left width="7%"></TD>
     <TD align=left width="1%">&nbsp; </TD>
     <TD align=left width="1%"></TD>
     <TD align=left width="4%"></TD>
     <TD align=left width="1%">&nbsp; </TD>
     <TD align=left width="1%"></TD>
     <TD align=left width="5%"></TD>
     <TD align=left width="1%">&nbsp; </TD>
     <TD align=left width="1%"></TD>
     <TD align=left width="6%"></TD>
     <TD align=left width="1%">&nbsp; </TD>
     <TD align=left width="1%"></TD>
     <TD align=left width="6%"></TD>
     <TD align=left width="1%">&nbsp; </TD>
     <TD align=left width="1%"></TD>
     <TD align=left width="5%"></TD>
     <TD align=left width="1%">&nbsp; </TD>
     <TD align=left width="1%"></TD>
     <TD align=left width="7%"></TD>
     <TD align=left width="1%">&nbsp; </TD>
     <TD align=left width="1%"></TD>
     <TD align=left width="4%"></TD>
     <TD align=left width="1%">&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=center width="13%"><FONT face=sans-serif size=2>restructuring plan</FONT>&nbsp; </TD>
     <TD align=left width="1%"></TD>
     <TD align=right width="5%"><FONT face=sans-serif size=2>4.5</FONT> </TD>
     <TD align=left width="1%">&nbsp; </TD>
     <TD align=left width="1%"></TD>
     <TD align=right width="7%"><FONT face=sans-serif size=2>3.0</FONT> </TD>
     <TD align=left width="1%">&nbsp; </TD>
     <TD align=left width="1%"></TD>
     <TD align=right width="4%"><FONT face=sans-serif size=2>0.01</FONT> </TD>
     <TD align=left width="1%">&nbsp; </TD>
     <TD align=left width="1%"></TD>
     <TD align=right width="5%"><FONT face=sans-serif size=2>11.3</FONT> </TD>
     <TD align=left width="1%">&nbsp; </TD>
     <TD align=left width="1%"></TD>
     <TD align=right width="6%"><FONT face=sans-serif size=2>8.7</FONT> </TD>
     <TD align=left width="1%">&nbsp; </TD>
     <TD align=left width="1%"></TD>
     <TD align=right width="6%"><FONT face=sans-serif size=2>0.03</FONT> </TD>
     <TD align=left width="1%">&nbsp; </TD>
     <TD align=left width="1%"></TD>
     <TD align=right width="5%"><FONT face=sans-serif size=2>-</FONT> </TD>
     <TD align=left width="1%">&nbsp; </TD>
     <TD align=left width="1%"></TD>
     <TD align=right width="7%"><FONT face=sans-serif size=2>-</FONT> </TD>
     <TD align=left width="1%">&nbsp; </TD>
     <TD align=left width="1%"></TD>
     <TD align=right width="4%"><FONT face=sans-serif size=2>-</FONT> </TD>
     <TD align=left width="1%">&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="13%"><FONT face=sans-serif size=2>Release of claims</FONT>&nbsp; </TD>
     <TD align=left width="1%"></TD>
     <TD align=left width="5%"></TD>
     <TD align=left width="1%">&nbsp; </TD>
     <TD align=left width="1%"></TD>
     <TD align=left width="7%"></TD>
     <TD align=left width="1%">&nbsp; </TD>
     <TD align=left width="1%"></TD>
     <TD align=left width="4%"></TD>
     <TD align=left width="1%">&nbsp; </TD>
     <TD align=left width="1%"></TD>
     <TD align=left width="5%"></TD>
     <TD align=left width="1%">&nbsp; </TD>
     <TD align=left width="1%"></TD>
     <TD align=left width="6%"></TD>
     <TD align=left width="1%">&nbsp; </TD>
     <TD align=left width="1%"></TD>
     <TD align=left width="6%"></TD>
     <TD align=left width="1%">&nbsp; </TD>
     <TD align=left width="1%"></TD>
     <TD align=left width="5%"></TD>
     <TD align=left width="1%">&nbsp; </TD>
     <TD align=left width="1%"></TD>
     <TD align=left width="7%"></TD>
     <TD align=left width="1%">&nbsp; </TD>
     <TD align=left width="1%"></TD>
     <TD align=left width="4%"></TD>
     <TD align=left width="1%">&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="13%"><FONT face=sans-serif size=2>payment</FONT>&nbsp; </TD>
     <TD align=left width="1%"></TD>
     <TD align=right width="5%"><FONT face=sans-serif size=2>(4.4</FONT> </TD>
     <TD align=left width="1%"><FONT face=sans-serif size=2>)</FONT>&nbsp; </TD>
     <TD align=left width="1%"></TD>
     <TD align=right width="7%"><FONT face=sans-serif size=2>(3.1</FONT> </TD>
     <TD align=left width="1%"><FONT face=sans-serif size=2>)</FONT>&nbsp; </TD>
     <TD align=left width="1%"></TD>
     <TD align=right width="4%"><FONT face=sans-serif size=2>(0.01</FONT> </TD>
     <TD align=left width="1%"><FONT face=sans-serif size=2>)</FONT>&nbsp; </TD>
     <TD align=left width="1%"></TD>
     <TD align=right width="5%"><FONT face=sans-serif size=2>-</FONT> </TD>
     <TD align=left width="1%">&nbsp; </TD>
     <TD align=left width="1%"></TD>
     <TD align=right width="6%"><FONT face=sans-serif size=2>-</FONT> </TD>
     <TD align=left width="1%">&nbsp; </TD>
     <TD align=left width="1%"></TD>
     <TD align=right width="6%"><FONT face=sans-serif size=2>-</FONT> </TD>
     <TD align=left width="1%">&nbsp; </TD>
     <TD align=left width="1%"></TD>
     <TD align=right width="5%"><FONT face=sans-serif size=2>-</FONT> </TD>
     <TD align=left width="1%">&nbsp; </TD>
     <TD align=left width="1%"></TD>
     <TD align=right width="7%"><FONT face=sans-serif size=2>-</FONT> </TD>
     <TD align=left width="1%">&nbsp; </TD>
     <TD align=left width="1%"></TD>
     <TD align=right width="4%"><FONT face=sans-serif size=2>-</FONT> </TD>
     <TD align=left width="1%">&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="13%"><FONT face=sans-serif size=2>Write-down of</FONT>&nbsp; </TD>
     <TD align=left width="1%"></TD>
     <TD align=left width="5%"></TD>
     <TD align=left width="1%">&nbsp; </TD>
     <TD align=left width="1%"></TD>
     <TD align=left width="7%"></TD>
     <TD align=left width="1%">&nbsp; </TD>
     <TD align=left width="1%"></TD>
     <TD align=left width="4%"></TD>
     <TD align=left width="1%">&nbsp; </TD>
     <TD align=left width="1%"></TD>
     <TD align=left width="5%"></TD>
     <TD align=left width="1%">&nbsp; </TD>
     <TD align=left width="1%"></TD>
     <TD align=left width="6%"></TD>
     <TD align=left width="1%">&nbsp; </TD>
     <TD align=left width="1%"></TD>
     <TD align=left width="6%"></TD>
     <TD align=left width="1%">&nbsp; </TD>
     <TD align=left width="1%"></TD>
     <TD align=left width="5%"></TD>
     <TD align=left width="1%">&nbsp; </TD>
     <TD align=left width="1%"></TD>
     <TD align=left width="7%"></TD>
     <TD align=left width="1%">&nbsp; </TD>
     <TD align=left width="1%"></TD>
     <TD align=left width="4%"></TD>
     <TD align=left width="1%">&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="13%"><FONT face=sans-serif size=2>deferred bid costs</FONT>&nbsp; </TD>
     <TD align=left width="1%"></TD>
     <TD align=right width="5%"><FONT face=sans-serif size=2>-</FONT> </TD>
     <TD align=left width="1%">&nbsp; </TD>
     <TD align=left width="1%"></TD>
     <TD align=right width="7%"><FONT face=sans-serif size=2>-</FONT> </TD>
     <TD align=left width="1%">&nbsp; </TD>
     <TD align=left width="1%"></TD>
     <TD align=right width="4%"><FONT face=sans-serif size=2>-</FONT> </TD>
     <TD align=left width="1%">&nbsp; </TD>
     <TD align=left width="1%"></TD>
     <TD align=right width="5%"><FONT face=sans-serif size=2>-</FONT> </TD>
     <TD align=left width="1%">&nbsp; </TD>
     <TD align=left width="1%"></TD>
     <TD align=right width="6%"><FONT face=sans-serif size=2>-</FONT> </TD>
     <TD align=left width="1%">&nbsp; </TD>
     <TD align=left width="1%"></TD>
     <TD align=right width="6%"><FONT face=sans-serif size=2>-</FONT> </TD>
     <TD align=left width="1%">&nbsp; </TD>
     <TD align=left width="1%"></TD>
     <TD align=right width="5%"><FONT face=sans-serif size=2>5.9</FONT> </TD>
     <TD align=left width="1%">&nbsp; </TD>
     <TD align=left width="1%"></TD>
     <TD align=right width="7%"><FONT face=sans-serif size=2>5.1</FONT> </TD>
     <TD align=left width="1%">&nbsp; </TD>
     <TD align=left width="1%"></TD>
     <TD align=right width="4%"><FONT face=sans-serif size=2>0.02</FONT> </TD>
     <TD align=left width="1%">&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="13%"><FONT face=sans-serif size=2>Accretion of discounts</FONT>&nbsp; </TD>
     <TD align=left width="1%"></TD>
     <TD align=left width="5%"></TD>
     <TD align=left width="1%">&nbsp; </TD>
     <TD align=left width="1%"></TD>
     <TD align=left width="7%"></TD>
     <TD align=left width="1%">&nbsp; </TD>
     <TD align=left width="1%"></TD>
     <TD align=left width="4%"></TD>
     <TD align=left width="1%">&nbsp; </TD>
     <TD align=left width="1%"></TD>
     <TD align=left width="5%"></TD>
     <TD align=left width="1%">&nbsp; </TD>
     <TD align=left width="1%"></TD>
     <TD align=left width="6%"></TD>
     <TD align=left width="1%">&nbsp; </TD>
     <TD align=left width="1%"></TD>
     <TD align=left width="6%"></TD>
     <TD align=left width="1%">&nbsp; </TD>
     <TD align=left width="1%"></TD>
     <TD align=left width="5%"></TD>
     <TD align=left width="1%">&nbsp; </TD>
     <TD align=left width="1%"></TD>
     <TD align=left width="7%"></TD>
     <TD align=left width="1%">&nbsp; </TD>
     <TD align=left width="1%"></TD>
     <TD align=left width="4%"></TD>
     <TD align=left width="1%">&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="13%"><FONT face=sans-serif size=2>on notes receivable</FONT>&nbsp; </TD>
     <TD align=left width="1%"></TD>
     <TD align=right width="5%"><FONT face=sans-serif size=2>-</FONT> </TD>
     <TD align=left width="1%">&nbsp; </TD>
     <TD align=left width="1%"></TD>
     <TD align=right width="7%"><FONT face=sans-serif size=2>-</FONT> </TD>
     <TD align=left width="1%">&nbsp; </TD>
     <TD align=left width="1%"></TD>
     <TD align=right width="4%"><FONT face=sans-serif size=2>-</FONT> </TD>
     <TD align=left width="1%">&nbsp; </TD>
     <TD align=left width="1%"></TD>
     <TD align=right width="5%"><FONT face=sans-serif size=2>(1.6</FONT> </TD>
     <TD align=left width="1%"><FONT face=sans-serif size=2>)</FONT>&nbsp; </TD>
     <TD align=left width="1%"></TD>
     <TD align=right width="6%"><FONT face=sans-serif size=2>(1.6</FONT> </TD>
     <TD align=left width="1%"><FONT face=sans-serif size=2>)</FONT>&nbsp; </TD>
     <TD align=left width="1%"></TD>
     <TD align=right width="6%"><FONT face=sans-serif size=2>(0.01</FONT> </TD>
     <TD align=left width="1%"><FONT face=sans-serif size=2>)</FONT>&nbsp; </TD>
     <TD align=left width="1%"></TD>
     <TD align=right width="5%"><FONT face=sans-serif size=2>-</FONT> </TD>
     <TD align=left width="1%">&nbsp; </TD>
     <TD align=left width="1%"></TD>
     <TD align=right width="7%"><FONT face=sans-serif size=2>-</FONT> </TD>
     <TD align=left width="1%">&nbsp; </TD>
     <TD align=left width="1%"></TD>
     <TD align=right width="4%"><FONT face=sans-serif size=2>-</FONT> </TD>
     <TD align=left width="1%">&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="13%"><FONT face=sans-serif size=2>Foreign exchange</FONT>&nbsp; </TD>
     <TD align=left width="1%"></TD>
     <TD align=left width="5%"></TD>
     <TD align=left width="1%">&nbsp; </TD>
     <TD align=left width="1%"></TD>
     <TD align=left width="7%"></TD>
     <TD align=left width="1%">&nbsp; </TD>
     <TD align=left width="1%"></TD>
     <TD align=left width="4%"></TD>
     <TD align=left width="1%">&nbsp; </TD>
     <TD align=left width="1%"></TD>
     <TD align=left width="5%"></TD>
     <TD align=left width="1%">&nbsp; </TD>
     <TD align=left width="1%"></TD>
     <TD align=left width="6%"></TD>
     <TD align=left width="1%">&nbsp; </TD>
     <TD align=left width="1%"></TD>
     <TD align=left width="6%"></TD>
     <TD align=left width="1%">&nbsp; </TD>
     <TD align=left width="1%"></TD>
     <TD align=left width="5%"></TD>
     <TD align=left width="1%">&nbsp; </TD>
     <TD align=left width="1%"></TD>
     <TD align=left width="7%"></TD>
     <TD align=left width="1%">&nbsp; </TD>
     <TD align=left width="1%"></TD>
     <TD align=left width="4%"></TD>
     <TD align=left width="1%">&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="13%"><FONT face=sans-serif size=2>gain</FONT>&nbsp; </TD>
     <TD align=left width="1%"></TD>
     <TD align=right width="5%"><FONT face=sans-serif size=2>-</FONT> </TD>
     <TD align=left width="1%">&nbsp; </TD>
     <TD align=left width="1%"></TD>
     <TD align=right width="7%"><FONT face=sans-serif size=2>-</FONT> </TD>
     <TD align=left width="1%">&nbsp; </TD>
     <TD align=left width="1%"></TD>
     <TD align=right width="4%"><FONT face=sans-serif size=2>-</FONT> </TD>
     <TD align=left width="1%">&nbsp; </TD>
     <TD align=left width="1%"></TD>
     <TD align=right width="5%"><FONT face=sans-serif size=2>-</FONT> </TD>
     <TD align=left width="1%">&nbsp; </TD>
     <TD align=left width="1%"></TD>
     <TD align=right width="6%"><FONT face=sans-serif size=2>-</FONT> </TD>
     <TD align=left width="1%">&nbsp; </TD>
     <TD align=left width="1%"></TD>
     <TD align=right width="6%"><FONT face=sans-serif size=2>-</FONT> </TD>
     <TD align=left width="1%">&nbsp; </TD>
     <TD align=left width="1%"></TD>
     <TD align=right width="5%"><FONT face=sans-serif size=2>(6.0</FONT> </TD>
     <TD align=left width="1%"><FONT face=sans-serif size=2>)</FONT>&nbsp; </TD>
     <TD align=left width="1%"></TD>
     <TD align=right width="7%"><FONT face=sans-serif size=2>(6.7</FONT> </TD>
     <TD align=left width="1%"><FONT face=sans-serif size=2>)</FONT>&nbsp; </TD>
     <TD align=left width="1%"></TD>
     <TD align=right width="4%"><FONT face=sans-serif size=2>(0.02</FONT> </TD>
     <TD align=left width="1%"><FONT face=sans-serif size=2>)</FONT>&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="13%"><FONT face=sans-serif size=2>Tax recoveries</FONT>&nbsp; </TD>
     <TD align=left width="1%"></TD>
     <TD align=right width="5%"><FONT face=sans-serif size=2>-</FONT> </TD>
     <TD align=left width="1%">&nbsp; </TD>
     <TD align=left width="1%"></TD>
     <TD align=right width="7%"><FONT face=sans-serif size=2>(2.0</FONT> </TD>
     <TD align=left width="1%"><FONT face=sans-serif size=2>)</FONT>&nbsp; </TD>
     <TD align=left width="1%"></TD>
     <TD align=right width="4%"><FONT face=sans-serif size=2>(0.01</FONT> </TD>
     <TD align=left width="1%"><FONT face=sans-serif size=2>)</FONT>&nbsp; </TD>
     <TD align=left width="1%"></TD>
     <TD align=right width="5%"><FONT face=sans-serif size=2>-</FONT> </TD>
     <TD align=left width="1%">&nbsp; </TD>
     <TD align=left width="1%"></TD>
     <TD align=right width="6%"><FONT face=sans-serif size=2>(9.0</FONT> </TD>
     <TD align=left width="1%"><FONT face=sans-serif size=2>)</FONT>&nbsp; </TD>
     <TD align=left width="1%"></TD>
     <TD align=right width="6%"><FONT face=sans-serif size=2>(0.03</FONT> </TD>
     <TD align=left width="1%"><FONT face=sans-serif size=2>)</FONT>&nbsp; </TD>
     <TD align=left width="1%"></TD>
     <TD align=right width="5%"><FONT face=sans-serif size=2>-</FONT> </TD>
     <TD align=left width="1%">&nbsp; </TD>
     <TD align=left width="1%"></TD>
     <TD align=right width="7%"><FONT face=sans-serif size=2>-</FONT> </TD>
     <TD align=left width="1%">&nbsp; </TD>
     <TD align=left width="1%"></TD>
     <TD align=right width="4%"><FONT face=sans-serif size=2>-</FONT> </TD>
     <TD align=left width="1%">&nbsp; </TD></TR>
<TR>
     <TD width="80%" colSpan=28>
<HR noShade SIZE=1>
</TD></TR>
<TR vAlign=bottom>
     <TD align=left width="13%"><FONT face=sans-serif size=2>Earnings from</FONT>&nbsp; </TD>
     <TD align=left width="1%"></TD>
     <TD align=left width="5%"></TD>
     <TD align=left width="1%">&nbsp; </TD>
     <TD align=left width="1%"></TD>
     <TD align=left width="7%"></TD>
     <TD align=left width="1%">&nbsp; </TD>
     <TD align=left width="1%"></TD>
     <TD align=left width="4%"></TD>
     <TD align=left width="1%">&nbsp; </TD>
     <TD align=left width="1%"></TD>
     <TD align=left width="5%"></TD>
     <TD align=left width="1%">&nbsp; </TD>
     <TD align=left width="1%"></TD>
     <TD align=left width="6%"></TD>
     <TD align=left width="1%">&nbsp; </TD>
     <TD align=left width="1%"></TD>
     <TD align=left width="6%"></TD>
     <TD align=left width="1%">&nbsp; </TD>
     <TD align=left width="1%"></TD>
     <TD align=left width="5%"></TD>
     <TD align=left width="1%">&nbsp; </TD>
     <TD align=left width="1%"></TD>
     <TD align=left width="7%"></TD>
     <TD align=left width="1%">&nbsp; </TD>
     <TD align=left width="1%"></TD>
     <TD align=left width="4%"></TD>
     <TD align=left width="1%">&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="13%"><FONT face=sans-serif size=2>continuing operations</FONT>&nbsp; </TD>
     <TD align=left width="1%"></TD>
     <TD align=left width="5%"></TD>
     <TD align=left width="1%">&nbsp; </TD>
     <TD align=left width="1%"></TD>
     <TD align=left width="7%"></TD>
     <TD align=left width="1%">&nbsp; </TD>
     <TD align=left width="1%"></TD>
     <TD align=left width="4%"></TD>
     <TD align=left width="1%">&nbsp; </TD>
     <TD align=left width="1%"></TD>
     <TD align=left width="5%"></TD>
     <TD align=left width="1%">&nbsp; </TD>
     <TD align=left width="1%"></TD>
     <TD align=left width="6%"></TD>
     <TD align=left width="1%">&nbsp; </TD>
     <TD align=left width="1%"></TD>
     <TD align=left width="6%"></TD>
     <TD align=left width="1%">&nbsp; </TD>
     <TD align=left width="1%"></TD>
     <TD align=left width="5%"></TD>
     <TD align=left width="1%">&nbsp; </TD>
     <TD align=left width="1%"></TD>
     <TD align=left width="7%"></TD>
     <TD align=left width="1%">&nbsp; </TD>
     <TD align=left width="1%"></TD>
     <TD align=left width="4%"></TD>
     <TD align=left width="1%">&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="13%"><FONT face=sans-serif size=2>before non-recurring</FONT>&nbsp; </TD>
     <TD align=left width="1%"></TD>
     <TD align=left width="5%"></TD>
     <TD align=left width="1%">&nbsp; </TD>
     <TD align=left width="1%"></TD>
     <TD align=left width="7%"></TD>
     <TD align=left width="1%">&nbsp; </TD>
     <TD align=left width="1%"></TD>
     <TD align=left width="4%"></TD>
     <TD align=left width="1%">&nbsp; </TD>
     <TD align=left width="1%"></TD>
     <TD align=left width="5%"></TD>
     <TD align=left width="1%">&nbsp; </TD>
     <TD align=left width="1%"></TD>
     <TD align=left width="6%"></TD>
     <TD align=left width="1%">&nbsp; </TD>
     <TD align=left width="1%"></TD>
     <TD align=left width="6%"></TD>
     <TD align=left width="1%">&nbsp; </TD>
     <TD align=left width="1%"></TD>
     <TD align=left width="5%"></TD>
     <TD align=left width="1%">&nbsp; </TD>
     <TD align=left width="1%"></TD>
     <TD align=left width="7%"></TD>
     <TD align=left width="1%">&nbsp; </TD>
     <TD align=left width="1%"></TD>
     <TD align=left width="4%"></TD>
     <TD align=left width="1%">&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="13%"><FONT face=sans-serif size=2>items</FONT>&nbsp; </TD>
     <TD align=left width="1%"></TD>
     <TD align=left width="5%"></TD>
     <TD align=left width="1%">&nbsp; </TD>
     <TD align=left width="1%"></TD>
     <TD align=left width="7%"></TD>
     <TD align=left width="1%">&nbsp; </TD>
     <TD align=left width="1%"></TD>
     <TD align=left width="4%"></TD>
     <TD align=left width="1%">&nbsp; </TD>
     <TD align=left width="1%"></TD>
     <TD align=left width="5%"></TD>
     <TD align=left width="1%">&nbsp; </TD>
     <TD align=left width="1%"></TD>
     <TD align=left width="6%"></TD>
     <TD align=left width="1%">&nbsp; </TD>
     <TD align=left width="1%"></TD>
     <TD align=left width="6%"></TD>
     <TD align=left width="1%">&nbsp; </TD>
     <TD align=left width="1%"></TD>
     <TD align=left width="5%"></TD>
     <TD align=left width="1%">&nbsp; </TD>
     <TD align=left width="1%"></TD>
     <TD align=left width="7%"></TD>
     <TD align=left width="1%">&nbsp; </TD>
     <TD align=left width="1%"></TD>
     <TD align=left width="4%"></TD>
     <TD align=left width="1%">&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="13%"><FONT face=sans-serif size=2>(non-GAAP measure)</FONT>&nbsp; </TD>
     <TD align=right width="1%"><FONT face=sans-serif size=2>$</FONT> </TD>
     <TD align=right width="5%"><FONT face=sans-serif size=2>44.8</FONT> </TD>
     <TD align=left width="1%">&nbsp; </TD>
     <TD align=right width="1%"><FONT face=sans-serif size=2>$</FONT> </TD>
     <TD align=right width="7%"><FONT face=sans-serif size=2>31.3</FONT> </TD>
     <TD align=left width="1%">&nbsp; </TD>
     <TD align=right width="1%"><FONT face=sans-serif size=2>$</FONT> </TD>
     <TD align=right width="4%"><FONT face=sans-serif size=2>0.12</FONT> </TD>
     <TD align=left width="1%">&nbsp; </TD>
     <TD align=right width="1%"><FONT face=sans-serif size=2>$</FONT> </TD>
     <TD align=right width="5%"><FONT face=sans-serif size=2>32.1</FONT> </TD>
     <TD align=left width="1%">&nbsp; </TD>
     <TD align=right width="1%"><FONT face=sans-serif size=2>$</FONT> </TD>
     <TD align=right width="6%"><FONT face=sans-serif size=2>23.2</FONT> </TD>
     <TD align=left width="1%">&nbsp; </TD>
     <TD align=right width="1%"><FONT face=sans-serif size=2>$</FONT> </TD>
     <TD align=right width="6%"><FONT face=sans-serif size=2>0.09</FONT> </TD>
     <TD align=left width="1%">&nbsp; </TD>
     <TD align=right width="1%"><FONT face=sans-serif size=2>$</FONT> </TD>
     <TD align=right width="5%"><FONT face=sans-serif size=2>31.9</FONT> </TD>
     <TD align=left width="1%">&nbsp; </TD>
     <TD align=right width="1%"><FONT face=sans-serif size=2>$</FONT> </TD>
     <TD align=right width="7%"><FONT face=sans-serif size=2>19.9</FONT> </TD>
     <TD align=left width="1%">&nbsp; </TD>
     <TD align=right width="1%"><FONT face=sans-serif size=2>$</FONT> </TD>
     <TD align=right width="4%"><FONT face=sans-serif size=2>0.08</FONT> </TD>
     <TD align=left width="1%">&nbsp; </TD></TR>
<TR>
     <TD width="80%" colSpan=28>
<HR noShade SIZE=1>
</TD></TR>
<TR vAlign=bottom>
     <TD align=left width="13%">&nbsp;<B><FONT face=sans-serif size=2>Restructuring plan</FONT></B>&nbsp; </TD>
     <TD align=left width="1%"></TD>
     <TD align=left width="5%"></TD>
     <TD align=left width="1%">&nbsp; </TD>
     <TD align=left width="1%"></TD>
     <TD align=left width="7%"></TD>
     <TD align=left width="1%">&nbsp; </TD>
     <TD align=left width="1%"></TD>
     <TD align=left width="4%"></TD>
     <TD align=left width="1%">&nbsp; </TD>
     <TD align=left width="1%"></TD>
     <TD align=left width="5%"></TD>
     <TD align=left width="1%">&nbsp; </TD>
     <TD align=left width="1%"></TD>
     <TD align=left width="6%"></TD>
     <TD align=left width="1%">&nbsp; </TD>
     <TD align=left width="1%"></TD>
     <TD align=left width="6%"></TD>
     <TD align=left width="1%">&nbsp; </TD>
     <TD align=left width="1%"></TD>
     <TD align=left width="5%"></TD>
     <TD align=left width="1%">&nbsp; </TD>
     <TD align=left width="1%"></TD>
     <TD align=left width="7%"></TD>
     <TD align=left width="1%">&nbsp; </TD>
     <TD align=left width="1%"></TD>
     <TD align=left width="4%"></TD>
     <TD align=left width="1%">&nbsp; </TD></TR></TABLE><BR>
<P align=left><FONT face=sans-serif size=2>We incurred $4.7 million in costs this quarter that were mostly related to:</FONT></P>
<UL>
<LI><FONT face=sans-serif size=2>continuing to redeploy assets in the TS/C segment</FONT>
<LI><FONT face=sans-serif size=2>finalizing the reduction of our Montreal facilities</FONT>
<LI><FONT face=sans-serif size=2>the continued deployment of our ERP project</FONT> </LI></UL>
<P align=left><FONT face=sans-serif size=2>The last simulator that was affected by the restructuring in the Benelux this quarter was ready for training. Other simulators will be relocated in Dallas, Sao Paulo and Spain in the coming months. </FONT></P>
<P align=left><FONT face=sans-serif size=2>We are well underway with the expansion and conversion of our Burgess Hill (UK) facility from a military operation to mainly a civil operation. The expanded facility will host eight FFS bays. We expect the work to be completed by the fall of 2006. </FONT></P>
<P align=left><FONT face=sans-serif size=2>We have moved forward with our Spanish partner, Iberia Lineas Aereas de Espana S.A. (Iberia) on our consolidation plan. The Alcala training centre will be closed once the expansion of the Barajas training centre is completed and all FFSs have been redeployed. We expect the Barajas training centre to be fully operational by the end of fiscal 2007. </FONT></P>
<P align=left><FONT face=sans-serif size=2>15</FONT></P>
<HR align=center width="100%" noShade SIZE=2>

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<A name="page_23"></A>
<P align=left><B><FONT face=sans-serif size=2>MANAGEMENT&#146;S DISCUSSION AND ANALYSIS</FONT></B><BR>
</P>
<P align=left><FONT face=sans-serif size=2>FIRST QUARTER REPORT 2007</FONT><BR>
</P>
<P align=left><FONT face=sans-serif size=2>We will close the secondary Dallas training centre when the North East training centre is complete, which is expected in late calendar 2006. Our redeployment strategy will be complete once this centre is closed. </FONT></P>
<P align=left><FONT face=sans-serif size=2>During the rest of fiscal 2007, we will continue to:</FONT><BR>
</P>
<UL>
<LI><FONT face=sans-serif size=2>Review our product and services portfolio to deliver solutions focused on the needs of our customers.</FONT>
<LI><FONT face=sans-serif size=2>Develop processes aimed at creating innovation that will allow us to systematically extend our</FONT> <FONT face=sans-serif size=2>capabilities and technology into new markets.</FONT>
<LI><FONT face=sans-serif size=2>Incur some additional costs to re-engineer business processes as we implement our enterprise</FONT> <FONT face=sans-serif size=2>resource planning (ERP) system.</FONT> </LI></UL>
<P align=left><B><FONT face=sans-serif size=2>Licence and release of claims payment &#150; Landmark Consortium </FONT></B></P>
<P align=left><FONT face=sans-serif size=2>As a member of the Landmark Consortium (formed to pursue the AVTS project), we licensed the use of our intellectual property in relation to the AVTS project to the UK Ministry of Defence (the </FONT><I><FONT face=sans-serif size=2>Authority</FONT></I><FONT face=sans-serif size=2>) this quarter. The contract also provides for a release by all Landmark Consortium members of all claims and potential claims they might make against the Authority relating to the change in the approach to procurement for the AVTS program. CAE&#146;s share of the contract is valued at &#163;4.2 million ($8.8 million). </FONT></P>
<P align=left><FONT face=sans-serif size=2>We received the payment during the quarter. Of this, we recorded &#163;2.1 million ($4.4 million) as a non-recurring item because it was related to the release of claims. We recorded the remaining &#163;2.1 million ($4.4 million), which related to a licence of intellectual property, in the corresponding Military segments. </FONT></P>
<P align=left><B><FONT face=sans-serif size=2>Write-down of deferred bid costs</FONT></B><BR>
</P>
<P align=left><FONT face=sans-serif size=2>In the first quarter of fiscal 2006, we wrote down deferred bid costs (incurred post selection) amounting to $5.9 million accumulated on major military programs for which we were selected and for which subsequent to selection the likelihood of success was significantly reduced. Of the $5.9 million, $4.4 million was related to the AVTS program. </FONT></P>
<P align=left><B><FONT face=sans-serif size=2>Foreign exchange gain</FONT></B><BR>
</P>
<P align=left><FONT face=sans-serif size=2>We reduced the capitalization of some of our self-sustaining subsidiaries in the first quarter of 2006, and transferred the corresponding amount of foreign exchange gain from the currency translation adjustment account to the statement of earnings. This resulted in a non-recurring pre-tax gain of $6.0 million.</FONT></P>
<P align=left><B><FONT face=sans-serif size=2>Tax recoveries</FONT></B></P>
<P align=left><FONT face=sans-serif size=2>We considered the following tax recoveries to be non-recurring because they were not part of our day-to-day operations: </FONT></P>
<UL>
<LI><FONT face=sans-serif size=2>We reduced the valuation allowance on net operating losses in the UK, which allowed us to recognize</FONT> <FONT face=sans-serif size=2>$2.0 million in tax assets during this first quarter.</FONT>
<LI><FONT face=sans-serif size=2>We reduced the valuation allowance on our net operating losses in the US, along with other</FONT> <FONT face=sans-serif size=2>recoveries, which allowed us to recognize $9.0 million in tax asset during the fourth quarter last year.</FONT> </LI></UL>
<P align=left><FONT face=sans-serif size=2>16</FONT></P>
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<BR>
<BR>

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<A name="page_24"></A>
<P align=left><B><FONT face=sans-serif size=2>MANAGEMENT&#146;S DISCUSSION AND ANALYSIS</FONT></B><BR>
</P>
<P align=left><FONT face=sans-serif size=2>FIRST QUARTER REPORT 2007</FONT><BR>
</P>
<P align=left><FONT face=sans-serif size=2>4.3 CONSOLIDATED ORDERS AND BACKLOG </FONT></P>
<P align=left><FONT face=sans-serif size=2>Backlog is a non-GAAP measure that tells us the full value of orders we&#146;ve received but have not yet delivered. </FONT></P>
<UL>
<LI><FONT face=sans-serif size=2>For the SP/C, SP/M and TS/M segments, we consider an item part of our backlog when we have a</FONT> <FONT face=sans-serif size=2>legally binding commercial agreement with a client that includes enough detail about each party&#146;s</FONT> <FONT face=sans-serif size=2>obligations to form the basis for a contract or an order.</FONT>
<LI><FONT face=sans-serif size=2>Military contracts are usually long-term but must be renewed each year. For the SP/M and TS/M</FONT> <FONT face=sans-serif size=2>segments, we only include a contract item in backlog when the customer has authorized and received</FONT> <FONT face=sans-serif size=2>financing for it.</FONT>
<LI><FONT face=sans-serif size=2>For the TS/C segment, we include revenues from customers with both long-term and short-term</FONT> <FONT face=sans-serif size=2>contracts when these customers commit to paying us training fees, or when we reasonably expect</FONT> <FONT face=sans-serif size=2>them from current customers.</FONT> </LI></UL>
<TABLE cellSpacing=0 cellPadding=0 border=0>
<TR vAlign=bottom>
     <TD align=left width="52%"><B><FONT face=sans-serif size=2>Change in backlog</FONT></B>&nbsp; </TD>
     <TD align=left width="23%">&nbsp; </TD>
     <TD align=left width="19%"></TD>
     <TD align=left width="4%">&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="52%"><FONT face=sans-serif size=2>(millions)</FONT>&nbsp; </TD>
     <TD align=left width="23%">&nbsp; </TD>
     <TD align=left width="19%"></TD>
     <TD align=left width="4%">&nbsp; </TD></TR>
<TR>
     <TD width="98%" colSpan=4>
<HR noShade SIZE=1>
</TD></TR>
<TR vAlign=bottom>
     <TD align=left width="52%"><FONT face=sans-serif size=2>Backlog, March 31, 2006</FONT>&nbsp; </TD>
     <TD align=right width="23%"><FONT face=sans-serif size=2>$</FONT>&nbsp; </TD>
     <TD align=right width="19%"><FONT face=sans-serif size=2>2,460.0</FONT> </TD>
     <TD align=left width="4%">&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="52%"><FONT face=sans-serif size=2>+ orders this quarter</FONT>&nbsp; </TD>
     <TD align=left width="23%">&nbsp; </TD>
     <TD align=right width="19%"><FONT face=sans-serif size=2>296.7</FONT> </TD>
     <TD align=left width="4%">&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="52%"><FONT face=sans-serif size=2>- revenue this quarter</FONT>&nbsp; </TD>
     <TD align=left width="23%">&nbsp; </TD>
     <TD align=right width="19%"><FONT face=sans-serif size=2>(301.8</FONT> </TD>
     <TD align=left width="4%"><FONT face=sans-serif size=2>)</FONT>&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="52%"><FONT face=sans-serif size=2>+/- adjustments (mainly FX)</FONT>&nbsp; </TD>
     <TD align=left width="23%">&nbsp; </TD>
     <TD align=right width="19%"><FONT face=sans-serif size=2>(21.7</FONT> </TD>
     <TD align=left width="4%"><FONT face=sans-serif size=2>)</FONT>&nbsp; </TD></TR>
<TR>
     <TD width="98%" colSpan=4>
<HR noShade SIZE=1>
</TD></TR>
<TR vAlign=bottom>
     <TD align=left width="52%"><FONT face=sans-serif size=2>Backlog, June 30, 2006</FONT>&nbsp; </TD>
     <TD align=right width="23%"><FONT face=sans-serif size=2>$</FONT>&nbsp; </TD>
     <TD align=right width="19%"><FONT face=sans-serif size=2>2,433.2</FONT> </TD>
     <TD align=left width="4%">&nbsp; </TD></TR>
<TR>
     <TD width="98%" colSpan=4>
<HR noShade SIZE=1>
</TD></TR></TABLE><BR>
<P align=left><FONT face=sans-serif size=2>The book-to-sales ratio for the quarter was 0.98x. On a last twelve-month basis, the ratio was 1.04x.</FONT></P>
<P align=left><FONT face=sans-serif size=2>You will find more detail in </FONT><I><FONT face=sans-serif size=2>Results by segment</FONT></I><FONT face=sans-serif size=2>, below. </FONT></P>
<P align=left><FONT face=sans-serif size=2>17</FONT></P>
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<BR>
<BR>

