BOMBARDIER INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS
For the fiscal year ended December 31, 2013
OVERVIEW
AEROSPACE
TRANSPORTATION
OTHER
HISTORICAL FINANCIAL SUMMARY
PAGE
6
35
64
79
103
All amounts in this report are expressed in U.S. dollars, and all amounts in the tables are in millions of U.S.
dollars, unless otherwise indicated.
This MD&A is the responsibility of management and has been reviewed and approved by the Board of Directors of
Bombardier Inc. (the “Corporation”). This MD&A has been prepared in accordance with the requirements of the
Canadian Securities Administrators. The Board of Directors is responsible for ensuring that we fulfill our
responsibilities for financial reporting and is ultimately responsible for reviewing and approving the MD&A. The
Board of Directors carries out this responsibility principally through its Audit Committee. The Audit Committee is
appointed by the Board of Directors and is comprised entirely of independent and financially literate directors. The
Audit Committee reports its findings to the Board of Directors for its consideration when it approves the MD&A for
issuance to shareholders.
The data presented in this MD&A is structured by reportable segment: BA and BT, and then by market segment,
which is reflective of our organizational structure. The results of operations for the fourth quarters are not
necessarily indicative of the results of operations for the full fiscal year. The fourth quarter has historically been the
strongest in terms of revenues, profitability and cash flows.
As a result of our change of year-end effective December 31, 2011, the fiscal year ended December 31, 2011
comprises 11 months of BA’s results and 12 months of BT’s results.
IFRS and non-GAAP measures
This MD&A contains both IFRS and non-GAAP measures. Non-GAAP measures are defined and reconciled to the
most comparable IFRS measure (see the Non-GAAP financial measures and Liquidity and capital resources
sections in Overview and the Analysis of results sections in BA and BT).
Materiality for disclosures
We determine if information is material based on whether we believe a reasonable investor’s decision to buy, sell
or hold securities of the Corporation would likely be influenced or changed if the information were omitted or
misstated.
Certain totals, subtotals and percentages may not agree due to rounding.
Our Financial Report for fiscal year 2013 comprises our President’s message to shareholders, this MD&A and our
consolidated financial statements.
4 BOMBARDIER INC. FINANCIAL REPORT – FISCAL YEAR ENDED DECEMBER 31, 2013
The following table shows the abbreviations used in the MD&A and the consolidated financial statements.
Term
AFS
AOCI
BA
BT
Description
Available for sale
Accumulated other comprehensive income
Bombardier Aerospace
Bombardier Transportation
CAGR
Compound annual growth rate
CCTD
Cumulative currency translation difference
CGU
Cash generating unit
Term
GDP
HFT
IAS
IASB
IFRIC
IFRS
L&R
Description
Gross domestic product
Held for trading
International Accounting Standard(s)
International Accounting Standards Board
International Financial Reporting Interpretation
Committee
International Financial Reporting Standard(s)
Loans and receivables
Commonwealth of Independent States
MD&A
Management’s discussion and analysis
CIS
DB
DC
Defined benefit
Defined contribution
DDHR
Derivative designated in a hedge relationship
DSU
EBIT
Deferred share unit
Earnings before financing expense, financing
income and income taxes
NCI
OCI
PP&E
PSU
PSG
Non-controlling interests
Other comprehensive income
Property, plant and equipment
Performance share unit
Performance security guarantee
EBITDA Earnings before financing expense, financing
R&D
Research and development
EBT
EIS
EPS
income, income taxes, amortization and impairment
charges on PP&E and intangible assets
Earnings before income taxes
Entry-into-service
Earnings per share attributable to equity holders of
Bombardier Inc.
RVG
SG&A
U.K.
Residual value guarantee
Selling, general and administrative
United Kingdom
FVTP&L Fair value through profit and loss
U.S.
United States of America
GAAP
Generally accepted accounting principles
BOMBARDIER INC. FINANCIAL REPORT – FISCAL YEAR ENDED DECEMBER 31, 2013 5
OVERVIEW
OVERVIEW OF ACTIVITIES
Overview of our operations and key financial data for the last
four years
KEY PERFORMANCE MEASURES AND
METRICS
Key performance measures and associated metrics that we
use to monitor our progress on a consolidated basis
HIGHLIGHTS OF THE YEAR
Highlights of the fiscal year with regard to our results and key
events
GUIDANCE AND FORWARD-LOOKING
STATEMENTS
Guidance and disclaimers in connection with our forward-
looking statements
FINANCIAL PRIORITIES
RISK MANAGEMENT
Our key financial goals and leading initiatives to achieve these
goals
Our key financing and market risks and risk mitigation
strategies
CONSOLIDATED RESULTS OF OPERATIONS
Our consolidated results for the fourth quarter and fiscal year
ended December 31, 2013
LIQUIDITY AND CAPITAL RESOURCES
Our cash flows, available short-term capital resources and
expected future liquidity needs
OTHER CREDIT FACILITIES
Our committed and outstanding amounts
RETIREMENT BENEFITS
Overview of our retirement benefit plans, as well as related
risks, risk mitigation strategies and related key financial data
CAPITAL STRUCTURE
Global metrics used to monitor our capital structure
NON-GAAP FINANCIAL MEASURES
Definitions of our non-GAAP financial measures and
reconciliations to the most comparable IFRS financial
measures
CONSOLIDATED FINANCIAL POSITION
Explanations of significant variances in our assets, liabilities
and equity
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9
11
12
15
19
21
23
24
29
30
34
6 BOMBARDIER INC. FINANCIAL REPORT – FISCAL YEAR ENDED DECEMBER 31, 2013
OVERVIEW OF ACTIVITIES
We are the world’s only manufacturer of both planes and trains, operating under two broad reportable segments:
aerospace through BA and rail transportation through BT. We are driving the evolution of mobility worldwide by
providing more efficient, sustainable and enjoyable transportation. Our products, services, and most of all our
employees, are what make us a global leader in transportation.
