content_image/66613.jpg content_image/66611.jpg
## Basis of presentation 

The consolidated operations of the Corporation are referred to hereafter as the Corporation or Bombardier Inc., the manufacturing opera- tions are referred to as Bombardier and the financial and real estate services as BC. This presentation has no impact on net income and shareholders’ equity. 

BC’s operations and financial position are fundamentally different from those of the manufacturing segments. As such, the capital markets use different performance indicators from those used for the manufacturing oper- ations to analyze and measure these two distinct businesses. The following discussion and analysis segregates these two types of businesses to better highlight their respective characteristics. The consolidated balance sheets are unclassified. 

The Summary of significant accounting poli- cies accompanying the Consolidated Financial Statements describes the significant account- ing principles followed by the Corporation. 

## Effect of currency fluctuations 

Fiscal year ended January 31, 2004 

The Corporation is subject to currency fluc- tuations from the translation of statement of income items and of assets and liabilities of self-sustaining foreign operations using a functional currency other than the Canadian dollar, mainly the U.S. dollar, the euro and the sterling pound and from transactions in foreign currencies, mainly the U.S. dollar. 

The year-end exchange rates used to translate assets and liabilities were as follows as at January 31: YEAR-END RATES 

<img src='content_image/66613.jpg'>

The average exchange rates used for the years ended January 31 to translate statement of income items were as follows: AVERAGE EXCHANGE RATES 

<img src='content_image/66611.jpg'>

## Translation of self-sustaining foreign operations 

As a result of the fluctuation in the average exchange rates shown above, revenues and earnings before taxes (EBT) of the euro- denominated foreign operations translated in Canadian dollars, mainly in the transpor- tation segment, were positively impacted. Revenues and EBT of the U.S. dollar- and sterling-pound-denominated foreign operations were negatively impacted. 

The main impact of the year-end exchange rate fluctuations on the financial position of the Corporation as at January 31, 2004 was a reduction of the U.S. dollar- and sterling pound- denominated consolidated balance sheet items. The effect of these translation adjust- ments is included in the deferred translation adjustment account in the consolidated statements of shareholders’ equity and has no impact on net income. 

## Transactions in foreign currencies 

In the aerospace segment, the Corporation uses forward foreign exchange contracts to manage its currency exposure arising from anticipated foreign currency cash flows, mainly the U.S. dollar. The forward foreign exchange contracts typically extend from one- to 24-month periods. Therefore, a significant portion of the currency fluctuations will impact the results of operations with a similar time lag.The forward 

foreign exchange hedge contracts, in the aerospace segment, mitigated the negative impact of the weakening of the U.S. dollar compared to the Canadian dollar by approxi- mately $250 million during fiscal year 2004. 

The transportation segment primarily uses western European and U.S. currencies as its functional currencies. Under the Corporation’s foreign exchange policy, foreign currency denominated risks are hedged on a contract- by-contract basis at the inception of the respective contracts. Accordingly, contract margins are not expected to be significantly affected by currency fluctuations, assuming hedge effectiveness. 

## Future currency exposure 

Effective February 1, 2004, the Corporation changed its functional currencies from the Canadian dollar and the sterling pound to the U.S. dollar for the Canadian and U.K. operations in the aerospace segment, and from the Canadian dollar and the Mexican peso to the U.S. dollar for the Canadian and Mexican operations in the transportation segment. The European operations of the transportation segment continue to mainly use western European currencies as their functional currencies. 

Effective the first quarter of fiscal year 2005, the Corporation will also change its reporting currency to the U.S. dollar. 