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<A name="page_25"></A>
<P align=left><B><FONT face=sans-serif size=2>MANAGEMENT&#146;S DISCUSSION AND ANALYSIS</FONT></B><BR>
</P>
<P align=left><FONT face=sans-serif size=2>FIRST QUARTER REPORT 2007</FONT><BR>
</P>
<P align=left><B><FONT face=sans-serif size=2>5.</FONT></B><FONT face=sans-serif size=2> </FONT><B><FONT face=sans-serif size=2>RESULTS BY SEGMENT</FONT></B><BR>
</P>
<P align=left><FONT face=sans-serif size=2>We manage our business and report our results in four segments:</FONT></P>
<P align=left><FONT face=sans-serif size=2>Civil segments:</FONT><BR>
</P>
<UL>
<LI><FONT face=sans-serif size=2>Simulation Products/Civil (SP/C)</FONT>
<LI><FONT face=sans-serif size=2>Training &amp; Services/Civil (TS/C)</FONT> </LI></UL>
<P align=left><FONT face=sans-serif size=2>Military segments:</FONT><BR>
</P>
<UL>
<LI><FONT face=sans-serif size=2>Simulation Products/Military (SP/M)</FONT>
<LI><FONT face=sans-serif size=2>Training &amp; Services/Military (TS/M)</FONT> </LI></UL>
<P align=left><FONT face=sans-serif size=2>The SP/C and SP/M segments operate as an integrated organization that shares substantially all engineering, development, global procurement, program management and manufacturing functions. </FONT></P>
<P align=left><FONT face=sans-serif size=2>Transactions between segments are mainly transfers of simulators from SP/C to TS/C and are recorded at cost. </FONT></P>
<P align=left><FONT face=sans-serif size=2>If we can measure a segment&#146;s use of jointly used assets, costs and liabilities (mostly corporate costs), we allocate them to the segment in that proportion. If we cannot measure a segment&#146;s use, we allocate in proportion to the segment&#146;s cost of sales. </FONT></P>
<TABLE cellSpacing=0 cellPadding=0 border=0>
<TR vAlign=bottom>
     <TD align=left width="33%"><FONT face=sans-serif size=2>KEY PERFORMANCE INDICATORS</FONT>&nbsp; </TD>
     <TD align=left width="5%">&nbsp; </TD>
     <TD align=left width="10%"></TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=left width="10%"></TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=left width="10%"></TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=left width="9%"></TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=left width="8%">&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="33%"><B><FONT face=sans-serif size=2>Segment operating income</FONT></B>&nbsp; </TD>
     <TD align=left width="5%">&nbsp; </TD>
     <TD align=left width="10%"></TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=left width="10%"></TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=left width="10%"></TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=left width="9%"></TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=left width="8%">&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="33%"><FONT face=sans-serif size=2>(millions)</FONT>&nbsp; </TD>
     <TD align=left width="5%">&nbsp; </TD>
     <TD align=right width="10%"><FONT face=sans-serif size=2>Q1-2007</FONT> </TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=right width="10%"><FONT face=sans-serif size=2>Q4-2006</FONT> </TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=right width="10%"><FONT face=sans-serif size=2>Q3-2006</FONT> </TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=right width="9%"><FONT face=sans-serif size=2>Q2-2006</FONT> </TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=right width="8%"><FONT face=sans-serif size=2>Q1-2006</FONT>&nbsp; </TD></TR>
<TR>
     <TD width="93%" colSpan=11>
<HR noShade SIZE=1>
</TD></TR>
<TR vAlign=bottom>
     <TD align=left width="33%"><I><FONT face=sans-serif size=2>Civil segments</FONT></I>&nbsp; </TD>
     <TD align=left width="5%">&nbsp; </TD>
     <TD align=left width="10%"></TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=left width="10%"></TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=left width="10%"></TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=left width="9%"></TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=left width="8%">&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="33%"><FONT face=sans-serif size=2>Simulation Products/Civil</FONT>&nbsp; </TD>
     <TD align=left width="5%"><FONT face=sans-serif size=2>$</FONT>&nbsp; </TD>
     <TD align=right width="10%"><FONT face=sans-serif size=2>11.0</FONT> </TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=right width="10%"><FONT face=sans-serif size=2>9.3</FONT> </TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=right width="10%"><FONT face=sans-serif size=2>10.4</FONT> </TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=right width="9%"><FONT face=sans-serif size=2>3.4</FONT> </TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=right width="8%"><FONT face=sans-serif size=2>7.1</FONT>&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="33%">&nbsp; </TD>
     <TD align=left width="5%"><I><FONT face=sans-serif size=2>%</FONT></I>&nbsp; </TD>
     <TD align=right width="10%"><I><FONT face=sans-serif size=2>14.8</FONT></I> </TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=right width="10%"><I><FONT face=sans-serif size=2>11.9</FONT></I> </TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=right width="10%"><I><FONT face=sans-serif size=2>16.5</FONT></I> </TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=right width="9%"><I><FONT face=sans-serif size=2>6.1</FONT></I> </TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=right width="8%"><I><FONT face=sans-serif size=2>11.8</FONT></I>&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="33%"><FONT face=sans-serif size=2>Training &amp; Services/Civil</FONT>&nbsp; </TD>
     <TD align=left width="5%"><FONT face=sans-serif size=2>$</FONT>&nbsp; </TD>
     <TD align=right width="10%"><FONT face=sans-serif size=2>18.4</FONT> </TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=right width="10%"><FONT face=sans-serif size=2>15.1</FONT> </TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=right width="10%"><FONT face=sans-serif size=2>14.3</FONT> </TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=right width="9%"><FONT face=sans-serif size=2>11.6</FONT> </TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=right width="8%"><FONT face=sans-serif size=2>16.9</FONT>&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="33%">&nbsp; </TD>
     <TD align=left width="5%"><I><FONT face=sans-serif size=2>%</FONT></I>&nbsp; </TD>
     <TD align=right width="10%"><I><FONT face=sans-serif size=2>22.0</FONT></I> </TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=right width="10%"><I><FONT face=sans-serif size=2>18.6</FONT></I> </TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=right width="10%"><I><FONT face=sans-serif size=2>18.3</FONT></I> </TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=right width="9%"><I><FONT face=sans-serif size=2>14.6</FONT></I> </TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=right width="8%"><I><FONT face=sans-serif size=2>20.2</FONT></I>&nbsp; </TD></TR>
<TR>
     <TD width="93%" colSpan=11>
<HR noShade SIZE=1>
</TD></TR>
<TR vAlign=bottom>
     <TD align=left width="33%"><I><FONT face=sans-serif size=2>Military segments</FONT></I>&nbsp; </TD>
     <TD align=left width="5%">&nbsp; </TD>
     <TD align=left width="10%"></TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=left width="10%"></TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=left width="10%"></TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=left width="9%"></TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=left width="8%">&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="33%"><FONT face=sans-serif size=2>Simulation Products/Military</FONT>&nbsp; </TD>
     <TD align=left width="5%"><FONT face=sans-serif size=2>$</FONT>&nbsp; </TD>
     <TD align=right width="10%"><FONT face=sans-serif size=2>11.2</FONT> </TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=right width="10%"><FONT face=sans-serif size=2>6.9</FONT> </TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=right width="10%"><FONT face=sans-serif size=2>6.3</FONT> </TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=right width="9%"><FONT face=sans-serif size=2>9.7</FONT> </TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=right width="8%"><FONT face=sans-serif size=2>4.8</FONT>&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="33%">&nbsp; </TD>
     <TD align=left width="5%"><I><FONT face=sans-serif size=2>%</FONT></I>&nbsp; </TD>
     <TD align=right width="10%"><I><FONT face=sans-serif size=2>11.7</FONT></I> </TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=right width="10%"><I><FONT face=sans-serif size=2>8.9</FONT></I> </TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=right width="10%"><I><FONT face=sans-serif size=2>7.6</FONT></I> </TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=right width="9%"><I><FONT face=sans-serif size=2>10.3</FONT></I> </TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=right width="8%"><I><FONT face=sans-serif size=2>6.6</FONT></I>&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="33%"><FONT face=sans-serif size=2>Training &amp; Services/Military</FONT>&nbsp; </TD>
     <TD align=left width="5%"><FONT face=sans-serif size=2>$</FONT>&nbsp; </TD>
     <TD align=right width="10%"><FONT face=sans-serif size=2>11.6</FONT> </TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=right width="10%"><FONT face=sans-serif size=2>3.3</FONT> </TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=right width="10%"><FONT face=sans-serif size=2>8.4</FONT> </TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=right width="9%"><FONT face=sans-serif size=2>5.4</FONT> </TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=right width="8%"><FONT face=sans-serif size=2>2.0</FONT>&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="33%">&nbsp; </TD>
     <TD align=left width="5%"><I><FONT face=sans-serif size=2>%</FONT></I>&nbsp; </TD>
     <TD align=right width="10%"><I><FONT face=sans-serif size=2>24.1</FONT></I> </TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=right width="10%"><I><FONT face=sans-serif size=2>6.9</FONT></I> </TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=right width="10%"><I><FONT face=sans-serif size=2>15.9</FONT></I> </TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=right width="9%"><I><FONT face=sans-serif size=2>10.7</FONT></I> </TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=right width="8%"><I><FONT face=sans-serif size=2>4.1</FONT></I>&nbsp; </TD></TR>
<TR>
     <TD width="93%" colSpan=11>
<HR noShade SIZE=1>
</TD></TR>
<TR vAlign=bottom>
     <TD align=left width="33%"><FONT face=sans-serif size=2>Total segment operating income</FONT>&nbsp; </TD>
     <TD align=left width="5%"><FONT face=sans-serif size=2>$</FONT>&nbsp; </TD>
     <TD align=right width="10%"><FONT face=sans-serif size=2>52.2</FONT> </TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=right width="10%"><FONT face=sans-serif size=2>34.6</FONT> </TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=right width="10%"><FONT face=sans-serif size=2>39.4</FONT> </TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=right width="9%"><FONT face=sans-serif size=2>30.1</FONT> </TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=right width="8%"><FONT face=sans-serif size=2>30.8</FONT>&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="33%"><FONT face=sans-serif size=2>Other income (expenses)</FONT>&nbsp; </TD>
     <TD align=left width="5%"><FONT face=sans-serif size=2>$</FONT>&nbsp; </TD>
     <TD align=right width="10%"><FONT face=sans-serif size=2>(4.7</FONT> </TD>
     <TD align=left width="2%"><FONT face=sans-serif size=2>)</FONT>&nbsp; </TD>
     <TD align=right width="10%"><FONT face=sans-serif size=2>(25.1</FONT> </TD>
     <TD align=left width="2%"><FONT face=sans-serif size=2>)</FONT>&nbsp; </TD>
     <TD align=right width="10%"><FONT face=sans-serif size=2>(6.7</FONT> </TD>
     <TD align=left width="2%"><FONT face=sans-serif size=2>)</FONT>&nbsp; </TD>
     <TD align=right width="9%"><FONT face=sans-serif size=2>(2.0</FONT> </TD>
     <TD align=left width="2%"><FONT face=sans-serif size=2>)</FONT>&nbsp; </TD>
     <TD align=right width="8%"><FONT face=sans-serif size=2>5.1</FONT>&nbsp; </TD></TR>
<TR>
     <TD width="93%" colSpan=11>
<HR noShade SIZE=1>
</TD></TR>
<TR vAlign=bottom>
     <TD align=left width="33%"><FONT face=sans-serif size=2>EBIT</FONT>&nbsp; </TD>
     <TD align=left width="5%"><FONT face=sans-serif size=2>$</FONT>&nbsp; </TD>
     <TD align=right width="10%"><FONT face=sans-serif size=2>47.5</FONT> </TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=right width="10%"><FONT face=sans-serif size=2>9.5</FONT> </TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=right width="10%"><FONT face=sans-serif size=2>32.7</FONT> </TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=right width="9%"><FONT face=sans-serif size=2>28.1</FONT> </TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=right width="8%"><FONT face=sans-serif size=2>35.9</FONT>&nbsp; </TD></TR>
<TR>
     <TD width="93%" colSpan=11>
<HR noShade SIZE=1>
</TD></TR></TABLE><BR>
<P align=left><FONT face=sans-serif size=2>We use segment operating income to measure the profitability of our four operating segments, and to help us make decisions about allocating resources. We calculate segment operating income by using a segment&#146;s net earnings before other income, interest, income taxes and discontinued operations. This allows us to assess the profitability of a segment before the impact of things not specifically related to its performance.</FONT></P>
<P align=left><FONT face=sans-serif size=2>18</FONT></P>
<HR align=center width="100%" noShade SIZE=2>
<BR>

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<A name="page_26"></A>
<P align=left><B><FONT face=sans-serif size=2>MANAGEMENT&#146;S DISCUSSION AND ANALYSIS</FONT></B><BR>
</P>
<P align=left><FONT face=sans-serif size=2>FIRST QUARTER REPORT 2007</FONT><BR>
</P>
<TABLE cellSpacing=0 cellPadding=0 border=0>
<TR vAlign=bottom>
     <TD align=left width="29%"><B><FONT face=sans-serif size=2>Capital employed</FONT></B>&nbsp; </TD>
     <TD align=left width="9%">&nbsp; </TD>
     <TD align=left width="10%"></TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=left width="10%"></TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=left width="10%"></TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=left width="9%"></TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=left width="8%">&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="29%"><FONT face=sans-serif size=2>(millions)</FONT>&nbsp; </TD>
     <TD align=left width="9%">&nbsp; </TD>
     <TD align=right width="10%"><FONT face=sans-serif size=2>Q1-2007</FONT> </TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=right width="10%"><FONT face=sans-serif size=2>Q4-2006</FONT> </TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=right width="10%"><FONT face=sans-serif size=2>Q3-2006</FONT> </TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=right width="9%"><FONT face=sans-serif size=2>Q2-2006</FONT> </TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=right width="8%"><FONT face=sans-serif size=2>Q1-2006</FONT>&nbsp; </TD></TR>
<TR>
     <TD width="93%" colSpan=11>
<HR noShade SIZE=1>
</TD></TR>
<TR vAlign=bottom>
     <TD align=left width="29%"><I><FONT face=sans-serif size=2>Civil segments</FONT></I>&nbsp; </TD>
     <TD align=left width="9%">&nbsp; </TD>
     <TD align=left width="10%"></TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=left width="10%"></TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=left width="10%"></TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=left width="9%"></TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=left width="8%">&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="29%"><I><FONT face=sans-serif size=2>Simulation Products/Civil</FONT></I>&nbsp; </TD>
     <TD align=right width="9%"><FONT face=sans-serif size=2>$</FONT>&nbsp; </TD>
     <TD align=right width="10%"><FONT face=sans-serif size=2>(19.0</FONT> </TD>
     <TD align=left width="2%"><FONT face=sans-serif size=2>)</FONT>&nbsp; </TD>
     <TD align=right width="10%"><FONT face=sans-serif size=2>(37.7</FONT> </TD>
     <TD align=left width="2%"><FONT face=sans-serif size=2>)</FONT>&nbsp; </TD>
     <TD align=right width="10%"><FONT face=sans-serif size=2>(16.8</FONT> </TD>
     <TD align=left width="2%"><FONT face=sans-serif size=2>)</FONT>&nbsp; </TD>
     <TD align=right width="9%"><FONT face=sans-serif size=2>(6.4</FONT> </TD>
     <TD align=left width="2%"><FONT face=sans-serif size=2>)</FONT>&nbsp; </TD>
     <TD align=right width="8%"><FONT face=sans-serif size=2>24.3</FONT>&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="29%"><FONT face=sans-serif size=2>Training &amp; Services/Civil</FONT>&nbsp; </TD>
     <TD align=right width="9%"><FONT face=sans-serif size=2>$</FONT>&nbsp; </TD>
     <TD align=right width="10%"><FONT face=sans-serif size=2>618.7</FONT> </TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=right width="10%"><FONT face=sans-serif size=2>614.9</FONT> </TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=right width="10%"><FONT face=sans-serif size=2>610.3</FONT> </TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=right width="9%"><FONT face=sans-serif size=2>559.8</FONT> </TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=right width="8%"><FONT face=sans-serif size=2>578.9</FONT>&nbsp; </TD></TR>
<TR>
     <TD width="93%" colSpan=11>
<HR noShade SIZE=1>
</TD></TR>
<TR vAlign=bottom>
     <TD align=left width="29%"><I><FONT face=sans-serif size=2>Military segments</FONT></I>&nbsp; </TD>
     <TD align=left width="9%">&nbsp; </TD>
     <TD align=left width="10%"></TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=left width="10%"></TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=left width="10%"></TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=left width="9%"></TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=left width="8%">&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="29%"><FONT face=sans-serif size=2>Simulation Products/Military</FONT>&nbsp; </TD>
     <TD align=right width="9%"><FONT face=sans-serif size=2>$</FONT>&nbsp; </TD>
     <TD align=right width="10%"><FONT face=sans-serif size=2>48.0</FONT> </TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=right width="10%"><FONT face=sans-serif size=2>49.3</FONT> </TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=right width="10%"><FONT face=sans-serif size=2>61.7</FONT> </TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=right width="9%"><FONT face=sans-serif size=2>98.0</FONT> </TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=right width="8%"><FONT face=sans-serif size=2>115.9</FONT>&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="29%"><FONT face=sans-serif size=2>Training &amp; Services/Military</FONT>&nbsp; </TD>
     <TD align=right width="9%"><FONT face=sans-serif size=2>$</FONT>&nbsp; </TD>
     <TD align=right width="10%"><FONT face=sans-serif size=2>119.2</FONT> </TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=right width="10%"><FONT face=sans-serif size=2>111.5</FONT> </TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=right width="10%"><FONT face=sans-serif size=2>93.0</FONT> </TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=right width="9%"><FONT face=sans-serif size=2>105.8</FONT> </TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=right width="8%"><FONT face=sans-serif size=2>98.0</FONT>&nbsp; </TD></TR>
<TR>
     <TD width="93%" colSpan=11>
<HR noShade SIZE=1>
</TD></TR>
<TR vAlign=bottom>
     <TD align=left width="29%"><FONT face=sans-serif size=2>Total capital employed</FONT>&nbsp; </TD>
     <TD align=right width="9%"><FONT face=sans-serif size=2>$</FONT>&nbsp; </TD>
     <TD align=right width="10%"><FONT face=sans-serif size=2>766.9</FONT> </TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=right width="10%"><FONT face=sans-serif size=2>738.0</FONT> </TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=right width="10%"><FONT face=sans-serif size=2>748.2</FONT> </TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=right width="9%"><FONT face=sans-serif size=2>757.2</FONT> </TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=right width="8%"><FONT face=sans-serif size=2>817.1</FONT>&nbsp; </TD></TR>
<TR>
     <TD width="93%" colSpan=11>
<HR noShade SIZE=1>
</TD></TR></TABLE><BR>
<P align=left><FONT face=sans-serif size=2>We use capital employed to understand how much we are investing in our business. We calculate it by taking each segment&#146;s total assets (not including cash and cash equivalents, tax accounts and other non-operating assets), and subtracting total liabilities (not including tax accounts, long-term debt and its current portion, or other non-operating liabilities).</FONT></P>
<P align=left><FONT face=sans-serif size=2>5.1 CIVIL SEGMENTS </FONT><BR>
<BR>
<B><FONT face=sans-serif size=2>Simulation Products/Civil</FONT></B><BR>
</P>
<P align=left><FONT face=sans-serif size=2>SP/C was awarded the following contracts this quarter:</FONT></P>
<UL>
<LI><FONT face=sans-serif size=2>One ATR 72-500 FFS to Air Deccan</FONT>
<LI><FONT face=sans-serif size=2>One A320 FFS to Air Deccan</FONT>
<LI><FONT face=sans-serif size=2>One B777 FFS to Cathay Pacific</FONT>
<LI><FONT face=sans-serif size=2>One A320 FFS to Flight Simulation Company</FONT>
<LI><FONT face=sans-serif size=2>Two B737-800NG FFS to Flight Simulation Company</FONT>
<LI><FONT face=sans-serif size=2>One EMB-170 FFS to Flight Training Finance</FONT>
<LI><FONT face=sans-serif size=2>One B737 FFS to Ryanair</FONT> </LI></UL>
<TABLE cellSpacing=0 cellPadding=0 border=0>
<TR vAlign=bottom>
     <TD align=left width="49%" colSpan=3><FONT face=sans-serif size=2>The total order intake this quarter was eight FFS.</FONT> </TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=left width="10%"></TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=left width="10%"></TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=left width="9%"></TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=left width="8%">&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="33%"><B><FONT face=sans-serif size=2>Financial results</FONT></B>&nbsp; </TD>
     <TD align=left width="6%">&nbsp; </TD>
     <TD align=left width="10%"></TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=left width="10%"></TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=left width="10%"></TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=left width="9%"></TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=left width="8%">&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="33%"><FONT face=sans-serif size=2>(millions, except operating margins)</FONT>&nbsp; </TD>
     <TD align=left width="6%">&nbsp; </TD>
     <TD align=right width="10%"><FONT face=sans-serif size=2>Q1-2007</FONT> </TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=right width="10%"><FONT face=sans-serif size=2>Q4-2006</FONT> </TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=right width="10%"><FONT face=sans-serif size=2>Q3-2006</FONT> </TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=right width="9%"><FONT face=sans-serif size=2>Q2-2006</FONT> </TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=right width="8%"><FONT face=sans-serif size=2>Q1-2006</FONT>&nbsp; </TD></TR>
<TR>
     <TD width="94%" colSpan=11>
<HR noShade SIZE=1>
</TD></TR>
<TR vAlign=bottom>
     <TD align=left width="33%"><FONT face=sans-serif size=2>Revenue</FONT>&nbsp; </TD>
     <TD align=left width="6%"><FONT face=sans-serif size=2>$</FONT>&nbsp; </TD>
     <TD align=right width="10%"><FONT face=sans-serif size=2>74.2</FONT> </TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=right width="10%"><FONT face=sans-serif size=2>78.0</FONT> </TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=right width="10%"><FONT face=sans-serif size=2>63.0</FONT> </TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=right width="9%"><FONT face=sans-serif size=2>55.8</FONT> </TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=right width="8%"><FONT face=sans-serif size=2>60.2</FONT>&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="33%"><FONT face=sans-serif size=2>Segment operating income</FONT>&nbsp; </TD>
     <TD align=left width="6%"><FONT face=sans-serif size=2>$</FONT>&nbsp; </TD>
     <TD align=right width="10%"><FONT face=sans-serif size=2>11.0</FONT> </TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=right width="10%"><FONT face=sans-serif size=2>9.3</FONT> </TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=right width="10%"><FONT face=sans-serif size=2>10.4</FONT> </TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=right width="9%"><FONT face=sans-serif size=2>3.4</FONT> </TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=right width="8%"><FONT face=sans-serif size=2>7.1</FONT>&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="33%"><I><FONT face=sans-serif size=2>Operating margins</FONT></I>&nbsp; </TD>
     <TD align=left width="6%"><I><FONT face=sans-serif size=2>%</FONT></I>&nbsp; </TD>
     <TD align=right width="10%"><I><FONT face=sans-serif size=2>14.8</FONT></I> </TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=right width="10%"><I><FONT face=sans-serif size=2>11.9</FONT></I> </TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=right width="10%"><I><FONT face=sans-serif size=2>16.5</FONT></I> </TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=right width="9%"><I><FONT face=sans-serif size=2>6.1</FONT></I> </TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=right width="8%"><I><FONT face=sans-serif size=2>11.8</FONT></I>&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="33%"><FONT face=sans-serif size=2>Amortization &amp; depreciation</FONT>&nbsp; </TD>
     <TD align=left width="6%"><FONT face=sans-serif size=2>$</FONT>&nbsp; </TD>
     <TD align=right width="10%"><FONT face=sans-serif size=2>2.1</FONT> </TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=right width="10%"><FONT face=sans-serif size=2>2.2</FONT> </TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=right width="10%"><FONT face=sans-serif size=2>1.7</FONT> </TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=right width="9%"><FONT face=sans-serif size=2>5.3</FONT> </TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=right width="8%"><FONT face=sans-serif size=2>2.1</FONT>&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="33%"><FONT face=sans-serif size=2>Capital expenditures</FONT>&nbsp; </TD>
     <TD align=left width="6%"><FONT face=sans-serif size=2>$</FONT>&nbsp; </TD>
     <TD align=right width="10%"><FONT face=sans-serif size=2>8.2</FONT> </TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=right width="10%"><FONT face=sans-serif size=2>2.5</FONT> </TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=right width="10%"><FONT face=sans-serif size=2>2.0</FONT> </TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=right width="9%"><FONT face=sans-serif size=2>1.0</FONT> </TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=right width="8%"><FONT face=sans-serif size=2>0.2</FONT>&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="33%"><FONT face=sans-serif size=2>Capital employed</FONT>&nbsp; </TD>
     <TD align=left width="6%"><FONT face=sans-serif size=2>$</FONT>&nbsp; </TD>
     <TD align=right width="10%"><FONT face=sans-serif size=2>(19.0</FONT> </TD>
     <TD align=left width="2%"><FONT face=sans-serif size=2>)</FONT>&nbsp; </TD>
     <TD align=right width="10%"><FONT face=sans-serif size=2>(37.7</FONT> </TD>
     <TD align=left width="2%"><FONT face=sans-serif size=2>)</FONT>&nbsp; </TD>
     <TD align=right width="10%"><FONT face=sans-serif size=2>(16.8</FONT> </TD>
     <TD align=left width="2%"><FONT face=sans-serif size=2>)</FONT>&nbsp; </TD>
     <TD align=right width="9%"><FONT face=sans-serif size=2>(6.4</FONT> </TD>
     <TD align=left width="2%"><FONT face=sans-serif size=2>)</FONT>&nbsp; </TD>
     <TD align=right width="8%"><FONT face=sans-serif size=2>24.3</FONT>&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="33%"><FONT face=sans-serif size=2>Backlog</FONT>&nbsp; </TD>
     <TD align=left width="6%"><FONT face=sans-serif size=2>$</FONT>&nbsp; </TD>
     <TD align=right width="10%"><FONT face=sans-serif size=2>297.5</FONT> </TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=right width="10%"><FONT face=sans-serif size=2>284.4</FONT> </TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=right width="10%"><FONT face=sans-serif size=2>312.3</FONT> </TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=right width="9%"><FONT face=sans-serif size=2>280.3</FONT> </TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=right width="8%"><FONT face=sans-serif size=2>276.7</FONT>&nbsp; </TD></TR>
<TR>
     <TD width="94%" colSpan=11>
<HR noShade SIZE=1>
</TD></TR></TABLE><BR>
<P align=left><B><FONT face=sans-serif size=2>Revenue 5% lower than last quarter, but up by 23% year over year </FONT></B></P>
<P align=left><FONT face=sans-serif size=2>The sequential decrease in revenue results from an unusually high level of activity in the fourth quarter last year. The year-over-year increase of 23% was the result of a high level of recent orders, combined with a shorter production cycle. </FONT></P>
<P align=left><FONT face=sans-serif size=2>19</FONT></P>
<HR align=center width="100%" noShade SIZE=2>
<BR>
<BR>

<!--$$/page=-->
<A name="page_27"></A>
<P align=left><B><FONT face=sans-serif size=2>MANAGEMENT&#146;S DISCUSSION AND ANALYSIS</FONT></B><BR>
</P>
<P align=left><FONT face=sans-serif size=2>FIRST QUARTER REPORT 2007</FONT><BR>
</P>
<P align=left><B><FONT face=sans-serif size=2>Segment operating income up by 18% this quarter, and by 55% year over year </FONT></B></P>
<P align=left><FONT face=sans-serif size=2>Improvement in program execution is the main contributor to the higher segment operating income over both last quarter and year over year. We accelerated the amortization of some development costs related to image generators last quarter, which contributed to the sequential increase in segment operating income. </FONT></P>
<P align=left><B><FONT face=sans-serif size=2>Capital employed increased over last quarter </FONT></B></P>
<P align=left><FONT face=sans-serif size=2>This deterioration was mainly because of lower trade accounts payable and accruals, which were at a high level as at March 31, 2006. </FONT></P>
<TABLE cellSpacing=0 cellPadding=0 border=0>
<TR vAlign=bottom>
     <TD align=left width="68%"><B><FONT face=sans-serif size=2>Backlog up by 5% over last quarter</FONT></B>&nbsp; </TD>
     <TD align=left width="11%">&nbsp; </TD>
     <TD align=left width="15%"></TD>
     <TD align=left width="4%">&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="68%">&nbsp;<FONT face=sans-serif size=2>Backlog continuity schedule (amounts in millions)</FONT>&nbsp; </TD>
     <TD align=left width="11%">&nbsp; </TD>
     <TD align=left width="15%"></TD>
     <TD align=left width="4%">&nbsp; </TD></TR>
<TR>
     <TD width="68%">
<HR noShade SIZE=1>
</TD>
     <TD width="11%">
<HR noShade SIZE=2>
</TD>
     <TD width="19%" colSpan=2>
<HR noShade SIZE=1>
</TD></TR>
<TR vAlign=bottom>
     <TD align=left width="68%">&nbsp;<FONT face=sans-serif size=2>Backlog, March 31, 2006</FONT>&nbsp; </TD>
     <TD align=right width="11%"><FONT face=sans-serif size=2>$</FONT>&nbsp; </TD>
     <TD align=right width="15%"><FONT face=sans-serif size=2>284.4</FONT> </TD>
     <TD align=left width="4%">&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="68%">&nbsp;<FONT face=sans-serif size=2>+ orders for the period</FONT>&nbsp; </TD>
     <TD align=left width="11%">&nbsp; </TD>
     <TD align=right width="15%"><FONT face=sans-serif size=2>87.0</FONT> </TD>
     <TD align=left width="4%">&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="68%">&nbsp;<FONT face=sans-serif size=2>- revenue for the period</FONT>&nbsp; </TD>
     <TD align=left width="11%">&nbsp; </TD>
     <TD align=right width="15%"><FONT face=sans-serif size=2>(74.2</FONT> </TD>
     <TD align=left width="4%"><FONT face=sans-serif size=2>)</FONT>&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="68%">&nbsp;<FONT face=sans-serif size=2>+/- adjustments (mainly FX)</FONT>&nbsp; </TD>
     <TD align=left width="11%">&nbsp; </TD>
     <TD align=right width="15%"><FONT face=sans-serif size=2>0.3</FONT> </TD>
     <TD align=left width="4%">&nbsp; </TD></TR>
<TR>
     <TD width="98%" colSpan=4>
<HR noShade SIZE=1>
</TD></TR>
<TR vAlign=bottom>
     <TD align=left width="68%">&nbsp;<FONT face=sans-serif size=2>Backlog, June 30, 2006</FONT>&nbsp; </TD>
     <TD align=right width="11%"><FONT face=sans-serif size=2>$</FONT>&nbsp; </TD>
     <TD align=right width="15%"><FONT face=sans-serif size=2>297.5</FONT> </TD>
     <TD align=left width="4%">&nbsp; </TD></TR>
<TR>
     <TD width="98%" colSpan=4>
<HR noShade SIZE=1>
</TD></TR>
<TR vAlign=bottom>
     <TD align=left width="68%"><FONT face=sans-serif size=2>This quarter&#146;s book-to-sales ratio was 1.2x.</FONT>&nbsp; </TD>
     <TD align=left width="11%">&nbsp; </TD>
     <TD align=left width="15%"></TD>
     <TD align=left width="4%">&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="68%"><B><FONT face=sans-serif size=2>Training &amp; Services/Civil</FONT></B>&nbsp; </TD>
     <TD align=left width="11%">&nbsp; </TD>
     <TD align=left width="15%"></TD>
     <TD align=left width="4%">&nbsp; </TD></TR></TABLE><BR>
<P align=left><FONT face=sans-serif size=2>TS/C was awarded more than $110 million in contracts this quarter:</FONT></P>
<UL>
<LI><FONT face=sans-serif size=2>Over 50 new business aviation training contracts signed with clients including Reebok, Southwest</FONT> <FONT face=sans-serif size=2>Bell Communications, CHC Helicopters and the US Navy.</FONT>
<LI><FONT face=sans-serif size=2>Over 20 new commercial and regional aviation training contracts signed with airline operators from</FONT> <FONT face=sans-serif size=2>around the world.</FONT>
<LI><FONT face=sans-serif size=2>We were also successful in renewing a number of existing contracts.</FONT> </LI></UL>
<TABLE cellSpacing=0 cellPadding=0 border=0>
<TR vAlign=bottom>
     <TD align=left width="37%"><B><FONT face=sans-serif size=2>Financial results</FONT></B>&nbsp; </TD>
     <TD align=left width="6%">&nbsp; </TD>
     <TD align=left width="11%">&nbsp; </TD>
     <TD align=left width="11%">&nbsp; </TD>
     <TD align=left width="12%">&nbsp; </TD>
     <TD align=left width="11%">&nbsp; </TD>
     <TD align=left width="8%">&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="37%"><FONT face=sans-serif size=2>(millions, except operating margins)</FONT>&nbsp; </TD>
     <TD align=left width="6%">&nbsp; </TD>
     <TD align=right width="11%"><FONT face=sans-serif size=2>Q1-2007</FONT>&nbsp; </TD>
     <TD align=right width="11%"><FONT face=sans-serif size=2>Q4-2006</FONT>&nbsp; </TD>
     <TD align=right width="12%"><FONT face=sans-serif size=2>Q3-2006</FONT>&nbsp; </TD>
     <TD align=right width="11%"><FONT face=sans-serif size=2>Q2-2006</FONT>&nbsp; </TD>
     <TD align=right width="8%"><FONT face=sans-serif size=2>Q1-2006</FONT>&nbsp; </TD></TR>
<TR>
     <TD width="96%" colSpan=7>
<HR noShade SIZE=1>
</TD></TR>
<TR vAlign=bottom>
     <TD align=left width="37%"><FONT face=sans-serif size=2>Revenue</FONT>&nbsp; </TD>
     <TD align=left width="6%"><FONT face=sans-serif size=2>$</FONT>&nbsp; </TD>
     <TD align=right width="11%"><FONT face=sans-serif size=2>83.7</FONT>&nbsp; </TD>
     <TD align=right width="11%"><FONT face=sans-serif size=2>81.1</FONT>&nbsp; </TD>
     <TD align=right width="12%"><FONT face=sans-serif size=2>78.0</FONT>&nbsp; </TD>
     <TD align=right width="11%"><FONT face=sans-serif size=2>79.4</FONT>&nbsp; </TD>
     <TD align=right width="8%"><FONT face=sans-serif size=2>83.8</FONT>&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="37%"><FONT face=sans-serif size=2>Segment operating income</FONT>&nbsp; </TD>
     <TD align=left width="6%"><FONT face=sans-serif size=2>$</FONT>&nbsp; </TD>
     <TD align=right width="11%"><FONT face=sans-serif size=2>18.4</FONT>&nbsp; </TD>
     <TD align=right width="11%"><FONT face=sans-serif size=2>15.1</FONT>&nbsp; </TD>
     <TD align=right width="12%"><FONT face=sans-serif size=2>14.3</FONT>&nbsp; </TD>
     <TD align=right width="11%"><FONT face=sans-serif size=2>11.6</FONT>&nbsp; </TD>
     <TD align=right width="8%"><FONT face=sans-serif size=2>16.9</FONT>&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="37%"><I><FONT face=sans-serif size=2>Operating margins</FONT></I>&nbsp; </TD>
     <TD align=left width="6%"><I><FONT face=sans-serif size=2>%</FONT></I>&nbsp; </TD>
     <TD align=right width="11%"><I><FONT face=sans-serif size=2>22.0</FONT></I>&nbsp; </TD>
     <TD align=right width="11%"><I><FONT face=sans-serif size=2>18.6</FONT></I>&nbsp; </TD>
     <TD align=right width="12%"><I><FONT face=sans-serif size=2>18.3</FONT></I>&nbsp; </TD>
     <TD align=right width="11%"><I><FONT face=sans-serif size=2>14.6</FONT></I>&nbsp; </TD>
     <TD align=right width="8%"><I><FONT face=sans-serif size=2>20.2</FONT></I>&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="37%"><FONT face=sans-serif size=2>Amortization &amp; depreciation</FONT>&nbsp; </TD>
     <TD align=left width="6%"><FONT face=sans-serif size=2>$</FONT>&nbsp; </TD>
     <TD align=right width="11%"><FONT face=sans-serif size=2>10.6</FONT>&nbsp; </TD>
     <TD align=right width="11%"><FONT face=sans-serif size=2>10.7</FONT>&nbsp; </TD>
     <TD align=right width="12%"><FONT face=sans-serif size=2>11.8</FONT>&nbsp; </TD>
     <TD align=right width="11%"><FONT face=sans-serif size=2>10.3</FONT>&nbsp; </TD>
     <TD align=right width="8%"><FONT face=sans-serif size=2>10.5</FONT>&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="37%"><FONT face=sans-serif size=2>Capital expenditures</FONT>&nbsp; </TD>
     <TD align=left width="6%"><FONT face=sans-serif size=2>$</FONT>&nbsp; </TD>
     <TD align=right width="11%"><FONT face=sans-serif size=2>17.8</FONT>&nbsp; </TD>
     <TD align=right width="11%"><FONT face=sans-serif size=2>21.3</FONT>&nbsp; </TD>
     <TD align=right width="12%"><FONT face=sans-serif size=2>41.0</FONT>&nbsp; </TD>
     <TD align=right width="11%"><FONT face=sans-serif size=2>14.3</FONT>&nbsp; </TD>
     <TD align=right width="8%"><FONT face=sans-serif size=2>10.9</FONT>&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="37%"><FONT face=sans-serif size=2>Capital employed</FONT>&nbsp; </TD>
     <TD align=left width="6%"><FONT face=sans-serif size=2>$</FONT>&nbsp; </TD>
     <TD align=right width="11%"><FONT face=sans-serif size=2>618.7</FONT>&nbsp; </TD>
     <TD align=right width="11%"><FONT face=sans-serif size=2>614.9</FONT>&nbsp; </TD>
     <TD align=right width="12%"><FONT face=sans-serif size=2>610.3</FONT>&nbsp; </TD>
     <TD align=right width="11%"><FONT face=sans-serif size=2>559.8</FONT>&nbsp; </TD>
     <TD align=right width="8%"><FONT face=sans-serif size=2>578.9</FONT>&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="37%"><FONT face=sans-serif size=2>Backlog</FONT>&nbsp; </TD>
     <TD align=left width="6%"><FONT face=sans-serif size=2>$</FONT>&nbsp; </TD>
     <TD align=right width="11%"><FONT face=sans-serif size=2>817.6</FONT>&nbsp; </TD>
     <TD align=right width="11%"><FONT face=sans-serif size=2>809.0</FONT>&nbsp; </TD>
     <TD align=right width="12%"><FONT face=sans-serif size=2>805.2</FONT>&nbsp; </TD>
     <TD align=right width="11%"><FONT face=sans-serif size=2>830.4</FONT>&nbsp; </TD>
     <TD align=right width="8%"><FONT face=sans-serif size=2>831.7</FONT>&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="37%"><FONT face=sans-serif size=2>RSEU</FONT>&nbsp; </TD>
     <TD align=left width="6%">&nbsp; </TD>
     <TD align=right width="11%"><FONT face=sans-serif size=2>98</FONT>&nbsp; </TD>
     <TD align=right width="11%"><FONT face=sans-serif size=2>95</FONT>&nbsp; </TD>
     <TD align=right width="12%"><FONT face=sans-serif size=2>100</FONT>&nbsp; </TD>
     <TD align=right width="11%"><FONT face=sans-serif size=2>99</FONT>&nbsp; </TD>
     <TD align=right width="8%"><FONT face=sans-serif size=2>98</FONT>&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="37%"><FONT face=sans-serif size=2>FFS deployed</FONT>&nbsp; </TD>
     <TD align=left width="6%">&nbsp; </TD>
     <TD align=right width="11%"><FONT face=sans-serif size=2>110</FONT>&nbsp; </TD>
     <TD align=right width="11%"><FONT face=sans-serif size=2>109</FONT>&nbsp; </TD>
     <TD align=right width="12%"><FONT face=sans-serif size=2>108</FONT>&nbsp; </TD>
     <TD align=right width="11%"><FONT face=sans-serif size=2>108</FONT>&nbsp; </TD>
     <TD align=right width="8%"><FONT face=sans-serif size=2>108</FONT>&nbsp; </TD></TR>
<TR>
     <TD width="96%" colSpan=7>
<HR noShade SIZE=1>
</TD></TR></TABLE><BR>
<P align=left><B><FONT face=sans-serif size=2>Revenue up by 3% over last quarter and steady year over year </FONT></B></P>
<P align=left><FONT face=sans-serif size=2>The first quarter is traditionally a strong quarter for the TS/C business, and this year was no exception. Our customers tend to conduct more training in the first three months of our fiscal year, allowing pilots to be ready for the busy summer months. </FONT></P>
<P align=left><FONT face=sans-serif size=2>20</FONT></P>
<HR align=center width="100%" noShade SIZE=2>
<BR>
<BR>