BOMBARDIER AEROSPACE
BA is a world leader in the design, manufacture and
support of innovative aviation products for the
business, commercial, specialized and amphibious
aircraft markets.
BOMBARDIER TRANSPORTATION
BT is a world leader in the design, manufacture and
support of rail equipment and systems.
Revenues
EBIT
EBIT before special items(1)
Free cash flow(1)
Order backlog
Number of employees(2)
$9.4 billion Revenues
$418 million EBIT
$388 million EBIT before special items(1)
($1.2) billion Free cash flow(1)
$37.3 billion Order backlog
37,700 Number of employees(2)
$8.8 billion
$505 million
$505 million
$668 million
$32.4 billion
38,500
Every day around the globe, our 76,400(3) dedicated employees work diligently to earn our worldwide leadership in
aerospace and rail transportation. As at the date of this report, we have 79 production and engineering sites in
27 countries and a worldwide network of service centres.
(1) Non-GAAP financial measures. Refer to the Non-GAAP financial measures section for definitions.
(2) As at December 31, 2013, including contractual and inactive employees.
(3) Includes 200 employees at our corporate office in Canada.
BOMBARDIER INC. FINANCIAL REPORT – FISCAL YEAR ENDED DECEMBER 31, 2013 - OVERVIEW 7
KEY PERFORMANCE MEASURES AND METRICS
BA and BT use multiple key performance measures to evaluate various key metrics. Refer to the respective Key
performance measures and metrics sections in BA and BT for descriptions of these measures.
In addition, the table below summarizes other relevant key performance measures and associated metrics
evaluated on a consolidated basis.
KEY PERFORMANCE MEASURES AND ASSOCIATED METRICS
Profitability
Liquidity
Capital
structure
(cid:120) Diluted EPS and adjusted EPS(1), as measures of global performance.
(cid:120) Available short-term capital resources(2), as a measure of liquidity adequacy.
(cid:120) Adjusted EBIT(1) to adjusted interest(1) ratio, as a measure of interest coverage.
(cid:120) Adjusted debt(1) to adjusted EBITDA(1) ratio, as a measure of financial leverage.
(cid:120) Weighted-average long-term debt maturity, as a measure of debt term structure.
Four-year summary
For the fiscal years ended and as at
Revenues
Order backlog (in billions of dollars)
EBIT
EBIT margin
EBIT before special items(1)
EBIT margin before special items(1)
Effective income tax rate
Net income
Adjusted net income(1)
Diluted EPS (in dollars)
Adjusted EPS (in dollars)(1)
Free cash flow (usage)(1)
Available short-term capital resources(2)
Interest coverage ratio(3)
Financial leverage ratio(3)
Weighted-average long-term debt
maturity (in years)
December 31 December 31 December 31
2011 (5)
(4)
2013
2012
restated (4)
$ 16,414
64.9
$
restated
$ 17,904
53.9
$
$
$
$
$
$
$
$
$
$
$
18,151
69.7
923
5.1%
893
4.9%
25.8%
572
608
0.31
0.33
(907)
4,837
2.8
5.4
$
$
666
4.1%
806
4.9%
12.3%
470
671
0.25
0.36
$
$
$
$
(636)
$
$ 3,967
3.2
4.2
$ 1,166
6.5%
$ 1,166
6.5%
13.9%
737
887
0.41
0.49
$
$
$
$
(1,046)
$
$ 3,642
4.5
3.3
January 31
2011
(4)
restated
$ 17,497
51.9
$
$ 1,198
6.8%
$ 1,198
6.8%
24.5%
671
772
0.36
0.42
$
$
$
$
426
$
$ 4,059
5.0
3.1
8.9
(1) Non-GAAP financial measures. Refer to the Non-GAAP financial measures and Liquidity and capital resources sections for definitions of
7.4
8.0
6.4
these metrics and reconciliations to the most comparable IFRS measures.
(2) Defined as cash and cash equivalents plus the amount available under the revolving credit facilities.
(3) Refer to the Capital structure and Non-GAAP financial measures sections for computations of these ratios.
(4) Refer to the Accounting and reporting developments section in Other for detail regarding restatements of prior year figures.
(5) Our fiscal year ended December 31, 2011 comprises 11 months of BA’s results and 12 months of BT’s results.
8 BOMBARDIER INC. FINANCIAL REPORT – FISCAL YEAR ENDED DECEMBER 31, 2013
HIGHLIGHTS OF THE YEAR
A period of transition as we prepare for future growth
REVENUES
$18.2 billion
ADJUSTED NET
INCOME(1)
$608 million
ADJUSTED EPS(1)
$0.33
FREE CASH
FLOW(1)
($907) million
ORDER BACKLOG
$69.7 billion
S
T
L
U
S
E
R
· Revenues of $18.2 billion, an increase of 11% compared to $16.4 billion last fiscal year.(2)
· EBIT of $923 million, or 5.1% of revenues, compared to $666 million, or 4.1%, last fiscal year.(2)
· EBIT before special items(1) of $893 million, or 4.9% of revenues, compared to $806 million, or 4.9%, last fiscal
year.(2)
· Net income of $572 million (diluted EPS of $0.31), compared to $470 million (diluted EPS of $0.25) last fiscal
year.(2)
· Adjusted net income(1) of $608 million (adjusted EPS(1) of $0.33), compared to $671 million (adjusted EPS of
$0.36) last fiscal year.(2)
· Net investment of $2.3 billion in PP&E and intangible assets, including $2.0 billion related to aerospace program
tooling, compared to $2.1 billion last fiscal year, including $1.7 billion related to aerospace program tooling.(2)
Free cash flow usage(1) of $907 million, compared to a usage of $636 million last fiscal year.(2)
·
· Available short-term capital resources of $4.8 billion as at December 31, 2013, including cash and cash
equivalents of $3.4 billion, compared to $4.0 billion and $2.6 billion, respectively, as at December 31, 2012.(2)
· Record level order backlog of $69.7 billion as at December 31, 2013, compared to $64.9 billion as at
December 31, 2012.(2)
REVENUES(2)(4)
(for the fiscal years ended;
in billions of dollars)
BT
BA
17.5
17.9
8.8
8.6
18.2
9.4
16.4
8.6
ADJUSTED NET INCOME AND
ADJUSTED EPS(1)(2)(4)
(for the fiscal years ended;
in millions of dollars, except per
share amounts)
Special and adjusting items
Net income
Adjusted EPS
FREE CASH FLOW(1)(2)(4)
(for the fiscal years ended;
in millions of dollars)
ORDER BACKLOG(2)(3)
(as at; in billions of dollars)
Free cash flow (usage)
BT
BA
Net additions to PP&E and
intangibles
2,287
2,074
51.9
53.9
1,447
1,189
20.4
23.9
69.7
64.9
32.9
37.3
0.49
887
150
0.42
772
101
8.7
9.3
7.8
8.8
671
737
0.36
671
201
470
0.33
608
572
36
426
(636)
(907)
(1,046)
31.5
30.1
32.0
32.4
Jan. 31
2011
Dec. 31
2011
Dec. 31
2012
Dec. 31
2013
Jan. 31
2011
Dec. 31
2011
Dec. 31
2012
Dec. 31
2013
Jan. 31
2011
Dec. 31
2011
Dec. 31
2012
Dec. 31
2013
Jan. 31
2011
Dec. 31
2011
Dec. 31
2012
Dec. 31
2013
(1) Non-GAAP financial measures. Refer to the Non-GAAP financial measures and Liquidity and capital resources sections for definitions of
these metrics and reconciliations to the most comparable IFRS measures.
