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MATTERS OF CONFIDENCE ANNUAL REPORT, YEAR ENDED 31, 2006 JANUARY ANNUAL REPORT, YEAR ENDED JANUARY 31, 2006 MATTERS OF CONFIDENCE C1 10 MESSAGE TO SHAREHOLDERS AND EMPLOYEES 18 CORPORATE GOVERNANCE 20 SOCIAL RESPONSIBILITY 24 FINANCIAL HIGHLIGHTS 25 FINANCIAL SECTION 164 MAIN BUSINESS LOCATIONS 165 BOARD OF DIRECTORS, COMMITTEES OF THE BOARD, OFFICE OF THE PRESIDENT, CORPORATE MANAGEMENT 166 SHAREHOLDER INFORMATION 167 SHAREHOLDER AND INVESTOR RELATIONS C2 CONFIDENCE IN OUR PEOPLE CONFIDENCE IN OUR PRODUCTS CONFIDENCE IN OUR CUSTOMERS CONFIDENCE IN OUR FUTURE 2 IAN DOIG AIRCRAFT FITTER LEARJET 40/45 BELFAST, UNITED KINGDOM I have worked on the Learjet 45 for the last seven years and it is thrilling to be involved with such a prestigious aircraft. It is hugely satisfying to have a start-to-finish role with the jet and there is a deep sense of pride when we see the final assembled product. BOMBARDIER INC. LEARJET 45 2005-06 ANNUAL REPORT BUSINESS JET 3 RAY O’TOOLE CHIEF OPERATING OFFICER NATIONAL EXPRESS LONDON, UNITED KINGDOM National Express and our operator, Midland Mainline, are delighted with the introduction of Bombardier Meridian trains on our services to and from London. Passenger reaction to these trains has been very positive and they are achieving excellent reliability, giving our customers a safe and comfort- able journey experience. MERIDIAN DIESEL-ELECTRIC BOMBARDIER INC. MULTIPLE UNIT, UNITED KINGDOM 2005-06 ANNUAL REPORT 4 JOAN MILLER TRAINING SPECIALIST HUMAN RESOURCES DOWNSVIEW, CANADA The Q400 turboprop is a great air- craft. Its success is made possible thanks to qualified employees who have been certified to Transport Canada’s stringent requirements. As a training specialist, I take great satisfaction in working with a workforce dedicated to manu- facturing turboprops, renowned worldwide for their efficiency and jet-like comfort. BOMBARDIER INC. 2005-06 ANNUAL REPORT Q400 TURBOPROP 5 BERNARD SINOU HEAD OF PASSENGER PUBLIC TRANSPORT, SNCF PARIS, FRANCE The AGC train marks a renewal of regional trans- portation for SNCF. These trains, now available to our customers, truly establish the level of quality that is expected for daily travel needs. This new standard will win points for public transit. HIGH-CAPACITY TRAIN BOMBARDIER INC. AGC TYPE, FRANCE 2005-06 ANNUAL REPORT 6 TOM SIEBEL CHAIRMAN FIRST VIRTUAL GROUP PALO ALTO, U.S.A. Staying ahead of the pack means having the foresight and commitment to innovate. Global Express aircraft set the standard in corporate aviation; the new Global Express XRS jet raises the bar. BOMBARDIER INC. GLOBAL EXPRESS 2005-06 ANNUAL REPORT BUSINESS JET 7 TORSTEN STRZELCZYK FINAL ASSEMBLY MECHANIC BAUTZEN, GERMANY We are the front line. The people here build high-tech, light rail vehicles that serve thousands of passengers in communities across the world. The Bombardier name stands for quality and customer satisfaction in rail, but that name depends on how well we do our jobs every single day. It is a responsibility we take very seriously. FLEXITY CLASSIC TRAM BOMBARDIER INC. DRESDEN, GERMANY 2005-06 ANNUAL REPORT 8 DR THOMAS DRAGER MANAGING DIRECTOR LUFTHANSA CITYLINE GmbH COLOGNE, GERMANY We pioneered the airline industry by introducing the revolutionary 50-seat CRJ200 aircraft to create new regional airline markets in Europe. Over the past 15 years, we have expanded our regional fleet to include the CRJ700 and CRJ900 airliners. These world- class aircraft have helped make us a world-class airline and leaders in our market. BOMBARDIER INC. CRJ700 2005-06 ANNUAL REPORT REGIONAL AIRCRAFT 9 MAUREEN GAFFNEY INTERMEDIATE BUYER PLATTSBURGH, U.S.A. The materials I purchase help keep New York City moving. They serve as the foundation for a vehicle that connects millions of people to the busiest urban centre in the world. I am part of a team that is delivering more than 1,100 of these vehicles to one of the most complex public transit systems anywhere. How many people can say that? M-7 ELECTRIC MULTIPLE UNIT BOMBARDIER INC. NEW YORK, U.S.A. 2005-06 ANNUAL REPORT 10 MESSAGE TO SHAREHOLDERS AND EMPLOYEES PIERRE ANDRÉ LAURENT BEAUDOIN NAVARRI BEAUDOIN, FCA PRESIDENT AND CHIEF OPERATING OFFICER PRESIDENT CHAIRMAN OF THE BOARD BOMBARDIER AEROSPACE BOMBARDIER TRANSPORTATION AND CHIEF EXECUTIVE OFFICER EXECUTIVE VICE PRESIDENT EXECUTIVE VICE PRESIDENT BOMBARDIER INC. BOMBARDIER INC. BOMBARDIER INC. OFFICE OF THE PRESIDENT MESSAGE BOMBARDIER INC. TO SHAREHOLDERS 2005-06 ANNUAL REPORT AND EMPLOYEES 11 DEAR SHAREHOLDERS AND EMPLOYEES We are pleased to report that this year’s results support our FOUR REASONS FOR confidence in Bombardier’s people, products and customers. RENEWED CONFIDENCE As leaders in every market in which we operate – regional aircraft, business jets and the full range of rail transportation At this stage in our turnaround, it’s instructive to survey Bombardier’s solutions – we can also lay claim to confidence in the future. At key assets. Bombardier Aerospace, we experienced resurgent business jet First asset, people: Bombardier is a leader because our sales, and