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<A name="page_28"></A>
<P align=left><B><FONT face=sans-serif size=2>MANAGEMENT&#146;S DISCUSSION AND ANALYSIS</FONT></B><BR>
</P>
<P align=left><FONT face=sans-serif size=2>FIRST QUARTER REPORT 2007</FONT><BR>
</P>
<P align=left><FONT face=sans-serif size=2>Revenue was flat year over year, notwithstanding the appreciation of the Canadian dollar:</FONT></P>
<UL>
<LI><FONT face=sans-serif size=2>The Canadian dollar appreciated by approximately 10% against the Euro and the US dollar. Over</FONT> <FONT face=sans-serif size=2>94% of TS/C&#146;s sales and operating income are in currencies other than the Canadian dollar, which</FONT> <FONT face=sans-serif size=2>means that this segment&#146;s revenue is affected by changes in the value of the Canadian dollar against</FONT> <FONT face=sans-serif size=2>the Euro and the US dollar. Operating margin is usually not affected by foreign exchange.</FONT>
<LI><FONT face=sans-serif size=2>This quarter we had the same number of revenue simulator equivalent (RSEU) as last year. RSEU is</FONT> <FONT face=sans-serif size=2>a non-GAAP measure we use to describe the total number of FFSs available to generate revenue.</FONT><BR>
<FONT face=sans-serif size=2>For example, when we enter into a 50/50 flight training joint venture, only half of the simulators in the</FONT> <FONT face=sans-serif size=2>joint venture is available to generate revenue. If we&#146;re powering down and relocating a simulator, it</FONT> <FONT face=sans-serif size=2>isn&#146;t available to generate revenue until it&#145;s been reinstalled.</FONT> </LI></UL>
<P align=left><B><FONT face=sans-serif size=2>Segment operating income up by 22% over last quarter and 9% year over year </FONT></B></P>
<P align=left><FONT face=sans-serif size=2>The increase in revenue and operating margins is from an improved revenue mix, increased simulator utilization, a more streamlined business following the restructuring and a more efficient workforce.</FONT></P>
<P align=left><B><FONT face=sans-serif size=2>Capital expenditures were $17.8 million</FONT></B></P>
<P align=left><FONT face=sans-serif size=2>Capital expenditures this quarter were mostly for ongoing investment in the Dassault Falcon 7X training program, our expansion and conversion of the Burgess Hill (UK) training centre and additional simulators, which we will be adding to our network in fiscal 2007 and 2008.</FONT></P>
<TABLE cellSpacing=0 cellPadding=0 border=0>
<TR vAlign=bottom>
     <TD align=left width="61%"><FONT face=sans-serif size=2>Backlog up by 1% over last quarter</FONT>&nbsp; </TD>
     <TD align=left width="16%">&nbsp; </TD>
     <TD align=left width="18%"></TD>
     <TD align=left width="4%">&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="77%" colSpan=2>&nbsp;<FONT face=sans-serif size=2>Backlog continuity schedule (amounts in millions)</FONT>&nbsp; </TD>
     <TD align=left width="18%"></TD>
     <TD align=left width="4%">&nbsp; </TD></TR>
<TR>
     <TD width="99%" colSpan=4>
<HR noShade SIZE=1>
</TD></TR>
<TR vAlign=bottom>
     <TD align=left width="61%">&nbsp;<FONT face=sans-serif size=2>Backlog, March 31, 2006</FONT>&nbsp; </TD>
     <TD align=right width="16%"><FONT face=sans-serif size=2>$</FONT>&nbsp; </TD>
     <TD align=right width="18%"><FONT face=sans-serif size=2>809.0</FONT> </TD>
     <TD align=left width="4%">&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="61%">&nbsp;<FONT face=sans-serif size=2>+ orders for the period</FONT>&nbsp; </TD>
     <TD align=left width="16%">&nbsp; </TD>
     <TD align=right width="18%"><FONT face=sans-serif size=2>110.9</FONT> </TD>
     <TD align=left width="4%">&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="61%">&nbsp;<FONT face=sans-serif size=2>- revenue for the period</FONT>&nbsp; </TD>
     <TD align=left width="16%">&nbsp; </TD>
     <TD align=right width="18%"><FONT face=sans-serif size=2>(83.7</FONT> </TD>
     <TD align=left width="4%"><FONT face=sans-serif size=2>)</FONT>&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="61%">&nbsp;<FONT face=sans-serif size=2>+/- adjustments (mainly FX)</FONT>&nbsp; </TD>
     <TD align=left width="16%">&nbsp; </TD>
     <TD align=right width="18%"><FONT face=sans-serif size=2>(18.6</FONT> </TD>
     <TD align=left width="4%"><FONT face=sans-serif size=2>)</FONT>&nbsp; </TD></TR>
<TR>
     <TD width="99%" colSpan=4>
<HR noShade SIZE=1>
</TD></TR>
<TR vAlign=bottom>
     <TD align=left width="61%">&nbsp;<FONT face=sans-serif size=2>Backlog, June 30, 2006</FONT>&nbsp; </TD>
     <TD align=right width="16%"><FONT face=sans-serif size=2>$</FONT>&nbsp; </TD>
     <TD align=right width="18%"><FONT face=sans-serif size=2>817.6</FONT> </TD>
     <TD align=left width="4%">&nbsp; </TD></TR>
<TR>
     <TD width="99%" colSpan=4>
<HR noShade SIZE=1>
</TD></TR>
<TR vAlign=bottom>
     <TD align=left width="61%"><FONT face=sans-serif size=2>This quarter&#146;s book-to-sales ratio was 1.3x.</FONT>&nbsp; </TD>
     <TD align=left width="16%">&nbsp; </TD>
     <TD align=left width="18%"></TD>
     <TD align=left width="4%">&nbsp; </TD></TR></TABLE><BR>
<P align=left><FONT face=sans-serif size=2>During the quarter, we secured $110 million in new orders, which was unusually high.</FONT></P>
<P align=left><FONT face=sans-serif size=2>5.2 MILITARY SEGMENTS </FONT><BR>
<BR>
<B><FONT face=sans-serif size=2>Simulation Products/Military</FONT></B><BR>
</P>
<P align=left><FONT face=sans-serif size=2>SP/M was awarded the following contracts this quarter:</FONT></P>
<UL>
<LI><FONT face=sans-serif size=2>One C-130J Fuselage Trainer (FuT) for the United States Air Force (USAF)</FONT>
<LI><FONT face=sans-serif size=2>Various C-130J simulator upgrades for the USAF</FONT>
<LI><FONT face=sans-serif size=2>Tornado Visual System integration for the German Air Force</FONT>
<LI><FONT face=sans-serif size=2>Part Task Trainer (PTT) for EADS CASA&#146;s multi-role tanker transport aircraft to be used by the Royal</FONT> <FONT face=sans-serif size=2>Australian Air Force</FONT> </LI></UL>
<P align=left><FONT face=sans-serif size=2>21</FONT></P>
<HR align=center width="100%" noShade SIZE=2>
<BR>

<!--$$/page=-->
<A name="page_29"></A>
<P align=left><B><FONT face=sans-serif size=2>MANAGEMENT&#146;S DISCUSSION AND ANALYSIS</FONT></B><BR>
</P>
<P align=left><FONT face=sans-serif size=2>FIRST QUARTER REPORT 2007</FONT><BR>
</P>
<TABLE cellSpacing=0 cellPadding=0 border=0>
<TR vAlign=bottom>
     <TD align=left width="37%"><B><FONT face=sans-serif size=2>Financial results</FONT></B>&nbsp; </TD>
     <TD align=left width="6%">&nbsp; </TD>
     <TD align=left width="11%">&nbsp; </TD>
     <TD align=left width="11%">&nbsp; </TD>
     <TD align=left width="11%">&nbsp; </TD>
     <TD align=left width="10%">&nbsp; </TD>
     <TD align=left width="9%">&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="37%"><FONT face=sans-serif size=2>(millions, except operating margins)</FONT>&nbsp; </TD>
     <TD align=left width="6%">&nbsp; </TD>
     <TD align=right width="11%"><FONT face=sans-serif size=2>Q1-2007</FONT>&nbsp; </TD>
     <TD align=right width="11%"><FONT face=sans-serif size=2>Q4-2006</FONT>&nbsp; </TD>
     <TD align=right width="11%"><FONT face=sans-serif size=2>Q3-2006</FONT>&nbsp; </TD>
     <TD align=right width="10%"><FONT face=sans-serif size=2>Q2-2006</FONT>&nbsp; </TD>
     <TD align=right width="9%"><FONT face=sans-serif size=2>Q1-2006</FONT>&nbsp; </TD></TR>
<TR>
     <TD width="95%" colSpan=7>
<HR noShade SIZE=1>
</TD></TR>
<TR vAlign=bottom>
     <TD align=left width="37%"><FONT face=sans-serif size=2>Revenue</FONT>&nbsp; </TD>
     <TD align=left width="6%"><FONT face=sans-serif size=2>$</FONT>&nbsp; </TD>
     <TD align=right width="11%"><FONT face=sans-serif size=2>95.8</FONT>&nbsp; </TD>
     <TD align=right width="11%"><FONT face=sans-serif size=2>77.5</FONT>&nbsp; </TD>
     <TD align=right width="11%"><FONT face=sans-serif size=2>82.8</FONT>&nbsp; </TD>
     <TD align=right width="10%"><FONT face=sans-serif size=2>94.4</FONT>&nbsp; </TD>
     <TD align=right width="9%"><FONT face=sans-serif size=2>72.7</FONT>&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="37%"><FONT face=sans-serif size=2>Segment operating income</FONT>&nbsp; </TD>
     <TD align=left width="6%"><FONT face=sans-serif size=2>$</FONT>&nbsp; </TD>
     <TD align=right width="11%"><FONT face=sans-serif size=2>11.2</FONT>&nbsp; </TD>
     <TD align=right width="11%"><FONT face=sans-serif size=2>6.9</FONT>&nbsp; </TD>
     <TD align=right width="11%"><FONT face=sans-serif size=2>6.3</FONT>&nbsp; </TD>
     <TD align=right width="10%"><FONT face=sans-serif size=2>9.7</FONT>&nbsp; </TD>
     <TD align=right width="9%"><FONT face=sans-serif size=2>4.8</FONT>&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="37%"><I><FONT face=sans-serif size=2>Operating margins</FONT></I>&nbsp; </TD>
     <TD align=left width="6%"><I><FONT face=sans-serif size=2>%</FONT></I>&nbsp; </TD>
     <TD align=right width="11%"><I><FONT face=sans-serif size=2>11.7</FONT></I>&nbsp; </TD>
     <TD align=right width="11%"><I><FONT face=sans-serif size=2>8.9</FONT></I>&nbsp; </TD>
     <TD align=right width="11%"><I><FONT face=sans-serif size=2>7.6</FONT></I>&nbsp; </TD>
     <TD align=right width="10%"><I><FONT face=sans-serif size=2>10.3</FONT></I>&nbsp; </TD>
     <TD align=right width="9%"><I><FONT face=sans-serif size=2>6.6</FONT></I>&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="37%"><FONT face=sans-serif size=2>Amortization &amp; depreciation</FONT>&nbsp; </TD>
     <TD align=left width="6%"><FONT face=sans-serif size=2>$</FONT>&nbsp; </TD>
     <TD align=right width="11%"><FONT face=sans-serif size=2>2.2</FONT>&nbsp; </TD>
     <TD align=right width="11%"><FONT face=sans-serif size=2>5.9</FONT>&nbsp; </TD>
     <TD align=right width="11%"><FONT face=sans-serif size=2>3.1</FONT>&nbsp; </TD>
     <TD align=right width="10%"><FONT face=sans-serif size=2>3.0</FONT>&nbsp; </TD>
     <TD align=right width="9%"><FONT face=sans-serif size=2>1.8</FONT>&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="37%"><FONT face=sans-serif size=2>Capital expenditures</FONT>&nbsp; </TD>
     <TD align=left width="6%"><FONT face=sans-serif size=2>$</FONT>&nbsp; </TD>
     <TD align=right width="11%"><FONT face=sans-serif size=2>1.3</FONT>&nbsp; </TD>
     <TD align=right width="11%"><FONT face=sans-serif size=2>3.0</FONT>&nbsp; </TD>
     <TD align=right width="11%"><FONT face=sans-serif size=2>1.1</FONT>&nbsp; </TD>
     <TD align=right width="10%"><FONT face=sans-serif size=2>1.6</FONT>&nbsp; </TD>
     <TD align=right width="9%"><FONT face=sans-serif size=2>0.3</FONT>&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="37%"><FONT face=sans-serif size=2>Capital employed</FONT>&nbsp; </TD>
     <TD align=left width="6%"><FONT face=sans-serif size=2>$</FONT>&nbsp; </TD>
     <TD align=right width="11%"><FONT face=sans-serif size=2>48.0</FONT>&nbsp; </TD>
     <TD align=right width="11%"><FONT face=sans-serif size=2>49.3</FONT>&nbsp; </TD>
     <TD align=right width="11%"><FONT face=sans-serif size=2>61.7</FONT>&nbsp; </TD>
     <TD align=right width="10%"><FONT face=sans-serif size=2>98.0</FONT>&nbsp; </TD>
     <TD align=right width="9%"><FONT face=sans-serif size=2>115.9</FONT>&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="37%"><FONT face=sans-serif size=2>Backlog</FONT>&nbsp; </TD>
     <TD align=left width="6%"><FONT face=sans-serif size=2>$</FONT>&nbsp; </TD>
     <TD align=right width="11%"><FONT face=sans-serif size=2>475.2</FONT>&nbsp; </TD>
     <TD align=right width="11%"><FONT face=sans-serif size=2>540.5</FONT>&nbsp; </TD>
     <TD align=right width="11%"><FONT face=sans-serif size=2>453.0</FONT>&nbsp; </TD>
     <TD align=right width="10%"><FONT face=sans-serif size=2>493.1</FONT>&nbsp; </TD>
     <TD align=right width="9%"><FONT face=sans-serif size=2>535.1</FONT>&nbsp; </TD></TR>
<TR>
     <TD width="95%" colSpan=7>
<HR noShade SIZE=1>
</TD></TR></TABLE><BR>
<P align=left><B><FONT face=sans-serif size=2>Revenue up by 24% over last quarter and 32% year over year</FONT></B></P>
<P align=left><FONT face=sans-serif size=2>The increase in both periods was mainly because of: </FONT></P>
<UL>
<LI><FONT face=sans-serif size=2>higher activity on some European programs, particularly on the German NH90 equipment program,</FONT> <FONT face=sans-serif size=2>where we reached important milestones during the quarter.</FONT>
<LI><FONT face=sans-serif size=2>the sale of a licence to the UK Government for intellectual property related to the AVTS program. This</FONT> <FONT face=sans-serif size=2>is described in </FONT><I><FONT face=sans-serif size=2>Reconciliation of non-recurring items</FONT></I><FONT face=sans-serif size=2>, above.</FONT> </LI></UL>
<P align=left><FONT face=sans-serif size=2>The increase year over year is magnified by delays in the prior year in some European and US programs. </FONT></P>
<P align=left><B><FONT face=sans-serif size=2>Segment operating income up by 62% over last quarter and 133% year over year </FONT></B></P>
<P align=left><FONT face=sans-serif size=2>The increase in both periods was for the same reasons discussed under revenue. The income resulting from the licence of intellectual property related to the AVTS program accounted for $1.6 million. In addition, the increase year over year was higher because we wrote down $1.5 million in deferred bid costs in the first quarter of last year. This is described in </FONT><I><FONT face=sans-serif size=2>Reconciliation of non-recurring items</FONT></I><FONT face=sans-serif size=2>, above. </FONT></P>
<P align=left><B><FONT face=sans-serif size=2>Capital employed decreased </FONT></B></P>
<P align=left><FONT face=sans-serif size=2>The decrease this quarter was mainly a result of slightly higher long-term liabilities while maintaining a constant level of non-cash working capital. </FONT></P>
<TABLE cellSpacing=0 cellPadding=0 border=0>
<TR vAlign=bottom>
     <TD align=left width="61%"><FONT face=sans-serif size=2>Backlog down by 12% over last quarter</FONT>&nbsp; </TD>
     <TD align=left width="18%">&nbsp; </TD>
     <TD align=left width="15%"></TD>
     <TD align=left width="4%">&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="61%">&nbsp; &nbsp;<FONT face=sans-serif size=2>(millions)</FONT>&nbsp; </TD>
     <TD align=left width="18%">&nbsp; </TD>
     <TD align=left width="15%"></TD>
     <TD align=left width="4%">&nbsp; </TD></TR>
<TR>
     <TD width="61%">
<HR noShade SIZE=1>
</TD>
     <TD width="18%">
<HR noShade SIZE=2>
</TD>
     <TD width="19%" colSpan=2>
<HR noShade SIZE=1>
</TD></TR>
<TR vAlign=bottom>
     <TD align=left width="61%">&nbsp;<FONT face=sans-serif size=2>Backlog, March 31, 2006</FONT>&nbsp; </TD>
     <TD align=left width="18%"><FONT face=sans-serif size=2>$</FONT>&nbsp; </TD>
     <TD align=right width="15%"><FONT face=sans-serif size=2>540.5</FONT> </TD>
     <TD align=left width="4%">&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="61%">&nbsp;<FONT face=sans-serif size=2>+ orders for the period</FONT>&nbsp; </TD>
     <TD align=left width="18%">&nbsp; </TD>
     <TD align=right width="15%"><FONT face=sans-serif size=2>36.4</FONT> </TD>
     <TD align=left width="4%">&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="61%">&nbsp;<FONT face=sans-serif size=2>- revenue for the period</FONT>&nbsp; </TD>
     <TD align=left width="18%">&nbsp; </TD>
     <TD align=right width="15%"><FONT face=sans-serif size=2>(95.8</FONT> </TD>
     <TD align=left width="4%"><FONT face=sans-serif size=2>)</FONT>&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="61%">&nbsp;<FONT face=sans-serif size=2>+/- adjustments (mainly FX)</FONT>&nbsp; </TD>
     <TD align=left width="18%">&nbsp; </TD>
     <TD align=right width="15%"><FONT face=sans-serif size=2>(5.9</FONT> </TD>
     <TD align=left width="4%"><FONT face=sans-serif size=2>)</FONT>&nbsp; </TD></TR>
<TR>
     <TD width="98%" colSpan=4>
<HR noShade SIZE=1>
</TD></TR>
<TR vAlign=bottom>
     <TD align=left width="61%">&nbsp;<FONT face=sans-serif size=2>Backlog, June 30, 2006</FONT>&nbsp; </TD>
     <TD align=left width="18%"><FONT face=sans-serif size=2>$</FONT>&nbsp; </TD>
     <TD align=right width="15%"><FONT face=sans-serif size=2>475.2</FONT> </TD>
     <TD align=left width="4%">&nbsp; </TD></TR>
<TR>
     <TD width="98%" colSpan=4>
<HR noShade SIZE=1>
</TD></TR></TABLE><BR>
<P align=left><FONT face=sans-serif size=2>This quarter&#146;s book-to-sales ratio was 0.38x versus 1.98x in the fourth quarter last year, which reflects the lumpiness of this market. </FONT></P>
<P align=left><B><FONT face=sans-serif size=2>Training &amp; Services/Military</FONT></B><BR>
</P>
<P align=left><FONT face=sans-serif size=2>TS/M was awarded the following contracts this quarter:</FONT></P>
<UL>
<LI><FONT face=sans-serif size=2>A one-year contract to continue providing avionic software upgrades, integrated logistics support and</FONT> <FONT face=sans-serif size=2>data management services for the Canadian Force&#146;s CF-18 aircraft.</FONT>
<LI><FONT face=sans-serif size=2>A contract spanning four and a half years to provide on-site maintenance and support services for the</FONT> <FONT face=sans-serif size=2>UK Royal Air Force&#146;s C-130J training systems at RAF Lyneham.</FONT> </LI></UL>
<P align=left><FONT face=sans-serif size=2>22</FONT></P>
<HR align=center width="100%" noShade SIZE=2>
<BR>

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<A name="page_30"></A>
<P align=left><B><FONT face=sans-serif size=2>MANAGEMENT&#146;S DISCUSSION AND ANALYSIS</FONT></B><BR>
</P>
<P align=left><FONT face=sans-serif size=2>FIRST QUARTER REPORT 2007</FONT><BR>
</P>
<TABLE cellSpacing=0 cellPadding=0 border=0>
<TR vAlign=bottom>
     <TD align=left width="37%"><B><FONT face=sans-serif size=2>Financial results</FONT></B>&nbsp; </TD>
     <TD align=left width="6%">&nbsp; </TD>
     <TD align=left width="11%">&nbsp; </TD>
     <TD align=left width="11%">&nbsp; </TD>
     <TD align=left width="11%">&nbsp; </TD>
     <TD align=left width="10%">&nbsp; </TD>
     <TD align=left width="9%">&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="37%"><FONT face=sans-serif size=2>(millions, except operating margins)</FONT>&nbsp; </TD>
     <TD align=left width="6%">&nbsp; </TD>
     <TD align=right width="11%"><FONT face=sans-serif size=2>Q1-2007</FONT>&nbsp; </TD>
     <TD align=right width="11%"><FONT face=sans-serif size=2>Q4-2006</FONT>&nbsp; </TD>
     <TD align=right width="11%"><FONT face=sans-serif size=2>Q3-2006</FONT>&nbsp; </TD>
     <TD align=right width="10%"><FONT face=sans-serif size=2>Q2-2006</FONT>&nbsp; </TD>
     <TD align=right width="9%"><FONT face=sans-serif size=2>Q1-2006</FONT>&nbsp; </TD></TR>
<TR>
     <TD width="95%" colSpan=7>
<HR noShade SIZE=1>
</TD></TR>
<TR vAlign=bottom>
     <TD align=left width="37%"><FONT face=sans-serif size=2>Revenue</FONT>&nbsp; </TD>
     <TD align=left width="6%"><FONT face=sans-serif size=2>$</FONT>&nbsp; </TD>
     <TD align=right width="11%"><FONT face=sans-serif size=2>48.1</FONT>&nbsp; </TD>
     <TD align=right width="11%"><FONT face=sans-serif size=2>47.7</FONT>&nbsp; </TD>
     <TD align=right width="11%"><FONT face=sans-serif size=2>52.8</FONT>&nbsp; </TD>
     <TD align=right width="10%"><FONT face=sans-serif size=2>50.7</FONT>&nbsp; </TD>
     <TD align=right width="9%"><FONT face=sans-serif size=2>49.3</FONT>&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="37%"><FONT face=sans-serif size=2>Segment operating income</FONT>&nbsp; </TD>
     <TD align=left width="6%"><FONT face=sans-serif size=2>$</FONT>&nbsp; </TD>
     <TD align=right width="11%"><FONT face=sans-serif size=2>11.6</FONT>&nbsp; </TD>
     <TD align=right width="11%"><FONT face=sans-serif size=2>3.3</FONT>&nbsp; </TD>
     <TD align=right width="11%"><FONT face=sans-serif size=2>8.4</FONT>&nbsp; </TD>
     <TD align=right width="10%"><FONT face=sans-serif size=2>5.4</FONT>&nbsp; </TD>
     <TD align=right width="9%"><FONT face=sans-serif size=2>2.0</FONT>&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="37%"><I><FONT face=sans-serif size=2>Operating margins</FONT></I>&nbsp; </TD>
     <TD align=left width="6%"><I><FONT face=sans-serif size=2>%</FONT></I>&nbsp; </TD>
     <TD align=right width="11%"><I><FONT face=sans-serif size=2>24.1</FONT></I>&nbsp; </TD>
     <TD align=right width="11%"><I><FONT face=sans-serif size=2>6.9</FONT></I>&nbsp; </TD>
     <TD align=right width="11%"><I><FONT face=sans-serif size=2>15.9</FONT></I>&nbsp; </TD>
     <TD align=right width="10%"><I><FONT face=sans-serif size=2>10.7</FONT></I>&nbsp; </TD>
     <TD align=right width="9%"><I><FONT face=sans-serif size=2>4.1</FONT></I>&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="37%"><FONT face=sans-serif size=2>Amortization &amp; depreciation</FONT>&nbsp; </TD>
     <TD align=left width="6%"><FONT face=sans-serif size=2>$</FONT>&nbsp; </TD>
     <TD align=right width="11%"><FONT face=sans-serif size=2>1.5</FONT>&nbsp; </TD>
     <TD align=right width="11%"><FONT face=sans-serif size=2>1.6</FONT>&nbsp; </TD>
     <TD align=right width="11%"><FONT face=sans-serif size=2>1.6</FONT>&nbsp; </TD>
     <TD align=right width="10%"><FONT face=sans-serif size=2>1.9</FONT>&nbsp; </TD>
     <TD align=right width="9%"><FONT face=sans-serif size=2>1.9</FONT>&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="37%"><FONT face=sans-serif size=2>Capital expenditures</FONT>&nbsp; </TD>
     <TD align=left width="6%"><FONT face=sans-serif size=2>$</FONT>&nbsp; </TD>
     <TD align=right width="11%"><FONT face=sans-serif size=2>13.4</FONT>&nbsp; </TD>
     <TD align=right width="11%"><FONT face=sans-serif size=2>15.5</FONT>&nbsp; </TD>
     <TD align=right width="11%"><FONT face=sans-serif size=2>1.5</FONT>&nbsp; </TD>
     <TD align=right width="10%"><FONT face=sans-serif size=2>7.4</FONT>&nbsp; </TD>
     <TD align=right width="9%"><FONT face=sans-serif size=2>6.5</FONT>&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="37%"><FONT face=sans-serif size=2>Capital employed</FONT>&nbsp; </TD>
     <TD align=left width="6%"><FONT face=sans-serif size=2>$</FONT>&nbsp; </TD>
     <TD align=right width="11%"><FONT face=sans-serif size=2>119.2</FONT>&nbsp; </TD>
     <TD align=right width="11%"><FONT face=sans-serif size=2>111.5</FONT>&nbsp; </TD>
     <TD align=right width="11%"><FONT face=sans-serif size=2>93.0</FONT>&nbsp; </TD>
     <TD align=right width="10%"><FONT face=sans-serif size=2>105.8</FONT>&nbsp; </TD>
     <TD align=right width="9%"><FONT face=sans-serif size=2>98.0</FONT>&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="37%"><FONT face=sans-serif size=2>Backlog</FONT>&nbsp; </TD>
     <TD align=left width="6%"><FONT face=sans-serif size=2>$</FONT>&nbsp; </TD>
     <TD align=right width="11%"><FONT face=sans-serif size=2>842.9</FONT>&nbsp; </TD>
     <TD align=right width="11%"><FONT face=sans-serif size=2>826.1</FONT>&nbsp; </TD>
     <TD align=right width="11%"><FONT face=sans-serif size=2>797.8</FONT>&nbsp; </TD>
     <TD align=right width="10%"><FONT face=sans-serif size=2>829.4</FONT>&nbsp; </TD>
     <TD align=right width="9%"><FONT face=sans-serif size=2>904.0</FONT>&nbsp; </TD></TR>
<TR>
     <TD width="95%" colSpan=7>
<HR noShade SIZE=1>
</TD></TR></TABLE><BR>
<P align=left><B><FONT face=sans-serif size=2>Revenue stable last quarter and year over year </FONT></B></P>
<P align=left><FONT face=sans-serif size=2>Revenue was stable, even though military results can be lumpy. </FONT></P>
<P align=left><B><FONT face=sans-serif size=2>Segment operating income before non-recurring items up by 118% over last quarter and 13% over last year</FONT></B></P>
<P align=left><FONT face=sans-serif size=2>Segment operating income this quarter included a non-recurring payment of $4.4 million for the release of claims on the UK Government relating to the AVTS project. In the same quarter of last year, segmented operating income included a write down of deferred bid costs of $4.4 million. These are described in</FONT></P>
<P align=left><I><FONT face=sans-serif size=2>Reconciliation of non-recurring items</FONT></I><FONT face=sans-serif size=2>, above.</FONT></P>
<P align=left><FONT face=sans-serif size=2>In addition, the income resulting from the licence of intellectual property related to the same program accounted for $1.7 million. </FONT></P>
<P align=left><FONT face=sans-serif size=2>Segment operating income before non-recurring items was $3.9 million (or 118%) higher than last quarter, and $0.8 million (or 13%) higher year over year. </FONT></P>
<P align=left><FONT face=sans-serif size=2>The increase over last quarter was from slightly higher revenue and a dividend received from a TS/M investment in the UK. This dividend is part of the segment&#146;s recurring business, but is not received evenly quarter over quarter. </FONT></P>
<P align=left><B><FONT face=sans-serif size=2>Capital employed increased </FONT></B></P>
<P align=left><FONT face=sans-serif size=2>The increase this quarter was mainly because of capital invested in building training centres for the NH90 training program in Germany. </FONT></P>
<TABLE cellSpacing=0 cellPadding=0 border=0>
<TR vAlign=bottom>
     <TD align=left width="63%"><FONT face=sans-serif size=2>Backlog up by 2% this quarter</FONT>&nbsp; </TD>
     <TD align=left width="16%">&nbsp; </TD>
     <TD align=left width="15%"></TD>
     <TD align=left width="4%">&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="63%">&nbsp;<FONT face=sans-serif size=2>Backlog continuity schedule (millions)</FONT>&nbsp; </TD>
     <TD align=left width="16%">&nbsp; </TD>
     <TD align=left width="15%"></TD>
     <TD align=left width="4%">&nbsp; </TD></TR>
<TR>
     <TD width="63%">
<HR noShade SIZE=1>
</TD>
     <TD width="16%">
<HR noShade SIZE=2>
</TD>
     <TD width="19%" colSpan=2>
<HR noShade SIZE=1>
</TD></TR>
<TR vAlign=bottom>
     <TD align=left width="63%">&nbsp;<FONT face=sans-serif size=2>Backlog, March 31, 2006</FONT>&nbsp; </TD>
     <TD align=left width="16%"><FONT face=sans-serif size=2>$</FONT>&nbsp; </TD>
     <TD align=right width="15%"><FONT face=sans-serif size=2>826.1</FONT> </TD>
     <TD align=left width="4%">&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="63%">&nbsp;<FONT face=sans-serif size=2>+ orders for the period</FONT>&nbsp; </TD>
     <TD align=left width="16%">&nbsp; </TD>
     <TD align=right width="15%"><FONT face=sans-serif size=2>62.4</FONT> </TD>
     <TD align=left width="4%">&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="63%">&nbsp;<FONT face=sans-serif size=2>- revenue for the period</FONT>&nbsp; </TD>
     <TD align=left width="16%">&nbsp; </TD>
     <TD align=right width="15%"><FONT face=sans-serif size=2>(48.1</FONT> </TD>
     <TD align=left width="4%"><FONT face=sans-serif size=2>)</FONT>&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="63%">&nbsp;<FONT face=sans-serif size=2>+/- adjustments (mainly FX)</FONT>&nbsp; </TD>
     <TD align=left width="16%">&nbsp; </TD>
     <TD align=right width="15%"><FONT face=sans-serif size=2>2.5</FONT> </TD>
     <TD align=left width="4%">&nbsp; </TD></TR>
<TR>
     <TD width="98%" colSpan=4>
<HR noShade SIZE=1>
</TD></TR>
<TR vAlign=bottom>
     <TD align=left width="63%">&nbsp;<FONT face=sans-serif size=2>Backlog, June 30, 2006</FONT>&nbsp; </TD>
     <TD align=left width="16%"><FONT face=sans-serif size=2>$</FONT>&nbsp; </TD>
     <TD align=right width="15%"><FONT face=sans-serif size=2>842.9</FONT> </TD>
     <TD align=left width="4%">&nbsp; </TD></TR>
<TR>
     <TD width="98%" colSpan=4>
<HR noShade SIZE=1>
</TD></TR>
<TR vAlign=bottom>
     <TD align=left width="63%"><FONT face=sans-serif size=2>This quarter&#146;s book-to-sales ratio was 1.3x.</FONT>&nbsp; </TD>
     <TD align=left width="16%">&nbsp; </TD>
     <TD align=left width="15%"></TD>
     <TD align=left width="4%">&nbsp; </TD></TR></TABLE><BR>
<P align=left><FONT face=sans-serif size=2>Combined military book-to-sales ratio for the quarter was 0.7x and on a trailing twelve-month basis, the ratio was 0.9x.</FONT></P>
<P align=left><FONT face=sans-serif size=2>23</FONT></P>
<HR align=center width="100%" noShade SIZE=2>
<BR>

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<A name="page_31"></A>
<TABLE cellSpacing=0 cellPadding=0 border=0>
<TR vAlign=bottom>
     <TD align=left width="45%"><B><FONT face=sans-serif size=2>MANAGEMENT&#146;S DISCUSSION AND ANALYSIS</FONT></B>&nbsp; </TD>
     <TD align=left width="7%">&nbsp; </TD>
     <TD align=left width="10%"></TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=left width="5%">&nbsp; </TD>
     <TD align=right width="24%" colSpan=4><FONT face=sans-serif size=2>FIRST QUARTER REPORT 2007</FONT> </TD>
     <TD align=left width="2%">&nbsp; </TD></TR>
<TR>
     <TD width="95%" colSpan=10>
<HR noShade SIZE=1>
</TD></TR>
<TR vAlign=bottom>
     <TD align=right width="52%" colSpan=2><B><FONT face=sans-serif size=2>6. CONSOLIDATED CASH MOVEMENTS AND LIQUIDITY</FONT></B>&nbsp; </TD>
     <TD align=left width="10%"></TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=left width="5%">&nbsp; </TD>
     <TD align=left width="10%"></TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=left width="3%">&nbsp; </TD>
     <TD align=left width="9%"></TD>
     <TD align=left width="2%">&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="45%">&nbsp;<B><FONT face=sans-serif size=2>Consolidated cash movements</FONT></B>&nbsp; </TD>
     <TD align=left width="7%">&nbsp; </TD>
     <TD align=left width="10%"></TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=left width="5%">&nbsp; </TD>
     <TD align=left width="10%"></TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=left width="3%">&nbsp; </TD>
     <TD align=left width="9%"></TD>
     <TD align=left width="2%">&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="45%">&nbsp;<FONT face=sans-serif size=2>For the three-month period ending</FONT>&nbsp; </TD>
     <TD align=left width="7%">&nbsp; </TD>
     <TD align=left width="10%"></TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=left width="5%">&nbsp; </TD>
     <TD align=left width="10%"></TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=left width="3%">&nbsp; </TD>
     <TD align=left width="9%"></TD>
     <TD align=left width="2%">&nbsp; </TD></TR>
<TR>
     <TD width="95%" colSpan=10>
<HR noShade SIZE=1>
</TD></TR>
<TR vAlign=bottom>
     <TD align=left width="45%">&nbsp; </TD>
     <TD align=left width="7%">&nbsp; </TD>
     <TD align=right width="10%"><FONT face=sans-serif size=2>June 30,</FONT> </TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=left width="5%">&nbsp; </TD>
     <TD align=right width="10%"><FONT face=sans-serif size=2>March 31,</FONT> </TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=left width="3%">&nbsp; </TD>
     <TD align=right width="9%"><FONT face=sans-serif size=2>June 30,</FONT> </TD>
     <TD align=left width="2%">&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="45%">&nbsp;<FONT face=sans-serif size=2>(millions)</FONT>&nbsp; </TD>
     <TD align=left width="7%">&nbsp; </TD>
     <TD align=right width="10%"><FONT face=sans-serif size=2>2006</FONT> </TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=left width="5%">&nbsp; </TD>
     <TD align=right width="10%"><FONT face=sans-serif size=2>2006</FONT> </TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=left width="3%">&nbsp; </TD>
     <TD align=right width="9%"><FONT face=sans-serif size=2>2005</FONT> </TD>
     <TD align=left width="2%">&nbsp; </TD></TR>
<TR>
     <TD width="95%" colSpan=10>
<HR noShade SIZE=1>
</TD></TR>
<TR vAlign=bottom>
     <TD align=left width="45%">&nbsp;<FONT face=sans-serif size=2>Cash provided by continuing</FONT>&nbsp; </TD>
     <TD align=left width="7%">&nbsp; </TD>
     <TD align=left width="10%"></TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=left width="5%">&nbsp; </TD>
     <TD align=left width="10%"></TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=left width="3%">&nbsp; </TD>
     <TD align=left width="9%"></TD>
     <TD align=left width="2%">&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="45%">&nbsp;<FONT face=sans-serif size=2>operating activities*</FONT>&nbsp; </TD>
     <TD align=right width="7%"><FONT face=sans-serif size=2>$</FONT>&nbsp; </TD>
     <TD align=right width="10%"><FONT face=sans-serif size=2>59.1</FONT> </TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=right width="5%"><FONT face=sans-serif size=2>$</FONT>&nbsp; </TD>
     <TD align=right width="10%"><FONT face=sans-serif size=2>43.7</FONT> </TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=left width="3%"><FONT face=sans-serif size=2>$</FONT>&nbsp; </TD>
     <TD align=right width="9%"><FONT face=sans-serif size=2>30.8</FONT> </TD>
     <TD align=left width="2%">&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="45%">&nbsp;<FONT face=sans-serif size=2>Changes in non-cash working capital</FONT>&nbsp; </TD>
     <TD align=left width="7%">&nbsp; </TD>
     <TD align=right width="10%"><FONT face=sans-serif size=2>(27.1</FONT> </TD>
     <TD align=left width="2%"><FONT face=sans-serif size=2>)</FONT>&nbsp; </TD>
     <TD align=left width="5%">&nbsp; </TD>
     <TD align=right width="10%"><FONT face=sans-serif size=2>26.1</FONT> </TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=left width="3%">&nbsp; </TD>
     <TD align=right width="9%"><FONT face=sans-serif size=2>(9.0</FONT> </TD>
     <TD align=left width="2%"><FONT face=sans-serif size=2>)</FONT>&nbsp; </TD></TR>
<TR>
     <TD width="95%" colSpan=10>
<HR noShade SIZE=1>
</TD></TR>
<TR vAlign=bottom>
     <TD align=left width="45%">&nbsp;<FONT face=sans-serif size=2>Net cash provided by continuing</FONT>&nbsp; </TD>
     <TD align=left width="7%">&nbsp; </TD>
     <TD align=left width="10%"></TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=left width="5%">&nbsp; </TD>
     <TD align=left width="10%"></TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=left width="3%">&nbsp; </TD>
     <TD align=left width="9%"></TD>
     <TD align=left width="2%">&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="45%">&nbsp;<FONT face=sans-serif size=2>operations</FONT>&nbsp; </TD>
     <TD align=right width="7%"><FONT face=sans-serif size=2>$</FONT>&nbsp; </TD>
     <TD align=right width="10%"><FONT face=sans-serif size=2>32.0</FONT> </TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=right width="5%"><FONT face=sans-serif size=2>$</FONT>&nbsp; </TD>
     <TD align=right width="10%"><FONT face=sans-serif size=2>69.8</FONT> </TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=left width="3%"><FONT face=sans-serif size=2>$</FONT>&nbsp; </TD>
     <TD align=right width="9%"><FONT face=sans-serif size=2>21.8</FONT> </TD>
     <TD align=left width="2%">&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="45%">&nbsp;<FONT face=sans-serif size=2>Capital expenditures</FONT>&nbsp; </TD>
     <TD align=left width="7%">&nbsp; </TD>
     <TD align=right width="10%"><FONT face=sans-serif size=2>(40.7</FONT> </TD>
     <TD align=left width="2%"><FONT face=sans-serif size=2>)</FONT>&nbsp; </TD>
     <TD align=left width="5%">&nbsp; </TD>
     <TD align=right width="10%"><FONT face=sans-serif size=2>(42.3</FONT> </TD>
     <TD align=left width="2%"><FONT face=sans-serif size=2>)</FONT>&nbsp; </TD>
     <TD align=left width="3%">&nbsp; </TD>
     <TD align=right width="9%"><FONT face=sans-serif size=2>(17.9</FONT> </TD>
     <TD align=left width="2%"><FONT face=sans-serif size=2>)</FONT>&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="45%">&nbsp;<FONT face=sans-serif size=2>Other capitalized costs</FONT>&nbsp; </TD>
     <TD align=left width="7%">&nbsp; </TD>
     <TD align=right width="10%"><FONT face=sans-serif size=2>(4.7</FONT> </TD>
     <TD align=left width="2%"><FONT face=sans-serif size=2>)</FONT>&nbsp; </TD>
     <TD align=left width="5%">&nbsp; </TD>
     <TD align=right width="10%"><FONT face=sans-serif size=2>(4.7</FONT> </TD>
     <TD align=left width="2%"><FONT face=sans-serif size=2>)</FONT>&nbsp; </TD>
     <TD align=left width="3%">&nbsp; </TD>
     <TD align=right width="9%"><FONT face=sans-serif size=2>(3.6</FONT> </TD>
     <TD align=left width="2%"><FONT face=sans-serif size=2>)</FONT>&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="45%">&nbsp;<FONT face=sans-serif size=2>Cash dividends</FONT>&nbsp; </TD>
     <TD align=left width="7%">&nbsp; </TD>
     <TD align=right width="10%"><FONT face=sans-serif size=2>(2.4</FONT> </TD>
     <TD align=left width="2%"><FONT face=sans-serif size=2>)</FONT>&nbsp; </TD>
     <TD align=left width="5%">&nbsp; </TD>
     <TD align=right width="10%"><FONT face=sans-serif size=2>(2.5</FONT> </TD>
     <TD align=left width="2%"><FONT face=sans-serif size=2>)</FONT>&nbsp; </TD>
     <TD align=left width="3%">&nbsp; </TD>
     <TD align=right width="9%"><FONT face=sans-serif size=2>(2.4</FONT> </TD>
     <TD align=left width="2%"><FONT face=sans-serif size=2>)</FONT>&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="45%">&nbsp;<FONT face=sans-serif size=2>Non-recourse financing</FONT>&nbsp; </TD>
     <TD align=left width="7%">&nbsp; </TD>
     <TD align=right width="10%"><FONT face=sans-serif size=2>10.3</FONT> </TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=left width="5%">&nbsp; </TD>
     <TD align=right width="10%"><FONT face=sans-serif size=2>5.1</FONT> </TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=left width="3%">&nbsp; </TD>
     <TD align=right width="9%"><FONT face=sans-serif size=2>-</FONT> </TD>
     <TD align=left width="2%">&nbsp; </TD></TR>
<TR>
     <TD width="95%" colSpan=10>
<HR noShade SIZE=1>
</TD></TR>
<TR vAlign=bottom>
     <TD align=left width="45%">&nbsp;<FONT face=sans-serif size=2>Free cash flow</FONT>&nbsp; </TD>
     <TD align=right width="7%"><FONT face=sans-serif size=2>$</FONT>&nbsp; </TD>
     <TD align=right width="10%"><FONT face=sans-serif size=2>(5.5</FONT> </TD>
     <TD align=left width="2%"><FONT face=sans-serif size=2>)</FONT>&nbsp; </TD>
     <TD align=right width="5%"><FONT face=sans-serif size=2>$</FONT>&nbsp; </TD>
     <TD align=right width="10%"><FONT face=sans-serif size=2>25.4</FONT> </TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=left width="3%"><FONT face=sans-serif size=2>$</FONT>&nbsp; </TD>
     <TD align=right width="9%"><FONT face=sans-serif size=2>(2.1</FONT> </TD>
     <TD align=left width="2%"><FONT face=sans-serif size=2>)</FONT>&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="45%">&nbsp;<FONT face=sans-serif size=2>Other cash movements, net</FONT>&nbsp; </TD>
     <TD align=left width="7%">&nbsp; </TD>
     <TD align=right width="10%"><FONT face=sans-serif size=2>2.0</FONT> </TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=left width="5%">&nbsp; </TD>
     <TD align=right width="10%"><FONT face=sans-serif size=2>1.4</FONT> </TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=left width="3%">&nbsp; </TD>
     <TD align=right width="9%"><FONT face=sans-serif size=2>4.2</FONT> </TD>
     <TD align=left width="2%">&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="45%">&nbsp;<FONT face=sans-serif size=2>Non-recourse financing</FONT>&nbsp; </TD>
     <TD align=left width="7%">&nbsp; </TD>
     <TD align=right width="10%"><FONT face=sans-serif size=2>(10.3</FONT> </TD>
     <TD align=left width="2%"><FONT face=sans-serif size=2>)</FONT>&nbsp; </TD>
     <TD align=left width="5%">&nbsp; </TD>
     <TD align=right width="10%"><FONT face=sans-serif size=2>(5,1</FONT> </TD>
     <TD align=left width="2%"><FONT face=sans-serif size=2>)</FONT>&nbsp; </TD>
     <TD align=left width="3%">&nbsp; </TD>
     <TD align=right width="9%"><FONT face=sans-serif size=2>-</FONT> </TD>
     <TD align=left width="2%">&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="45%">&nbsp;<FONT face=sans-serif size=2>Effect of foreign exchange rate</FONT>&nbsp; </TD>
     <TD align=left width="7%">&nbsp; </TD>
     <TD align=left width="10%"></TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=left width="5%">&nbsp; </TD>
     <TD align=left width="10%"></TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=left width="3%">&nbsp; </TD>
     <TD align=left width="9%"></TD>
     <TD align=left width="2%">&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="45%">&nbsp;<FONT face=sans-serif size=2>changes on cash and cash</FONT>&nbsp; </TD>
     <TD align=left width="7%">&nbsp; </TD>
     <TD align=left width="10%"></TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=left width="5%">&nbsp; </TD>
     <TD align=left width="10%"></TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=left width="3%">&nbsp; </TD>
     <TD align=left width="9%"></TD>
     <TD align=left width="2%">&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="45%">&nbsp;<FONT face=sans-serif size=2>equivalents</FONT>&nbsp; </TD>
     <TD align=left width="7%">&nbsp; </TD>
     <TD align=right width="10%"><FONT face=sans-serif size=2>(1.8</FONT> </TD>
     <TD align=left width="2%"><FONT face=sans-serif size=2>)</FONT>&nbsp; </TD>
     <TD align=left width="5%">&nbsp; </TD>
     <TD align=right width="10%"><FONT face=sans-serif size=2>1.0</FONT> </TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=left width="3%">&nbsp; </TD>
     <TD align=right width="9%"><FONT face=sans-serif size=2>(1.8</FONT> </TD>
     <TD align=left width="2%"><FONT face=sans-serif size=2>)</FONT>&nbsp; </TD></TR>
<TR>
     <TD width="64%" colSpan=4>
<HR noShade SIZE=1>
</TD>
     <TD width="5%">
<HR noShade SIZE=2>
</TD>
     <TD width="26%" colSpan=5>
<HR noShade SIZE=1>
</TD></TR>
<TR vAlign=bottom>
     <TD align=left width="45%">&nbsp;<FONT face=sans-serif size=2>Net (decrease) increase in cash</FONT>&nbsp; </TD>
     <TD align=left width="7%">&nbsp; </TD>
     <TD align=left width="10%"></TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=left width="5%">&nbsp; </TD>
     <TD align=left width="10%"></TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=left width="3%">&nbsp; </TD>
     <TD align=left width="9%"></TD>
     <TD align=left width="2%">&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="45%">&nbsp;<FONT face=sans-serif size=2>before proceeds and repayment of</FONT>&nbsp; </TD>
     <TD align=left width="7%">&nbsp; </TD>
     <TD align=left width="10%"></TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=left width="5%">&nbsp; </TD>
     <TD align=left width="10%"></TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=left width="3%">&nbsp; </TD>
     <TD align=left width="9%"></TD>
     <TD align=left width="2%">&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="45%">&nbsp;<FONT face=sans-serif size=2>long-term debt</FONT>&nbsp; </TD>
     <TD align=right width="7%"><FONT face=sans-serif size=2>$</FONT>&nbsp; </TD>
     <TD align=right width="10%"><FONT face=sans-serif size=2>(15.6</FONT> </TD>
     <TD align=left width="2%"><FONT face=sans-serif size=2>)</FONT>&nbsp; </TD>
     <TD align=right width="5%"><FONT face=sans-serif size=2>$</FONT>&nbsp; </TD>
     <TD align=right width="10%"><FONT face=sans-serif size=2>22.7</FONT> </TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=left width="3%"><FONT face=sans-serif size=2>$</FONT>&nbsp; </TD>
     <TD align=right width="9%"><FONT face=sans-serif size=2>0.3</FONT> </TD>
     <TD align=left width="2%">&nbsp; </TD></TR>
<TR>
     <TD width="95%" colSpan=10>
<HR noShade SIZE=1>
</TD></TR>
<TR vAlign=bottom>
     <TD align=left width="45%">&nbsp;<FONT face=sans-serif size=2>* before changes in non-cash working capital</FONT>&nbsp; </TD>
     <TD align=left width="7%">&nbsp; </TD>
     <TD align=left width="10%"></TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=left width="5%">&nbsp; </TD>
     <TD align=left width="10%"></TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=left width="3%">&nbsp; </TD>
     <TD align=left width="9%"></TD>
     <TD align=left width="2%">&nbsp; </TD></TR></TABLE><BR>
<P align=left><FONT face=sans-serif size=2>Free cash flow</FONT><SUP><FONT face=sans-serif size=2>&#134;</FONT></SUP><FONT face=sans-serif size=2> down $30.9 million from last quarter and $3.4 million year over year </FONT></P>
<P align=left><B><FONT face=sans-serif size=2>Net cash from continuing operations down $37.8 million from last quarter, but up by $10.2 million year over year </FONT></B></P>
<P align=left><FONT face=sans-serif size=2>This was mainly the result of the following: </FONT></P>
<UL>
<LI><FONT face=sans-serif size=2>Cash invested in working capital. We reduced the amount of cash invested in working capital last</FONT> <FONT face=sans-serif size=2>quarter by $26.1 million. This quarter we invested $27.1 million, and we invested $9.0 million in the</FONT> <FONT face=sans-serif size=2>first quarter of last year.</FONT>
<LI><FONT face=sans-serif size=2>Non-cash expenses, which were $3.1 million lower than last quarter and up by $15.8 million year over</FONT> <FONT face=sans-serif size=2>year.</FONT> </LI></UL>
<P align=left><FONT face=sans-serif size=2>This has been somewhat offset by higher earnings from continuing operations ($18.5 million) compared to last quarter and year over year ($12.5 million). </FONT></P>
<P align=left><SUP><FONT face=monospace size=2>&#134;</FONT></SUP><FONT face=monospace size=2> </FONT><FONT face=sans-serif size=1>Free cash flow is a non-GAAP measure that tells us how much cash we have available to build the business, 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 capital expenditures (including capitalized costs) and dividends paid, and then adding the proceeds from sales and leaseback and other asset-specific financing. Dividends are deducted in the calculation of the free cash flow because we consider them an obligation, like interest on debt, which means that amount is not available for other uses.</FONT></P>
<P align=left><FONT face=sans-serif size=2>24</FONT></P>
<HR align=center width="100%" noShade SIZE=2>
<BR>
<BR>