(2) Comparative figures have been restated for changes in accounting policies and methods. See Accounting and reporting developments
section in Other for details.
(3) Some totals do not agree due to rounding.
(4) Our fiscal year ended December 31, 2011 comprised 11 months of BA’s results and 12 months of BT’s results.
BOMBARDIER INC. FINANCIAL REPORT – FISCAL YEAR ENDED DECEMBER 31, 2013 - OVERVIEW 9
S
T
N
E
V
E
Y
E
K
(cid:120)
The maiden flights of the first and second CSeries flight test vehicles were successfully completed on
September 16, 2013 and January 3, 2014. The CS100 aircraft’s EIS is now scheduled for the second half of 2015
and the CS300 aircraft’s EIS will follow approximately six months afterwards.
(cid:120) Our net retirement benefit liability decreased by $974 million in 2013, due mainly to strong returns on plan assets,
increases in discount rates in Canada and in the U.S. and employer contributions in excess of service cost.
In January 2013, we issued an aggregate of $2.0 billion of unsecured Senior Notes, at par, comprised of
$750 million due in January 2016 and $1.25 billion due in January 2023.
(cid:120)
(cid:120) On December 4, 2013, we completed the sale of the main assets and related liabilities of our Flexjet activities,
resulting in the recognition of a pre-tax gain of $23 million. Also, the acquirer placed firm orders for 85 aircraft of
the Learjet family and 30 aircraft of the Challenger family, with options for 150 additional aircraft. Based on list
prices, the value of the firm orders is $2.4 billion.
(cid:120) BA and BT signed several significant contracts, bringing the consolidated order backlog as at December 31,
2013 to a record level. Also, subsequent to the end of the fiscal year, BA and BT took the following significant
steps towards further increasing our consolidated order backlog:
(cid:120) As part of a consortium, BT signed a contract with a value of $4.1 billion with the State of Queensland,
Australia. BT’s share of the contract, which consists of the supply of 75 electrical multiple units (EMUs),
construction of a purpose-built maintenance centre and 30 years of maintenance services, is valued at
$2.7 billion;
(cid:120) BA signed a firm order with Al Qahtani Aviation Company from the Kingdom of Saudi Arabia for 16 CS300
aircraft, valued at $1.2 billion based on list price;
(cid:120) The San Francisco Bay Area Rapid Transit District (BART), U.S., exercised an option for 365 additional rail
cars, valued at $639 million; and,
(cid:120) We received notification that Transport for London (TfL) and the Department for Transport (DfT), U.K., intend
to award BT a contract to deliver 65 trains and a new depot for Crossrail.
10 BOMBARDIER INC. FINANCIAL REPORT – FISCAL YEAR ENDED DECEMBER 31, 2013
GUIDANCE AND FORWARD-LOOKING STATEMENTS
Summary of BA and BT guidance for 2014 and thereafter
Profitability
Liquidity
BA(1)
We expect to achieve an EBIT
margin in fiscal year 2014 of
approximately 5%.
BT(1)
While an EBIT margin of 8%
remains our objective, we
expect an EBIT margin of
approximately 6% in 2014 as
we focus on contract execution
improvement.
In fiscal year 2014, we expect cash
flows from operating activities
between $1.2 billion and $1.6 billion,
while our net additions to PP&E and
intangible assets are expected to be
between $1.6 billion and $1.9 billion.
Our level of net additions to PP&E
and intangible assets is expected to
be between $1.2 billion and
$1.5 billion in 2015 and to be below
$1.0 billion in 2016.
We expect to maintain free cash
flow(2) generally in line with EBIT,
although it may vary significantly
from quarter to quarter.
(1) See the Guidance and forward-looking statements sections in BA and BT.
(2) See the Non-GAAP financial measures section for a definition of this metric.
(3) Defined as new orders over revenues.
Deliveries/
Growth and order intake
In fiscal year 2014, we expect to deliver
approximately 200 business aircraft and
80 commercial aircraft.
Excluding currency impacts, revenues in
2014 are expected to be higher than in
2013, with percentage growth in the
mid-single digits.
In fiscal year 2014, we expect a book-to-
bill ratio(3) in excess of 1.0.
