Annual Report Year Ended January 31 2004 We’ve made alotof progress MESSAGES TO SHAREHOLDERS 20 CORPORATE GOVERNANCE 24 AEROSPACE 26 TRANSPORTATION 34 SOCIAL RESPONSIBILITY AND SUSTAINABILITY 36 FINANCIAL HIGHLIGHTS 38 FINANCIAL SECTION 39 MAIN BUSINESS LOCATIONS 136 BOARD OF DIRECTORS AND OFFICERS 137 SHAREHOLDER INFORMATION 138 read more on our rigorous action plan but on page there’s 20 still alotof progress TO BE MADE. PAUL M. TELLIER PRESIDENT AND CHIEF EXECUTIVE OFFICER Bringing in new leadership was critical, but that was just THE FIRST STEP. read more on our spirit and vision on page 22 LAURENT BEAUDOIN, FCA EXECUTIVE CHAIRMAN OF THE BOARD PIERRE ALARY SENIOR VICE PRESIDENT AND CHIEF FINANCIAL OFFICER read more on our financials starting on page 39 Recapitalization was very important. It gave us breathing space for a while. RÉJEAN BOURQUE VICE PRESIDENT, INVESTOR RELATIONS And a new share issue was oversubscribed by $400 MILLION. Encouraging. FRANÇOIS LEMARCHAND SENIOR VICE PRESIDENT AND TREASURER We promised to reduce the risk profile at Bombardier Capital and concentrate on our most vital portfolios. And we did just that. MICHAEL DENHAM SENIOR VICE PRESIDENT, STRATEGY We divested ourselves of certain assets to concentrate on trains and planes. Focus is everything. FRANÇOIS THIBAULT VICE PRESIDENT, ACQUISITIONS Trains, where we’re number ONE in the world read more on initiatives at Transportation on page 34 WOLFGANG TOELSNER ANDRÉ NAVARRI CHIEF OPERATING OFFICER, BOMBARDIER TRANSPORTATION PRESIDENT, BOMBARDIER TRANSPORTATION read more on Aerospace’s achievements and challenges on page 26 PIERRE BEAUDOIN PRESIDENT AND CHIEF OPERATING OFFICER, BOMBARDIER AEROSPACE and planes, where we’reaworld LEADER in regional aircraft and business jets. Still not enough. We restructured operations in Aerospace to ensure our competitiveness and leadership position, and we’re starting to see our work bear fruit. read more on Bombardier Aerospace restructuring on page 26 MICHAEL RYAN VICE PRESIDENT AND GENERAL MANAGER, BELFAST OPERATIONS, BOMBARDIER AEROSPACE read more on cost savings and efficiency improvement initiatives at Transportation on And page 34 we’ve just embarked on the same process at Transportation. MOYA GREENE SENIOR VICE PRESIDENT, OPERATIONAL EFFECTIVENESS This is NOT THE END. This is not even the BEGINNING OF THE END. But itmaybe THE END OF THE BEGINNING. —WINSTON CHURCHILL We’re on PAUL M. TELLIER PRESIDENT AND CHIEF EXECUTIVE OFFICER our way LAURENT BEAUDOIN, FCA EXECUTIVE CHAIRMAN OF THE BOARD page 20 Bombardier Inc. Annual Report 2003-04 MAKING good on our COMMITMENTS As the cover of this document suggests, we have made a lot of progress Significant as they are, the recapitalization and refocusing initiatives enu- over the course of a very challenging fiscal year—and there is a lot more merated above were just the beginning of a rigorous, ongoing action plan progress to be made. that entails several more steps and many more months of commitment and In last year’s annual report, I outlined a rigorous action plan designed to hard work before our rebuilding task will be complete. We have already address shareholder concerns, regain the confidence of the marketplace embarked on the second year of that plan, which involves a consolidation and restore Bombardier to prosperity. During the past 12 months, we have of manufacturing operations at Bombardier Aerospace that has already demonstrated both the capability and the resolve required to execute that plan. been launched, and a comprehensive restructuring plan at Bombardier In short, we have done what we said we would do—we’ve made good Transportation. This will improve the competitiveness of all our operations on our commitments. by focusing resolutely on performance and the bottom line. Let’s examine the record. Year one of the action plan entailed strength- I wish to make clear, however, that the streamlining taking place at ening Bombardier’s balance sheet and supplementing our working capital Aerospace and Transportation is not about cost cutting per se. Rather, by means of a recapitalization program and the divestitures of the recreational it’s about reinforcing the competitiveness of our core businesses in the products business and certain non-core assets. The outcome? A successful context of fundamental changes to the environments in which they operate. equity offering yielded total proceeds of $1.2 billion—some $400 million or 50% more than originally anticipated. Liquidity was further enhanced by Aerospace the sale of our recreational products business, which was completed in In the aerospace arena, manufacturers of commercial aircraft continue to face December 2003, for a total consideration of $960 million. the fallout from September 11, 2001, which