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<A name="page_32"></A>
<P align=left><B><FONT face=sans-serif size=2>MANAGEMENT&#146;S DISCUSSION AND ANALYSIS</FONT></B><BR>
</P>
<P align=left><FONT face=sans-serif size=2>FIRST QUARTER REPORT 2007</FONT><BR>
</P>
<P align=left><B><FONT face=sans-serif size=2>Capital expenditures and other capitalized costs increased by $23.9 million year over year</FONT></B></P>
<P align=left><FONT face=sans-serif size=2>Growth capital expenditures this quarter were $29.8 million for: </FONT></P>
<UL>
<LI><FONT face=sans-serif size=2>The ongoing investment in the Dassault Falcon 7X program.</FONT>
<LI><FONT face=sans-serif size=2>An increase in capital spending related to the German NH90 helicopter program.</FONT>
<LI><FONT face=sans-serif size=2>Other capital expenditures related to growth.</FONT> </LI></UL>
<P align=left><FONT face=sans-serif size=2>Maintenance capital expenditures of $10.9 million this quarter were for general maintenance.</FONT></P>
<P align=left><FONT face=sans-serif size=2>During the quarter, we received $10.3 million in non-recourse financing related to the NH90 program. Last quarter, $5.1 million was received for the same program. </FONT></P>
<TABLE cellSpacing=0 cellPadding=0 border=0>
<TR vAlign=bottom>
     <TD align=left width="46%"><B><FONT face=sans-serif size=2>7. CONSOLIDATED FINANCIAL POSITION</FONT></B>&nbsp; </TD>
     <TD align=left width="5%">&nbsp; </TD>
     <TD align=left width="21%"></TD>
     <TD align=left width="3%">&nbsp; </TD>
     <TD align=left width="11%">&nbsp; </TD>
     <TD align=left width="8%"></TD>
     <TD align=left width="3%">&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="46%">&nbsp; </TD>
     <TD align=left width="5%">&nbsp; </TD>
     <TD align=right width="21%"><FONT face=sans-serif size=2>As at June 30,</FONT> </TD>
     <TD align=left width="3%">&nbsp; </TD>
     <TD align=left width="11%">&nbsp; </TD>
     <TD align=right width="8%"><FONT face=sans-serif size=2>As at March 31</FONT> </TD>
     <TD align=left width="3%">&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="46%">&nbsp;<FONT face=sans-serif size=2>(millions)</FONT>&nbsp; </TD>
     <TD align=left width="5%">&nbsp; </TD>
     <TD align=right width="21%"><FONT face=sans-serif size=2>2006</FONT> </TD>
     <TD align=left width="3%">&nbsp; </TD>
     <TD align=left width="11%">&nbsp; </TD>
     <TD align=right width="8%"><FONT face=sans-serif size=2>2006</FONT> </TD>
     <TD align=left width="3%">&nbsp; </TD></TR>
<TR>
     <TD width="97%" colSpan=7>
<HR noShade SIZE=1>
</TD></TR>
<TR vAlign=bottom>
     <TD align=left width="46%">&nbsp;<U><FONT face=sans-serif size=2>Use of capital:</FONT></U>&nbsp; </TD>
     <TD align=left width="5%">&nbsp; </TD>
     <TD align=left width="21%"></TD>
     <TD align=left width="3%">&nbsp; </TD>
     <TD align=left width="11%">&nbsp; </TD>
     <TD align=left width="8%"></TD>
     <TD align=left width="3%">&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="46%">&nbsp;<FONT face=sans-serif size=2>Non-cash working capital</FONT>&nbsp; </TD>
     <TD align=right width="5%"><FONT face=sans-serif size=2>$</FONT>&nbsp; </TD>
     <TD align=right width="21%"><FONT face=sans-serif size=2>(50.8</FONT> </TD>
     <TD align=left width="3%"><FONT face=sans-serif size=2>)</FONT>&nbsp; </TD>
     <TD align=left width="11%">&nbsp;<FONT face=sans-serif size=2>$</FONT>&nbsp; </TD>
     <TD align=right width="8%"><FONT face=sans-serif size=2>(74.5</FONT> </TD>
     <TD align=left width="3%"><FONT face=sans-serif size=2>)</FONT>&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="46%">&nbsp;<FONT face=sans-serif size=2>Property, plant and equipment, net</FONT>&nbsp; </TD>
     <TD align=left width="5%">&nbsp; </TD>
     <TD align=right width="21%"><FONT face=sans-serif size=2>854.9</FONT> </TD>
     <TD align=left width="3%">&nbsp; </TD>
     <TD align=left width="11%">&nbsp; </TD>
     <TD align=right width="8%"><FONT face=sans-serif size=2>839.3</FONT> </TD>
     <TD align=left width="3%">&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="46%">&nbsp;<FONT face=sans-serif size=2>Other long-term assets</FONT>&nbsp; </TD>
     <TD align=left width="5%">&nbsp; </TD>
     <TD align=right width="21%"><FONT face=sans-serif size=2>323.4</FONT> </TD>
     <TD align=left width="3%">&nbsp; </TD>
     <TD align=left width="11%">&nbsp; </TD>
     <TD align=right width="8%"><FONT face=sans-serif size=2>329.7</FONT> </TD>
     <TD align=left width="3%">&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="46%">&nbsp;<FONT face=sans-serif size=2>Net assets held for sale (current and long-term)</FONT>&nbsp; </TD>
     <TD align=left width="5%">&nbsp; </TD>
     <TD align=right width="21%"><FONT face=sans-serif size=2>5.8</FONT> </TD>
     <TD align=left width="3%">&nbsp; </TD>
     <TD align=left width="11%">&nbsp; </TD>
     <TD align=right width="8%"><FONT face=sans-serif size=2>5.9</FONT> </TD>
     <TD align=left width="3%">&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="46%">&nbsp;<FONT face=sans-serif size=2>Other long-term liabilities</FONT>&nbsp; </TD>
     <TD align=left width="5%">&nbsp; </TD>
     <TD align=right width="21%"><FONT face=sans-serif size=2>(238.8</FONT> </TD>
     <TD align=left width="3%"><FONT face=sans-serif size=2>)</FONT>&nbsp; </TD>
     <TD align=left width="11%">&nbsp; </TD>
     <TD align=right width="8%"><FONT face=sans-serif size=2>(234.9</FONT> </TD>
     <TD align=left width="3%"><FONT face=sans-serif size=2>)</FONT>&nbsp; </TD></TR>
<TR>
     <TD width="97%" colSpan=7>
<HR noShade SIZE=1>
</TD></TR>
<TR vAlign=bottom>
     <TD align=left width="46%">&nbsp;<FONT face=sans-serif size=2>Total capital employed</FONT>&nbsp; </TD>
     <TD align=right width="5%"><FONT face=sans-serif size=2>$</FONT>&nbsp; </TD>
     <TD align=right width="21%"><FONT face=sans-serif size=2>894.5</FONT> </TD>
     <TD align=left width="3%">&nbsp; </TD>
     <TD align=left width="11%">&nbsp;<FONT face=sans-serif size=2>$</FONT>&nbsp; </TD>
     <TD align=right width="8%"><FONT face=sans-serif size=2>865.5</FONT> </TD>
     <TD align=left width="3%">&nbsp; </TD></TR>
<TR>
     <TD width="97%" colSpan=7>
<HR noShade SIZE=1>
</TD></TR>
<TR vAlign=bottom>
     <TD align=left width="46%">&nbsp;<U><FONT face=sans-serif size=2>Source of capital:</FONT></U>&nbsp; </TD>
     <TD align=left width="5%">&nbsp; </TD>
     <TD align=left width="21%"></TD>
     <TD align=left width="3%">&nbsp; </TD>
     <TD align=left width="11%">&nbsp; </TD>
     <TD align=left width="8%"></TD>
     <TD align=left width="3%">&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="46%">&nbsp;<FONT face=sans-serif size=2>Net debt</FONT>&nbsp; </TD>
     <TD align=right width="5%"><FONT face=sans-serif size=2>$</FONT>&nbsp; </TD>
     <TD align=right width="21%"><FONT face=sans-serif size=2>198.3</FONT> </TD>
     <TD align=left width="3%">&nbsp; </TD>
     <TD align=left width="11%">&nbsp;<FONT face=sans-serif size=2>$</FONT>&nbsp; </TD>
     <TD align=right width="8%"><FONT face=sans-serif size=2>190.2</FONT> </TD>
     <TD align=left width="3%">&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="46%">&nbsp;<FONT face=sans-serif size=2>Shareholders&#146; equity</FONT>&nbsp; </TD>
     <TD align=left width="5%">&nbsp; </TD>
     <TD align=right width="21%"><FONT face=sans-serif size=2>696.2</FONT> </TD>
     <TD align=left width="3%">&nbsp; </TD>
     <TD align=left width="11%">&nbsp; </TD>
     <TD align=right width="8%"><FONT face=sans-serif size=2>675.3</FONT> </TD>
     <TD align=left width="3%">&nbsp; </TD></TR>
<TR>
     <TD width="97%" colSpan=7>
<HR noShade SIZE=1>
</TD></TR>
<TR vAlign=bottom>
     <TD align=left width="46%">&nbsp;<FONT face=sans-serif size=2>Source of capital</FONT>&nbsp; </TD>
     <TD align=right width="5%"><FONT face=sans-serif size=2>$</FONT>&nbsp; </TD>
     <TD align=right width="21%"><FONT face=sans-serif size=2>894.5</FONT> </TD>
     <TD align=left width="3%">&nbsp; </TD>
     <TD align=left width="11%">&nbsp;<FONT face=sans-serif size=2>$</FONT>&nbsp; </TD>
     <TD align=right width="8%"><FONT face=sans-serif size=2>865.5</FONT> </TD>
     <TD align=left width="3%">&nbsp; </TD></TR>
<TR>
     <TD width="97%" colSpan=7>
<HR noShade SIZE=1>
</TD></TR></TABLE><BR>
<P align=left><B><FONT face=sans-serif size=2>Capital employed increased 3% this quarter </FONT></B></P>
<P align=left><FONT face=sans-serif size=2>The increase was mainly the result of higher non-cash working capital. </FONT></P>
<P align=left><FONT face=sans-serif size=2>Capital employed is a non-GAAP measure we use to monitor how much we&#146;re investing in our business. We measure it from two perspectives: </FONT></P>
<P align=left><I><FONT face=sans-serif size=2>Capital used</FONT></I><BR>
</P>
<UL>
<LI><FONT face=sans-serif size=2>For the company as a whole, we take total assets (not including cash and cash equivalents), and</FONT> <FONT face=sans-serif size=2>subtract total liabilities (not including long-term debt and its current portion).</FONT>
<LI><FONT face=sans-serif size=2>For each segment, we take the total assets (not including cash and cash equivalents, tax accounts</FONT> <FONT face=sans-serif size=2>and other non-operating assets), and subtract total liabilities (not including tax accounts, long-term</FONT> <FONT face=sans-serif size=2>debt and its current portion, or other non-operating liabilities).</FONT> </LI></UL>
<P align=left><I><FONT face=sans-serif size=2>Sources of capital</FONT></I></P>
<UL>
<LI><FONT face=sans-serif size=2>We add net debt to total shareholders&#146; equity to understand where our capital is coming from.</FONT> </LI></UL>
<P align=left><B><FONT face=sans-serif size=2>Non-cash working capital increased 32% this quarter </FONT></B></P>
<P align=left><FONT face=sans-serif size=2>The increase was mainly from higher accounts receivable. This was reduced slightly by the higher volume of business in the quarter, which increased deposits on contracts. </FONT></P>
<P align=left><FONT face=sans-serif size=2>25</FONT></P>
<HR align=center width="100%" noShade SIZE=2>
<BR>

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<P align=left><B><FONT face=sans-serif size=2>MANAGEMENT&#146;S DISCUSSION AND ANALYSIS</FONT></B><BR>
</P>
<P align=left><FONT face=sans-serif size=2>FIRST QUARTER REPORT 2007</FONT><BR>
</P>
<P align=left><FONT face=sans-serif size=2>Non-cash working capital is a non-GAAP measure we use to monitor how much money we have tied up in the day-to-day operation of our business. We calculate it by taking current assets (not including cash and cash equivalents or the current portion of assets held for sale) and subtracting current liabilities (not including the current portion of long-term debt or the current portion of liabilities related to assets held for sale).</FONT></P>
<P align=left><B><FONT face=sans-serif size=2>Net property, plant and equipment up 2% over last quarter </FONT></B></P>
<P align=left><FONT face=sans-serif size=2>The increase was for $40.7 million in new capital expenditures. This was reduced slightly by normal depreciation and the effects of foreign exchange. </FONT></P>
<P align=left><B><FONT face=sans-serif size=2>Net debt up by 4% over last quarter </FONT></B></P>
<P align=left><FONT face=sans-serif size=2>This was mainly the result of a $15.6 million net decrease in cash this quarter, before repayment of long-term debt. The amount was reduced slightly by the stronger Canadian dollar relative to our foreign denominated debt. </FONT></P>
<P align=left><FONT face=sans-serif size=2>Net debt is a non-GAAP measure we use to monitor how much debt we have after taking into account liquid assets such as cash and cash equivalents. We use it as an indicator of our overall financial position, and calculate it by taking our total long-term debt (debt that matures in more than one year), including the current portion, and subtracting cash and cash equivalents.</FONT></P>
<TABLE cellSpacing=0 cellPadding=0 border=0>
<TR vAlign=bottom>
     <TD align=left width="67%"><B><FONT face=sans-serif size=2>Change in net debt</FONT></B>&nbsp; </TD>
     <TD align=left width="13%">&nbsp; </TD>
     <TD align=left width="13%"></TD>
     <TD align=left width="4%">&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="67%"><FONT face=sans-serif size=2>As at June 30, 2006 (millions)</FONT>&nbsp; </TD>
     <TD align=left width="13%">&nbsp; </TD>
     <TD align=left width="13%"></TD>
     <TD align=left width="4%">&nbsp; </TD></TR>
<TR>
     <TD width="97%" colSpan=4>
<HR noShade SIZE=1>
</TD></TR>
<TR vAlign=bottom>
     <TD align=left width="67%"><FONT face=sans-serif size=2>Net debt, beginning of period</FONT>&nbsp; </TD>
     <TD align=left width="13%"><FONT face=sans-serif size=2>$</FONT>&nbsp; </TD>
     <TD align=right width="13%"><FONT face=sans-serif size=2>190.2</FONT> </TD>
     <TD align=left width="4%">&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="67%"><FONT face=sans-serif size=2>+ impact of cash movements on net debt</FONT>&nbsp; </TD>
     <TD align=left width="13%">&nbsp; </TD>
     <TD align=left width="13%"></TD>
     <TD align=left width="4%">&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="67%"><FONT face=sans-serif size=2>(see table in the cash movements section)</FONT>&nbsp; </TD>
     <TD align=left width="13%">&nbsp; </TD>
     <TD align=right width="13%"><FONT face=sans-serif size=2>15.6</FONT> </TD>
     <TD align=left width="4%">&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="67%"><FONT face=sans-serif size=2>- effect of foreign exchange rate changes</FONT>&nbsp; </TD>
     <TD align=left width="13%">&nbsp; </TD>
     <TD align=left width="13%"></TD>
     <TD align=left width="4%">&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="67%"><FONT face=sans-serif size=2>on long-term debt</FONT>&nbsp; </TD>
     <TD align=left width="13%">&nbsp; </TD>
     <TD align=right width="13%"><FONT face=sans-serif size=2>(7.5</FONT> </TD>
     <TD align=left width="4%"><FONT face=sans-serif size=2>)</FONT>&nbsp; </TD></TR>
<TR>
     <TD width="97%" colSpan=4>
<HR noShade SIZE=1>
</TD></TR>
<TR vAlign=bottom>
     <TD align=left width="67%"><FONT face=sans-serif size=2>+ increase in net debt during the period</FONT>&nbsp; </TD>
     <TD align=left width="13%">&nbsp; </TD>
     <TD align=right width="13%"><FONT face=sans-serif size=2>8.1</FONT> </TD>
     <TD align=left width="4%">&nbsp; </TD></TR>
<TR>
     <TD width="97%" colSpan=4>
<HR noShade SIZE=1>
</TD></TR>
<TR vAlign=bottom>
     <TD align=left width="67%"><FONT face=sans-serif size=2>Net debt, end of period</FONT>&nbsp; </TD>
     <TD align=left width="13%"><FONT face=sans-serif size=2>$</FONT>&nbsp; </TD>
     <TD align=right width="13%"><FONT face=sans-serif size=2>198.3</FONT> </TD>
     <TD align=left width="4%">&nbsp; </TD></TR>
<TR>
     <TD width="97%" colSpan=4>
<HR noShade SIZE=1>
</TD></TR></TABLE><BR>
<P align=left><FONT face=sans-serif size=2>26</FONT></P>
<HR align=center width="100%" noShade SIZE=2>
<BR>
<BR>

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<A name="page_34"></A>
<TABLE cellSpacing=0 cellPadding=0 border=0>
<TR vAlign=bottom>
     <TD align=left width="58%"><FONT face=sans-serif color=#0000ff size=4>Consolidated Balance Sheets</FONT>&nbsp; </TD>
     <TD align=left width="4%">&nbsp; </TD>
     <TD align=left width="13%"></TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=left width="2%"></TD>
     <TD align=left width="15%"></TD>
     <TD align=left width="2%">&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="58%"><FONT face=sans-serif size=1>(Unaudited)</FONT>&nbsp; </TD>
     <TD align=left width="4%">&nbsp; </TD>
     <TD align=right width="13%"><B><FONT face=sans-serif size=1>as at June 30</FONT></B> </TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=left width="2%"></TD>
     <TD align=right width="15%"><FONT face=sans-serif size=1>as at March 31</FONT> </TD>
     <TD align=left width="2%">&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="58%"><FONT face=sans-serif size=1>(amounts in millions of Canadian dollars)</FONT>&nbsp; </TD>
     <TD align=left width="4%">&nbsp; </TD>
     <TD align=right width="13%"><B><FONT face=sans-serif size=1>2006</FONT></B> </TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=left width="2%"></TD>
     <TD align=right width="15%"><FONT face=sans-serif size=1>2006</FONT> </TD>
     <TD align=left width="2%">&nbsp; </TD></TR>
<TR>
     <TD width="96%" colSpan=7>
<HR noShade SIZE=1>
</TD></TR>
<TR vAlign=bottom>
     <TD align=left width="58%"><FONT face=sans-serif color=#0000ff size=2>Assets</FONT>&nbsp; </TD>
     <TD align=left width="4%">&nbsp; </TD>
     <TD align=left width="13%"></TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=left width="2%"></TD>
     <TD align=left width="15%"></TD>
     <TD align=left width="2%">&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="58%"><I><FONT face=sans-serif size=2>Current assets</FONT></I>&nbsp; </TD>
     <TD align=left width="4%">&nbsp; </TD>
     <TD align=left width="13%"></TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=left width="2%"></TD>
     <TD align=left width="15%"></TD>
     <TD align=left width="2%">&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="58%">&nbsp; &nbsp; &nbsp; &nbsp;<FONT face=sans-serif size=2>Cash and cash equivalents</FONT>&nbsp; </TD>
     <TD align=left width="4%"><B><FONT face=sans-serif size=2>$</FONT></B>&nbsp; </TD>
     <TD align=right width="13%"><B><FONT face=sans-serif size=2>72.3</FONT></B> </TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=right width="2%"><FONT face=sans-serif size=2>$</FONT> </TD>
     <TD align=right width="15%"><FONT face=sans-serif size=2>81.1</FONT> </TD>
     <TD align=left width="2%">&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="58%">&nbsp; &nbsp; &nbsp; &nbsp;<FONT face=sans-serif size=2>Accounts receivable</FONT>&nbsp; </TD>
     <TD align=left width="4%">&nbsp; </TD>
     <TD align=right width="13%"><B><FONT face=sans-serif size=2>287.2</FONT></B> </TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=left width="2%"></TD>
     <TD align=right width="15%"><FONT face=sans-serif size=2>260.3</FONT> </TD>
     <TD align=left width="2%">&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="58%">&nbsp; &nbsp; &nbsp; &nbsp;<FONT face=sans-serif size=2>Inventories</FONT>&nbsp; </TD>
     <TD align=left width="4%">&nbsp; </TD>
     <TD align=right width="13%"><B><FONT face=sans-serif size=2>86.9</FONT></B> </TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=left width="2%"></TD>
     <TD align=right width="15%"><FONT face=sans-serif size=2>93.2</FONT> </TD>
     <TD align=left width="2%">&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="58%">&nbsp; &nbsp; &nbsp; &nbsp;<FONT face=sans-serif size=2>Prepaid expenses</FONT>&nbsp; </TD>
     <TD align=left width="4%">&nbsp; </TD>
     <TD align=right width="13%"><B><FONT face=sans-serif size=2>22.0</FONT></B> </TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=left width="2%"></TD>
     <TD align=right width="15%"><FONT face=sans-serif size=2>25.2</FONT> </TD>
     <TD align=left width="2%">&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="58%">&nbsp; &nbsp; &nbsp; &nbsp;<FONT face=sans-serif size=2>Income taxes recoverable</FONT>&nbsp; </TD>
     <TD align=left width="4%">&nbsp; </TD>
     <TD align=right width="13%"><B><FONT face=sans-serif size=2>81.4</FONT></B> </TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=left width="2%"></TD>
     <TD align=right width="15%"><FONT face=sans-serif size=2>75.7</FONT> </TD>
     <TD align=left width="2%">&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="58%">&nbsp; &nbsp; &nbsp; &nbsp;<FONT face=sans-serif size=2>Future income taxes</FONT>&nbsp; </TD>
     <TD align=left width="4%">&nbsp; </TD>
     <TD align=right width="13%"><B><FONT face=sans-serif size=2>5.5</FONT></B> </TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=left width="2%"></TD>
     <TD align=right width="15%"><FONT face=sans-serif size=2>5.7</FONT> </TD>
     <TD align=left width="2%">&nbsp; </TD></TR>
<TR>
     <TD width="96%" colSpan=7>
<HR noShade SIZE=1>
</TD></TR>
<TR vAlign=bottom>
     <TD align=left width="58%">&nbsp; </TD>
     <TD align=left width="4%">&nbsp; </TD>
     <TD align=right width="13%"><B><FONT face=sans-serif size=2>555.3</FONT></B> </TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=left width="2%"></TD>
     <TD align=right width="15%"><FONT face=sans-serif size=2>541.2</FONT> </TD>
     <TD align=left width="2%">&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="58%"><FONT face=sans-serif size=2>Property, plant and equipment, net</FONT>&nbsp; </TD>
     <TD align=left width="4%">&nbsp; </TD>
     <TD align=right width="13%"><B><FONT face=sans-serif size=2>854.9</FONT></B> </TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=left width="2%"></TD>
     <TD align=right width="15%"><FONT face=sans-serif size=2>839.3</FONT> </TD>
     <TD align=left width="2%">&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="58%"><FONT face=sans-serif size=2>Future income taxes</FONT>&nbsp; </TD>
     <TD align=left width="4%">&nbsp; </TD>
     <TD align=right width="13%"><B><FONT face=sans-serif size=2>74.6</FONT></B> </TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=left width="2%"></TD>
     <TD align=right width="15%"><FONT face=sans-serif size=2>78.2</FONT> </TD>
     <TD align=left width="2%">&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="58%"><FONT face=sans-serif size=2>Intangible assets</FONT>&nbsp; </TD>
     <TD align=left width="4%">&nbsp; </TD>
     <TD align=right width="13%"><B><FONT face=sans-serif size=2>23.6</FONT></B> </TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=left width="2%"></TD>
     <TD align=right width="15%"><FONT face=sans-serif size=2>23.3</FONT> </TD>
     <TD align=left width="2%">&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="58%"><FONT face=sans-serif size=2>Goodwill</FONT>&nbsp; </TD>
     <TD align=left width="4%">&nbsp; </TD>
     <TD align=right width="13%"><B><FONT face=sans-serif size=2>88.8</FONT></B> </TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=left width="2%"></TD>
     <TD align=right width="15%"><FONT face=sans-serif size=2>92.0</FONT> </TD>
     <TD align=left width="2%">&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="58%"><FONT face=sans-serif size=2>Other assets</FONT>&nbsp; </TD>
     <TD align=left width="4%">&nbsp; </TD>
     <TD align=right width="13%"><B><FONT face=sans-serif size=2>136.4</FONT></B> </TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=left width="2%"></TD>
     <TD align=right width="15%"><FONT face=sans-serif size=2>136.2</FONT> </TD>
     <TD align=left width="2%">&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="58%"><FONT face=sans-serif size=2>Long-term assets held for sale (Note 2)</FONT>&nbsp; </TD>
     <TD align=left width="4%">&nbsp; </TD>
     <TD align=right width="13%"><B><FONT face=sans-serif size=2>5.8</FONT></B> </TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=left width="2%"></TD>
     <TD align=right width="15%"><FONT face=sans-serif size=2>5.9</FONT> </TD>
     <TD align=left width="2%">&nbsp; </TD></TR>
<TR>
     <TD width="96%" colSpan=7>
<HR noShade SIZE=1>
</TD></TR>
<TR vAlign=bottom>
     <TD align=left width="58%">&nbsp; </TD>
     <TD align=left width="4%"><B><FONT face=sans-serif size=2>$</FONT></B>&nbsp; </TD>
     <TD align=right width="13%"><B><FONT face=sans-serif size=2>1,739.4</FONT></B> </TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=right width="2%"><FONT face=sans-serif size=2>$</FONT> </TD>
     <TD align=right width="15%"><FONT face=sans-serif size=2>1,716.1</FONT> </TD>
     <TD align=left width="2%">&nbsp; </TD></TR>
<TR>
     <TD width="96%" colSpan=7>
<HR noShade SIZE=1>
</TD></TR>
<TR vAlign=bottom>
     <TD align=left width="58%"><FONT face=sans-serif color=#0000ff size=2>Liabilities and Shareholders&#146; Equity</FONT>&nbsp; </TD>
     <TD align=left width="4%">&nbsp; </TD>
     <TD align=left width="13%"></TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=left width="2%"></TD>
     <TD align=left width="15%"></TD>
     <TD align=left width="2%">&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="58%"><I><FONT face=sans-serif size=2>Current liabilities</FONT></I>&nbsp; </TD>
     <TD align=left width="4%">&nbsp; </TD>
     <TD align=left width="13%"></TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=left width="2%"></TD>
     <TD align=left width="15%"></TD>
     <TD align=left width="2%">&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="58%">&nbsp; &nbsp; &nbsp; &nbsp;<FONT face=sans-serif size=2>Accounts payable and accrued liabilities</FONT>&nbsp; </TD>
     <TD align=left width="4%"><B><FONT face=sans-serif size=2>$</FONT></B>&nbsp; </TD>
     <TD align=right width="13%"><B><FONT face=sans-serif size=2>357.1</FONT></B> </TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=right width="2%"><FONT face=sans-serif size=2>$</FONT> </TD>
     <TD align=right width="15%"><FONT face=sans-serif size=2>373.7</FONT> </TD>
     <TD align=left width="2%">&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="58%">&nbsp; &nbsp; &nbsp; &nbsp;<FONT face=sans-serif size=2>Deposits on contracts</FONT>&nbsp; </TD>
     <TD align=left width="4%">&nbsp; </TD>
     <TD align=right width="13%"><B><FONT face=sans-serif size=2>160.7</FONT></B> </TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=left width="2%"></TD>
     <TD align=right width="15%"><FONT face=sans-serif size=2>146.4</FONT> </TD>
     <TD align=left width="2%">&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="58%">&nbsp; &nbsp; &nbsp; &nbsp;<FONT face=sans-serif size=2>Current portion of long-term debt</FONT>&nbsp; </TD>
     <TD align=left width="4%">&nbsp; </TD>
     <TD align=right width="13%"><B><FONT face=sans-serif size=2>27.0</FONT></B> </TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=left width="2%"></TD>
     <TD align=right width="15%"><FONT face=sans-serif size=2>10.4</FONT> </TD>
     <TD align=left width="2%">&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="58%">&nbsp; &nbsp; &nbsp; &nbsp;<FONT face=sans-serif size=2>Future income taxes</FONT>&nbsp; </TD>
     <TD align=left width="4%">&nbsp; </TD>
     <TD align=right width="13%"><B><FONT face=sans-serif size=2>16.0</FONT></B> </TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=left width="2%"></TD>
     <TD align=right width="15%"><FONT face=sans-serif size=2>14.5</FONT> </TD>
     <TD align=left width="2%">&nbsp; </TD></TR>
<TR>
     <TD width="96%" colSpan=7>
<HR noShade SIZE=1>
</TD></TR>
<TR vAlign=bottom>
     <TD align=left width="58%">&nbsp; </TD>
     <TD align=left width="4%">&nbsp; </TD>
     <TD align=right width="13%"><B><FONT face=sans-serif size=2>560.8</FONT></B> </TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=left width="2%"></TD>
     <TD align=right width="15%"><FONT face=sans-serif size=2>545.0</FONT> </TD>
     <TD align=left width="2%">&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="58%"><FONT face=sans-serif size=2>Long-term debt</FONT>&nbsp; </TD>
     <TD align=left width="4%">&nbsp; </TD>
     <TD align=right width="13%"><B><FONT face=sans-serif size=2>243.6</FONT></B> </TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=left width="2%"></TD>
     <TD align=right width="15%"><FONT face=sans-serif size=2>260.9</FONT> </TD>
     <TD align=left width="2%">&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="58%"><FONT face=sans-serif size=2>Deferred gains and other long-term liabilities</FONT>&nbsp; </TD>
     <TD align=left width="4%">&nbsp; </TD>
     <TD align=right width="13%"><B><FONT face=sans-serif size=2>206.6</FONT></B> </TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=left width="2%"></TD>
     <TD align=right width="15%"><FONT face=sans-serif size=2>206.5</FONT> </TD>
     <TD align=left width="2%">&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="58%"><FONT face=sans-serif size=2>Future income taxes</FONT>&nbsp; </TD>
     <TD align=left width="4%">&nbsp; </TD>
     <TD align=right width="13%"><B><FONT face=sans-serif size=2>32.2</FONT></B> </TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=left width="2%"></TD>
     <TD align=right width="15%"><FONT face=sans-serif size=2>28.4</FONT> </TD>
     <TD align=left width="2%">&nbsp; </TD></TR>
<TR>
     <TD width="96%" colSpan=7>
<HR noShade SIZE=1>
</TD></TR>
<TR vAlign=bottom>
     <TD align=left width="58%">&nbsp; </TD>
     <TD align=left width="4%">&nbsp; </TD>
     <TD align=right width="13%"><B><FONT face=sans-serif size=2>1,043.2</FONT></B> </TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=left width="2%"></TD>
     <TD align=right width="15%"><FONT face=sans-serif size=2>1,040.8</FONT> </TD>
     <TD align=left width="2%">&nbsp; </TD></TR>
<TR>
     <TD width="96%" colSpan=7>
<HR noShade SIZE=1>
</TD></TR>
<TR vAlign=bottom>
     <TD align=left width="58%"><FONT face=sans-serif color=#0000ff size=2>Shareholders&#146; Equity</FONT>&nbsp; </TD>
     <TD align=left width="4%">&nbsp; </TD>
     <TD align=left width="13%"></TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=left width="2%"></TD>
     <TD align=left width="15%"></TD>
     <TD align=left width="2%">&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="58%"><FONT face=sans-serif size=2>Capital stock (Note 4)</FONT>&nbsp; </TD>
     <TD align=left width="4%">&nbsp; </TD>
     <TD align=right width="13%"><B><FONT face=sans-serif size=2>391.9</FONT></B> </TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=left width="2%"></TD>
     <TD align=right width="15%"><FONT face=sans-serif size=2>389.0</FONT> </TD>
     <TD align=left width="2%">&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="58%"><FONT face=sans-serif size=2>Contributed surplus</FONT>&nbsp; </TD>
     <TD align=left width="4%">&nbsp; </TD>
     <TD align=right width="13%"><B><FONT face=sans-serif size=2>4.9</FONT></B> </TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=left width="2%"></TD>
     <TD align=right width="15%"><FONT face=sans-serif size=2>5.8</FONT> </TD>
     <TD align=left width="2%">&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="58%"><FONT face=sans-serif size=2>Retained earnings</FONT>&nbsp; </TD>
     <TD align=left width="4%">&nbsp; </TD>
     <TD align=right width="13%"><B><FONT face=sans-serif size=2>425.9</FONT></B> </TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=left width="2%"></TD>
     <TD align=right width="15%"><FONT face=sans-serif size=2>395.7</FONT> </TD>
     <TD align=left width="2%">&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="58%"><FONT face=sans-serif size=2>Cumulative translation adjustment</FONT>&nbsp; </TD>
     <TD align=left width="4%">&nbsp; </TD>
     <TD align=right width="13%"><B><FONT face=sans-serif size=2>(126.5</FONT></B> </TD>
     <TD align=left width="2%"><B><FONT face=sans-serif size=2>)</FONT></B>&nbsp; </TD>
     <TD align=left width="2%"></TD>
     <TD align=right width="15%"><FONT face=sans-serif size=2>(115.2</FONT> </TD>
     <TD align=left width="2%"><FONT face=sans-serif size=2>)</FONT>&nbsp; </TD></TR>
<TR>
     <TD width="96%" colSpan=7>
<HR noShade SIZE=1>
</TD></TR>
<TR vAlign=bottom>
     <TD align=left width="58%">&nbsp; </TD>
     <TD align=left width="4%">&nbsp; </TD>
     <TD align=right width="13%"><B><FONT face=sans-serif size=2>696.2</FONT></B> </TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=left width="2%"></TD>
     <TD align=right width="15%"><FONT face=sans-serif size=2>675.3</FONT> </TD>
     <TD align=left width="2%">&nbsp; </TD></TR>
<TR>
     <TD width="96%" colSpan=7>
<HR noShade SIZE=1>
</TD></TR>
<TR vAlign=bottom>
     <TD align=left width="58%">&nbsp; </TD>
     <TD align=left width="4%"><B><FONT face=sans-serif size=2>$</FONT></B>&nbsp; </TD>
     <TD align=right width="13%"><B><FONT face=sans-serif size=2>1,739.4</FONT></B> </TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=right width="2%"><FONT face=sans-serif size=2>$</FONT> </TD>
     <TD align=right width="15%"><FONT face=sans-serif size=2>1,716.1</FONT> </TD>
     <TD align=left width="2%">&nbsp; </TD></TR>
<TR>
     <TD width="96%" colSpan=7>
<HR noShade SIZE=1>
</TD></TR>
<TR vAlign=bottom>
     <TD align=left width="58%"><FONT face=sans-serif size=1>The accompanying notes form an integral part of these Consolidated Financial Statements.</FONT>&nbsp; </TD>
     <TD align=left width="4%">&nbsp; </TD>
     <TD align=left width="13%"></TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=left width="2%"></TD>
     <TD align=left width="15%"></TD>
     <TD align=left width="2%">&nbsp; </TD></TR></TABLE><BR>
<HR align=center width="100%" noShade SIZE=2>
<BR>