This MD&A includes forward-looking statements, which may involve, but are not limited to: statements with respect to our
objectives, guidance, targets, goals, priorities, our market and strategies, financial position, beliefs, prospects, plans,
expectations, anticipations, estimates and intentions; general economic and business outlook, prospects and trends of an
industry; expected growth in demand for products and services; product development, including projected design,
characteristics, capacity or performance; expected or scheduled entry-into-service of products and services, orders, deliveries,
testing, lead times, certifications and project execution in general; our competitive position; and the expected impact of the
legislative and regulatory environment and legal proceedings on our business and operations. Forward-looking statements
generally can be identified by the use of forward-looking terminology such as “may”, “will”, “expect”, “intend”, “anticipate”,
“plan”, “foresee”, “believe”, “continue”, “maintain” or “align”, the negative of these terms, variations of them or similar
terminology. By their nature, forward-looking statements require us to make assumptions and are subject to important known
and unknown risks and uncertainties, which may cause our actual results in future periods to differ materially from forecasted
results. While we consider our assumptions to be reasonable and appropriate based on information currently available, there
is a risk that they may not be accurate. For additional information with respect to the assumptions underlying the forward-
looking statements made in this MD&A, refer to the respective Guidance and forward-looking statements sections in BA and in
BT.
Certain factors that could cause actual results to differ materially from those anticipated in the forward-looking statements
include risks associated with general economic conditions, risks associated with our business environment (such as risks
associated with the financial condition of the airline industry and major rail operators), operational risks (such as risks related
to developing new products and services; doing business with partners; product performance warranty and casualty claim
losses; regulatory and legal proceedings; the environment; dependence on certain customers and suppliers; human
resources; fixed-price commitments and production and project execution), financing risks (such as risks related to liquidity
and access to capital markets, exposure to credit risk, certain restrictive debt covenants, financing support provided for the
benefit of certain customers and reliance on government support) and market risks (such as risks related to foreign currency
fluctuations, changing interest rates, decreases in residual values and increases in commodity prices). For more details, see
the Risks and uncertainties section in Other. Readers are cautioned that the foregoing list of factors that may affect future
growth, results and performance is not exhaustive and undue reliance should not be placed on forward-looking statements.
The forward-looking statements set forth herein reflect our expectations as at the date of this report and are subject to change
after such date. Unless otherwise required by applicable securities laws, we expressly disclaim any intention, and assume no
obligation to update or revise any forward-looking statements, whether as a result of new information, future events or
otherwise. The forward-looking statements contained in this MD&A are expressly qualified by this cautionary statement.
BOMBARDIER INC. FINANCIAL REPORT – FISCAL YEAR ENDED DECEMBER 31, 2013 - OVERVIEW 11
FINANCIAL PRIORITIES
To deliver on our growth strategies,
we must maintain a strong financial discipline
PROFITABILITY
LIQUIDITY
CAPITAL STRUCTURE
Increase the level and consistency
of profitability
Increase the level and
consistency of cash flows from
operating activities and ensure
sufficient liquidity to meet
capital requirements
Optimize the capital structure to
reduce costs and improve our
ability to seize strategic
opportunities
We operate in a competitive and capital intensive environment. In recent years, we continued to invest extensively
in industry-leading, cost-optimized products and solutions to improve our position in the marketplace and our
ability to face competition in the aerospace and rail transportation industries. The difficult economic environment
affecting some of our market segments is intersecting with the peak of our investment cycle, putting pressure on
our profitability, liquidity and capital structure. Although the uncertain environment seems to be lasting, we are
starting to see signs of stabilization. Challenging economic conditions do not change our long-term priorities and
strategies but they do reiterate the importance of continuing to maintain a strong financial discipline and project
management governance.
Our priority for the next years is translating our investments into sustainable bottom-line results. New products
launched around five years ago are making headway, with the CSeries, Learjet 85, Global 7000 and Global 8000
aircraft programs progressing towards EIS and the ZEFIRO very high speed train is progressing towards
homologation. Other products launched more recently, notably the Learjet 70 and Learjet 75 aircraft which
entered into service at the end of 2013, will also contribute to increasing our profitability in the future. Both BA and
BT have strong levels of order backlog, a leading indicator of future revenues. Our consolidated backlog reached
a record level of $69.7 billion as at December 31, 2013, including a manufacturing backlog of $58.9 billion which
represents more than four years of manufacturing revenues, based on revenues for fiscal year 2013.
We have adequate liquidity to continue to finance our product development and our operations in the foreseeable
future.
Increasing profitability is closely linked to improved execution
and the successful EIS of our products
Increasing the level and consistency of our profitability remains a key financial priority. Our significant investment
in mobility solutions in recent years and the approaching EIS of industry-leading products are intended to
generate multi-year sustained growth. In the short term, reaching our financial targets will require both BA and BT
to continue improving their processes towards achieving flawless execution.
BA achieved an EBIT margin before special items of 4.1% in fiscal year 2013, compared to 4.3% last fiscal year.
In fiscal year 2014, BA expects to achieve an EBIT margin of approximately 5%.(1)
BT achieved an EBIT margin before special items of 5.8% in fiscal year 2013, compared to 5.6% last fiscal year.
As BT focuses on contract execution improvement, an EBIT margin of approximately 6% is expected in 2014, but
achieving an EBIT margin of 8% remains our objective.(1)
(1) See the Guidance and forward-looking statements sections in BA and in BT.
12 BOMBARDIER INC. FINANCIAL REPORT – FISCAL YEAR ENDED DECEMBER 31, 2013
BT continued to implement actions to resolve execution issues faced in recent years in certain large rolling stock
contracts and to better position itself in the future. These measures include increasing the level of upfront R&D
and creating a centralized product design and development function, which will bring together customers,
suppliers and partners to develop pioneering technologies. Once implemented, these measures will reduce
execution risk by increasing product standardization, resulting in increased use of proven technologies and
processes across contracts. Also, on January 1, 2014, we put into effect a new organizational structure to drive
innovation, best practices and synergies, shorten lead times, as well as reduce development costs and execution
risks.