adjusted our regional offering to provide customers people represent a deep reservoir of managerial experience, with the most compelling business proposition. At Bombardier operational skill and spirit. Following several challenging years, Transportation, the recovery plan is delivering as expected: Bombardier employees now see that their hard work and sacrifice laying a solid foundation for the sustained results and improved are bearing fruit. They’re re-energized and confident about our performance that began to emerge this year. shared future. The Corporation’s earnings before taxes from continuing Second asset, products: Bombardier’s aerospace and trans- operations in fiscal 2006 were $150 million, as compared to portation product portfolios are unrivalled, continuing to attract a loss of $160 million in the previous fiscal year. Net income customers for the right reasons. In an era of diminishing resources during the same period was $249 million, up from a net loss of and rising energy prices, Bombardier products are more cost- $85 million during fiscal 2005. Earnings per share were $0.13, effective and operationally flexible. In short, they give customers the up from negative $0.06 in the last fiscal year. At the end of fiscal edge they need in increasingly competitive and demanding markets. 2006, our balance sheet is stronger than it was 12 months ago Third asset, customers: Commercial airlines choose our as we reduced our debt by some $2.5 billion. As at January 31, regional aircraft; corporations, governments and individuals 2006, the Corporation’s cash and cash equivalents stood at buy our business jets; and transit authorities, including public and $2.9 billion, reflecting a free cash flow of $532 million for private rail operators, opt for our rail solutions. These customers fiscal 2006 – a $326 million increase over the previous fiscal made us into the market leader we are today and they represent year’s $206 million. an enormous installed base around the world. MESSAGE TO SHAREHOLDERS BOMBARDIER INC. AND EMPLOYEES 2005-06 ANNUAL REPORT 12 Fourth asset, diversification: Our aerospace and rail businesses Bombardier business jets outpace competitors by offering supe- are almost equal in size and global in scope. Bombardier Aerospace rior performance and innovation. Indeed, three new Bombardier serves regional and business aircraft markets, offering the aircraft – the Bombardier Global 5000, Challenger 300 and industry’s broadest range of aircraft and aviation services, while Learjet 40 – have entered service during the past two years. During Bombardier Transportation supplies passenger rail vehicles, total fiscal 2006, we extended the industry’s most consistent product transit systems, locomotives, bogies, propulsion and controls, rail offering with the Challenger 605 and Learjet 60 XR aircraft. The control solutions and rail maintenance services. Given this kind of Bombardier Global 5000 super-large business jet set 16 world diversification, Bombardier has the capacity to weather industry records for speed and distance, including a new transatlantic and regional business cycles better than most companies. record, flying non-stop Chicago to Paris in seven hours, 15 minutes. It also set benchmarks for comfort and cabin amenities. AND A SINGULAR CHALLENGE Similarly, the Global Express XRS business jet is the fastest aircraft in its class. The first Global Express XRS left the completion We believe the right assets are in place at Bombardier, and we centre on November 25, 2005, and was delivered to the customer on are seeing positive results. However, we could do better. It’s within December 6. This ultra long-range business jet attains Mach 0.89 our power to ramp up performance and increase margins. We (Mach 1 being the speed of sound) and can travel non-stop Hong have an entrepreneurial legacy to guide us. We have a portfolio Kong to Paris in under 12 hours. With its ability to take off at higher of products that gives us a commanding lead. And we’ve made temperatures and altitudes, the Global Express XRS gives customers the difficult but necessary decisions that have prepared us well for access to more cities and airports than ever before. the future. In the final analysis, it’s all in the execution. REGIONAL JETS: BEST-IN-CLASS ECONOMICS BOMBARDIER AEROSPACE In the regional jet market, the challenges were difficult. With our prime U.S. market continuing to be buffeted by uncertainty, four of our U.S. Bombardier Aerospace’s ability to respond to customer expecta- customers filed for Chapter 11 bankruptcy protection. Given world tions and industry challenges over the past year bodes well for the events, high fuel costs and a fragile recovery in the key U.S. market, future. On the strength of global demand for Bombardier’s world- economic considerations remain a decisive business issue for the airline leading business jets and renewed interest in our turboprops, industry. To operators, larger Bombardier regional aircraft offer best-in- during fiscal 2006 we delivered a total of 337 aircraft – recording class economics – up to 10% better than the competition.