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<A name="page_35"></A>
<TABLE cellSpacing=0 cellPadding=0 border=0>
<TR vAlign=bottom>
     <TD align=left width="67%"><FONT face=sans-serif color=#0000ff size=4>Consolidated Statements of Earnings</FONT>&nbsp; </TD>
     <TD align=left width="7%">&nbsp; </TD>
     <TD align=left width="8%"></TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=left width="5%">&nbsp; </TD>
     <TD align=left width="5%"></TD>
     <TD align=left width="2%">&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="67%"><FONT face=sans-serif size=1>(Unaudited)</FONT>&nbsp; </TD>
     <TD align=left width="7%">&nbsp; </TD>
     <TD align=left width="8%"></TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=left width="5%">&nbsp; </TD>
     <TD align=left width="5%"></TD>
     <TD align=left width="2%">&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="67%"><FONT face=sans-serif size=1>three months ended June 30 (amounts in millions of Canadian dollars, except per share amounts)</FONT>&nbsp; </TD>
     <TD align=left width="7%">&nbsp; </TD>
     <TD align=right width="8%"><B><FONT face=sans-serif size=1>2006</FONT></B> </TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=left width="5%">&nbsp; </TD>
     <TD align=right width="5%"><FONT face=sans-serif size=1>2005</FONT> </TD>
     <TD align=left width="2%">&nbsp; </TD></TR>
<TR>
     <TD width="96%" colSpan=7>
<HR noShade SIZE=1>
</TD></TR>
<TR vAlign=bottom>
     <TD align=left width="67%"><FONT face=sans-serif size=2>Revenue</FONT>&nbsp; </TD>
     <TD align=left width="7%"><B><FONT face=sans-serif size=2>$</FONT></B>&nbsp; </TD>
     <TD align=right width="8%"><B><FONT face=sans-serif size=2>301.8</FONT></B> </TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=right width="5%"><FONT face=sans-serif size=2>$</FONT>&nbsp; </TD>
     <TD align=right width="5%"><FONT face=sans-serif size=2>266.0</FONT> </TD>
     <TD align=left width="2%">&nbsp; </TD></TR>
<TR>
     <TD width="96%" colSpan=7>
<HR noShade SIZE=1>
</TD></TR>
<TR vAlign=bottom>
     <TD align=left width="67%"><FONT face=sans-serif size=2>Earnings before interest and income taxes (Note 9)</FONT>&nbsp; </TD>
     <TD align=left width="7%"><B><FONT face=sans-serif size=2>$</FONT></B>&nbsp; </TD>
     <TD align=right width="8%"><B><FONT face=sans-serif size=2>47.5</FONT></B> </TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=right width="5%"><FONT face=sans-serif size=2>$</FONT>&nbsp; </TD>
     <TD align=right width="5%"><FONT face=sans-serif size=2>35.9</FONT> </TD>
     <TD align=left width="2%">&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="67%"><FONT face=sans-serif size=2>Interest expense, net (Note 3)</FONT>&nbsp; </TD>
     <TD align=left width="7%">&nbsp; </TD>
     <TD align=right width="8%"><B><FONT face=sans-serif size=2>3.0</FONT></B> </TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=left width="5%">&nbsp; </TD>
     <TD align=right width="5%"><FONT face=sans-serif size=2>4.8</FONT> </TD>
     <TD align=left width="2%">&nbsp; </TD></TR>
<TR>
     <TD width="96%" colSpan=7>
<HR noShade SIZE=1>
</TD></TR>
<TR vAlign=bottom>
     <TD align=left width="67%"><FONT face=sans-serif size=2>Earnings before income taxes</FONT>&nbsp; </TD>
     <TD align=left width="7%"><B><FONT face=sans-serif size=2>$</FONT></B>&nbsp; </TD>
     <TD align=right width="8%"><B><FONT face=sans-serif size=2>44.5</FONT></B> </TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=right width="5%"><FONT face=sans-serif size=2>$</FONT>&nbsp; </TD>
     <TD align=right width="5%"><FONT face=sans-serif size=2>31.1</FONT> </TD>
     <TD align=left width="2%">&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="67%"><FONT face=sans-serif size=2>Income tax expense</FONT>&nbsp; </TD>
     <TD align=left width="7%">&nbsp; </TD>
     <TD align=right width="8%"><B><FONT face=sans-serif size=2>11.2</FONT></B> </TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=left width="5%">&nbsp; </TD>
     <TD align=right width="5%"><FONT face=sans-serif size=2>10.3</FONT> </TD>
     <TD align=left width="2%">&nbsp; </TD></TR>
<TR>
     <TD width="96%" colSpan=7>
<HR noShade SIZE=1>
</TD></TR>
<TR vAlign=bottom>
     <TD align=left width="67%"><FONT face=sans-serif size=2>Earnings from continuing operations</FONT>&nbsp; </TD>
     <TD align=left width="7%"><B><FONT face=sans-serif size=2>$</FONT></B>&nbsp; </TD>
     <TD align=right width="8%"><B><FONT face=sans-serif size=2>33.3</FONT></B> </TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=right width="5%"><FONT face=sans-serif size=2>$</FONT>&nbsp; </TD>
     <TD align=right width="5%"><FONT face=sans-serif size=2>20.8</FONT> </TD>
     <TD align=left width="2%">&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="67%"><FONT face=sans-serif size=2>Results of discontinued operations (Note 2)</FONT>&nbsp; </TD>
     <TD align=left width="7%">&nbsp; </TD>
     <TD align=right width="8%"><B><FONT face=sans-serif size=2>(0.6</FONT></B> </TD>
     <TD align=left width="2%"><B><FONT face=sans-serif size=2>)</FONT></B>&nbsp; </TD>
     <TD align=left width="5%">&nbsp; </TD>
     <TD align=right width="5%"><FONT face=sans-serif size=2>-</FONT> </TD>
     <TD align=left width="2%">&nbsp; </TD></TR>
<TR>
     <TD width="96%" colSpan=7>
<HR noShade SIZE=1>
</TD></TR>
<TR vAlign=bottom>
     <TD align=left width="67%"><B><FONT face=sans-serif size=2>Net earnings</FONT></B>&nbsp; </TD>
     <TD align=left width="7%"><B><FONT face=sans-serif size=2>$</FONT></B>&nbsp; </TD>
     <TD align=right width="8%"><B><FONT face=sans-serif size=2>32.7</FONT></B> </TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=right width="5%"><FONT face=sans-serif size=2>$</FONT>&nbsp; </TD>
     <TD align=right width="5%"><FONT face=sans-serif size=2>20.8</FONT> </TD>
     <TD align=left width="2%">&nbsp; </TD></TR>
<TR>
     <TD width="96%" colSpan=7>
<HR noShade SIZE=1>
</TD></TR>
<TR vAlign=bottom>
     <TD align=left width="67%"><B><FONT face=sans-serif size=2>Basic and Diluted earnings per share from continuing operations</FONT></B>&nbsp; </TD>
     <TD align=left width="7%"><B><FONT face=sans-serif size=2>$</FONT></B>&nbsp; </TD>
     <TD align=right width="8%"><B><FONT face=sans-serif size=2>0.13</FONT></B> </TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=right width="5%"><FONT face=sans-serif size=2>$</FONT>&nbsp; </TD>
     <TD align=right width="5%"><FONT face=sans-serif size=2>0.08</FONT> </TD>
     <TD align=left width="2%">&nbsp; </TD></TR>
<TR>
     <TD width="96%" colSpan=7>
<HR noShade SIZE=1>
</TD></TR>
<TR vAlign=bottom>
     <TD align=left width="67%"><B><FONT face=sans-serif size=2>Basic and Diluted earnings per share</FONT></B>&nbsp; </TD>
     <TD align=left width="7%"><B><FONT face=sans-serif size=2>$</FONT></B>&nbsp; </TD>
     <TD align=right width="8%"><B><FONT face=sans-serif size=2>0.13</FONT></B> </TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=right width="5%"><FONT face=sans-serif size=2>$</FONT>&nbsp; </TD>
     <TD align=right width="5%"><FONT face=sans-serif size=2>0.08</FONT> </TD>
     <TD align=left width="2%">&nbsp; </TD></TR>
<TR>
     <TD width="96%" colSpan=7>
<HR noShade SIZE=1>
</TD></TR>
<TR vAlign=bottom>
     <TD align=left width="67%"><FONT face=sans-serif size=2>Weighted average number of shares outstanding (Basic)</FONT>&nbsp; </TD>
     <TD align=left width="7%">&nbsp; </TD>
     <TD align=right width="8%"><B><FONT face=sans-serif size=2>250.8</FONT></B> </TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=left width="5%">&nbsp; </TD>
     <TD align=right width="5%"><FONT face=sans-serif size=2>248.8</FONT> </TD>
     <TD align=left width="2%">&nbsp; </TD></TR>
<TR>
     <TD width="96%" colSpan=7>
<HR noShade SIZE=1>
</TD></TR>
<TR vAlign=bottom>
     <TD align=left width="67%"><FONT face=sans-serif size=1>The accompanying notes form an integral part of these Consolidated Financial Statements.</FONT>&nbsp; </TD>
     <TD align=left width="7%">&nbsp; </TD>
     <TD align=left width="8%"></TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=left width="5%">&nbsp; </TD>
     <TD align=left width="5%"></TD>
     <TD align=left width="2%">&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="67%"><FONT face=sans-serif color=#0000ff size=4>Consolidated Statements of Retained Earnings</FONT>&nbsp; </TD>
     <TD align=left width="7%">&nbsp; </TD>
     <TD align=left width="8%"></TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=left width="5%">&nbsp; </TD>
     <TD align=left width="5%"></TD>
     <TD align=left width="2%">&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="67%"><FONT face=sans-serif size=1>(Unaudited)</FONT>&nbsp; </TD>
     <TD align=left width="7%">&nbsp; </TD>
     <TD align=left width="8%"></TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=left width="5%">&nbsp; </TD>
     <TD align=left width="5%"></TD>
     <TD align=left width="2%">&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="67%"><FONT face=sans-serif size=1>three months ended June 30 (amounts in millions of Canadian dollars)</FONT>&nbsp; </TD>
     <TD align=left width="7%">&nbsp; </TD>
     <TD align=right width="8%"><B><FONT face=sans-serif size=1>2006</FONT></B> </TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=left width="5%">&nbsp; </TD>
     <TD align=right width="5%"><B><FONT face=sans-serif size=1>2005</FONT></B> </TD>
     <TD align=left width="2%">&nbsp; </TD></TR>
<TR>
     <TD width="96%" colSpan=7>
<HR noShade SIZE=1>
</TD></TR>
<TR vAlign=bottom>
     <TD align=left width="67%"><FONT face=sans-serif size=2>Retained earnings at beginning of period</FONT>&nbsp; </TD>
     <TD align=left width="7%"><B><FONT face=sans-serif size=2>$</FONT></B>&nbsp; </TD>
     <TD align=right width="8%"><B><FONT face=sans-serif size=2>395.7</FONT></B> </TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=right width="5%"><FONT face=sans-serif size=2>$</FONT>&nbsp; </TD>
     <TD align=right width="5%"><FONT face=sans-serif size=2>340.8</FONT> </TD>
     <TD align=left width="2%">&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="67%"><FONT face=sans-serif size=2>Net earnings</FONT>&nbsp; </TD>
     <TD align=left width="7%">&nbsp; </TD>
     <TD align=right width="8%"><B><FONT face=sans-serif size=2>32.7</FONT></B> </TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=left width="5%">&nbsp; </TD>
     <TD align=right width="5%"><FONT face=sans-serif size=2>20.8</FONT> </TD>
     <TD align=left width="2%">&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="67%"><FONT face=sans-serif size=2>Dividends</FONT>&nbsp; </TD>
     <TD align=left width="7%">&nbsp; </TD>
     <TD align=right width="8%"><B><FONT face=sans-serif size=2>(2.5</FONT></B> </TD>
     <TD align=left width="2%"><B><FONT face=sans-serif size=2>)</FONT></B>&nbsp; </TD>
     <TD align=left width="5%">&nbsp; </TD>
     <TD align=right width="5%"><FONT face=sans-serif size=2>(2.5</FONT> </TD>
     <TD align=left width="2%"><FONT face=sans-serif size=2>)</FONT>&nbsp; </TD></TR>
<TR>
     <TD width="96%" colSpan=7>
<HR noShade SIZE=1>
</TD></TR>
<TR vAlign=bottom>
     <TD align=left width="67%"><FONT face=sans-serif size=2>Retained earnings at end of period</FONT>&nbsp; </TD>
     <TD align=left width="7%"><B><FONT face=sans-serif size=2>$</FONT></B>&nbsp; </TD>
     <TD align=right width="8%"><B><FONT face=sans-serif size=2>425.9</FONT></B> </TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=right width="5%"><FONT face=sans-serif size=2>$</FONT>&nbsp; </TD>
     <TD align=right width="5%"><FONT face=sans-serif size=2>359.1</FONT> </TD>
     <TD align=left width="2%">&nbsp; </TD></TR>
<TR>
     <TD width="96%" colSpan=7>
<HR noShade SIZE=2>
</TD></TR>
<TR vAlign=bottom>
     <TD align=left width="67%"><FONT face=sans-serif size=1>The accompanying notes form an integral part of these Consolidated Financial Statements.</FONT>&nbsp; </TD>
     <TD align=left width="7%">&nbsp; </TD>
     <TD align=left width="8%"></TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=left width="5%">&nbsp; </TD>
     <TD align=left width="5%"></TD>
     <TD align=left width="2%">&nbsp; </TD></TR></TABLE><BR>
<P align=right><FONT face=serif>2</FONT></P>
<HR align=center width="100%" noShade SIZE=2>
<BR>
<BR>