We leverage our project management capabilities and focus on efficient execution through the use of streamlined
initiatives. Meanwhile, we continue to employ cost reduction programs in both BA and BT and other punctual
measures to improve our competitiveness. We also capitalize on our worldwide presence in both established and
emerging markets to achieve cost savings. This presence provides us with tremendous opportunities to develop
local partners and suppliers.
Our strong financial discipline allows us to support our planned
investment in product development
We continuously monitor our level of liquidity, including available short-term capital resources and cash flows from
operations, to meet expected liquidity requirements, including the support of our product development initiatives,
to ensure financial flexibility. In evaluating our liquidity requirements, we take into consideration historic volatility
and seasonal needs, the maturity profile of our long-term debt, the funding of our product development programs,
the level of customer advances, working capital requirements, the economic environment and access to capital
markets. We use scenario analyses to stress-test our cash flow projections.
In January 2013, we took advantage of strong demand and good pricing conditions in the debt capital market in
the U.S. to increase our financial flexibility by issuing an aggregate of $2.0 billion of new unsecured Senior Notes,
due in January 2016 and January 2023.
In April and May 2013, respectively, we extended the availability periods under the BT and BA letter of credit
facilities by an additional year to May 2016 and June 2016, respectively. And in June 2013, the availability period
of the PSG facility was extended by one year to June 2014 and the amount committed reduced from $900 million
to $600 million, due to lower utilization levels. In May 2013, the maturity date of our $750-million unsecured
revolving credit facility was extended by one year to June 2016. Refer to the Other credit facilities section for
further details on these facilities.
On an on-going basis, we manage our liabilities by taking into consideration expected free cash flows, debt
repayments and other material cash outlays expected to occur in the future. We have no significant debt maturing
before the year 2016.
As at December 31, 2013, our available short-term capital resources were $4.8 billion. Refer to the Liquidity and
capital resources section for further details on these resources. We also maintain various other facilities such as
factoring facilities and sale and leaseback facilities, which also contribute to securing additional sources of
liquidity.
BA’s cash flows from operations in 2013 were $1.0 billion, compared to a guidance of approximately $1.4 billion,
while net additions to PP&E and intangible assets were $2.2 billion in 2013, compared to a guidance of
approximately $2.0 billion. The cash flows from operating activities were lower than expected due to lower
customer advances and business aircraft deliveries.
Our level of capital expenditures is expected to gradually return to more normal levels after reaching the peak in
our development spending in 2013. Expected EIS dates for our most significant aircraft programs range from
2014 to 2017.(1) BA’s net additions to PP&E and intangible assets are expected to be between $1.6 billion and
$1.9 billion in 2014, between $1.2 billion and $1.5 billion in 2015, and below $1.0 billion in 2016.(1)
(1) See the Guidance and forward-looking statements sections in BA and in BT.
BOMBARDIER INC. FINANCIAL REPORT – FISCAL YEAR ENDED DECEMBER 31, 2013 - OVERVIEW 13
Investment in product development is expected to be funded through our cash flows from operating activities and
our available short-term capital resources. We may receive funding from governments and contributions from key
suppliers for certain aircraft programs, which increases our financing flexibility as these parties act as risk-sharing
partners. BA expects cash flows from operations in fiscal year 2014 of between $1.2 billion to $1.6 billion.(1) BT
expects its free cash flow to be generally in line with EBIT, although it may vary significantly from quarter to
quarter.(1)
(1) See the Guidance and forward-looking statements sections in BA and in BT.
We remain committed to our global metric targets despite the impact of significant investment
in industry-leading products on our capital structure
BA and BT require capital to develop industry-leading products and to seize strategic opportunities to increase
competiveness and execute growth strategies. We take advantage of favourable capital market conditions when
they materialize to extend debt maturity, reduce cost of funds and increase diversity of capital resources. We
assess and manage our creditworthiness using the global metrics as described in the Capital structure section.
The January 2013 issuance of $2.0 billion of unsecured Senior Notes had a negative impact on our global
metrics, but we believe that the addition of liquidity in a relatively high investment period warranted the increased
leverage.
We are continuously monitoring our capital structure to ensure sufficient liquidity to fund our product development
programs. Over the long term, it is our desire to improve our leverage metrics by de-leveraging the balance sheet
with strategic long-term debt repayments, in line with active management of consolidated liquidity, weighted-
average cost of capital and term structure.
WEIGHTED-AVERAGE LONG-TERM DEBT MATURITY
(as at; in years)
DEBT MATURITY PROFILE (NOTIONAL AMOUNT)
(for calendar years; in millions of dollars)
7.5
6.5
8.9
8.0
7.4
6.4
1,833
1,250
1,076
850
650
500
Jan. 31
2009
Jan. 31
2010
Jan. 31
2011
Dec. 31
2011
Dec. 31
2012
Dec. 31
2013
162
2014
0
2015
2016* 2017
0
2018
2019
0
2020
2021
2022
2023
391
2024-
2034
*Debt maturing in 2016 includes the $750-million and €785-million
Senior Notes due in January and November 2016, respectively.
Managing our net retirement benefit liability and the security of benefits is also a key part of our overall
management of the capital structure. Over the years, we have taken several initiatives to mitigate risks that stem
from both pension liabilities and assets and we are continuing to do so. Refer to the Retirement benefits section
for details on the risk management initiatives related to our retirement plans.
14 BOMBARDIER INC. FINANCIAL REPORT – FISCAL YEAR ENDED DECEMBER 31, 2013
December 31, 2013, our credit ratings
December 31, 2013, o
As at December 31, 2013, o
As at
Ratings Ltd. changed our rating from BB to BB-
Fitch Ratings Ltd. changed our rating from BB to BB
Ratings Ltd. changed our rating from BB to BB
Ratings Ltd. changed our rating from BB to BB
Fitch
-.
In January 2014,
two notches below investment grade. In January 2014,
In January 2014,
two notches below investment grade.
two notches below investment grade.
credit ratings were two notches below investment grade.