is reflected in the general fragility Successful divestitures, along with the sale of a significant portion of of the airline industry. But as creator of the regional jet—which is leading a Bombardier Capital’s business aircraft portfolio, boosted total proceeds turnaround in the airline industry’s fortunes—Bombardier offers a sought- from our recapitalization initiative to some $2.5 billion. As well, we success- after solution to carriers’ woes. Demand for regional jets, in fact, continues fully renewed the Company’s short-term bank facilities in North America to grow and Bombardier remains the market leader in this category. and in Europe, confirming that key lenders have confidence in Bombardier. Paradoxically, however, many airlines have limited access to the financial Elsewhere, we have continued with the orderly winding down of portfolios resources they need to acquire new equipment. Under the circumstances, at Bombardier Capital, which is now tightly focused on two areas: inventory I am particularly pleased to note that Bombardier achieved an increase in financing and the interim financing of commercial aircraft, within clearly its deliveries of regional aircraft for the latest year—a feat unmatched by the defined limits on both the amount of capital that can be committed and the competition. Going forward, we will be working to facilitate increased avail- number of aircraft. We also delivered on our commitment to switch from ability of outside sources of financing for commercial aircraft customers, in program accounting to average cost accounting in Aerospace to facilitate order to capitalize on continuing strong demand for our market-leading enhanced investor understanding of the Company’s financials. And in keep- Bombardier CRJ product family. ing with our move to a simpler structure, Aerospace and Transportation In the fall of 2003, we announced a consolidation of our business aircraft have assumed the responsibilities of the former Bombardier International manufacturing operations. Final line activities and interior completions for the unit, which essentially had accomplished its mission of helping estab- Bombardier Learjet and Bombardier Challenger Series business aircraft lish beachheads in the emerging markets of Asia, Eastern Europe and programs are being integrated at the Wichita, Kansas and Montréal, Québec Latin America. sites, respectively. The creation of these integrated manufacturing centres Together, these achievements represent a tremendous start to our plan. will result in annual savings, starting with the first full year of operation. They gave us some breathing space from a balance sheet perspective With three new corporate jets being rolled out over the course of 2004— and—just as importantly—they have resulted in a much more focused enter- and having already moved to streamline production—Bombardier Aerospace prise. In today’s intensely competitive global marketplace, focus is everything. is positioned to derive maximum benefit from an anticipated upturn in the The focus of today’s Bombardier is planes and trains—period. We business aircraft segment. now are in a position to concentrate all our efforts and resources on main- Moreover, we are beginning to see concrete results from the intense taining and enhancing Bombardier’s leadership positions in the global focus on costs and financial discipline that has been brought to bear across aerospace and rail transportation industries. the entire Aerospace group. Bombardier Inc. Annual Report 2003-04 page 21 Transportation To that end, we continue striving every day to make good on our commit- The global transportation industry has also been undergoing fundamental ments. At today’s Bombardier, it’s about focus. It’s about resolve. It’s about changes due to factors such as deregulation, the emergence of private- accountability—knowing where the buck stops. sector players and revamped policies and practices in the lynchpin European Union market. However, ongoing industry consolidation—in which Acknowledgements Bombardier has been a major participant—has not yet been reflected in the It’s also about teamwork. In that respect, I would like to take this opportu- elimination of excess production capacity. For instance, many of our own nity to formally acknowledge several recent newcomers to our executive European plants have been operating recently at less than 50% capacity. ranks, as well as individuals who have taken on added responsibilities. Decisive action was called for. Subsequent to year end, we put new lead- Pierre Alary, formerly Vice President, Finance, for Bombardier, was named ership in place at Bombardier Transportation and announced a major Senior Vice President and Chief Financial Officer. Moya Greene, a former sen- reorganization