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<A name="page_36"></A>
<TABLE cellSpacing=0 cellPadding=0 border=0>
<TR vAlign=bottom>
     <TD align=left width="63%"><FONT face=sans-serif color=#0000ff size=4>Consolidated Statements of Cash Flow</FONT>&nbsp; </TD>
     <TD align=left width="10%">&nbsp; </TD>
     <TD align=left width="8%"></TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=left width="2%"></TD>
     <TD align=left width="9%"></TD>
     <TD align=left width="2%">&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="63%"><FONT face=sans-serif size=1>(Unaudited)</FONT>&nbsp; </TD>
     <TD align=left width="10%">&nbsp; </TD>
     <TD align=left width="8%"></TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=left width="2%"></TD>
     <TD align=left width="9%"></TD>
     <TD align=left width="2%">&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="63%"><FONT face=sans-serif size=1>three months ended June 30 (amounts in millions of Canadian dollars)</FONT>&nbsp; </TD>
     <TD align=left width="10%">&nbsp; </TD>
     <TD align=right width="8%"><B><FONT face=sans-serif size=1>2006</FONT></B> </TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=left width="2%"></TD>
     <TD align=right width="9%"><B><FONT face=sans-serif size=1>2005</FONT></B> </TD>
     <TD align=left width="2%">&nbsp; </TD></TR>
<TR>
     <TD width="96%" colSpan=7>
<HR noShade SIZE=1>
</TD></TR>
<TR vAlign=bottom>
     <TD align=left width="63%"><B><FONT face=sans-serif size=1>Operating activities</FONT></B>&nbsp; </TD>
     <TD align=left width="10%">&nbsp; </TD>
     <TD align=left width="8%"></TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=left width="2%"></TD>
     <TD align=left width="9%"></TD>
     <TD align=left width="2%">&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="63%"><FONT face=sans-serif size=1>Net earnings</FONT>&nbsp; </TD>
     <TD align=left width="10%"><B><FONT face=sans-serif size=1>$</FONT></B>&nbsp; </TD>
     <TD align=right width="8%"><B><FONT face=sans-serif size=1>32.7</FONT></B> </TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=right width="2%"><FONT face=sans-serif size=1>$</FONT> </TD>
     <TD align=right width="9%"><FONT face=sans-serif size=1>20.8</FONT> </TD>
     <TD align=left width="2%">&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="63%"><FONT face=sans-serif size=1>Results of discontinued operations (Note </FONT><FONT face=sans-serif size=2>2)</FONT>&nbsp; </TD>
     <TD align=left width="10%">&nbsp; </TD>
     <TD align=right width="8%"><B><FONT face=sans-serif size=1>0.6</FONT></B> </TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=left width="2%"></TD>
     <TD align=right width="9%"><FONT face=sans-serif size=1>-</FONT> </TD>
     <TD align=left width="2%">&nbsp; </TD></TR>
<TR>
     <TD width="96%" colSpan=7>
<HR noShade SIZE=1>
</TD></TR>
<TR vAlign=bottom>
     <TD align=left width="63%"><FONT face=sans-serif size=1>Earnings from continuing operations</FONT>&nbsp; </TD>
     <TD align=left width="10%">&nbsp; </TD>
     <TD align=right width="8%"><B><FONT face=sans-serif size=1>33.3</FONT></B> </TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=left width="2%"></TD>
     <TD align=right width="9%"><FONT face=sans-serif size=1>20.8</FONT> </TD>
     <TD align=left width="2%">&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="63%"><FONT face=sans-serif size=1>Adjustments to reconcile earnings to</FONT>&nbsp; </TD>
     <TD align=left width="10%">&nbsp; </TD>
     <TD align=left width="8%"></TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=left width="2%"></TD>
     <TD align=left width="9%"></TD>
     <TD align=left width="2%">&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=center width="63%"><FONT face=sans-serif size=1>cash flows from operating activities:</FONT>&nbsp; </TD>
     <TD align=left width="10%">&nbsp; </TD>
     <TD align=left width="8%"></TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=left width="2%"></TD>
     <TD align=left width="9%"></TD>
     <TD align=left width="2%">&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="63%">&nbsp; &nbsp; &nbsp; &nbsp; &nbsp;<FONT face=sans-serif size=1>Depreciation</FONT>&nbsp; </TD>
     <TD align=left width="10%">&nbsp; </TD>
     <TD align=right width="8%"><B><FONT face=sans-serif size=1>12.8</FONT></B> </TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=left width="2%"></TD>
     <TD align=right width="9%"><FONT face=sans-serif size=1>13.1</FONT> </TD>
     <TD align=left width="2%">&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="63%">&nbsp; &nbsp; &nbsp; &nbsp; &nbsp;<FONT face=sans-serif size=1>Amortization of deferred financing costs</FONT>&nbsp; </TD>
     <TD align=left width="10%">&nbsp; </TD>
     <TD align=right width="8%"><B><FONT face=sans-serif size=1>0.2</FONT></B> </TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=left width="2%"></TD>
     <TD align=right width="9%"><FONT face=sans-serif size=1>0.4</FONT> </TD>
     <TD align=left width="2%">&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="63%">&nbsp; &nbsp; &nbsp; &nbsp; &nbsp;<FONT face=sans-serif size=1>Amortization of intangible and other assets</FONT>&nbsp; </TD>
     <TD align=left width="10%">&nbsp; </TD>
     <TD align=right width="8%"><B><FONT face=sans-serif size=1>3.6</FONT></B> </TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=left width="2%"></TD>
     <TD align=right width="9%"><FONT face=sans-serif size=1>3.2</FONT> </TD>
     <TD align=left width="2%">&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="63%">&nbsp; &nbsp; &nbsp; &nbsp; &nbsp;<FONT face=sans-serif size=1>Future income taxes</FONT>&nbsp; </TD>
     <TD align=left width="10%">&nbsp; </TD>
     <TD align=right width="8%"><B><FONT face=sans-serif size=1>6.3</FONT></B> </TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=left width="2%"></TD>
     <TD align=right width="9%"><FONT face=sans-serif size=1>(11.0</FONT> </TD>
     <TD align=left width="2%"><FONT face=sans-serif size=1>)</FONT>&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="63%">&nbsp; &nbsp; &nbsp; &nbsp; &nbsp;<FONT face=sans-serif size=1>Investment tax credits</FONT>&nbsp; </TD>
     <TD align=left width="10%">&nbsp; </TD>
     <TD align=right width="8%"><B><FONT face=sans-serif size=1>(2.5</FONT></B> </TD>
     <TD align=left width="2%"><B><FONT face=sans-serif size=1>)</FONT></B>&nbsp; </TD>
     <TD align=left width="2%"></TD>
     <TD align=right width="9%"><FONT face=sans-serif size=1>0.2</FONT> </TD>
     <TD align=left width="2%">&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="63%">&nbsp; &nbsp; &nbsp; &nbsp; &nbsp;<FONT face=sans-serif size=1>Stock-based compensation plans</FONT>&nbsp; </TD>
     <TD align=left width="10%">&nbsp; </TD>
     <TD align=right width="8%"><B><FONT face=sans-serif size=1>0.8</FONT></B> </TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=left width="2%"></TD>
     <TD align=right width="9%"><FONT face=sans-serif size=1>0.5</FONT> </TD>
     <TD align=left width="2%">&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="63%">&nbsp; &nbsp; &nbsp; &nbsp; &nbsp;<FONT face=sans-serif size=1>Other</FONT>&nbsp; </TD>
     <TD align=left width="10%">&nbsp; </TD>
     <TD align=right width="8%"><B><FONT face=sans-serif size=1>4.6</FONT></B> </TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=left width="2%"></TD>
     <TD align=right width="9%"><FONT face=sans-serif size=1>3.6</FONT> </TD>
     <TD align=left width="2%">&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="63%">&nbsp; &nbsp; &nbsp; &nbsp; &nbsp;<FONT face=sans-serif size=1>Increase in non-cash working capital (Note </FONT><FONT face=sans-serif size=2>7)</FONT>&nbsp; </TD>
     <TD align=left width="10%">&nbsp; </TD>
     <TD align=right width="8%"><B><FONT face=sans-serif size=1>(27.1</FONT></B> </TD>
     <TD align=left width="2%"><B><FONT face=sans-serif size=1>)</FONT></B>&nbsp; </TD>
     <TD align=left width="2%"></TD>
     <TD align=right width="9%"><FONT face=sans-serif size=1>(9.0</FONT> </TD>
     <TD align=left width="2%"><FONT face=sans-serif size=1>)</FONT>&nbsp; </TD></TR>
<TR>
     <TD width="96%" colSpan=7>
<HR noShade SIZE=1>
</TD></TR>
<TR vAlign=bottom>
     <TD align=left width="63%"><FONT face=sans-serif size=1>Net cash provided by continuing operating activities</FONT>&nbsp; </TD>
     <TD align=left width="10%">&nbsp; </TD>
     <TD align=right width="8%"><B><FONT face=sans-serif size=1>32.0</FONT></B> </TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=left width="2%"></TD>
     <TD align=right width="9%"><FONT face=sans-serif size=1>21.8</FONT> </TD>
     <TD align=left width="2%">&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="63%"><FONT face=sans-serif size=1>Net cash provided by discontinued operating activities</FONT>&nbsp; </TD>
     <TD align=left width="10%">&nbsp; </TD>
     <TD align=right width="8%"><B><FONT face=sans-serif size=1>-</FONT></B> </TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=left width="2%"></TD>
     <TD align=right width="9%"><FONT face=sans-serif size=1>2.2</FONT> </TD>
     <TD align=left width="2%">&nbsp; </TD></TR>
<TR>
     <TD width="96%" colSpan=7>
<HR noShade SIZE=1>
</TD></TR>
<TR vAlign=bottom>
     <TD align=left width="63%"><B><FONT face=sans-serif size=1>Net cash provided by operating activities</FONT></B>&nbsp; </TD>
     <TD align=left width="10%">&nbsp; </TD>
     <TD align=right width="8%"><B><FONT face=sans-serif size=1>32.0</FONT></B> </TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=left width="2%"></TD>
     <TD align=right width="9%"><FONT face=sans-serif size=1>24.0</FONT> </TD>
     <TD align=left width="2%">&nbsp; </TD></TR>
<TR>
     <TD width="96%" colSpan=7>
<HR noShade SIZE=1>
</TD></TR>
<TR vAlign=bottom>
     <TD align=left width="63%"><B><FONT face=sans-serif size=1>Investing activities</FONT></B>&nbsp; </TD>
     <TD align=left width="10%">&nbsp; </TD>
     <TD align=left width="8%"></TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=left width="2%"></TD>
     <TD align=left width="9%"></TD>
     <TD align=left width="2%">&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="63%"><FONT face=sans-serif size=1>Business acquisitions (net of cash and cash equivalents acquired)</FONT>&nbsp; </TD>
     <TD align=left width="10%">&nbsp; </TD>
     <TD align=right width="8%"><B><FONT face=sans-serif size=1>-</FONT></B> </TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=left width="2%"></TD>
     <TD align=right width="9%"><FONT face=sans-serif size=1>2.6</FONT> </TD>
     <TD align=left width="2%">&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="63%"><FONT face=sans-serif size=1>Capital expenditures</FONT>&nbsp; </TD>
     <TD align=left width="10%">&nbsp; </TD>
     <TD align=right width="8%"><B><FONT face=sans-serif size=1>(40.7</FONT></B> </TD>
     <TD align=left width="2%"><B><FONT face=sans-serif size=1>)</FONT></B>&nbsp; </TD>
     <TD align=left width="2%"></TD>
     <TD align=right width="9%"><FONT face=sans-serif size=1>(17.9</FONT> </TD>
     <TD align=left width="2%"><FONT face=sans-serif size=1>)</FONT>&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="63%"><FONT face=sans-serif size=1>Intangible assets</FONT>&nbsp; </TD>
     <TD align=left width="10%">&nbsp; </TD>
     <TD align=right width="8%"><B><FONT face=sans-serif size=1>(1.7</FONT></B> </TD>
     <TD align=left width="2%"><B><FONT face=sans-serif size=1>)</FONT></B>&nbsp; </TD>
     <TD align=left width="2%"></TD>
     <TD align=right width="9%"><FONT face=sans-serif size=1>-</FONT> </TD>
     <TD align=left width="2%">&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="63%"><FONT face=sans-serif size=1>Deferred pre-operating costs</FONT>&nbsp; </TD>
     <TD align=left width="10%">&nbsp; </TD>
     <TD align=right width="8%"><B><FONT face=sans-serif size=1>(0.1</FONT></B> </TD>
     <TD align=left width="2%"><B><FONT face=sans-serif size=1>)</FONT></B>&nbsp; </TD>
     <TD align=left width="2%"></TD>
     <TD align=right width="9%"><FONT face=sans-serif size=1>(0.4</FONT> </TD>
     <TD align=left width="2%"><FONT face=sans-serif size=1>)</FONT>&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="63%"><FONT face=sans-serif size=1>Other assets</FONT>&nbsp; </TD>
     <TD align=left width="10%">&nbsp; </TD>
     <TD align=right width="8%"><B><FONT face=sans-serif size=1>(2.9</FONT></B> </TD>
     <TD align=left width="2%"><B><FONT face=sans-serif size=1>)</FONT></B>&nbsp; </TD>
     <TD align=left width="2%"></TD>
     <TD align=right width="9%"><FONT face=sans-serif size=1>(3.2</FONT> </TD>
     <TD align=left width="2%"><FONT face=sans-serif size=1>)</FONT>&nbsp; </TD></TR>
<TR>
     <TD width="96%" colSpan=7>
<HR noShade SIZE=1>
</TD></TR>
<TR vAlign=bottom>
     <TD align=left width="63%"><FONT face=sans-serif size=1>Net cash used in continuing investing activities</FONT>&nbsp; </TD>
     <TD align=left width="10%">&nbsp; </TD>
     <TD align=right width="8%"><B><FONT face=sans-serif size=1>(45.4</FONT></B> </TD>
     <TD align=left width="2%"><B><FONT face=sans-serif size=1>)</FONT></B>&nbsp; </TD>
     <TD align=left width="2%"></TD>
     <TD align=right width="9%"><FONT face=sans-serif size=1>(18.9</FONT> </TD>
     <TD align=left width="2%"><FONT face=sans-serif size=1>)</FONT>&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="63%"><FONT face=sans-serif size=1>Net cash used in discontinued investing activities</FONT>&nbsp; </TD>
     <TD align=left width="10%">&nbsp; </TD>
     <TD align=right width="8%"><B><FONT face=sans-serif size=1>-</FONT></B> </TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=left width="2%"></TD>
     <TD align=right width="9%"><FONT face=sans-serif size=1>(1.1</FONT> </TD>
     <TD align=left width="2%"><FONT face=sans-serif size=1>)</FONT>&nbsp; </TD></TR>
<TR>
     <TD width="96%" colSpan=7>
<HR noShade SIZE=1>
</TD></TR>
<TR vAlign=bottom>
     <TD align=left width="63%"><B><FONT face=sans-serif size=1>Net cash used in investing activities</FONT></B>&nbsp; </TD>
     <TD align=left width="10%">&nbsp; </TD>
     <TD align=right width="8%"><B><FONT face=sans-serif size=1>(45.4</FONT></B> </TD>
     <TD align=left width="2%"><B><FONT face=sans-serif size=1>)</FONT></B>&nbsp; </TD>
     <TD align=left width="2%"></TD>
     <TD align=right width="9%"><FONT face=sans-serif size=1>(20.0</FONT> </TD>
     <TD align=left width="2%"><FONT face=sans-serif size=1>)</FONT>&nbsp; </TD></TR>
<TR>
     <TD width="96%" colSpan=7>
<HR noShade SIZE=1>
</TD></TR>
<TR vAlign=bottom>
     <TD align=left width="63%"><B><FONT face=sans-serif size=1>Financing activities</FONT></B>&nbsp; </TD>
     <TD align=left width="10%">&nbsp; </TD>
     <TD align=left width="8%"></TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=left width="2%"></TD>
     <TD align=left width="9%"></TD>
     <TD align=left width="2%">&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="63%"><FONT face=sans-serif size=1>Net borrowing under revolving unsecured credit facilities</FONT>&nbsp; </TD>
     <TD align=left width="10%">&nbsp; </TD>
     <TD align=right width="8%"><B><FONT face=sans-serif size=1>-</FONT></B> </TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=left width="2%"></TD>
     <TD align=right width="9%"><FONT face=sans-serif size=1>12.6</FONT> </TD>
     <TD align=left width="2%">&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="63%"><FONT face=sans-serif size=1>Proceeds from long-term debt</FONT>&nbsp; </TD>
     <TD align=left width="10%">&nbsp; </TD>
     <TD align=right width="8%"><B><FONT face=sans-serif size=1>10.4</FONT></B> </TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=left width="2%"></TD>
     <TD align=right width="9%"><FONT face=sans-serif size=1>0.2</FONT> </TD>
     <TD align=left width="2%">&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="63%"><FONT face=sans-serif size=1>Reimbursement of long-term debt</FONT>&nbsp; </TD>
     <TD align=left width="10%">&nbsp; </TD>
     <TD align=right width="8%"><B><FONT face=sans-serif size=1>(3.6</FONT></B> </TD>
     <TD align=left width="2%"><B><FONT face=sans-serif size=1>)</FONT></B>&nbsp; </TD>
     <TD align=left width="2%"></TD>
     <TD align=right width="9%"><FONT face=sans-serif size=1>(24.4</FONT> </TD>
     <TD align=left width="2%"><FONT face=sans-serif size=1>)</FONT>&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="63%"><FONT face=sans-serif size=1>Dividends paid</FONT>&nbsp; </TD>
     <TD align=left width="10%">&nbsp; </TD>
     <TD align=right width="8%"><B><FONT face=sans-serif size=1>(2.4</FONT></B> </TD>
     <TD align=left width="2%"><B><FONT face=sans-serif size=1>)</FONT></B>&nbsp; </TD>
     <TD align=left width="2%"></TD>
     <TD align=right width="9%"><FONT face=sans-serif size=1>(2.4</FONT> </TD>
     <TD align=left width="2%"><FONT face=sans-serif size=1>)</FONT>&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="63%"><FONT face=sans-serif size=1>Common stock issuance</FONT>&nbsp; </TD>
     <TD align=left width="10%">&nbsp; </TD>
     <TD align=right width="8%"><B><FONT face=sans-serif size=1>1.1</FONT></B> </TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=left width="2%"></TD>
     <TD align=right width="9%"><FONT face=sans-serif size=1>2.1</FONT> </TD>
     <TD align=left width="2%">&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="63%"><FONT face=sans-serif size=1>Other</FONT>&nbsp; </TD>
     <TD align=left width="10%">&nbsp; </TD>
     <TD align=right width="8%"><B><FONT face=sans-serif size=1>0.9</FONT></B> </TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=left width="2%"></TD>
     <TD align=right width="9%"><FONT face=sans-serif size=1>(0.5</FONT> </TD>
     <TD align=left width="2%"><FONT face=sans-serif size=1>)</FONT>&nbsp; </TD></TR>
<TR>
     <TD width="96%" colSpan=7>
<HR noShade SIZE=1>
</TD></TR>
<TR vAlign=bottom>
     <TD align=left width="63%"><FONT face=sans-serif size=1>Net cash provided by (used in) continuing financing activities</FONT>&nbsp; </TD>
     <TD align=left width="10%">&nbsp; </TD>
     <TD align=right width="8%"><B><FONT face=sans-serif size=1>6.4</FONT></B> </TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=left width="2%"></TD>
     <TD align=right width="9%"><FONT face=sans-serif size=1>(12.4</FONT> </TD>
     <TD align=left width="2%"><FONT face=sans-serif size=1>)</FONT>&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="63%"><FONT face=sans-serif size=1>Net cash provided by discontinued financing activities</FONT>&nbsp; </TD>
     <TD align=left width="10%">&nbsp; </TD>
     <TD align=right width="8%"><B><FONT face=sans-serif size=1>-</FONT></B> </TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=left width="2%"></TD>
     <TD align=right width="9%"><FONT face=sans-serif size=1>0.8</FONT> </TD>
     <TD align=left width="2%">&nbsp; </TD></TR>
<TR>
     <TD width="96%" colSpan=7>
<HR noShade SIZE=1>
</TD></TR>
<TR vAlign=bottom>
     <TD align=left width="63%"><B><FONT face=sans-serif size=1>Net cash provided by (used in) financing activities</FONT></B>&nbsp; </TD>
     <TD align=left width="10%">&nbsp; </TD>
     <TD align=right width="8%"><B><FONT face=sans-serif size=1>6.4</FONT></B> </TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=left width="2%"></TD>
     <TD align=right width="9%"><FONT face=sans-serif size=1>(11.6</FONT> </TD>
     <TD align=left width="2%"><FONT face=sans-serif size=1>)</FONT>&nbsp; </TD></TR>
<TR>
     <TD width="96%" colSpan=7>
<HR noShade SIZE=1>
</TD></TR>
<TR vAlign=bottom>
     <TD align=left width="63%"><B><FONT face=sans-serif size=1>Effect of foreign exchange rate changes</FONT></B>&nbsp; </TD>
     <TD align=left width="10%">&nbsp; </TD>
     <TD align=left width="8%"></TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=left width="2%"></TD>
     <TD align=left width="9%"></TD>
     <TD align=left width="2%">&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=center width="63%"><B><FONT face=sans-serif size=1>on cash and cash equivalents</FONT></B>&nbsp; </TD>
     <TD align=left width="10%">&nbsp; </TD>
     <TD align=right width="8%"><B><FONT face=sans-serif size=1>(1.8</FONT></B> </TD>
     <TD align=left width="2%"><B><FONT face=sans-serif size=1>)</FONT></B>&nbsp; </TD>
     <TD align=left width="2%"></TD>
     <TD align=right width="9%"><FONT face=sans-serif size=1>(1.8</FONT> </TD>
     <TD align=left width="2%"><FONT face=sans-serif size=1>)</FONT>&nbsp; </TD></TR>
<TR>
     <TD width="96%" colSpan=7>
<HR noShade SIZE=1>
</TD></TR>
<TR vAlign=bottom>
     <TD align=left width="63%"><B><FONT face=sans-serif size=1>Net decrease in cash and cash equivalents</FONT></B>&nbsp; </TD>
     <TD align=left width="10%">&nbsp; </TD>
     <TD align=right width="8%"><B><FONT face=sans-serif size=1>(8.8</FONT></B> </TD>
     <TD align=left width="2%"><B><FONT face=sans-serif size=1>)</FONT></B>&nbsp; </TD>
     <TD align=left width="2%"></TD>
     <TD align=right width="9%"><FONT face=sans-serif size=1>(9.4</FONT> </TD>
     <TD align=left width="2%"><FONT face=sans-serif size=1>)</FONT>&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="63%"><B><FONT face=sans-serif size=1>Cash and cash equivalents at beginning of period</FONT></B>&nbsp; </TD>
     <TD align=left width="10%">&nbsp; </TD>
     <TD align=right width="8%"><B><FONT face=sans-serif size=1>81.1</FONT></B> </TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=left width="2%"></TD>
     <TD align=right width="9%"><FONT face=sans-serif size=1>61.5</FONT> </TD>
     <TD align=left width="2%">&nbsp; </TD></TR>
<TR>
     <TD width="96%" colSpan=7>
<HR noShade SIZE=1>
</TD></TR>
<TR vAlign=bottom>
     <TD align=left width="63%"><B><FONT face=sans-serif size=1>Cash and cash equivalents at end of period</FONT></B>&nbsp; </TD>
     <TD align=left width="10%"><B><FONT face=sans-serif size=1>$</FONT></B>&nbsp; </TD>
     <TD align=right width="8%"><B><FONT face=sans-serif size=1>72.3</FONT></B> </TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=right width="2%"><B><FONT face=sans-serif size=1>$</FONT></B> </TD>
     <TD align=right width="9%"><FONT face=sans-serif size=1>52.1</FONT> </TD>
     <TD align=left width="2%">&nbsp; </TD></TR>
<TR>
     <TD width="96%" colSpan=7>
<HR noShade SIZE=1>
</TD></TR>
<TR vAlign=bottom>
     <TD align=left width="63%"><B><FONT face=sans-serif size=1>Cash and cash equivalents related to:</FONT></B>&nbsp; </TD>
     <TD align=left width="10%">&nbsp; </TD>
     <TD align=left width="8%"></TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=left width="2%"></TD>
     <TD align=left width="9%"></TD>
     <TD align=left width="2%">&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="63%"><FONT face=sans-serif size=1>Continuing operations</FONT>&nbsp; </TD>
     <TD align=left width="10%"><B><FONT face=sans-serif size=1>$</FONT></B>&nbsp; </TD>
     <TD align=right width="8%"><B><FONT face=sans-serif size=1>72.3</FONT></B> </TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=right width="2%"><B><FONT face=sans-serif size=1>$</FONT></B> </TD>
     <TD align=right width="9%"><FONT face=sans-serif size=1>45.7</FONT> </TD>
     <TD align=left width="2%">&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="63%"><FONT face=sans-serif size=1>Discontinued operations</FONT>&nbsp; </TD>
     <TD align=left width="10%">&nbsp; </TD>
     <TD align=right width="8%"><B><FONT face=sans-serif size=1>-</FONT></B> </TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=left width="2%"></TD>
     <TD align=right width="9%"><FONT face=sans-serif size=1>6.4</FONT> </TD>
     <TD align=left width="2%">&nbsp; </TD></TR>
<TR>
     <TD width="96%" colSpan=7>
<HR noShade SIZE=1>
</TD></TR>
<TR vAlign=bottom>
     <TD align=left width="63%">&nbsp; </TD>
     <TD align=left width="10%"><B><FONT face=sans-serif size=1>$</FONT></B>&nbsp; </TD>
     <TD align=right width="8%"><B><FONT face=sans-serif size=1>72.3</FONT></B> </TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=right width="2%"><FONT face=sans-serif size=1>$</FONT> </TD>
     <TD align=right width="9%"><FONT face=sans-serif size=1>52.1</FONT> </TD>
     <TD align=left width="2%">&nbsp; </TD></TR>
<TR>
     <TD width="96%" colSpan=7>
<HR noShade SIZE=1>
</TD></TR>
<TR vAlign=bottom>
     <TD align=left width="63%"><FONT face=sans-serif size=1>The accompanying notes form an integral part of these Consolidated Financial Statements.</FONT>&nbsp; </TD>
     <TD align=left width="10%">&nbsp; </TD>
     <TD align=left width="8%"></TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=left width="2%"></TD>
     <TD align=left width="9%"></TD>
     <TD align=left width="2%">&nbsp; </TD></TR></TABLE><BR>
<P align=right><FONT face=serif>3</FONT></P>
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<P align=left><FONT face=sans-serif color=#0000ff size=4>Notes to Consolidated Financial Statements (Unaudited) </FONT></P>
<P align=left><FONT face=sans-serif color=#0000ff size=4>Note 1: Nature of Operations and Significant Accounting Policies </FONT></P>
<P align=left><B><FONT face=sans-serif size=2>NATURE OF OPERATION </FONT></B></P>
<P align=left><FONT face=sans-serif size=2>CAE Inc. (or the Company) designs, manufactures and supplies simulation equipment and services and develops integrated training solutions for the military, commercial airlines, business aircraft operators and aircraft manufacturers. CAE&#146;s flight simulators replicate aircraft performance in normal and abnormal operations as well as a comprehensive set of environmental conditions utilizing visual systems that contain an extensive database of airports, other landing areas, flying environments, motion and sound cues to create a fully immersive training environment. The Company offers a full range of flight training devices based on the same software used in its simulators. CAE also operates a global network of training centres in locations around the world.</FONT></P>
<P align=left><FONT face=sans-serif size=2>The Company&#146;s operations are managed through four segments:</FONT></P>
<TABLE cellSpacing=0 cellPadding=0 border=0>
<TR>
     <TD vAlign=top noWrap><FONT face=sans-serif size=2>(i)</FONT>&nbsp; &nbsp; &nbsp; </TD>
     <TD width="100%"><FONT face=sans-serif size=2>Simulation Products/Civil &#150; Designs, manufactures and supplies civil flight simulators, training devices and visual systems;</FONT> </TD></TR>
<TR>
     <TD colSpan=2>&nbsp;</TD></TR>
<TR>
     <TD vAlign=top noWrap><FONT face=sans-serif size=2>(ii)</FONT>&nbsp; &nbsp; &nbsp; </TD>
     <TD width="100%"><FONT face=sans-serif size=2>Simulation Products/Military &#150; Designs, manufactures and supplies advanced military training products for air, land and sea applications;</FONT> </TD></TR>
<TR>
     <TD colSpan=2>&nbsp;</TD></TR>
<TR>
     <TD vAlign=top noWrap><FONT face=sans-serif size=2>(iii)</FONT>&nbsp; &nbsp; &nbsp; </TD>
     <TD width="100%"><FONT face=sans-serif size=2>Training &amp; Services/Civil &#150; Provides business and commercial aviation training and related services;</FONT> </TD></TR>
<TR>
     <TD colSpan=2>&nbsp;</TD></TR>
<TR>
     <TD vAlign=top noWrap><FONT face=sans-serif size=2>(iv)</FONT>&nbsp; &nbsp; &nbsp; </TD>
     <TD width="100%"><FONT face=sans-serif size=2>Training &amp; Services/Military &#150; Supplies military turnkey training and operational solutions, support services, life extensions, systems maintenance and modeling and simulation solutions.</FONT> </TD></TR>
<TR>
     <TD colSpan=2>&nbsp;</TD></TR></TABLE>
<P align=left><B><FONT face=sans-serif size=2>GENERALLY ACCEPTED ACCOUNTING PRINCIPLES AND FINANCIAL STATEMENT PRESENTATION </FONT></B></P>
<P align=left><FONT face=sans-serif size=2>These interim unaudited consolidated financial statements have been prepared, in all material respects, in accordance with generally accepted accounting principles in Canada (GAAP) as defined by the Canadian Institute of Chartered Accountants (CICA).</FONT></P>
<P align=left><FONT face=sans-serif size=2>These consolidated financial statements comply with generally accepted accounting principles applicable to interim financial statements and, except as otherwise indicated hereunder, have been prepared on a basis consistent with CAE&#146;s annual consolidated financial statements for the year ended March 31, 2006. These consolidated statements do not include all of the disclosures applicable to annual consolidated financial statements; for a full description of the Company&#146;s accounting policies, refer to CAE&#146;s annual consolidated financial statements for the year ended March 31, 2006 available on-line at </FONT><U><FONT face=sans-serif color=#3365ff size=2>www.sedar.com</FONT></U><FONT face=sans-serif size=2> as well as at the Company&#146;s website at </FONT><U><FONT face=sans-serif color=#3365ff size=2>www.cae.com</FONT></U><FONT face=sans-serif size=2>. While CAE management (Management) believes that the disclosures presented are adequate and that the di
sclosures highlight all material changes during the quarter, these interim consolidated financial statements should be read in conjunction with the most recent annual consolidated financial statements. </FONT></P>
<P align=left><FONT face=sans-serif size=2>Certain comparative figures have been reclassified to conform to the current presentation.</FONT></P>
<P align=left><FONT face=sans-serif size=2>Except where otherwise noted, all amounts in these consolidated financial statements are expressed in Canadian dollars. </FONT></P>
<P align=left><B><FONT face=sans-serif size=2>SEASONALITY AND CYCLICALITY OF THE BUSINESS</FONT></B><FONT face=sans-serif size=2> </FONT></P>
<P align=left><FONT face=sans-serif size=2>CAE&#146;s business operating segments are affected in varying degrees by market cyclicality and/or seasonality. As such, operating performance over a given interim period should not necessarily be considered indicative of full fiscal year performance. </FONT></P>
<P align=left><FONT face=sans-serif size=2>The Simulation Products/Civil segment sells equipment directly to airlines and to the extent that the entire commercial airline industry is affected by cycles of expansion and contraction, the Company&#146;s performance will also be affected. The Training &amp; Services/Civil segment activities are affected by the seasonality of its industry &#150; in times of peak travel (such as holidays), airline and business jet pilots are generally occupied flying aircraft rather than attending training sessions. The converse also holds true &#150; slower travel periods tend to be more active training periods for pilots. Therefore, the Company has historically experienced greater demand for training services in the first and fourth quarters of the fiscal year and lower demand during the second and third quarters. </FONT></P>
<P align=left><FONT face=sans-serif size=2>Order intake for CAE&#146;s two Military business segments &#150; Simulation Products/Military and Training &amp; Services/Military &#150; has historically not shown any noticeable degree of cyclicality or seasonality in the course of providing solutions for government customers. </FONT></P>
<P align=left><FONT face=serif>4</FONT></P>
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<P align=left><B><FONT face=sans-serif size=2>USE OF ESTIMATES </FONT></B></P>
<P align=left><FONT face=sans-serif size=2>The preparation of consolidated financial statements in conformity with GAAP requires Management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses for the period reported. On an ongoing basis, Management reviews its estimates, particularly as they relate to accounting on long-term contracts, useful lives, employee future benefits, income taxes, impairment of long-lived assets and goodwill, based on Management&#146;s best knowledge of current events and actions that the Company may undertake in the future. While measurements in both annual consolidated financial statements and interim consolidated financial statements are often based on reasonable estimates, the preparation of interim consolidated financial statements will generally require a greater use of estimation than
 of annual consolidated financial statements. Actual results could differ from those estimates; significant changes in estimates and/or assumptions could result in impairment of certain assets. </FONT></P>
<P align=left><B><FONT face=sans-serif size=2>BASIS OF CONSOLIDATION</FONT></B></P>
<P align=left><FONT face=sans-serif size=2>The consolidated financial statements include the accounts of CAE Inc. and all majority-owned subsidiaries and variable interest entities for which the Company is the primary beneficiary. They also include the Company&#146;s proportionate share of assets, liabilities and earnings of joint ventures in which the Company has an interest. All significant intercompany accounts and transactions have been eliminated. Investments over which CAE exercises significant influence are accounted for using the equity method and portfolio investments are accounted for using the cost method. </FONT></P>
<P align=left><FONT face=sans-serif color=#0000ff size=4>Note 2: Discontinued Operations and Assets Held for Sale</FONT><FONT face=sans-serif size=2> </FONT></P>
<P align=left><B><FONT face=sans-serif size=2>Forestry Systems </FONT></B></P>
<P align=left><FONT face=sans-serif size=2>On May 2, 2003, CAE completed the sale of one of its Forestry Systems businesses to Carmanah Design and Manufacturing. The Company was entitled to receive further consideration based on the performance of the business. During the first quarter of fiscal 2007, a settlement was concluded and the Company received a payment of $0.2 million (net of taxes of $0.1 million). </FONT></P>
<P align=left><B><FONT face=sans-serif size=2>Marine Controls </FONT></B></P>
<P align=left><FONT face=sans-serif size=2>On February 3, 2005, CAE completed, with L-3 Communications Corporation (L-3), the sale of the substantial components of its Marine Controls segment for a cash consideration of $238.6 million. This amount was subject to the approval by L-3 of the net working capital of the Marine Controls segment. The parties have after the quarter end completed the discussions regarding the net working capital, L-3 was paid for the difference in the net working capital and the Company recorded an additional adjustment of approximately $0.8 million (net of tax recovery of $0.2 million). Furthermore, the Company recently received from this buyer notices of claims for indemnification pursuant to the Sale and Purchase Agreement (SPA), including in respect of allegations that CAE was in breach of certain representations and warranties in the SPA. Management is evaluating these matters, including the merits of these claims and the Company's insurance coverage for the subject matter of on
e of them. At this time, neither the outcome of these matters nor the potential future payments, if any, are determinable. The Company intends to assert all available defences against these claims. The aggregate liability for claims made under the SPA is limited to US$25 million. </FONT></P>
<TABLE cellSpacing=0 cellPadding=0 border=0>
<TR vAlign=bottom>
     <TD align=left width="71%"><FONT face=sans-serif size=2>Summarized financial information for the discontinued operations is as follows:</FONT>&nbsp; </TD>
     <TD align=left width="9%">&nbsp; </TD>
     <TD align=left width="7%"></TD>
     <TD align=left width="3%">&nbsp; </TD>
     <TD align=left width="4%">&nbsp; </TD>
     <TD align=left width="4%">&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="71%"><FONT face=sans-serif size=1>(Unaudited)</FONT>&nbsp; </TD>
     <TD align=left width="9%">&nbsp; </TD>
     <TD align=left width="7%"></TD>
     <TD align=left width="3%">&nbsp; </TD>
     <TD align=left width="4%">&nbsp; </TD>
     <TD align=left width="4%">&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="71%"><FONT face=sans-serif size=1>three months ended June 30 (amounts in millions)</FONT>&nbsp; </TD>
     <TD align=left width="9%">&nbsp; </TD>
     <TD align=right width="7%"><B><FONT face=sans-serif size=1>2006</FONT></B> </TD>
     <TD align=left width="3%">&nbsp; </TD>
     <TD align=left width="4%">&nbsp; </TD>
     <TD align=right width="4%"><FONT face=sans-serif size=1>2005</FONT>&nbsp; </TD></TR>
<TR>
     <TD width="98%" colSpan=6>
<HR noShade SIZE=1>
</TD></TR>
<TR vAlign=bottom>
     <TD align=left width="71%"><FONT face=sans-serif size=2>Net earnings from Forestry Systems,</FONT>&nbsp; </TD>
     <TD align=left width="9%">&nbsp; </TD>
     <TD align=left width="7%"></TD>
     <TD align=left width="3%">&nbsp; </TD>
     <TD align=left width="4%">&nbsp; </TD>
     <TD align=left width="4%">&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="71%">&nbsp; &nbsp; &nbsp;<FONT face=sans-serif size=2>Net of tax expense of $0.1 (2005; - Nil)</FONT>&nbsp; </TD>
     <TD align=left width="9%"><B><FONT face=sans-serif size=2>$</FONT></B>&nbsp; </TD>
     <TD align=right width="7%"><B><FONT face=sans-serif size=2>0.2</FONT></B> </TD>
     <TD align=left width="3%">&nbsp; </TD>
     <TD align=left width="4%"><B><FONT face=sans-serif size=2>$</FONT></B>&nbsp; </TD>
     <TD align=right width="4%"><FONT face=sans-serif size=2>-</FONT>&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="71%"><FONT face=sans-serif size=2>Net loss from Marine Controls,</FONT>&nbsp; </TD>
     <TD align=left width="9%">&nbsp; </TD>
     <TD align=left width="7%"></TD>
     <TD align=left width="3%">&nbsp; </TD>
     <TD align=left width="4%">&nbsp; </TD>
     <TD align=left width="4%">&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="71%">&nbsp; &nbsp; &nbsp;<FONT face=sans-serif size=2>Net of tax recovery of $0.2 (2005; - Nil)</FONT>&nbsp; </TD>
     <TD align=left width="9%"><B><FONT face=sans-serif size=2>$</FONT></B>&nbsp; </TD>
     <TD align=right width="7%"><B><FONT face=sans-serif size=2>(0.8</FONT></B> </TD>
     <TD align=left width="3%"><B><FONT face=sans-serif size=2>)</FONT></B>&nbsp; </TD>
     <TD align=left width="4%"><B><FONT face=sans-serif size=2>$</FONT></B>&nbsp; </TD>
     <TD align=right width="4%"><FONT face=sans-serif size=2>-</FONT>&nbsp; </TD></TR>
<TR>
     <TD width="98%" colSpan=6>
<HR noShade SIZE=1>
</TD></TR>
<TR vAlign=bottom>
     <TD align=left width="71%"><FONT face=sans-serif size=2>Net loss from discontinued operations</FONT>&nbsp; </TD>
     <TD align=left width="9%"><B><FONT face=sans-serif size=2>$</FONT></B>&nbsp; </TD>
     <TD align=right width="7%"><B><FONT face=sans-serif size=2>(0.6</FONT></B> </TD>
     <TD align=left width="3%"><B><FONT face=sans-serif size=2>)</FONT></B>&nbsp; </TD>
     <TD align=left width="4%"><B><FONT face=sans-serif size=2>$</FONT></B>&nbsp; </TD>
     <TD align=right width="4%"><FONT face=sans-serif size=2>-</FONT>&nbsp; </TD></TR>
<TR>
     <TD width="98%" colSpan=6>
<HR noShade SIZE=1>
</TD></TR></TABLE><BR>
<P align=left><FONT face=sans-serif size=2>As at June 30, 2006, other property, plant and equipment held for sale are expected to be disposed and consist of land and buildings related to the Training &amp; Services/Civil segment and amounted to $5.8 million (March 31, 2006 &#150;$5.9 million).</FONT></P>
<P align=left><FONT face=serif>5</FONT></P>
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<TABLE cellSpacing=0 cellPadding=0 border=0>
<TR vAlign=bottom>
     <TD align=left width="54%"><FONT face=sans-serif color=#0000ff size=4>Note 3: Interest Expense, net</FONT>&nbsp; </TD>
     <TD align=left width="16%">&nbsp; </TD>
     <TD align=left width="10%"></TD>
     <TD align=left width="3%">&nbsp; </TD>
     <TD align=left width="7%">&nbsp; </TD>
     <TD align=left width="5%"></TD>
     <TD align=left width="3%">&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="54%"><FONT face=sans-serif size=2>Details of interest expense (income) are as follows:</FONT>&nbsp; </TD>
     <TD align=left width="16%">&nbsp; </TD>
     <TD align=left width="10%"></TD>
     <TD align=left width="3%">&nbsp; </TD>
     <TD align=left width="7%">&nbsp; </TD>
     <TD align=left width="5%"></TD>
     <TD align=left width="3%">&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="54%"><FONT face=sans-serif size=1>(Unaudited)</FONT>&nbsp; </TD>
     <TD align=left width="16%">&nbsp; </TD>
     <TD align=left width="10%"></TD>
     <TD align=left width="3%">&nbsp; </TD>
     <TD align=left width="7%">&nbsp; </TD>
     <TD align=left width="5%"></TD>
     <TD align=left width="3%">&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="54%"><FONT face=sans-serif size=1>three months ended June 30 (amounts in millions)</FONT>&nbsp; </TD>
     <TD align=left width="16%">&nbsp; </TD>
     <TD align=right width="10%"><B><FONT face=sans-serif size=1>2006</FONT></B> </TD>
     <TD align=left width="3%">&nbsp; </TD>
     <TD align=left width="7%">&nbsp; </TD>
     <TD align=right width="5%"><FONT face=sans-serif size=1>2005</FONT> </TD>
     <TD align=left width="3%">&nbsp; </TD></TR>
<TR>
     <TD width="98%" colSpan=7>
<HR noShade SIZE=1>
</TD></TR>
<TR vAlign=bottom>
     <TD align=left width="54%"><FONT face=sans-serif size=2>Long-term debt interest expense</FONT>&nbsp; </TD>
     <TD align=left width="16%"><B><FONT face=sans-serif size=2>$</FONT></B>&nbsp; </TD>
     <TD align=right width="10%"><B><FONT face=sans-serif size=2>3.8</FONT></B> </TD>
     <TD align=left width="3%">&nbsp; </TD>
     <TD align=left width="7%"><FONT face=sans-serif size=2>$</FONT>&nbsp; </TD>
     <TD align=right width="5%"><FONT face=sans-serif size=2>6.1</FONT> </TD>
     <TD align=left width="3%">&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="54%"><FONT face=sans-serif size=2>Amortization of deferred financing costs and other</FONT>&nbsp; </TD>
     <TD align=left width="16%">&nbsp; </TD>
     <TD align=right width="10%"><B><FONT face=sans-serif size=2>0.7</FONT></B> </TD>
     <TD align=left width="3%">&nbsp; </TD>
     <TD align=left width="7%">&nbsp; </TD>
     <TD align=right width="5%"><FONT face=sans-serif size=2>1.0</FONT> </TD>
     <TD align=left width="3%">&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="54%"><FONT face=sans-serif size=2>Interest capitalized</FONT>&nbsp; </TD>
     <TD align=left width="16%">&nbsp; </TD>
     <TD align=right width="10%"><B><FONT face=sans-serif size=2>(0.9</FONT></B> </TD>
     <TD align=left width="3%"><B><FONT face=sans-serif size=2>)</FONT></B>&nbsp; </TD>
     <TD align=left width="7%">&nbsp; </TD>
     <TD align=right width="5%"><FONT face=sans-serif size=2>(1.5</FONT> </TD>
     <TD align=left width="3%"><FONT face=sans-serif size=2>)</FONT>&nbsp; </TD></TR>
<TR>
     <TD width="98%" colSpan=7>
<HR noShade SIZE=1>
</TD></TR>
<TR vAlign=bottom>
     <TD align=left width="54%"><FONT face=sans-serif size=2>Interest on long-term debt</FONT>&nbsp; </TD>
     <TD align=left width="16%"><B><FONT face=sans-serif size=2>$</FONT></B>&nbsp; </TD>
     <TD align=right width="10%"><B><FONT face=sans-serif size=2>3.6</FONT></B> </TD>
     <TD align=left width="3%">&nbsp; </TD>
     <TD align=left width="7%"><FONT face=sans-serif size=2>$</FONT>&nbsp; </TD>
     <TD align=right width="5%"><FONT face=sans-serif size=2>5.6</FONT> </TD>
     <TD align=left width="3%">&nbsp; </TD></TR>
<TR>
     <TD width="98%" colSpan=7>
<HR noShade SIZE=1>
</TD></TR>
<TR vAlign=bottom>
     <TD align=left width="54%"><FONT face=sans-serif size=2>Interest income</FONT>&nbsp; </TD>
     <TD align=left width="16%"><B><FONT face=sans-serif size=2>$</FONT></B>&nbsp; </TD>
     <TD align=right width="10%"><B><FONT face=sans-serif size=2>(0.7</FONT></B> </TD>
     <TD align=left width="3%"><B><FONT face=sans-serif size=2>)</FONT></B>&nbsp; </TD>
     <TD align=left width="7%"><FONT face=sans-serif size=2>$</FONT>&nbsp; </TD>
     <TD align=right width="5%"><FONT face=sans-serif size=2>(0.8</FONT> </TD>
     <TD align=left width="3%"><FONT face=sans-serif size=2>)</FONT>&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="54%"><FONT face=sans-serif size=2>Other interest expense , net</FONT>&nbsp; </TD>
     <TD align=left width="16%">&nbsp; </TD>
     <TD align=right width="10%"><B><FONT face=sans-serif size=2>0.1</FONT></B> </TD>
     <TD align=left width="3%">&nbsp; </TD>
     <TD align=left width="7%">&nbsp; </TD>
     <TD align=right width="5%"><FONT face=sans-serif size=2>-</FONT> </TD>
     <TD align=left width="3%">&nbsp; </TD></TR>
<TR>
     <TD width="98%" colSpan=7>
<HR noShade SIZE=1>
</TD></TR>
<TR vAlign=bottom>
     <TD align=left width="54%"><FONT face=sans-serif size=2>Other interest income, net</FONT>&nbsp; </TD>
     <TD align=left width="16%"><B><FONT face=sans-serif size=2>$</FONT></B>&nbsp; </TD>
     <TD align=right width="10%"><B><FONT face=sans-serif size=2>(0.6</FONT></B> </TD>
     <TD align=left width="3%"><B><FONT face=sans-serif size=2>)</FONT></B>&nbsp; </TD>
     <TD align=left width="7%"><FONT face=sans-serif size=2>$</FONT>&nbsp; </TD>
     <TD align=right width="5%"><FONT face=sans-serif size=2>(0.8</FONT> </TD>
     <TD align=left width="3%"><FONT face=sans-serif size=2>)</FONT>&nbsp; </TD></TR>
<TR>
     <TD width="98%" colSpan=7>
<HR noShade SIZE=1>
</TD></TR>
<TR vAlign=bottom>
     <TD align=left width="54%"><FONT face=sans-serif size=2>Interest expense, net</FONT>&nbsp; </TD>
     <TD align=left width="16%"><B><FONT face=sans-serif size=2>$</FONT></B>&nbsp; </TD>
     <TD align=right width="10%"><B><FONT face=sans-serif size=2>3.0</FONT></B> </TD>
     <TD align=left width="3%">&nbsp; </TD>
     <TD align=left width="7%"><FONT face=sans-serif size=2>$</FONT>&nbsp; </TD>
     <TD align=right width="5%"><FONT face=sans-serif size=2>4.8</FONT> </TD>
     <TD align=left width="3%">&nbsp; </TD></TR>
<TR>
     <TD width="98%" colSpan=7>
<HR noShade SIZE=1>
</TD></TR></TABLE><BR>
<P align=left><FONT face=sans-serif size=2>Almost all of the Company&#146;s interest income is a result of advances to CVS Leasing Ltd. (CVS). CVS is an entity that owns simulators and other equipment used to train UK Ministry of Defense pilots at the Company&#146;s Benson Air Force Base training centre. The Company owns a minority shareholding of 14% in CVS. </FONT></P>
<TABLE cellSpacing=0 cellPadding=0 border=0>
<TR vAlign=bottom>
     <TD align=left width="49%"><FONT face=sans-serif color=#0000ff size=4>Note 4: Capital Stock</FONT>&nbsp; </TD>
     <TD align=left width="14%">&nbsp; </TD>
     <TD align=left width="5%">&nbsp; </TD>
     <TD align=left width="6%">&nbsp; </TD>
     <TD align=left width="12%">&nbsp; </TD>
     <TD align=left width="6%">&nbsp; </TD>
     <TD align=left width="5%">&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="49%">&nbsp; </TD>
     <TD align=right width="25%" colSpan=3><B><FONT face=sans-serif size=1>three months ended</FONT></B>&nbsp; </TD>
     <TD align=right width="23%" colSpan=3><FONT face=sans-serif size=1>twelve months ended</FONT>&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="49%">&nbsp; </TD>
     <TD align=left width="14%">&nbsp; </TD>
     <TD align=right width="11%" colSpan=2><B><FONT face=sans-serif size=1>June 30, 2006</FONT></B>&nbsp; </TD>
     <TD align=left width="12%">&nbsp; </TD>
     <TD align=right width="11%" colSpan=2><FONT face=sans-serif size=1>March 31, 2006</FONT>&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="49%"><FONT face=sans-serif size=1>(Unaudited)</FONT>&nbsp; </TD>
     <TD align=right width="14%"><B><FONT face=sans-serif size=1>Number</FONT></B>&nbsp; </TD>
     <TD align=left width="5%">&nbsp; </TD>
     <TD align=right width="6%"><B><FONT face=sans-serif size=1>Stated</FONT></B>&nbsp; </TD>
     <TD align=right width="12%"><FONT face=sans-serif size=1>Number</FONT>&nbsp; </TD>
     <TD align=left width="6%">&nbsp; </TD>
     <TD align=right width="5%"><FONT face=sans-serif size=1>Stated</FONT>&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="49%"><FONT face=sans-serif size=1>(amounts in millions, except number of shares)</FONT>&nbsp; </TD>
     <TD align=right width="14%"><B><FONT face=sans-serif size=1>of shares</FONT></B>&nbsp; </TD>
     <TD align=left width="5%">&nbsp; </TD>
     <TD align=right width="6%"><B><FONT face=sans-serif size=1>Value</FONT></B>&nbsp; </TD>
     <TD align=right width="12%"><FONT face=sans-serif size=1>of shares</FONT>&nbsp; </TD>
     <TD align=left width="6%">&nbsp; </TD>
     <TD align=right width="5%"><FONT face=sans-serif size=1>Value</FONT>&nbsp; </TD></TR>
<TR>
     <TD width="97%" colSpan=7>
<HR noShade SIZE=1>
</TD></TR>
<TR vAlign=bottom>
     <TD align=left width="49%"><FONT face=sans-serif size=2>Balance at beginning of period</FONT>&nbsp; </TD>
     <TD align=right width="14%"><B><FONT face=sans-serif size=2>250,702,430</FONT></B>&nbsp; </TD>
     <TD align=left width="5%">&nbsp; &nbsp; &nbsp; &nbsp;<B><FONT face=sans-serif size=2>$</FONT></B>&nbsp; </TD>
     <TD align=right width="6%"><B><FONT face=sans-serif size=2>389.0</FONT></B>&nbsp; </TD>
     <TD align=right width="12%"><FONT face=sans-serif size=2>248,070,329</FONT>&nbsp; </TD>
     <TD align=left width="6%">&nbsp; &nbsp; &nbsp; &nbsp; &nbsp;<FONT face=sans-serif size=2>$</FONT>&nbsp; </TD>
     <TD align=right width="5%"><FONT face=sans-serif size=2>373.8</FONT>&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="49%"><FONT face=sans-serif size=2>Shares issued (a)</FONT>&nbsp; </TD>
     <TD align=right width="14%"><B><FONT face=sans-serif size=2>-</FONT></B>&nbsp; </TD>
     <TD align=left width="5%">&nbsp; </TD>
     <TD align=right width="6%"><B><FONT face=sans-serif size=2>-</FONT></B>&nbsp; </TD>
     <TD align=right width="12%"><FONT face=sans-serif size=2>1,091,564</FONT>&nbsp; </TD>
     <TD align=left width="6%">&nbsp; </TD>
     <TD align=right width="5%"><FONT face=sans-serif size=2>6.9</FONT>&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="49%"><FONT face=sans-serif size=2>Stock options exercised</FONT>&nbsp; </TD>
     <TD align=right width="14%"><B><FONT face=sans-serif size=2>205,300</FONT></B>&nbsp; </TD>
     <TD align=left width="5%">&nbsp; </TD>
     <TD align=right width="6%"><B><FONT face=sans-serif size=2>1.1</FONT></B>&nbsp; </TD>
     <TD align=right width="12%"><FONT face=sans-serif size=2>1,497,540</FONT>&nbsp; </TD>
     <TD align=left width="6%">&nbsp; </TD>
     <TD align=right width="5%"><FONT face=sans-serif size=2>8.0</FONT>&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="49%"><FONT face=sans-serif size=2>Transfer of contributed surplus upon exercise of stock</FONT>&nbsp; </TD>
     <TD align=right width="14%"><B><FONT face=sans-serif size=2>-</FONT></B>&nbsp; </TD>
     <TD align=left width="5%">&nbsp; </TD>
     <TD align=right width="6%"><B><FONT face=sans-serif size=2>1.7</FONT></B>&nbsp; </TD>
     <TD align=right width="12%"><FONT face=sans-serif size=2>-</FONT>&nbsp; </TD>
     <TD align=left width="6%">&nbsp; </TD>
     <TD align=right width="5%"><FONT face=sans-serif size=2>-</FONT>&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="49%"><FONT face=sans-serif size=2>options</FONT>&nbsp; </TD>
     <TD align=left width="14%">&nbsp; </TD>
     <TD align=left width="5%">&nbsp; </TD>
     <TD align=left width="6%">&nbsp; </TD>
     <TD align=left width="12%">&nbsp; </TD>
     <TD align=left width="6%">&nbsp; </TD>
     <TD align=left width="5%">&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="49%"><FONT face=sans-serif size=2>Stock dividends</FONT>&nbsp; </TD>
     <TD align=right width="14%"><B><FONT face=sans-serif size=2>6,741</FONT></B>&nbsp; </TD>
     <TD align=left width="5%">&nbsp; </TD>
     <TD align=right width="6%"><B><FONT face=sans-serif size=2>0.1</FONT></B>&nbsp; </TD>
     <TD align=right width="12%"><FONT face=sans-serif size=2>42,997</FONT>&nbsp; </TD>
     <TD align=left width="6%">&nbsp; </TD>
     <TD align=right width="5%"><FONT face=sans-serif size=2>0.3</FONT>&nbsp; </TD></TR>
<TR>
     <TD width="97%" colSpan=7>
<HR noShade SIZE=1>
</TD></TR>
<TR vAlign=bottom>
     <TD align=left width="49%"><FONT face=sans-serif size=2>Balance at end of period</FONT>&nbsp; </TD>
     <TD align=right width="14%"><B><FONT face=sans-serif size=2>250,914,471</FONT></B>&nbsp; </TD>
     <TD align=left width="5%">&nbsp; &nbsp; &nbsp; &nbsp;<B><FONT face=sans-serif size=2>$</FONT></B>&nbsp; </TD>
     <TD align=right width="6%"><B><FONT face=sans-serif size=2>391.9</FONT></B>&nbsp; </TD>
     <TD align=right width="12%"><FONT face=sans-serif size=2>250,702,430</FONT>&nbsp; </TD>
     <TD align=left width="6%">&nbsp; &nbsp; &nbsp; &nbsp; &nbsp;<FONT face=sans-serif size=2>$</FONT>&nbsp; </TD>
     <TD align=right width="5%"><FONT face=sans-serif size=2>389.0</FONT>&nbsp; </TD></TR>
<TR>
     <TD width="97%" colSpan=7>
<HR noShade SIZE=1>
</TD></TR></TABLE><BR>
<TABLE cellSpacing=0 cellPadding=0 border=0>
<TR>
     <TD vAlign=top noWrap><FONT face=sans-serif size=1>(a)</FONT>&nbsp; &nbsp; &nbsp; </TD>
     <TD width="100%"><FONT face=sans-serif size=1>On May 20, 2005, the Company issued 1,000,000 common shares at a price of $6.13 per share for the acquisition of Terrain Experts, Inc.</FONT> </TD></TR>
<TR>
     <TD colSpan=2>&nbsp;</TD></TR>
<TR>
     <TD>&nbsp;</TD>
     <TD width="100%"><FONT face=sans-serif size=1>On November 30, 2005, the Company issued 91,564 common shares at a price of $8.07 per share for the second payment of the original purchase price, already accounted for in the purchase price allocation of Greenley &amp; Associates Inc.</FONT> </TD></TR>
<TR>
     <TD colSpan=2>&nbsp;</TD></TR></TABLE>
<P align=left><FONT face=sans-serif color=#0000ff size=4>Note 5: Government Cost Sharing</FONT><BR>
</P>
<P align=left><B><FONT face=sans-serif size=2>PROJECT PHOENIX </FONT></B></P>
<P align=left><FONT face=sans-serif size=2>The Company announced a plan to invest $630 million in Project Phoenix, an R&amp;D program that will span the next six years. During fiscal 2006, the Government of Canada and the Company signed an agreement for an investment of approximately 30% ($189 million) of the value of CAE's R&amp;D program (reducing by approximately 25% the amount of income tax credit otherwise available). This agreement is included in the Technology Partnerships Canada (TPC) program created by Industry Canada to invest strategically in research and development, to encourage private sector investment, and to increase technological capabilities in the Canadian industry. The funding will be repayable, based on consolidated revenues, starting in fiscal 2012 and ending in fiscal 2030, or earlier, should a predetermined royalty level, which exceeds the amount of maximum contributions, be reached. </FONT></P>
<P align=left><FONT face=sans-serif size=2>The aggregate amount of funding recognized in the first quarter of fiscal 2007 for the Project Phoenix is $7.1 million (June 30, 2005 &#150; nil), of which $6.0 million was recorded as a reduction of costs and $1.1 million against fixed assets or other capitalized costs. The entire amount was receivable as at June 30, 2006. Of the $17.3 million funding </FONT></P>
<P align=left><FONT face=serif>6</FONT></P>
<HR align=center width="100%" noShade SIZE=2>
<BR>