Credit ratings
Credit ratings
Credit ratings
grade rating
Investment-grade rating
Investment
Fitch Ratings Ltd.
Fitch Ratings Ltd.
Fitch Ratings Ltd.
Moody’s Investors Service
, Inc.
Moody’s Investors Service, Inc.
Moody’s Investors Service
Standard & Poor’s Rating Services
Standard & Poor’s Rating Services
Standard & Poor’s Rating Services
Standard & Poor’s Rating Services
BBB-
BBB
Baa3
Baa3
BBB-
BBB
February 11, 2014
February 11, 2014
BB-
Ba2
BB
Bombardier Inc.’s rating
Bombardier Inc.’s
Bombardier Inc.’s
December 31, 2012
December 31, 2012
BB
Ba2
BB
our credit ratings as we
e believe that we will be in a good position to improve our credit ratings as we
our credit ratings as we
e believe that we will be in a good position to improve
e believe that we will be in a good position to improve
In the medium to long term, we believe that we will be in a good position to improve
e believe that we will be in a good position to improve
In the medium to long term, w
In the medium to long term, w
In the medium to long term, w
progress towards our profitability targets and return to a more
progress towards our profitability targets and
progress towards our profitability targets and
progress towards our profitability targets and
progress towards our profitability targets and
development.
development.
level of investment in product
normalized level of investment in product
level of investment in product
return to a more normalized
RISK MANAGEMENT
RISK MANAGEMENT
RISK MANAGEMENT
Active risk management has been one of our priorities for many
Active risk management has been one of our priorities for many
Active risk management has been one of our priorities for many
Active risk management has been one of our priorities for many
Active risk management has been one of our priorities for many
Active risk management has been one of our priorities for many
years and is a key component of our corporate strategy framework.
years and is a key component of our corporate strategy framework.
years and is a key component of our corporate strategy framework.
years and is a key component of our corporate strategy framework.
years and is a key component of our corporate strategy framework.
years and is a key component of our corporate strategy framework.
years and is a key component of our corporate strategy framework.
k management objectives, we have embedded
To achieve our risk management objectives, we have embedded
k management objectives, we have embedded
k management objectives, we have embedded
To achieve our ris
To achieve our ris
risk management activities in the operational responsibilities of
risk management activities in the operational responsibilities of
risk management activities in the operational responsibilities of
risk management activities in the operational responsibilities of
risk management activities in the operational responsibilities of
risk management activities in the operational responsibilities of
management and made these activities an integral part of our
management and made these activities an integral part of our
management and made these activities an integral part of our
management and made these activities an integral part of our
management and made these activities an integral part of our
management and made these activities an integral part of our
overall governance, planning, decision making, organizational and
overall governance, planning, decision making, organizational and
overall governance, planning, decision making, organizational and
overall governance, planning, decision making, organizational and
overall governance, planning, decision making, organizational and
overall governance, planning, decision making, organizational and
overall governance, planning, decision making, organizational and
accountability structure.
accountability struct
accountability struct
For each risk or category of risks, our risk management process
For each risk or category of risks, our risk management process
For each risk or category of risks, our risk management process
For each risk or category of risks, our risk management process
For each risk or category of risks, our risk management process
For each risk or category of risks, our risk management process
includes activities performed in a continuous cycle. Risk
includes activities performed in a continuous cycle. Risk
includes activities performed in a continuous cycle. Risk
includes activities performed in a continuous cycle. Risk
includes activities performed in a continuous cycle. Risk
includes activities performed in a continuous cycle. Risk
assessment, including risk identification, analysis and evaluation,
assessment, including risk identification, analysis and evaluation,
assessment, including risk identification, analysis and evaluation,
assessment, including risk identification, analysis and evaluation,
assessment, including risk identification, analysis and evaluation,
assessment, including risk identification, analysis and evaluation,
assessment, including risk identification, analysis and evaluation,
ensures that each risk is analyzed to identify the consequence and
ensures that each risk is analyzed to identify the consequence and
ensures that each risk is analyzed to identify the consequence and
ensures that each risk is analyzed to identify the consequence and
ensures that each risk is analyzed to identify the consequence and
ensures that each risk is analyzed to identify the consequence and
ensures that each risk is analyzed to identify the consequence and
likelihood of the risk occurring and the adequacy of existing
likelihood of the risk occurring and the adequacy of existing
likelihood of the risk occurring and the adequacy of existing
likelihood of the risk occurring and the adequacy of existing
likelihood of the risk occurring and the adequacy of existing
likelihood of the risk occurring and the adequacy of existing
controls. Each reportable segment is responsible for implementing
controls. Each reportable segment is responsible for implementing
controls. Each reportable segment is responsible for implementing
controls. Each reportable segment is responsible for implementing
controls. Each reportable segment is responsible for implementing
controls. Each reportable segment is responsible for implementing
controls. Each reportable segment is responsible for implementing
the appropriate structures, processes and tools to allow proper
the appropriate structures, processes and tools to allow proper
the appropriate structures, processes and tools to allow proper
the appropriate structures, processes and tools to allow proper
the appropriate structures, processes and tools to allow proper
the appropriate structures, processes and tools to allow proper
identification of risks. Once the risks have been identified,
identification of risks. Once the risks have been identified,
identification of risks. Once the risks have been identified,
identification of risks. Once the risks have been identified,
identification of risks. Once the risks have been identified,
identification of risks. Once the risks have been identified,
nalyzed, managed and evaluated, risk mitigation identifies the
analyzed, managed and evaluated, risk mitigation identifies the
a
nalyzed, managed and evaluated, risk mitigation identifies the
nalyzed, managed and evaluated, risk mitigation identifies the
nalyzed, managed and evaluated, risk mitigation identifies the
actions to be implemented by management.
Each reportable
actions to be implemented by management. Each reportable
actions to be implemented by management.
actions to be implemented by management.
actions to be implemented by management.
segment has implemented risk management processes that are
segment has implemented risk management processes that are
segment has implemented risk management processes that are
segment has implemented risk management processes that are
segment has implemented risk management processes that are
segment has implemented risk management processes that are
embedded in our governance and activities to achieve the
embedded in our governance and activities to achieve the
embedded in our governance and activities to achieve the
embedded in our governance and activities to achieve the
embedded in our governance and activities to achieve the
embedded in our governance and activities to achieve the
rporate Risk Management Policy.
objectives of our Corporate Risk Management Policy.
rporate Risk Management Policy.
rporate Risk Management Policy.
objectives of our Co
objectives of our Co
Risk management framework
Risk management framework
Risk management framework
Risk management framework
Establishing the
Establishing the
context
context
Risk assessment
Risk assessment
Risk identification
Risk identification
analysis
Risk analysis
Risk evaluation
Risk evaluation
t
l
u
s
n
o
c
d
n
a
i
e
t
a
c
n
u
m
m
o
C
i
w
e
v
e
r
d
n
a
r
o
t
i
n
o
M
In addition, every year our Corporate Audit Services and Risk
In addition, every year our Corporate Audit Services and Risk
In addition, every year our Corporate Audit Services and Risk
In addition, every year our Corporate Audit Services and Risk
In addition, every year our Corporate Audit Services and Risk
In addition, every year our Corporate Audit Services and Risk
Assessment (CASRA) team assess our major risks. Senior
Assessment (CASRA) team assess our major risks. Senior
Assessment (CASRA) team assess our major risks. Senior
Assessment (CASRA) team assess our major risks. Senior
Assessment (CASRA) team assess our major risks. Senior
Assessment (CASRA) team assess our major risks. Senior
management reviews this risk assessment and develops action
management reviews this risk assessment and develops action
management reviews this risk assessment and develops action
management reviews this risk assessment and develops action
management reviews this risk assessment and develops action
management reviews this risk assessment and develops action
plans to address the identified risks.
The Board of Directors is
plans to address the identified risks. The Board of Directors is
The Board of Directors is
plans to address the identified risks.
plans to address the identified risks.
ultimately responsible for reviewing the overall risks faced by the
ultimately responsible for reviewing the overall risks faced by the
ultimately responsible for reviewing the overall risks faced by the
ultimately responsible for reviewing the overall risks faced by the
ultimately responsible for reviewing the overall risks faced by the
ultimately responsible for reviewing the overall risks faced by the
Corporation. The Board exercises its duty through the Finance and
Corporation. The Board exercises its duty through the Finance and
Corporation. The Board exercises its duty through the Finance and
Corporation. The Board exercises its duty through the Finance and
Corporation. The Board exercises its duty through the Finance and
Corporation. The Board exercises its duty through the Finance and
Corporation. The Board exercises its duty through the Finance and
business risks
Risk Management Committee, consisting of five independent Directors, which reviews our material business risks
Risk Management Committee, consisting of five independent Directors, which reviews our material
Risk Management Committee, consisting of five independent Directors, which reviews our material
Risk Management Committee, consisting of five independent Directors, which reviews our material
Risk Management Committee, consisting of five independent Directors, which reviews our material
Risk Management Committee, consisting of five independent Directors, which reviews our material
Risk Management Committee, consisting of five independent Directors, which reviews our material
Risk Management Committee, consisting of five independent Directors, which reviews our material
Risk Management Committee, consisting of five independent Directors, which reviews our material
and the measures that management takes to monitor, control and manage such risks, including the adequacy of
and the measures that management takes to monitor, control and manage such risks, including the adequacy of
and the measures that management takes to monitor, control and manage such risks, including the adequacy of
and the measures that management takes to monitor, control and manage such risks, including the adequacy of
and the measures that management takes to monitor, control and manage such risks, including the adequacy of
and the measures that management takes to monitor, control and manage such risks, including the adequacy of
and the measures that management takes to monitor, control and manage such risks, including the adequacy of
and the measures that management takes to monitor, control and manage such risks, including the adequacy of
and the measures that management takes to monitor, control and manage such risks, including the adequacy of
and the measures that management takes to monitor, control and manage such risks, including the adequacy of
policies, procedures and controls designed by management to assess and manage these risks. To complement
policies, procedures and controls designed by management to assess and manage these risks. To complement
policies, procedures and controls designed by management to assess and manage these risks. To complement
policies, procedures and controls designed by management to assess and manage these risks. To complement
policies, procedures and controls designed by management to assess and manage these risks. To complement
policies, procedures and controls designed by management to assess and manage these risks. To complement
policies, procedures and controls designed by management to assess and manage these risks. To complement
policies, procedures and controls designed by management to assess and manage these risks. To complement
policies, procedures and controls designed by management to assess and manage these risks. To complement
policies, procedures and controls designed by management to assess and manage these risks. To complement
ur major risks, each reportable segment, in coordination with CASRA, has
the annual CASRA review of our major risks, each reportable segment, in coordination with CASRA, has
ur major risks, each reportable segment, in coordination with CASRA, has
the annual CASRA review of o
ur major risks, each reportable segment, in coordination with CASRA, has
ur major risks, each reportable segment, in coordination with CASRA, has
ur major risks, each reportable segment, in coordination with CASRA, has
ur major risks, each reportable segment, in coordination with CASRA, has
the annual CASRA review of o
the annual CASRA review of o
implemented a quarterly review process that results in standardized heat maps.
implemented a quarterly review process that results in standardized heat maps.
implemented a quarterly review process that results in standardized heat maps.
implemented a quarterly review process that results in standardized heat maps.
implemented a quarterly review process that results in standardized heat maps.
implemented a quarterly review process that results in standardized heat maps.
implemented a quarterly review process that results in standardized heat maps.
implemented a quarterly review process that results in standardized heat maps.