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<A name="page_40"></A>
<P align=left><FONT face=sans-serif size=2>recognized in fiscal 2006, $10.0 million was receivable as at March 31, 2006. There were no royalty expenditures (June 30, 2005 &#150; nil) for this program in the first quarter of fiscal 2007. </FONT></P>
<P align=left><B><FONT face=sans-serif size=2>PREVIOUS PROGRAMS</FONT></B><BR>
</P>
<P align=left><FONT face=sans-serif size=2>The Company had also signed previous R&amp;D agreements with the Government of Canada in order to share in a portion of specific costs incurred by the Company on previous R&amp;D programs. The initiative is intended to broaden CAE's technological capabilities in flight simulations systems by developing components that will lower the cost and weight of flight simulators and technologies to reduce the cost of initial training. These programs are repayable in the form of royalties to March 2011 and March 2013 based on future sales for civil and military programs respectively. </FONT></P>
<P align=left><FONT face=sans-serif size=2>With regards to the previous programs, there were no amounts of funding recognized in the first quarter of fiscal 2007 (June 30, 2005 - $3.4 million, which was entirely recorded as a reduction of costs). Of the $7.5 million funding recognized during fiscal 2006, $1.2 million was receivable as at March 31, 2006. In the first quarter of fiscal 2007, royalty expenditures in the amount of $1.8 million (June 30, 2005&#150; $1.6 million) were incurred for this program. </FONT></P>
<P align=left><FONT face=sans-serif size=2>In the first quarter of fiscal 2007, the Company recorded a liability of $15.1 million (March 31, 2006 - $18.9 million) related to future repayments in respect of the aggregate R&amp;D programs. </FONT></P>
<P align=left><FONT face=sans-serif color=#0000ff size=4>Note 6: Employee Future Benefits</FONT><BR>
</P>
<P align=left><FONT face=sans-serif size=2>The total benefit cost in the registered plans for the periods ended June 30 includes the following components:</FONT></P>
<TABLE cellSpacing=0 cellPadding=0 border=0>
<TR vAlign=bottom>
     <TD align=left width="54%"><FONT face=sans-serif size=1>(Unaudited)</FONT>&nbsp; </TD>
     <TD align=left width="13%">&nbsp; </TD>
     <TD align=left width="10%"></TD>
     <TD align=left width="3%">&nbsp; </TD>
     <TD align=left width="8%">&nbsp; </TD>
     <TD align=left width="7%"></TD>
     <TD align=left width="3%">&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="54%"><FONT face=sans-serif size=1>three months ended June 30 (amounts in millions)</FONT>&nbsp; </TD>
     <TD align=left width="13%">&nbsp; </TD>
     <TD align=right width="10%"><B><FONT face=sans-serif size=1>2006</FONT></B> </TD>
     <TD align=left width="3%">&nbsp; </TD>
     <TD align=left width="8%">&nbsp; </TD>
     <TD align=right width="7%"><FONT face=sans-serif size=1>2005</FONT> </TD>
     <TD align=left width="3%">&nbsp; </TD></TR>
<TR>
     <TD width="98%" colSpan=7>
<HR noShade SIZE=1>
</TD></TR>
<TR vAlign=bottom>
     <TD align=left width="54%"><FONT face=sans-serif size=2>Current service cost</FONT>&nbsp; </TD>
     <TD align=left width="13%"><B><FONT face=sans-serif size=2>$</FONT></B>&nbsp; </TD>
     <TD align=right width="10%"><B><FONT face=sans-serif size=2>2.1</FONT></B> </TD>
     <TD align=left width="3%">&nbsp; </TD>
     <TD align=right width="8%"><FONT face=sans-serif size=2>$</FONT>&nbsp; </TD>
     <TD align=right width="7%"><FONT face=sans-serif size=2>1.3</FONT> </TD>
     <TD align=left width="3%">&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="54%"><FONT face=sans-serif size=2>Interest cost on projected pension obligations</FONT>&nbsp; </TD>
     <TD align=left width="13%">&nbsp; </TD>
     <TD align=right width="10%"><B><FONT face=sans-serif size=2>2.7</FONT></B> </TD>
     <TD align=left width="3%">&nbsp; </TD>
     <TD align=left width="8%">&nbsp; </TD>
     <TD align=right width="7%"><FONT face=sans-serif size=2>2.7</FONT> </TD>
     <TD align=left width="3%">&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="54%"><FONT face=sans-serif size=2>Expected return on plan assets</FONT>&nbsp; </TD>
     <TD align=left width="13%">&nbsp; </TD>
     <TD align=right width="10%"><B><FONT face=sans-serif size=2>(2.7</FONT></B> </TD>
     <TD align=left width="3%"><B><FONT face=sans-serif size=2>)</FONT></B>&nbsp; </TD>
     <TD align=left width="8%">&nbsp; </TD>
     <TD align=right width="7%"><FONT face=sans-serif size=2>(2.1</FONT> </TD>
     <TD align=left width="3%"><FONT face=sans-serif size=2>)</FONT>&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="54%"><FONT face=sans-serif size=2>Amortization of net actuarial loss</FONT>&nbsp; </TD>
     <TD align=left width="13%">&nbsp; </TD>
     <TD align=right width="10%"><B><FONT face=sans-serif size=2>0.6</FONT></B> </TD>
     <TD align=left width="3%">&nbsp; </TD>
     <TD align=left width="8%">&nbsp; </TD>
     <TD align=right width="7%"><FONT face=sans-serif size=2>0.5</FONT> </TD>
     <TD align=left width="3%">&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="54%"><FONT face=sans-serif size=2>Amortization of past service costs</FONT>&nbsp; </TD>
     <TD align=left width="13%">&nbsp; </TD>
     <TD align=right width="10%"><B><FONT face=sans-serif size=2>0.1</FONT></B> </TD>
     <TD align=left width="3%">&nbsp; </TD>
     <TD align=left width="8%">&nbsp; </TD>
     <TD align=right width="7%"><FONT face=sans-serif size=2>0.1</FONT> </TD>
     <TD align=left width="3%">&nbsp; </TD></TR>
<TR>
     <TD width="98%" colSpan=7>
<HR noShade SIZE=1>
</TD></TR>
<TR vAlign=bottom>
     <TD align=left width="54%"><FONT face=sans-serif size=2>Net pension expense</FONT>&nbsp; </TD>
     <TD align=left width="13%"><B><FONT face=sans-serif size=2>$</FONT></B>&nbsp; </TD>
     <TD align=right width="10%"><B><FONT face=sans-serif size=2>2.8</FONT></B> </TD>
     <TD align=left width="3%">&nbsp; </TD>
     <TD align=right width="8%"><FONT face=sans-serif size=2>$</FONT>&nbsp; </TD>
     <TD align=right width="7%"><FONT face=sans-serif size=2>2.5</FONT> </TD>
     <TD align=left width="3%">&nbsp; </TD></TR>
<TR>
     <TD width="98%" colSpan=7>
<HR noShade SIZE=1>
</TD></TR>
<TR vAlign=bottom>
     <TD align=left width="54%"><FONT face=sans-serif color=#0000ff size=4>Note 7: Supplementary Information</FONT>&nbsp; </TD>
     <TD align=left width="13%">&nbsp; </TD>
     <TD align=left width="10%"></TD>
     <TD align=left width="3%">&nbsp; </TD>
     <TD align=left width="8%">&nbsp; </TD>
     <TD align=left width="7%"></TD>
     <TD align=left width="3%">&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="54%"><FONT face=sans-serif size=1>(Unaudited)</FONT>&nbsp; </TD>
     <TD align=left width="13%">&nbsp; </TD>
     <TD align=left width="10%"></TD>
     <TD align=left width="3%">&nbsp; </TD>
     <TD align=left width="8%">&nbsp; </TD>
     <TD align=left width="7%"></TD>
     <TD align=left width="3%">&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="54%"><FONT face=sans-serif size=1>three months ended June 30 (amounts in millions)</FONT>&nbsp; </TD>
     <TD align=left width="13%">&nbsp; </TD>
     <TD align=right width="10%"><B><FONT face=sans-serif size=1>2006</FONT></B> </TD>
     <TD align=left width="3%">&nbsp; </TD>
     <TD align=left width="8%">&nbsp; </TD>
     <TD align=right width="7%"><FONT face=sans-serif size=1>2005</FONT> </TD>
     <TD align=left width="3%">&nbsp; </TD></TR>
<TR>
     <TD width="98%" colSpan=7>
<HR noShade SIZE=1>
</TD></TR>
<TR vAlign=bottom>
     <TD align=left width="54%"><FONT face=sans-serif size=2>Cash provided by (used in) non-cash working capital:</FONT>&nbsp; </TD>
     <TD align=left width="13%">&nbsp; </TD>
     <TD align=left width="10%"></TD>
     <TD align=left width="3%">&nbsp; </TD>
     <TD align=left width="8%">&nbsp; </TD>
     <TD align=left width="7%"></TD>
     <TD align=left width="3%">&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="54%"><FONT face=sans-serif size=2>Accounts receivable</FONT>&nbsp; </TD>
     <TD align=left width="13%"><B><FONT face=sans-serif size=2>$</FONT></B>&nbsp; </TD>
     <TD align=right width="10%"><B><FONT face=sans-serif size=2>(29.7</FONT></B> </TD>
     <TD align=left width="3%"><B><FONT face=sans-serif size=2>)</FONT></B>&nbsp; </TD>
     <TD align=right width="8%"><FONT face=sans-serif size=2>$</FONT>&nbsp; </TD>
     <TD align=right width="7%"><FONT face=sans-serif size=2>(8.4</FONT> </TD>
     <TD align=left width="3%"><FONT face=sans-serif size=2>)</FONT>&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="54%"><FONT face=sans-serif size=2>Inventories</FONT>&nbsp; </TD>
     <TD align=left width="13%">&nbsp; </TD>
     <TD align=right width="10%"><B><FONT face=sans-serif size=2>6.5</FONT></B> </TD>
     <TD align=left width="3%">&nbsp; </TD>
     <TD align=left width="8%">&nbsp; </TD>
     <TD align=right width="7%"><FONT face=sans-serif size=2>(14.5</FONT> </TD>
     <TD align=left width="3%"><FONT face=sans-serif size=2>)</FONT>&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="54%"><FONT face=sans-serif size=2>Prepaid expenses</FONT>&nbsp; </TD>
     <TD align=left width="13%">&nbsp; </TD>
     <TD align=right width="10%"><B><FONT face=sans-serif size=2>3.2</FONT></B> </TD>
     <TD align=left width="3%">&nbsp; </TD>
     <TD align=left width="8%">&nbsp; </TD>
     <TD align=right width="7%"><FONT face=sans-serif size=2>(0.5</FONT> </TD>
     <TD align=left width="3%"><FONT face=sans-serif size=2>)</FONT>&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="54%"><FONT face=sans-serif size=2>Income taxes recoverable</FONT>&nbsp; </TD>
     <TD align=left width="13%">&nbsp; </TD>
     <TD align=right width="10%"><B><FONT face=sans-serif size=2>(3.3</FONT></B> </TD>
     <TD align=left width="3%"><B><FONT face=sans-serif size=2>)</FONT></B>&nbsp; </TD>
     <TD align=left width="8%">&nbsp; </TD>
     <TD align=right width="7%"><FONT face=sans-serif size=2>(0.2</FONT> </TD>
     <TD align=left width="3%"><FONT face=sans-serif size=2>)</FONT>&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="54%"><FONT face=sans-serif size=2>Accounts payable and accrued liabilities</FONT>&nbsp; </TD>
     <TD align=left width="13%">&nbsp; </TD>
     <TD align=right width="10%"><B><FONT face=sans-serif size=2>(19.0</FONT></B> </TD>
     <TD align=left width="3%"><B><FONT face=sans-serif size=2>)</FONT></B>&nbsp; </TD>
     <TD align=left width="8%">&nbsp; </TD>
     <TD align=right width="7%"><FONT face=sans-serif size=2>5.8</FONT> </TD>
     <TD align=left width="3%">&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="54%"><FONT face=sans-serif size=2>Deposits on contracts</FONT>&nbsp; </TD>
     <TD align=left width="13%">&nbsp; </TD>
     <TD align=right width="10%"><B><FONT face=sans-serif size=2>15.2</FONT></B> </TD>
     <TD align=left width="3%">&nbsp; </TD>
     <TD align=left width="8%">&nbsp; </TD>
     <TD align=right width="7%"><FONT face=sans-serif size=2>8.8</FONT> </TD>
     <TD align=left width="3%">&nbsp; </TD></TR>
<TR>
     <TD width="98%" colSpan=7>
<HR noShade SIZE=1>
</TD></TR>
<TR vAlign=bottom>
     <TD align=left width="54%"><FONT face=sans-serif size=2>Increase in non-cash working capital</FONT>&nbsp; </TD>
     <TD align=left width="13%"><B><FONT face=sans-serif size=2>$</FONT></B>&nbsp; </TD>
     <TD align=right width="10%"><B><FONT face=sans-serif size=2>(27.1</FONT></B> </TD>
     <TD align=left width="3%"><B><FONT face=sans-serif size=2>)</FONT></B>&nbsp; </TD>
     <TD align=right width="8%"><FONT face=sans-serif size=2>$</FONT>&nbsp; </TD>
     <TD align=right width="7%"><FONT face=sans-serif size=2>(9.0</FONT> </TD>
     <TD align=left width="3%"><FONT face=sans-serif size=2>)</FONT>&nbsp; </TD></TR>
<TR>
     <TD width="98%" colSpan=7>
<HR noShade SIZE=1>
</TD></TR>
<TR vAlign=bottom>
     <TD align=left width="54%"><FONT face=sans-serif size=2>Supplemental cash flow disclosure:</FONT>&nbsp; </TD>
     <TD align=left width="13%">&nbsp; </TD>
     <TD align=left width="10%"></TD>
     <TD align=left width="3%">&nbsp; </TD>
     <TD align=left width="8%">&nbsp; </TD>
     <TD align=left width="7%"></TD>
     <TD align=left width="3%">&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="54%"><FONT face=sans-serif size=2>Interest paid</FONT>&nbsp; </TD>
     <TD align=left width="13%"><B><FONT face=sans-serif size=2>$</FONT></B>&nbsp; </TD>
     <TD align=right width="10%"><B><FONT face=sans-serif size=2>5.9</FONT></B> </TD>
     <TD align=left width="3%">&nbsp; </TD>
     <TD align=right width="8%"><FONT face=sans-serif size=2>$</FONT>&nbsp; </TD>
     <TD align=right width="7%"><FONT face=sans-serif size=2>9.4</FONT> </TD>
     <TD align=left width="3%">&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="54%"><FONT face=sans-serif size=2>Income taxes paid, net</FONT>&nbsp; </TD>
     <TD align=left width="13%"><B><FONT face=sans-serif size=2>$</FONT></B>&nbsp; </TD>
     <TD align=right width="10%"><B><FONT face=sans-serif size=2>1.6</FONT></B> </TD>
     <TD align=left width="3%">&nbsp; </TD>
     <TD align=right width="8%"><FONT face=sans-serif size=2>$</FONT>&nbsp; </TD>
     <TD align=right width="7%"><FONT face=sans-serif size=2>3.5</FONT> </TD>
     <TD align=left width="3%">&nbsp; </TD></TR>
<TR>
     <TD width="98%" colSpan=7>
<HR noShade SIZE=1>
</TD></TR>
<TR vAlign=bottom>
     <TD align=left width="54%"><FONT face=sans-serif size=2>Supplemental statement of earnings disclosure:</FONT>&nbsp; </TD>
     <TD align=left width="13%">&nbsp; </TD>
     <TD align=left width="10%"></TD>
     <TD align=left width="3%">&nbsp; </TD>
     <TD align=left width="8%">&nbsp; </TD>
     <TD align=left width="7%"></TD>
     <TD align=left width="3%">&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="54%"><FONT face=sans-serif size=2>Foreign exchange gain</FONT>&nbsp; </TD>
     <TD align=left width="13%"><B><FONT face=sans-serif size=2>$</FONT></B>&nbsp; </TD>
     <TD align=right width="10%"><B><FONT face=sans-serif size=2>(1.8</FONT></B> </TD>
     <TD align=left width="3%"><B><FONT face=sans-serif size=2>)</FONT></B>&nbsp; </TD>
     <TD align=right width="8%"><FONT face=sans-serif size=2>$</FONT>&nbsp; </TD>
     <TD align=right width="7%"><FONT face=sans-serif size=2>(9.8</FONT> </TD>
     <TD align=left width="3%"><FONT face=sans-serif size=2>)</FONT>&nbsp; </TD></TR>
<TR>
     <TD width="98%" colSpan=7>
<HR noShade SIZE=1>
</TD></TR></TABLE><BR>
<P align=left><FONT face=serif>7</FONT></P>
<HR align=center width="100%" noShade SIZE=2>
<BR>

<!--$$/page=-->
<A name="page_41"></A>
<P align=left><FONT face=sans-serif color=#0000ff size=4>Note 8: Restructuring Charge</FONT><BR>
</P>
<P align=left><FONT face=sans-serif size=2>During the fourth quarter of 2005, following a comprehensive review of current performance and the strategic orientation of its operations, the Company announced a broad Restructuring Plan aimed at the elimination of existing duplications between the Civil and Military segments and the achievement of a more competitive cost structure. The plan, which included a workforce reduction of approximately 450 employees and the closing of redundant facilities, has a significant effect on the Company's operations in Montreal and around the world, including some European and US training centers. Since fiscal 2005, cumulative restructuring charges of $43.6 million, consisting mainly of employee termination costs and other related costs and including additional expenses of $0.2 million incurred during the first quarter of fiscal 2007, have been recorded in the Company&#146;s results.</FONT></P>
<TABLE cellSpacing=0 cellPadding=0 border=0>
<TR vAlign=bottom>
     <TD align=left width="43%"><FONT face=sans-serif size=2>The summary of the provision is as follows</FONT><B><FONT face=sans-serif size=2>:</FONT></B>&nbsp; </TD>
     <TD align=left width="11%">&nbsp; </TD>
     <TD align=left width="10%"></TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=left width="7%">&nbsp; </TD>
     <TD align=left width="7%"></TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=left width="5%">&nbsp; </TD>
     <TD align=left width="5%"></TD>
     <TD align=left width="2%">&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="43%">&nbsp; </TD>
     <TD align=left width="11%">&nbsp; </TD>
     <TD align=right width="10%"><FONT face=sans-serif size=1>Employee</FONT> </TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=left width="7%">&nbsp; </TD>
     <TD align=left width="7%"></TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=left width="5%">&nbsp; </TD>
     <TD align=left width="5%"></TD>
     <TD align=left width="2%">&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="43%"><FONT face=sans-serif size=1>(Unaudited)</FONT>&nbsp; </TD>
     <TD align=left width="11%">&nbsp; </TD>
     <TD align=right width="10%"><FONT face=sans-serif size=1>Termination</FONT> </TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=left width="7%">&nbsp; </TD>
     <TD align=left width="7%"></TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=left width="5%">&nbsp; </TD>
     <TD align=left width="5%"></TD>
     <TD align=left width="2%">&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="43%"><FONT face=sans-serif size=1>(amounts in millions)</FONT>&nbsp; </TD>
     <TD align=left width="11%">&nbsp; </TD>
     <TD align=right width="10%"><FONT face=sans-serif size=1>Costs</FONT> </TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=left width="7%">&nbsp; </TD>
     <TD align=right width="7%"><FONT face=sans-serif size=1>Other Costs</FONT> </TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=left width="5%">&nbsp; </TD>
     <TD align=right width="5%"><FONT face=sans-serif size=1>Total</FONT> </TD>
     <TD align=left width="2%">&nbsp; </TD></TR>
<TR>
     <TD width="94%" colSpan=10>
<HR noShade SIZE=1>
</TD></TR>
<TR vAlign=bottom>
     <TD align=left width="43%"><FONT face=sans-serif size=2>Balance of provision as at March 31, 2006</FONT>&nbsp; </TD>
     <TD align=left width="11%"><FONT face=sans-serif size=2>$</FONT>&nbsp; </TD>
     <TD align=right width="10%"><FONT face=sans-serif size=2>12.0</FONT> </TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=left width="7%">&nbsp;<FONT face=sans-serif size=2>$</FONT>&nbsp; </TD>
     <TD align=right width="7%"><FONT face=sans-serif size=2>0.6</FONT> </TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=left width="5%"><FONT face=sans-serif size=2>$</FONT>&nbsp; </TD>
     <TD align=right width="5%"><FONT face=sans-serif size=2>12.6</FONT> </TD>
     <TD align=left width="2%">&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="43%"><FONT face=sans-serif size=2>Costs charged to expenses</FONT>&nbsp; </TD>
     <TD align=left width="11%">&nbsp; </TD>
     <TD align=right width="10%"><FONT face=sans-serif size=2>(0.1</FONT> </TD>
     <TD align=left width="2%"><FONT face=sans-serif size=2>)</FONT>&nbsp; </TD>
     <TD align=left width="7%">&nbsp; </TD>
     <TD align=right width="7%"><FONT face=sans-serif size=2>0.3</FONT> </TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=left width="5%">&nbsp; </TD>
     <TD align=right width="5%"><FONT face=sans-serif size=2>0.2</FONT> </TD>
     <TD align=left width="2%">&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="43%"><FONT face=sans-serif size=2>Payments made</FONT>&nbsp; </TD>
     <TD align=left width="11%">&nbsp; </TD>
     <TD align=right width="10%"><FONT face=sans-serif size=2>(3.2</FONT> </TD>
     <TD align=left width="2%"><FONT face=sans-serif size=2>)</FONT>&nbsp; </TD>
     <TD align=left width="7%">&nbsp; </TD>
     <TD align=right width="7%"><FONT face=sans-serif size=2>(0.7</FONT> </TD>
     <TD align=left width="2%"><FONT face=sans-serif size=2>)</FONT>&nbsp; </TD>
     <TD align=left width="5%">&nbsp; </TD>
     <TD align=right width="5%"><FONT face=sans-serif size=2>(3.9</FONT> </TD>
     <TD align=left width="2%"><FONT face=sans-serif size=2>)</FONT>&nbsp; </TD></TR>
<TR>
     <TD width="94%" colSpan=10>
<HR noShade SIZE=1>
</TD></TR>
<TR vAlign=bottom>
     <TD align=left width="43%"><B><FONT face=sans-serif size=2>Balance of provision as at June 30, 2006</FONT></B>&nbsp; </TD>
     <TD align=left width="11%"><B><FONT face=sans-serif size=2>$</FONT></B>&nbsp; </TD>
     <TD align=right width="10%"><B><FONT face=sans-serif size=2>8.7</FONT></B> </TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=left width="7%">&nbsp;<B><FONT face=sans-serif size=2>$</FONT></B>&nbsp; </TD>
     <TD align=right width="7%"><B><FONT face=sans-serif size=2>0.2</FONT></B> </TD>
     <TD align=left width="2%">&nbsp; </TD>
     <TD align=left width="5%"><B><FONT face=sans-serif size=2>$</FONT></B>&nbsp; </TD>
     <TD align=right width="5%"><B><FONT face=sans-serif size=2>8.9</FONT></B> </TD>
     <TD align=left width="2%">&nbsp; </TD></TR>
<TR>
     <TD width="94%" colSpan=10>
<HR noShade SIZE=1>
</TD></TR></TABLE><BR>
<P align=left><FONT face=serif>8</FONT></P>
<HR align=center width="100%" noShade SIZE=2>
<BR>
<BR>

<!--$$/page=-->
<A name="page_42"></A>
<P align=left><FONT face=sans-serif color=#0000ff size=4>Note 9: Operating Segments and Geographic Information </FONT></P>
<P align=left><B><FONT face=sans-serif size=2>Results by Segment </FONT></B></P>
<P align=left><FONT face=sans-serif size=2>The profitability measure employed by the Company for making decisions about allocating resources to segments and assessing segment performance is earnings before other income (expense) net, interest, income taxes and discontinued operations (hereinafter referred to as Segment Operating Income). The Simulation Products/Civil and the Simulation Products/Military segments operate under an integrated organization sharing substantially all engineering, development, global procurement, program management and manufacturing functions. The accounting principles used to prepare the information by operating segment are the same as those used to prepare the Company&#146;s consolidated financial statements. Transactions between operating segments are mainly simulator transfers from the Simulation Products/Civil segment to the Training &amp; Services/Civil segment which are recorded at cost. The method used for the allocation of assets jointly used by operating segments and cost
s and liabilities jointly incurred (mostly corporate costs) between operating segments is based on level of utilization when determinable and measurable, otherwise the allocation is made based on a proportion of each segment&#146;s cost of sales. </FONT></P>
<TABLE cellSpacing=0 cellPadding=0 border=0>
<TR vAlign=bottom>
     <TD align=left width="9%"><FONT face=sans-serif size=1>(Unaudited)</FONT>&nbsp; </TD>
     <TD align=left width="23%">&nbsp; </TD>
     <TD align=left width="4%">&nbsp; </TD>
     <TD align=right width="18%" colSpan=3><B><FONT face=sans-serif size=2>Simulation Products</FONT></B>&nbsp; </TD>
     <TD align=left width="4%">&nbsp; </TD>
     <TD align=right width="17%" colSpan=3><B><FONT face=sans-serif size=2>Training &amp; Services</FONT></B>&nbsp; </TD>
     <TD align=left width="3%">&nbsp; </TD>
     <TD align=left width="10%" colSpan=2>&nbsp; &nbsp; &nbsp; &nbsp;<B><FONT face=sans-serif size=2>Total</FONT></B>&nbsp; </TD>
     <TD align=left width="5%">&nbsp; </TD></TR>
<TR>
     <TD width="32%" colSpan=2>
<HR noShade SIZE=1>
</TD>
     <TD width="61%" colSpan=12></TD></TR>
<TR vAlign=bottom>
     <TD align=left width="32%" colSpan=2><FONT face=sans-serif size=1>three months ended June 30</FONT>&nbsp; </TD>
     <TD align=left width="4%">&nbsp; </TD>
     <TD align=left width="7%">&nbsp; </TD>
     <TD align=left width="4%">&nbsp; </TD>
     <TD align=left width="7%">&nbsp; </TD>
     <TD align=left width="4%">&nbsp; </TD>
     <TD align=left width="7%">&nbsp; </TD>
     <TD align=left width="3%">&nbsp; </TD>
     <TD align=left width="7%">&nbsp; </TD>
     <TD align=left width="3%">&nbsp; </TD>
     <TD align=left width="7%">&nbsp; </TD>
     <TD align=left width="3%">&nbsp; </TD>
     <TD align=left width="5%">&nbsp; </TD></TR>
<TR>
     <TD width="32%" colSpan=2>
<HR noShade SIZE=1>
</TD>
     <TD width="61%" colSpan=12></TD></TR>
<TR vAlign=bottom>
     <TD align=left width="32%" colSpan=2><FONT face=sans-serif size=1>(amounts in millions)</FONT>&nbsp; </TD>
     <TD align=left width="4%">&nbsp; </TD>
     <TD align=right width="7%"><B><FONT face=sans-serif size=1>2006</FONT></B>&nbsp; </TD>
     <TD align=left width="4%">&nbsp; </TD>
     <TD align=right width="7%"><FONT face=sans-serif size=1>2005</FONT>&nbsp; </TD>
     <TD align=left width="4%">&nbsp; </TD>
     <TD align=right width="7%"><B><FONT face=sans-serif size=1>2006</FONT></B>&nbsp; </TD>
     <TD align=left width="3%">&nbsp; </TD>
     <TD align=right width="7%"><FONT face=sans-serif size=1>2005</FONT>&nbsp; </TD>
     <TD align=left width="3%">&nbsp; </TD>
     <TD align=right width="7%"><B><FONT face=sans-serif size=1>2006</FONT></B>&nbsp; </TD>
     <TD align=left width="3%">&nbsp; </TD>
     <TD align=right width="5%"><FONT face=sans-serif size=1>2005</FONT>&nbsp; </TD></TR>
<TR>
     <TD width="93%" colSpan=14>
<HR noShade SIZE=1>
</TD></TR>
<TR vAlign=bottom>
     <TD align=left width="9%">&nbsp; </TD>
     <TD align=center width="23%"><B><FONT face=sans-serif size=2>Civil</FONT></B>&nbsp; </TD>
     <TD align=left width="4%">&nbsp; </TD>
     <TD align=left width="7%">&nbsp; </TD>
     <TD align=left width="4%">&nbsp; </TD>
     <TD align=left width="7%">&nbsp; </TD>
     <TD align=left width="4%">&nbsp; </TD>
     <TD align=left width="7%">&nbsp; </TD>
     <TD align=left width="3%">&nbsp; </TD>
     <TD align=left width="7%">&nbsp; </TD>
     <TD align=left width="3%">&nbsp; </TD>
     <TD align=left width="7%">&nbsp; </TD>
     <TD align=left width="3%">&nbsp; </TD>
     <TD align=left width="5%">&nbsp; </TD></TR>
<TR>
     <TD width="93%" colSpan=14>
<HR noShade SIZE=1>
</TD></TR>
<TR vAlign=bottom>
     <TD align=left width="32%" colSpan=2>&nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp;<FONT face=sans-serif size=2>External revenue</FONT>&nbsp; </TD>
     <TD align=left width="4%"><B><FONT face=sans-serif size=2>$</FONT></B>&nbsp; </TD>
     <TD align=right width="7%"><B><FONT face=sans-serif size=2>74.2</FONT></B>&nbsp; </TD>
     <TD align=left width="4%"><FONT face=sans-serif size=2>$</FONT>&nbsp; </TD>
     <TD align=right width="7%"><FONT face=sans-serif size=2>60.2</FONT>&nbsp; </TD>
     <TD align=left width="4%">&nbsp;<B><FONT face=sans-serif size=2>$</FONT></B>&nbsp; </TD>
     <TD align=right width="7%"><B><FONT face=sans-serif size=2>83.7</FONT></B>&nbsp; </TD>
     <TD align=left width="3%"><FONT face=sans-serif size=2>$</FONT>&nbsp; </TD>
     <TD align=right width="7%"><FONT face=sans-serif size=2>83.8</FONT>&nbsp; </TD>
     <TD align=left width="3%"><B><FONT face=sans-serif size=2>$</FONT></B>&nbsp; </TD>
     <TD align=right width="7%"><B><FONT face=sans-serif size=2>157.9</FONT></B>&nbsp; </TD>
     <TD align=left width="3%"><FONT face=sans-serif size=2>$</FONT>&nbsp; </TD>
     <TD align=right width="5%"><FONT face=sans-serif size=2>144.0</FONT>&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="32%" colSpan=2>&nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp;<FONT face=sans-serif size=2>Segment Operating Income</FONT>&nbsp; </TD>
     <TD align=left width="4%">&nbsp; </TD>
     <TD align=right width="7%"><B><FONT face=sans-serif size=2>11.0</FONT></B>&nbsp; </TD>
     <TD align=left width="4%">&nbsp; </TD>
     <TD align=right width="7%"><FONT face=sans-serif size=2>7.1</FONT>&nbsp; </TD>
     <TD align=left width="4%">&nbsp; </TD>
     <TD align=right width="7%"><B><FONT face=sans-serif size=2>18.4</FONT></B>&nbsp; </TD>
     <TD align=left width="3%">&nbsp; </TD>
     <TD align=right width="7%"><FONT face=sans-serif size=2>16.9</FONT>&nbsp; </TD>
     <TD align=left width="3%">&nbsp; </TD>
     <TD align=right width="7%"><B><FONT face=sans-serif size=2>29.4</FONT></B>&nbsp; </TD>
     <TD align=left width="3%">&nbsp; </TD>
     <TD align=right width="5%"><FONT face=sans-serif size=2>24.0</FONT>&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="32%" colSpan=2>&nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp;<FONT face=sans-serif size=2>Depreciation and</FONT>&nbsp; </TD>
     <TD align=left width="4%">&nbsp; </TD>
     <TD align=left width="7%">&nbsp; </TD>
     <TD align=left width="4%">&nbsp; </TD>
     <TD align=left width="7%">&nbsp; </TD>
     <TD align=left width="4%">&nbsp; </TD>
     <TD align=left width="7%">&nbsp; </TD>
     <TD align=left width="3%">&nbsp; </TD>
     <TD align=left width="7%">&nbsp; </TD>
     <TD align=left width="3%">&nbsp; </TD>
     <TD align=left width="7%">&nbsp; </TD>
     <TD align=left width="3%">&nbsp; </TD>
     <TD align=left width="5%">&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="32%" colSpan=2>&nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp;<FONT face=sans-serif size=2>amortization</FONT>&nbsp; </TD>
     <TD align=left width="4%">&nbsp; </TD>
     <TD align=left width="7%">&nbsp; </TD>
     <TD align=left width="4%">&nbsp; </TD>
     <TD align=left width="7%">&nbsp; </TD>
     <TD align=left width="4%">&nbsp; </TD>
     <TD align=left width="7%">&nbsp; </TD>
     <TD align=left width="3%">&nbsp; </TD>
     <TD align=left width="7%">&nbsp; </TD>
     <TD align=left width="3%">&nbsp; </TD>
     <TD align=left width="7%">&nbsp; </TD>
     <TD align=left width="3%">&nbsp; </TD>
     <TD align=left width="5%">&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=right width="9%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT face=sans-serif size=2><FONT face=Symbol>&#183;</FONT></FONT>&nbsp; </TD>
     <TD align=left width="23%"><FONT face=sans-serif size=2>Property, plant and</FONT>&nbsp; </TD>
     <TD align=left width="4%">&nbsp; </TD>
     <TD align=left width="7%">&nbsp; </TD>
     <TD align=left width="4%">&nbsp; </TD>
     <TD align=left width="7%">&nbsp; </TD>
     <TD align=left width="4%">&nbsp; </TD>
     <TD align=left width="7%">&nbsp; </TD>
     <TD align=left width="3%">&nbsp; </TD>
     <TD align=left width="7%">&nbsp; </TD>
     <TD align=left width="3%">&nbsp; </TD>
     <TD align=left width="7%">&nbsp; </TD>
     <TD align=left width="3%">&nbsp; </TD>
     <TD align=left width="5%">&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="9%">&nbsp; </TD>
     <TD align=left width="23%"><FONT face=sans-serif size=2>equipment</FONT>&nbsp; </TD>
     <TD align=left width="4%">&nbsp; </TD>
     <TD align=right width="7%"><B><FONT face=sans-serif size=2>1.3</FONT></B>&nbsp; </TD>
     <TD align=left width="4%">&nbsp; </TD>
     <TD align=right width="7%"><FONT face=sans-serif size=2>1.4</FONT>&nbsp; </TD>
     <TD align=left width="4%">&nbsp; </TD>
     <TD align=right width="7%"><B><FONT face=sans-serif size=2>9.0</FONT></B>&nbsp; </TD>
     <TD align=left width="3%">&nbsp; </TD>
     <TD align=right width="7%"><FONT face=sans-serif size=2>9.1</FONT>&nbsp; </TD>
     <TD align=left width="3%">&nbsp; </TD>
     <TD align=right width="7%"><B><FONT face=sans-serif size=2>10.3</FONT></B>&nbsp; </TD>
     <TD align=left width="3%">&nbsp; </TD>
     <TD align=right width="5%"><FONT face=sans-serif size=2>10.5</FONT>&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=right width="9%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT face=sans-serif size=2><FONT face=Symbol>&#183;</FONT></FONT>&nbsp; </TD>
     <TD align=left width="23%"><FONT face=sans-serif size=2>Intangible and other</FONT>&nbsp; </TD>
     <TD align=left width="4%">&nbsp; </TD>
     <TD align=left width="7%">&nbsp; </TD>
     <TD align=left width="4%">&nbsp; </TD>
     <TD align=left width="7%">&nbsp; </TD>
     <TD align=left width="4%">&nbsp; </TD>
     <TD align=left width="7%">&nbsp; </TD>
     <TD align=left width="3%">&nbsp; </TD>
     <TD align=left width="7%">&nbsp; </TD>
     <TD align=left width="3%">&nbsp; </TD>
     <TD align=left width="7%">&nbsp; </TD>
     <TD align=left width="3%">&nbsp; </TD>
     <TD align=left width="5%">&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="9%">&nbsp; </TD>
     <TD align=left width="23%"><FONT face=sans-serif size=2>assets</FONT>&nbsp; </TD>
     <TD align=left width="4%">&nbsp; </TD>
     <TD align=right width="7%"><B><FONT face=sans-serif size=2>0.8</FONT></B>&nbsp; </TD>
     <TD align=left width="4%">&nbsp; </TD>
     <TD align=right width="7%"><FONT face=sans-serif size=2>0.7</FONT>&nbsp; </TD>
     <TD align=left width="4%">&nbsp; </TD>
     <TD align=right width="7%"><B><FONT face=sans-serif size=2>1.6</FONT></B>&nbsp; </TD>
     <TD align=left width="3%">&nbsp; </TD>
     <TD align=right width="7%"><FONT face=sans-serif size=2>1.4</FONT>&nbsp; </TD>
     <TD align=left width="3%">&nbsp; </TD>
     <TD align=right width="7%"><B><FONT face=sans-serif size=2>2.4</FONT></B>&nbsp; </TD>
     <TD align=left width="3%">&nbsp; </TD>
     <TD align=right width="5%"><FONT face=sans-serif size=2>2.1</FONT>&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="32%" colSpan=2>&nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp;<FONT face=sans-serif size=2>Capital expenditures</FONT>&nbsp; </TD>
     <TD align=left width="4%">&nbsp; </TD>
     <TD align=right width="7%"><B><FONT face=sans-serif size=2>8.2</FONT></B>&nbsp; </TD>
     <TD align=left width="4%">&nbsp; </TD>
     <TD align=right width="7%"><FONT face=sans-serif size=2>0.2</FONT>&nbsp; </TD>
     <TD align=left width="4%">&nbsp; </TD>
     <TD align=right width="7%"><B><FONT face=sans-serif size=2>17.8</FONT></B>&nbsp; </TD>
     <TD align=left width="3%">&nbsp; </TD>
     <TD align=right width="7%"><FONT face=sans-serif size=2>10.9</FONT>&nbsp; </TD>
     <TD align=left width="3%">&nbsp; </TD>
     <TD align=right width="7%"><B><FONT face=sans-serif size=2>26.0</FONT></B>&nbsp; </TD>
     <TD align=left width="3%">&nbsp; </TD>
     <TD align=right width="5%"><FONT face=sans-serif size=2>11.1</FONT>&nbsp; </TD></TR>
<TR>
     <TD width="93%" colSpan=14>
<HR noShade SIZE=1>
</TD></TR>
<TR vAlign=bottom>
     <TD align=left width="9%">&nbsp; </TD>
     <TD align=center width="23%"><B><FONT face=sans-serif size=2>Military</FONT></B>&nbsp; </TD>
     <TD align=left width="4%">&nbsp; </TD>
     <TD align=left width="7%">&nbsp; </TD>
     <TD align=left width="4%">&nbsp; </TD>
     <TD align=left width="7%">&nbsp; </TD>
     <TD align=left width="4%">&nbsp; </TD>
     <TD align=left width="7%">&nbsp; </TD>
     <TD align=left width="3%">&nbsp; </TD>
     <TD align=left width="7%">&nbsp; </TD>
     <TD align=left width="3%">&nbsp; </TD>
     <TD align=left width="7%">&nbsp; </TD>
     <TD align=left width="3%">&nbsp; </TD>
     <TD align=left width="5%">&nbsp; </TD></TR>
<TR>
     <TD width="93%" colSpan=14>
<HR noShade SIZE=1>
</TD></TR>
<TR vAlign=bottom>
     <TD align=left width="32%" colSpan=2>&nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp;<FONT face=sans-serif size=2>External revenue</FONT>&nbsp; </TD>
     <TD align=left width="4%"><B><FONT face=sans-serif size=2>$</FONT></B>&nbsp; </TD>
     <TD align=right width="7%"><B><FONT face=sans-serif size=2>95.8</FONT></B>&nbsp; </TD>
     <TD align=left width="4%"><FONT face=sans-serif size=2>$</FONT>&nbsp; </TD>
     <TD align=right width="7%"><FONT face=sans-serif size=2>72.7</FONT>&nbsp; </TD>
     <TD align=left width="4%">&nbsp;<B><FONT face=sans-serif size=2>$</FONT></B>&nbsp; </TD>
     <TD align=right width="7%"><B><FONT face=sans-serif size=2>48.1</FONT></B>&nbsp; </TD>
     <TD align=left width="3%"><FONT face=sans-serif size=2>$</FONT>&nbsp; </TD>
     <TD align=right width="7%"><FONT face=sans-serif size=2>49.3</FONT>&nbsp; </TD>
     <TD align=left width="3%"><B><FONT face=sans-serif size=2>$</FONT></B>&nbsp; </TD>
     <TD align=right width="7%"><B><FONT face=sans-serif size=2>143.9</FONT></B>&nbsp; </TD>
     <TD align=left width="3%"><FONT face=sans-serif size=2>$</FONT>&nbsp; </TD>
     <TD align=right width="5%"><FONT face=sans-serif size=2>122.0</FONT>&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="32%" colSpan=2>&nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp;<FONT face=sans-serif size=2>Segment Operating Income</FONT>&nbsp; </TD>
     <TD align=left width="4%">&nbsp; </TD>
     <TD align=right width="7%"><B><FONT face=sans-serif size=2>11.2</FONT></B>&nbsp; </TD>
     <TD align=left width="4%">&nbsp; </TD>
     <TD align=right width="7%"><FONT face=sans-serif size=2>4.8</FONT>&nbsp; </TD>
     <TD align=left width="4%">&nbsp; </TD>
     <TD align=right width="7%"><B><FONT face=sans-serif size=2>11.6</FONT></B>&nbsp; </TD>
     <TD align=left width="3%">&nbsp; </TD>
     <TD align=right width="7%"><FONT face=sans-serif size=2>2.0</FONT>&nbsp; </TD>
     <TD align=left width="3%">&nbsp; </TD>
     <TD align=right width="7%"><B><FONT face=sans-serif size=2>22.8</FONT></B>&nbsp; </TD>
     <TD align=left width="3%">&nbsp; </TD>
     <TD align=right width="5%"><FONT face=sans-serif size=2>6.8</FONT>&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="32%" colSpan=2>&nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp;<FONT face=sans-serif size=2>Depreciation and</FONT>&nbsp; </TD>
     <TD align=left width="4%">&nbsp; </TD>
     <TD align=left width="7%">&nbsp; </TD>
     <TD align=left width="4%">&nbsp; </TD>
     <TD align=left width="7%">&nbsp; </TD>
     <TD align=left width="4%">&nbsp; </TD>
     <TD align=left width="7%">&nbsp; </TD>
     <TD align=left width="3%">&nbsp; </TD>
     <TD align=left width="7%">&nbsp; </TD>
     <TD align=left width="3%">&nbsp; </TD>
     <TD align=left width="7%">&nbsp; </TD>
     <TD align=left width="3%">&nbsp; </TD>
     <TD align=left width="5%">&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="32%" colSpan=2>&nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp;<FONT face=sans-serif size=2>amortization</FONT>&nbsp; </TD>
     <TD align=left width="4%">&nbsp; </TD>
     <TD align=left width="7%">&nbsp; </TD>
     <TD align=left width="4%">&nbsp; </TD>
     <TD align=left width="7%">&nbsp; </TD>
     <TD align=left width="4%">&nbsp; </TD>
     <TD align=left width="7%">&nbsp; </TD>
     <TD align=left width="3%">&nbsp; </TD>
     <TD align=left width="7%">&nbsp; </TD>
     <TD align=left width="3%">&nbsp; </TD>
     <TD align=left width="7%">&nbsp; </TD>
     <TD align=left width="3%">&nbsp; </TD>
     <TD align=left width="5%">&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=right width="9%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT face=sans-serif size=2><FONT face=Symbol>&#183;</FONT></FONT>&nbsp; </TD>
     <TD align=left width="23%"><FONT face=sans-serif size=2>Property, plant and</FONT>&nbsp; </TD>
     <TD align=left width="4%">&nbsp; </TD>
     <TD align=left width="7%">&nbsp; </TD>
     <TD align=left width="4%">&nbsp; </TD>
     <TD align=left width="7%">&nbsp; </TD>
     <TD align=left width="4%">&nbsp; </TD>
     <TD align=left width="7%">&nbsp; </TD>
     <TD align=left width="3%">&nbsp; </TD>
     <TD align=left width="7%">&nbsp; </TD>
     <TD align=left width="3%">&nbsp; </TD>
     <TD align=left width="7%">&nbsp; </TD>
     <TD align=left width="3%">&nbsp; </TD>
     <TD align=left width="5%">&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="9%">&nbsp; </TD>
     <TD align=left width="23%"><FONT face=sans-serif size=2>equipment</FONT>&nbsp; </TD>
     <TD align=left width="4%">&nbsp; </TD>
     <TD align=right width="7%"><B><FONT face=sans-serif size=2>1.5</FONT></B>&nbsp; </TD>
     <TD align=left width="4%">&nbsp; </TD>
     <TD align=right width="7%"><FONT face=sans-serif size=2>1.5</FONT>&nbsp; </TD>
     <TD align=left width="4%">&nbsp; </TD>
     <TD align=right width="7%"><B><FONT face=sans-serif size=2>1.0</FONT></B>&nbsp; </TD>
     <TD align=left width="3%">&nbsp; </TD>
     <TD align=right width="7%"><FONT face=sans-serif size=2>1.1</FONT>&nbsp; </TD>
     <TD align=left width="3%">&nbsp; </TD>
     <TD align=right width="7%"><B><FONT face=sans-serif size=2>2.5</FONT></B>&nbsp; </TD>
     <TD align=left width="3%">&nbsp; </TD>
     <TD align=right width="5%"><FONT face=sans-serif size=2>2.6</FONT>&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=right width="9%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT face=sans-serif size=2><FONT face=Symbol>&#183;</FONT></FONT>&nbsp; </TD>
     <TD align=left width="23%"><FONT face=sans-serif size=2>Intangible and other</FONT>&nbsp; </TD>
     <TD align=left width="4%">&nbsp; </TD>
     <TD align=left width="7%">&nbsp; </TD>
     <TD align=left width="4%">&nbsp; </TD>
     <TD align=left width="7%">&nbsp; </TD>
     <TD align=left width="4%">&nbsp; </TD>
     <TD align=left width="7%">&nbsp; </TD>
     <TD align=left width="3%">&nbsp; </TD>
     <TD align=left width="7%">&nbsp; </TD>
     <TD align=left width="3%">&nbsp; </TD>
     <TD align=left width="7%">&nbsp; </TD>
     <TD align=left width="3%">&nbsp; </TD>
     <TD align=left width="5%">&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="9%">&nbsp; </TD>
     <TD align=left width="23%"><FONT face=sans-serif size=2>assets</FONT>&nbsp; </TD>
     <TD align=left width="4%">&nbsp; </TD>
     <TD align=right width="7%"><B><FONT face=sans-serif size=2>0.7</FONT></B>&nbsp; </TD>
     <TD align=left width="4%">&nbsp; </TD>
     <TD align=right width="7%"><FONT face=sans-serif size=2>0.3</FONT>&nbsp; </TD>
     <TD align=left width="4%">&nbsp; </TD>
     <TD align=right width="7%"><B><FONT face=sans-serif size=2>0.5</FONT></B>&nbsp; </TD>
     <TD align=left width="3%">&nbsp; </TD>
     <TD align=right width="7%"><FONT face=sans-serif size=2>0.8</FONT>&nbsp; </TD>
     <TD align=left width="3%">&nbsp; </TD>
     <TD align=right width="7%"><B><FONT face=sans-serif size=2>1.2</FONT></B>&nbsp; </TD>
     <TD align=left width="3%">&nbsp; </TD>
     <TD align=right width="5%"><FONT face=sans-serif size=2>1.1</FONT>&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="32%" colSpan=2>&nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp;<FONT face=sans-serif size=2>Capital expenditures</FONT>&nbsp; </TD>
     <TD align=left width="4%">&nbsp; </TD>
     <TD align=right width="7%"><B><FONT face=sans-serif size=2>1.3</FONT></B>&nbsp; </TD>
     <TD align=left width="4%">&nbsp; </TD>
     <TD align=right width="7%"><FONT face=sans-serif size=2>0.3</FONT>&nbsp; </TD>
     <TD align=left width="4%">&nbsp; </TD>
     <TD align=right width="7%"><B><FONT face=sans-serif size=2>13.4</FONT></B>&nbsp; </TD>
     <TD align=left width="3%">&nbsp; </TD>
     <TD align=right width="7%"><FONT face=sans-serif size=2>6.5</FONT>&nbsp; </TD>
     <TD align=left width="3%">&nbsp; </TD>
     <TD align=right width="7%"><B><FONT face=sans-serif size=2>14.7</FONT></B>&nbsp; </TD>
     <TD align=left width="3%">&nbsp; </TD>
     <TD align=right width="5%"><FONT face=sans-serif size=2>6.8</FONT>&nbsp; </TD></TR>
<TR>
     <TD width="93%" colSpan=14>
<HR noShade SIZE=1>
</TD></TR>
<TR vAlign=bottom>
     <TD align=left width="9%">&nbsp; </TD>
     <TD align=center width="23%"><B><FONT face=sans-serif size=2>Total</FONT></B>&nbsp; </TD>
     <TD align=left width="4%">&nbsp; </TD>
     <TD align=left width="7%">&nbsp; </TD>
     <TD align=left width="4%">&nbsp; </TD>
     <TD align=left width="7%">&nbsp; </TD>
     <TD align=left width="4%">&nbsp; </TD>
     <TD align=left width="7%">&nbsp; </TD>
     <TD align=left width="3%">&nbsp; </TD>
     <TD align=left width="7%">&nbsp; </TD>
     <TD align=left width="3%">&nbsp; </TD>
     <TD align=left width="7%">&nbsp; </TD>
     <TD align=left width="3%">&nbsp; </TD>
     <TD align=left width="5%">&nbsp; </TD></TR>
<TR>
     <TD width="93%" colSpan=14>
<HR noShade SIZE=1>
</TD></TR>
<TR vAlign=bottom>
     <TD align=left width="32%" colSpan=2>&nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp;<FONT face=sans-serif size=2>External revenue</FONT>&nbsp; </TD>
     <TD align=left width="4%"><B><FONT face=sans-serif size=2>$</FONT></B>&nbsp; </TD>
     <TD align=right width="7%"><B><FONT face=sans-serif size=2>170.0</FONT></B>&nbsp; </TD>
     <TD align=left width="4%"><FONT face=sans-serif size=2>$</FONT>&nbsp; </TD>
     <TD align=right width="7%"><FONT face=sans-serif size=2>132.9</FONT>&nbsp; </TD>
     <TD align=left width="4%">&nbsp;<B><FONT face=sans-serif size=2>$</FONT></B>&nbsp; </TD>
     <TD align=right width="7%"><B><FONT face=sans-serif size=2>131.8</FONT></B>&nbsp; </TD>
     <TD align=left width="3%"><FONT face=sans-serif size=2>$</FONT>&nbsp; </TD>
     <TD align=right width="7%"><FONT face=sans-serif size=2>133.1</FONT>&nbsp; </TD>
     <TD align=left width="3%"><B><FONT face=sans-serif size=2>$</FONT></B>&nbsp; </TD>
     <TD align=right width="7%"><B><FONT face=sans-serif size=2>301.8</FONT></B>&nbsp; </TD>
     <TD align=left width="3%"><FONT face=sans-serif size=2>$</FONT>&nbsp; </TD>
     <TD align=right width="5%"><FONT face=sans-serif size=2>266.0</FONT>&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="32%" colSpan=2>&nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp;<FONT face=sans-serif size=2>Segment Operating Income</FONT>&nbsp; </TD>
     <TD align=left width="4%">&nbsp; </TD>
     <TD align=right width="7%"><B><FONT face=sans-serif size=2>22.2</FONT></B>&nbsp; </TD>
     <TD align=left width="4%">&nbsp; </TD>
     <TD align=right width="7%"><FONT face=sans-serif size=2>11.9</FONT>&nbsp; </TD>
     <TD align=left width="4%">&nbsp; </TD>
     <TD align=right width="7%"><B><FONT face=sans-serif size=2>30.0</FONT></B>&nbsp; </TD>
     <TD align=left width="3%">&nbsp; </TD>
     <TD align=right width="7%"><FONT face=sans-serif size=2>18.9</FONT>&nbsp; </TD>
     <TD align=left width="3%">&nbsp; </TD>
     <TD align=right width="7%"><B><FONT face=sans-serif size=2>52.2</FONT></B>&nbsp; </TD>
     <TD align=left width="3%">&nbsp; </TD>
     <TD align=right width="5%"><FONT face=sans-serif size=2>30.8</FONT>&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="32%" colSpan=2>&nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp;<FONT face=sans-serif size=2>Depreciation and</FONT>&nbsp; </TD>
     <TD align=left width="4%">&nbsp; </TD>
     <TD align=left width="7%">&nbsp; </TD>
     <TD align=left width="4%">&nbsp; </TD>
     <TD align=left width="7%">&nbsp; </TD>
     <TD align=left width="4%">&nbsp; </TD>
     <TD align=left width="7%">&nbsp; </TD>
     <TD align=left width="3%">&nbsp; </TD>
     <TD align=left width="7%">&nbsp; </TD>
     <TD align=left width="3%">&nbsp; </TD>
     <TD align=left width="7%">&nbsp; </TD>
     <TD align=left width="3%">&nbsp; </TD>
     <TD align=left width="5%">&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="32%" colSpan=2>&nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp;<FONT face=sans-serif size=2>amortization</FONT>&nbsp; </TD>
     <TD align=left width="4%">&nbsp; </TD>
     <TD align=left width="7%">&nbsp; </TD>
     <TD align=left width="4%">&nbsp; </TD>
     <TD align=left width="7%">&nbsp; </TD>
     <TD align=left width="4%">&nbsp; </TD>
     <TD align=left width="7%">&nbsp; </TD>
     <TD align=left width="3%">&nbsp; </TD>
     <TD align=left width="7%">&nbsp; </TD>
     <TD align=left width="3%">&nbsp; </TD>
     <TD align=left width="7%">&nbsp; </TD>
     <TD align=left width="3%">&nbsp; </TD>
     <TD align=left width="5%">&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=right width="9%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT face=sans-serif size=2><FONT face=Symbol>&#183;</FONT></FONT>&nbsp; </TD>
     <TD align=left width="23%"><FONT face=sans-serif size=2>Property, plant and</FONT>&nbsp; </TD>
     <TD align=left width="4%">&nbsp; </TD>
     <TD align=left width="7%">&nbsp; </TD>
     <TD align=left width="4%">&nbsp; </TD>
     <TD align=left width="7%">&nbsp; </TD>
     <TD align=left width="4%">&nbsp; </TD>
     <TD align=left width="7%">&nbsp; </TD>
     <TD align=left width="3%">&nbsp; </TD>
     <TD align=left width="7%">&nbsp; </TD>
     <TD align=left width="3%">&nbsp; </TD>
     <TD align=left width="7%">&nbsp; </TD>
     <TD align=left width="3%">&nbsp; </TD>
     <TD align=left width="5%">&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="9%">&nbsp; </TD>
     <TD align=left width="23%"><FONT face=sans-serif size=2>equipment</FONT>&nbsp; </TD>
     <TD align=left width="4%">&nbsp; </TD>
     <TD align=right width="7%"><B><FONT face=sans-serif size=2>2.8</FONT></B>&nbsp; </TD>
     <TD align=left width="4%">&nbsp; </TD>
     <TD align=right width="7%"><FONT face=sans-serif size=2>2.9</FONT>&nbsp; </TD>
     <TD align=left width="4%">&nbsp; </TD>
     <TD align=right width="7%"><B><FONT face=sans-serif size=2>10.0</FONT></B>&nbsp; </TD>
     <TD align=left width="3%">&nbsp; </TD>
     <TD align=right width="7%"><FONT face=sans-serif size=2>10.2</FONT>&nbsp; </TD>
     <TD align=left width="3%">&nbsp; </TD>
     <TD align=right width="7%"><B><FONT face=sans-serif size=2>12.8</FONT></B>&nbsp; </TD>
     <TD align=left width="3%">&nbsp; </TD>
     <TD align=right width="5%"><FONT face=sans-serif size=2>13.1</FONT>&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=right width="9%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT face=sans-serif size=2><FONT face=Symbol>&#183;</FONT></FONT>&nbsp; </TD>
     <TD align=left width="23%"><FONT face=sans-serif size=2>Intangible and other</FONT>&nbsp; </TD>
     <TD align=left width="4%">&nbsp; </TD>
     <TD align=left width="7%">&nbsp; </TD>
     <TD align=left width="4%">&nbsp; </TD>
     <TD align=left width="7%">&nbsp; </TD>
     <TD align=left width="4%">&nbsp; </TD>
     <TD align=left width="7%">&nbsp; </TD>
     <TD align=left width="3%">&nbsp; </TD>
     <TD align=left width="7%">&nbsp; </TD>
     <TD align=left width="3%">&nbsp; </TD>
     <TD align=left width="7%">&nbsp; </TD>
     <TD align=left width="3%">&nbsp; </TD>
     <TD align=left width="5%">&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="9%">&nbsp; </TD>
     <TD align=left width="23%"><FONT face=sans-serif size=2>assets</FONT>&nbsp; </TD>
     <TD align=left width="4%">&nbsp; </TD>
     <TD align=right width="7%"><B><FONT face=sans-serif size=2>1.5</FONT></B>&nbsp; </TD>
     <TD align=left width="4%">&nbsp; </TD>
     <TD align=right width="7%"><FONT face=sans-serif size=2>1.0</FONT>&nbsp; </TD>
     <TD align=left width="4%">&nbsp; </TD>
     <TD align=right width="7%"><B><FONT face=sans-serif size=2>2.1</FONT></B>&nbsp; </TD>
     <TD align=left width="3%">&nbsp; </TD>
     <TD align=right width="7%"><FONT face=sans-serif size=2>2.2</FONT>&nbsp; </TD>
     <TD align=left width="3%">&nbsp; </TD>
     <TD align=right width="7%"><B><FONT face=sans-serif size=2>3.6</FONT></B>&nbsp; </TD>
     <TD align=left width="3%">&nbsp; </TD>
     <TD align=right width="5%"><FONT face=sans-serif size=2>3.2</FONT>&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="32%" colSpan=2>&nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp;<FONT face=sans-serif size=2>Capital expenditures</FONT>&nbsp; </TD>
     <TD align=left width="4%">&nbsp; </TD>
     <TD align=right width="7%"><B><FONT face=sans-serif size=2>9.5</FONT></B>&nbsp; </TD>
     <TD align=left width="4%">&nbsp; </TD>
     <TD align=right width="7%"><FONT face=sans-serif size=2>0.5</FONT>&nbsp; </TD>
     <TD align=left width="4%">&nbsp; </TD>
     <TD align=right width="7%"><B><FONT face=sans-serif size=2>31.2</FONT></B>&nbsp; </TD>
     <TD align=left width="3%">&nbsp; </TD>
     <TD align=right width="7%"><FONT face=sans-serif size=2>17.4</FONT>&nbsp; </TD>
     <TD align=left width="3%">&nbsp; </TD>
     <TD align=right width="7%"><B><FONT face=sans-serif size=2>40.7</FONT></B>&nbsp; </TD>
     <TD align=left width="3%">&nbsp; </TD>
     <TD align=right width="5%"><FONT face=sans-serif size=2>17.9</FONT>&nbsp; </TD></TR>
<TR>
     <TD width="93%" colSpan=14>
<HR noShade SIZE=1>
</TD></TR></TABLE><BR>
<P align=left><FONT face=serif>9</FONT></P>
<HR align=center width="100%" noShade SIZE=2>
<BR>

<!--$$/page=-->
<A name="page_43"></A>
<P align=left><B><FONT face=sans-serif size=2>Consolidated earnings before interest and income taxes</FONT></B><FONT face=serif> </FONT></P>
<P align=left><FONT face=sans-serif size=2>The following table provides a reconciliation between total segment operating income and earnings before interest and income taxes: </FONT></P>
<TABLE cellSpacing=0 cellPadding=0 border=0>
<TR vAlign=bottom>
     <TD align=left width="61%"><FONT face=sans-serif size=1>(Unaudited)</FONT>&nbsp; </TD>
     <TD align=left width="16%">&nbsp; </TD>
     <TD align=left width="6%"></TD>
     <TD align=left width="3%">&nbsp; </TD>
     <TD align=left width="4%">&nbsp; </TD>
     <TD align=left width="5%"></TD>
     <TD align=left width="3%">&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="61%"><FONT face=sans-serif size=1>three months ended June 30 (amounts in millions)</FONT>&nbsp; </TD>
     <TD align=left width="16%">&nbsp; </TD>
     <TD align=right width="6%"><B><FONT face=sans-serif size=1>2006</FONT></B> </TD>
     <TD align=left width="3%">&nbsp; </TD>
     <TD align=left width="4%">&nbsp; </TD>
     <TD align=right width="5%"><FONT face=sans-serif size=1>2005</FONT> </TD>
     <TD align=left width="3%">&nbsp; </TD></TR>
<TR>
     <TD width="98%" colSpan=7>
<HR noShade SIZE=1>
</TD></TR>
<TR vAlign=bottom>
     <TD align=left width="61%"><FONT face=sans-serif size=2>Total Segment Operating Income</FONT>&nbsp; </TD>
     <TD align=left width="16%"><B><FONT face=sans-serif size=2>$</FONT></B>&nbsp; </TD>
     <TD align=right width="6%"><B><FONT face=sans-serif size=2>52.2</FONT></B> </TD>
     <TD align=left width="3%">&nbsp; </TD>
     <TD align=left width="4%"><FONT face=sans-serif size=2>$</FONT>&nbsp; </TD>
     <TD align=right width="5%"><FONT face=sans-serif size=2>30.8</FONT> </TD>
     <TD align=left width="3%">&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="61%"><FONT face=sans-serif size=2>Foreign exchange gain on the reduction of the investment in</FONT>&nbsp; </TD>
     <TD align=left width="16%">&nbsp; </TD>
     <TD align=left width="6%"></TD>
     <TD align=left width="3%">&nbsp; </TD>
     <TD align=left width="4%">&nbsp; </TD>
     <TD align=left width="5%"></TD>
     <TD align=left width="3%">&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=center width="61%"><FONT face=sans-serif size=2>certain self-sustaining subsidiaries (a)</FONT>&nbsp; </TD>
     <TD align=left width="16%">&nbsp; </TD>
     <TD align=right width="6%"><B><FONT face=sans-serif size=2>-</FONT></B> </TD>
     <TD align=left width="3%">&nbsp; </TD>
     <TD align=left width="4%">&nbsp; </TD>
     <TD align=right width="5%"><FONT face=sans-serif size=2>6.0</FONT> </TD>
     <TD align=left width="3%">&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="61%"><FONT face=sans-serif size=2>Restructuring charge (Note 8)</FONT>&nbsp; </TD>
     <TD align=left width="16%">&nbsp; </TD>
     <TD align=right width="6%"><B><FONT face=sans-serif size=2>(0.2</FONT></B> </TD>
     <TD align=left width="3%"><B><FONT face=sans-serif size=2>)</FONT></B>&nbsp; </TD>
     <TD align=left width="4%">&nbsp; </TD>
     <TD align=right width="5%"><FONT face=sans-serif size=2>(0.9</FONT> </TD>
     <TD align=left width="3%"><FONT face=sans-serif size=2>)</FONT>&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="61%"><FONT face=sans-serif size=2>Other costs associated with the restructuring plan (b)</FONT>&nbsp; </TD>
     <TD align=left width="16%">&nbsp; </TD>
     <TD align=right width="6%"><B><FONT face=sans-serif size=2>(4.5</FONT></B> </TD>
     <TD align=left width="3%"><B><FONT face=sans-serif size=2>)</FONT></B>&nbsp; </TD>
     <TD align=left width="4%">&nbsp; </TD>
     <TD align=right width="5%"><FONT face=sans-serif size=2>-</FONT> </TD>
     <TD align=left width="3%">&nbsp; </TD></TR>
<TR>
     <TD width="98%" colSpan=7>
<HR noShade SIZE=1>
</TD></TR>
<TR vAlign=bottom>
     <TD align=left width="61%"><FONT face=sans-serif size=2>Earnings before interest and income taxes</FONT>&nbsp; </TD>
     <TD align=left width="16%"><B><FONT face=sans-serif size=2>$</FONT></B>&nbsp; </TD>
     <TD align=right width="6%"><B><FONT face=sans-serif size=2>47.5</FONT></B> </TD>
     <TD align=left width="3%">&nbsp; </TD>
     <TD align=left width="4%"><FONT face=sans-serif size=2>$</FONT>&nbsp; </TD>
     <TD align=right width="5%"><FONT face=sans-serif size=2>35.9</FONT> </TD>
     <TD align=left width="3%">&nbsp; </TD></TR>
<TR>
     <TD width="98%" colSpan=7>
<HR noShade SIZE=1>
</TD></TR></TABLE><BR>
<P align=left><FONT face=sans-serif size=2>(a) During the first quarter of fiscal 2006, the Company reduced the capitalization of certain of its self-sustaining subsidiaries. Accordingly, the corresponding amount of foreign exchange accumulated in the cumulative translation adjustment account was transferred to the Consolidated Statement of Earnings. </FONT></P>
<P align=left><FONT face=sans-serif size=2>(b) Since the beginning of fiscal year 2006, the Company has also incurred costs related to its Restructuring Plan which are included in earnings according to GAAP. These costs are not included in the Segment Operating Income. A significant portion relates to the re-engineering of the Company's business processes from which a portion is associated with the deployment of the ERP system (excluding the portion capitalized). The Company also incurred costs related to the review of its strategy and other costs associated with its restructuring activities. </FONT></P>
<P align=left><B><FONT face=sans-serif size=2>Assets Employed by Segment </FONT></B></P>
<P align=left><FONT face=sans-serif size=2>CAE uses assets employed to assess resources allocated to each segment. Assets employed includes accounts receivable, inventories, prepaid expenses, property, plant and equipment, goodwill, intangible assets and other assets. Assets employed exclude cash, income taxes accounts, assets held for sale and assets of certain non-operating subsidiaries. </FONT></P>
<TABLE cellSpacing=0 cellPadding=0 border=0>
<TR vAlign=bottom>
     <TD align=left width="51%"><FONT face=sans-serif size=1>(Unaudited)</FONT>&nbsp; </TD>
     <TD align=left width="19%">&nbsp; </TD>
     <TD align=right width="12%"><B><FONT face=sans-serif size=1>as at June 30</FONT></B>&nbsp; </TD>
     <TD align=left width="8%">&nbsp; </TD>
     <TD align=right width="8%"><FONT face=sans-serif size=1>as at March 31</FONT>&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="51%"><FONT face=sans-serif size=1>(amounts in millions)</FONT>&nbsp; </TD>
     <TD align=left width="19%">&nbsp; </TD>
     <TD align=right width="12%"><B><FONT face=sans-serif size=1>2006</FONT></B>&nbsp; </TD>
     <TD align=left width="8%">&nbsp; </TD>
     <TD align=right width="8%"><FONT face=sans-serif size=1>2006</FONT>&nbsp; </TD></TR>
<TR>
     <TD width="98%" colSpan=5>
<HR noShade SIZE=1>
</TD></TR>
<TR vAlign=bottom>
     <TD align=left width="51%"><FONT face=sans-serif size=2>Simulation Products/Civil</FONT>&nbsp; </TD>
     <TD align=left width="19%"><B><FONT face=sans-serif size=2>$</FONT></B>&nbsp; </TD>
     <TD align=right width="12%"><B><FONT face=sans-serif size=2>175.3</FONT></B>&nbsp; </TD>
     <TD align=left width="8%"><FONT face=sans-serif size=2>$</FONT>&nbsp; </TD>
     <TD align=right width="8%"><FONT face=sans-serif size=2>163.5</FONT>&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="51%"><FONT face=sans-serif size=2>Simulation Products/Military</FONT>&nbsp; </TD>
     <TD align=left width="19%">&nbsp; </TD>
     <TD align=right width="12%"><B><FONT face=sans-serif size=2>243.2</FONT></B>&nbsp; </TD>
     <TD align=left width="8%">&nbsp; </TD>
     <TD align=right width="8%"><FONT face=sans-serif size=2>225.2</FONT>&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="51%"><FONT face=sans-serif size=2>Training &amp; Services/Civil</FONT>&nbsp; </TD>
     <TD align=left width="19%">&nbsp; </TD>
     <TD align=right width="12%"><B><FONT face=sans-serif size=2>827.3</FONT></B>&nbsp; </TD>
     <TD align=left width="8%">&nbsp; </TD>
     <TD align=right width="8%"><FONT face=sans-serif size=2>833.8</FONT>&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="51%"><FONT face=sans-serif size=2>Training &amp; Services/Military</FONT>&nbsp; </TD>
     <TD align=left width="19%">&nbsp; </TD>
     <TD align=right width="12%"><B><FONT face=sans-serif size=2>174.6</FONT></B>&nbsp; </TD>
     <TD align=left width="8%">&nbsp; </TD>
     <TD align=right width="8%"><FONT face=sans-serif size=2>166.7</FONT>&nbsp; </TD></TR>
<TR>
     <TD width="98%" colSpan=5>
<HR noShade SIZE=1>
</TD></TR>
<TR vAlign=bottom>
     <TD align=left width="51%"><B><FONT face=sans-serif size=2>Total assets employed</FONT></B>&nbsp; </TD>
     <TD align=left width="19%"><B><FONT face=sans-serif size=2>$</FONT></B>&nbsp; </TD>
     <TD align=right width="12%"><B><FONT face=sans-serif size=2>1,420.4</FONT></B>&nbsp; </TD>
     <TD align=left width="8%"><FONT face=sans-serif size=2>$</FONT>&nbsp; </TD>
     <TD align=right width="8%"><FONT face=sans-serif size=2>1,389.2</FONT>&nbsp; </TD></TR>
<TR>
     <TD width="98%" colSpan=5>
<HR noShade SIZE=1>
</TD></TR>
<TR vAlign=bottom>
     <TD align=left width="51%"><FONT face=sans-serif size=2>Assets not included in assets employed</FONT>&nbsp; </TD>
     <TD align=left width="19%">&nbsp; </TD>
     <TD align=right width="12%"><B><FONT face=sans-serif size=2>319.0</FONT></B>&nbsp; </TD>
     <TD align=left width="8%">&nbsp; </TD>
     <TD align=right width="8%"><FONT face=sans-serif size=2>326.9</FONT>&nbsp; </TD></TR>
<TR>
     <TD width="98%" colSpan=5>
<HR noShade SIZE=1>
</TD></TR>
<TR vAlign=bottom>
     <TD align=left width="51%"><B><FONT face=sans-serif size=2>Total assets</FONT></B>&nbsp; </TD>
     <TD align=left width="19%"><B><FONT face=sans-serif size=2>$</FONT></B>&nbsp; </TD>
     <TD align=right width="12%"><B><FONT face=sans-serif size=2>1,739.4</FONT></B>&nbsp; </TD>
     <TD align=left width="8%"><FONT face=sans-serif size=2>$</FONT>&nbsp; </TD>
     <TD align=right width="8%"><FONT face=sans-serif size=2>1,716.1</FONT>&nbsp; </TD></TR>
<TR>
     <TD width="98%" colSpan=5>
<HR noShade SIZE=1>
</TD></TR></TABLE><BR>
<P align=left><FONT face=serif>10</FONT></P>
<HR align=center width="100%" noShade SIZE=2>
<BR>

<!--$$/page=-->
<A name="page_44"></A>
<P align=left><B><FONT face=sans-serif size=2>Geographic Information </FONT></B></P>
<P align=left><FONT face=sans-serif size=2>The Company markets its products and services in over 19 countries. Sales are attributed to countries based on the location of customers. </FONT></P>
<TABLE cellSpacing=0 cellPadding=0 border=0>
<TR vAlign=bottom>
     <TD align=left width="58%"><FONT face=sans-serif size=1>(Unaudited)</FONT>&nbsp; </TD>
     <TD align=left width="8%">&nbsp; </TD>
     <TD align=left width="15%">&nbsp; </TD>
     <TD align=left width="5%">&nbsp; </TD>
     <TD align=left width="12%">&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="58%"><FONT face=sans-serif size=1>three months ended June 30 (amounts in millions)</FONT>&nbsp; </TD>
     <TD align=left width="8%">&nbsp; </TD>
     <TD align=right width="15%"><B><FONT face=sans-serif size=1>2006</FONT></B>&nbsp; </TD>
     <TD align=left width="5%">&nbsp; </TD>
     <TD align=right width="12%"><FONT face=sans-serif size=1>2005</FONT>&nbsp; </TD></TR>
<TR>
     <TD width="98%" colSpan=5>
<HR noShade SIZE=1>
</TD></TR>
<TR vAlign=bottom>
     <TD align=left width="58%"><FONT face=sans-serif size=2>Revenue from external customers</FONT>&nbsp; </TD>
     <TD align=left width="8%">&nbsp; </TD>
     <TD align=left width="15%">&nbsp; </TD>
     <TD align=left width="5%">&nbsp; </TD>
     <TD align=left width="12%">&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="58%">&nbsp; &nbsp; &nbsp; &nbsp;<FONT face=sans-serif size=2>Canada</FONT>&nbsp; </TD>
     <TD align=left width="8%"><B><FONT face=sans-serif size=2>$</FONT></B>&nbsp; </TD>
     <TD align=right width="15%"><B><FONT face=sans-serif size=2>35.8</FONT></B>&nbsp; </TD>
     <TD align=left width="5%"><FONT face=sans-serif size=2>$</FONT>&nbsp; </TD>
     <TD align=right width="12%"><FONT face=sans-serif size=2>6.8</FONT>&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="58%">&nbsp; &nbsp; &nbsp; &nbsp;<FONT face=sans-serif size=2>United States</FONT>&nbsp; </TD>
     <TD align=left width="8%">&nbsp; </TD>
     <TD align=right width="15%"><B><FONT face=sans-serif size=2>86.2</FONT></B>&nbsp; </TD>
     <TD align=left width="5%">&nbsp; </TD>
     <TD align=right width="12%"><FONT face=sans-serif size=2>96.0</FONT>&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="58%">&nbsp; &nbsp; &nbsp; &nbsp;<FONT face=sans-serif size=2>United Kingdom</FONT>&nbsp; </TD>
     <TD align=left width="8%">&nbsp; </TD>
     <TD align=right width="15%"><B><FONT face=sans-serif size=2>23.5</FONT></B>&nbsp; </TD>
     <TD align=left width="5%">&nbsp; </TD>
     <TD align=right width="12%"><FONT face=sans-serif size=2>21.8</FONT>&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="58%">&nbsp; &nbsp; &nbsp; &nbsp;<FONT face=sans-serif size=2>Germany</FONT>&nbsp; </TD>
     <TD align=left width="8%">&nbsp; </TD>
     <TD align=right width="15%"><B><FONT face=sans-serif size=2>49.4</FONT></B>&nbsp; </TD>
     <TD align=left width="5%">&nbsp; </TD>
     <TD align=right width="12%"><FONT face=sans-serif size=2>35.2</FONT>&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="58%">&nbsp; &nbsp; &nbsp; &nbsp;<FONT face=sans-serif size=2>Netherlands</FONT>&nbsp; </TD>
     <TD align=left width="8%">&nbsp; </TD>
     <TD align=right width="15%"><B><FONT face=sans-serif size=2>23.6</FONT></B>&nbsp; </TD>
     <TD align=left width="5%">&nbsp; </TD>
     <TD align=right width="12%"><FONT face=sans-serif size=2>21.7</FONT>&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="58%">&nbsp; &nbsp; &nbsp; &nbsp;<FONT face=sans-serif size=2>Other European countries</FONT>&nbsp; </TD>
     <TD align=left width="8%">&nbsp; </TD>
     <TD align=right width="15%"><B><FONT face=sans-serif size=2>19.9</FONT></B>&nbsp; </TD>
     <TD align=left width="5%">&nbsp; </TD>
     <TD align=right width="12%"><FONT face=sans-serif size=2>19.4</FONT>&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="58%">&nbsp; &nbsp; &nbsp; &nbsp;<FONT face=sans-serif size=2>Asia and Middle Eastern countries</FONT>&nbsp; </TD>
     <TD align=left width="8%">&nbsp; </TD>
     <TD align=right width="15%"><B><FONT face=sans-serif size=2>41.0</FONT></B>&nbsp; </TD>
     <TD align=left width="5%">&nbsp; </TD>
     <TD align=right width="12%"><FONT face=sans-serif size=2>39.7</FONT>&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="58%">&nbsp; &nbsp; &nbsp; &nbsp;<FONT face=sans-serif size=2>Other countries</FONT>&nbsp; </TD>
     <TD align=left width="8%">&nbsp; </TD>
     <TD align=right width="15%"><B><FONT face=sans-serif size=2>22.4</FONT></B>&nbsp; </TD>
     <TD align=left width="5%">&nbsp; </TD>
     <TD align=right width="12%"><FONT face=sans-serif size=2>25.4</FONT>&nbsp; </TD></TR>
<TR>
     <TD width="98%" colSpan=5>
<HR noShade SIZE=1>
</TD></TR>
<TR vAlign=bottom>
     <TD align=left width="58%">&nbsp; </TD>
     <TD align=left width="8%"><B><FONT face=sans-serif size=2>$</FONT></B>&nbsp; </TD>
     <TD align=right width="15%"><B><FONT face=sans-serif size=2>301.8</FONT></B>&nbsp; </TD>
     <TD align=left width="5%"><FONT face=sans-serif size=2>$</FONT>&nbsp; </TD>
     <TD align=right width="12%"><FONT face=sans-serif size=2>266.0</FONT>&nbsp; </TD></TR>
<TR>
     <TD width="98%" colSpan=5>
<HR noShade SIZE=1>
</TD></TR>
<TR vAlign=bottom>
     <TD align=left width="58%"><FONT face=sans-serif size=1>(Unaudited)</FONT>&nbsp; </TD>
     <TD align=left width="8%">&nbsp; </TD>
     <TD align=right width="15%"><B><FONT face=sans-serif size=1>as at June 30</FONT></B>&nbsp; </TD>
     <TD align=left width="5%">&nbsp; </TD>
     <TD align=right width="12%"><FONT face=sans-serif size=1>as at March 31</FONT>&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="58%"><FONT face=sans-serif size=1>(amounts in millions)</FONT>&nbsp; </TD>
     <TD align=left width="8%">&nbsp; </TD>
     <TD align=right width="15%"><B><FONT face=sans-serif size=1>2006</FONT></B>&nbsp; </TD>
     <TD align=left width="5%">&nbsp; </TD>
     <TD align=right width="12%"><FONT face=sans-serif size=1>2006</FONT>&nbsp; </TD></TR>
<TR>
     <TD width="98%" colSpan=5>
<HR noShade SIZE=1>
</TD></TR>
<TR vAlign=bottom>
     <TD align=left width="58%"><FONT face=sans-serif size=2>Property, plant and equipment, goodwill and intangible assets</FONT>&nbsp; </TD>
     <TD align=left width="8%">&nbsp; </TD>
     <TD align=left width="15%">&nbsp; </TD>
     <TD align=left width="5%">&nbsp; </TD>
     <TD align=left width="12%">&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="58%">&nbsp; &nbsp; &nbsp; &nbsp;<FONT face=sans-serif size=2>Canada</FONT>&nbsp; </TD>
     <TD align=left width="8%"><B><FONT face=sans-serif size=2>$</FONT></B>&nbsp; </TD>
     <TD align=right width="15%"><B><FONT face=sans-serif size=2>169.1</FONT></B>&nbsp; </TD>
     <TD align=left width="5%"><FONT face=sans-serif size=2>$</FONT>&nbsp; </TD>
     <TD align=right width="12%"><FONT face=sans-serif size=2>250.6</FONT>&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="58%">&nbsp; &nbsp; &nbsp; &nbsp;<FONT face=sans-serif size=2>United States</FONT>&nbsp; </TD>
     <TD align=left width="8%">&nbsp; </TD>
     <TD align=right width="15%"><B><FONT face=sans-serif size=2>321.6</FONT></B>&nbsp; </TD>
     <TD align=left width="5%">&nbsp; </TD>
     <TD align=right width="12%"><FONT face=sans-serif size=2>300.9</FONT>&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="58%">&nbsp; &nbsp; &nbsp; &nbsp;<FONT face=sans-serif size=2>United Kingdom</FONT>&nbsp; </TD>
     <TD align=left width="8%">&nbsp; </TD>
     <TD align=right width="15%"><B><FONT face=sans-serif size=2>101.7</FONT></B>&nbsp; </TD>
     <TD align=left width="5%">&nbsp; </TD>
     <TD align=right width="12%"><FONT face=sans-serif size=2>77.3</FONT>&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="58%">&nbsp; &nbsp; &nbsp; &nbsp;<FONT face=sans-serif size=2>Spain</FONT>&nbsp; </TD>
     <TD align=left width="8%">&nbsp; </TD>
     <TD align=right width="15%"><B><FONT face=sans-serif size=2>83.3</FONT></B>&nbsp; </TD>
     <TD align=left width="5%">&nbsp; </TD>
     <TD align=right width="12%"><FONT face=sans-serif size=2>84.2</FONT>&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="58%">&nbsp; &nbsp; &nbsp; &nbsp;<FONT face=sans-serif size=2>Germany</FONT>&nbsp; </TD>
     <TD align=left width="8%">&nbsp; </TD>
     <TD align=right width="15%"><B><FONT face=sans-serif size=2>40.5</FONT></B>&nbsp; </TD>
     <TD align=left width="5%">&nbsp; </TD>
     <TD align=right width="12%"><FONT face=sans-serif size=2>30.1</FONT>&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="58%">&nbsp; &nbsp; &nbsp; &nbsp;<FONT face=sans-serif size=2>Netherlands</FONT>&nbsp; </TD>
     <TD align=left width="8%">&nbsp; </TD>
     <TD align=right width="15%"><B><FONT face=sans-serif size=2>141.2</FONT></B>&nbsp; </TD>
     <TD align=left width="5%">&nbsp; </TD>
     <TD align=right width="12%"><FONT face=sans-serif size=2>113.1</FONT>&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="58%">&nbsp; &nbsp; &nbsp; &nbsp;<FONT face=sans-serif size=2>Other European countries</FONT>&nbsp; </TD>
     <TD align=left width="8%">&nbsp; </TD>
     <TD align=right width="15%"><B><FONT face=sans-serif size=2>65.0</FONT></B>&nbsp; </TD>
     <TD align=left width="5%">&nbsp; </TD>
     <TD align=right width="12%"><FONT face=sans-serif size=2>66.2</FONT>&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="58%">&nbsp; &nbsp; &nbsp; &nbsp;<FONT face=sans-serif size=2>Asia and Middle Eastern countries</FONT>&nbsp; </TD>
     <TD align=left width="8%">&nbsp; </TD>
     <TD align=right width="15%"><B><FONT face=sans-serif size=2>30.5</FONT></B>&nbsp; </TD>
     <TD align=left width="5%">&nbsp; </TD>
     <TD align=right width="12%"><FONT face=sans-serif size=2>24.3</FONT>&nbsp; </TD></TR>
<TR vAlign=bottom>
     <TD align=left width="58%">&nbsp; &nbsp; &nbsp; &nbsp;<FONT face=sans-serif size=2>Other countries</FONT>&nbsp; </TD>
     <TD align=left width="8%">&nbsp; </TD>
     <TD align=right width="15%"><B><FONT face=sans-serif size=2>14.4</FONT></B>&nbsp; </TD>
     <TD align=left width="5%">&nbsp; </TD>
     <TD align=right width="12%"><FONT face=sans-serif size=2>7.9</FONT>&nbsp; </TD></TR>
<TR>
     <TD width="98%" colSpan=5>
<HR noShade SIZE=1>
</TD></TR>
<TR vAlign=bottom>
     <TD align=left width="58%">&nbsp; </TD>
     <TD align=left width="8%"><B><FONT face=sans-serif size=2>$</FONT></B>&nbsp; </TD>
     <TD align=right width="15%"><B><FONT face=sans-serif size=2>967.3</FONT></B>&nbsp; </TD>
     <TD align=left width="5%"><FONT face=sans-serif size=2>$</FONT>&nbsp; </TD>
     <TD align=right width="12%"><FONT face=sans-serif size=2>954.6</FONT>&nbsp; </TD></TR>
<TR>
     <TD width="98%" colSpan=5>
<HR noShade SIZE=1>
</TD></TR></TABLE><BR>
<P align=left><FONT face=serif>11</FONT></P>
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