Risk treatment
Risk treatment
We also have designed disclosure controls and procedures to provide reasonable assurance that material
We also have designed disclosure controls and procedures to provide reasonable assurance that material
We also have designed disclosure controls and procedures to provide reasonable assurance that material
We also have designed disclosure controls and procedures to provide reasonable assurance that material
We also have designed disclosure controls and procedures to provide reasonable assurance that material
We also have designed disclosure controls and procedures to provide reasonable assurance that material
We also have designed disclosure controls and procedures to provide reasonable assurance that material
We also have designed disclosure controls and procedures to provide reasonable assurance that material
We also have designed disclosure controls and procedures to provide reasonable assurance that material
We also have designed disclosure controls and procedures to provide reasonable assurance that material
information relating to the Corporation is properly communicated and that information required to be disclosed in
information relating to the Corporation is properly communicated and that information required to be disclosed in
information relating to the Corporation is properly communicated and that information required to be disclosed in
information relating to the Corporation is properly communicated and that information required to be disclosed in
information relating to the Corporation is properly communicated and that information required to be disclosed in
information relating to the Corporation is properly communicated and that information required to be disclosed in
information relating to the Corporation is properly communicated and that information required to be disclosed in
information relating to the Corporation is properly communicated and that information required to be disclosed in
information relating to the Corporation is properly communicated and that information required to be disclosed in
information relating to the Corporation is properly communicated and that information required to be disclosed in
our public filings is recorded, processed, summarized and reported within the time periods specified in securities
our public filings is recorded, processed, summarized and reported within the time periods specified in securities
our public filings is recorded, processed, summarized and reported within the time periods specified in securities
our public filings is recorded, processed, summarized and reported within the time periods specified in securities
our public filings is recorded, processed, summarized and reported within the time periods specified in securities
our public filings is recorded, processed, summarized and reported within the time periods specified in securities
our public filings is recorded, processed, summarized and reported within the time periods specified in securities
our public filings is recorded, processed, summarized and reported within the time periods specified in securities
our public filings is recorded, processed, summarized and reported within the time periods specified in securities
our public filings is recorded, processed, summarized and reported within the time periods specified in securities
Controls and procedures section in Other for more details.
legislation. Refer to the Controls and procedures section in Other for more details.
Controls and procedures section in Other for more details.
Controls and procedures section in Other for more details.
Controls and procedures section in Other for more details.
Controls and procedures section in Other for more details.
legislation. Refer to the
legislation. Refer to the
BOMBARDIER INC.
BOMBARDIER INC. FINANCIAL
FINANCIAL REPORT
YEAR ENDED DECEMBER 31, 2013 - OVERVIEW
YEAR ENDED DECEMBER 31, 2013
REPORT – FISCAL YEAR ENDED DECEMBER 31, 2013
OVERVIEW 15
Our key exposures to financing and market risks
and related risk mitigation strategies
Our operations are exposed to various financing and market risks. The following is a description of our key
exposures to those risks together with the risk management strategies in place to mitigate them. Market risks
associated with our pension plans are discussed in the Retirement benefits section.
Exposure to foreign exchange risk
Our main exposures to foreign currencies are managed in accordance with our Foreign Exchange Risk
Management Policy, in order to mitigate the impact of foreign exchange movements. This policy requires each
reportable segment’s management to identify all actual and potential foreign currency exposures arising from their
operations. This information is communicated to the Corporate Office central treasury function, which has the
responsibility to execute the hedge transactions in accordance with the policy requirements. In addition, the
central treasury function manages balance sheet exposures to foreign currency movements by matching asset
and liability positions. This program consists mainly in matching long-term debt in a foreign currency with assets
denominated in the same currency.
Foreign exchange management
Owner
Hedged exposures
BA
BT
Corporate
Office
Forecast cash outflows
denominated in a currency other
than the functional currency of the
entity incurring the cash flows,
mainly in Canadian dollars and
pounds sterling.
Forecast cash inflows and outflows
denominated in a currency other
than the functional currency of the
entity incurring the cash flows.
Forecast cash outflows other than
interest, denominated in a currency
other than the functional currency of
the entity incurring the cash flows,
mainly in Canadian dollars.
Interest cash outflows in currencies
other than the U.S. dollar, i.e. the
euro and the Canadian dollar.
Balance sheet exposures, including
long-term debt and net investments
in foreign operations with non-U.S.
dollar functional currencies.
Hedging policy(1)
Risk-mitigation strategies
Hedge 85% of the identified
exposures for the first three
months, 75% for the next 15
months and up to 50% for
the following six months.
Use of forward foreign exchange
contracts, mainly to sell U.S. dollars
and buy Canadian dollars and pounds
sterling.
Hedge 100% of the identified
exposures at the time of
order intake.
Hedge 85% of the identified
exposures for the first 18
months and up to 75% for
the following six months.
Hedge 100% of the identified
exposure unless the
exposure is recognized as
an economic hedge of an
exposure arising from the
translation of financial
statements in foreign
currencies to the U.S. dollar.
Hedge 100% of the identified
exposures affecting our
results.
Use of forward foreign exchange
contracts, mainly to sell or purchase
Canadian dollars, euros, U.S. dollars,
Swiss francs, Swedish kronor and other
Western European currencies.
Use of forward foreign exchange
contracts mainly to sell U.S. dollars and
buy Canadian dollars.
Use of cross currency interest-rate
swaps and forward foreign exchange
contracts mainly to sell U.S. dollars and
buy euros and Canadian dollars.
Asset/liability management techniques.
Designation of long-term debt as
hedges of our net investments in
foreign operations with non-U.S. dollar
functional currencies.
(1) Deviations from the policy are allowed, subject to pre-authorization and maximum pre-determined risk limits.
16 BOMBARDIER INC. FINANCIAL REPORT – FISCAL YEAR ENDED DECEMBER 31, 2013
BA
The hedged portion of BA’s significant foreign currency denominated costs for the 12-month periods ending
December 31, 2014 and 2015 was as follows as at December 31, 2013:
For the 12 month periods ending December 31
Expected costs denominated in foreign currency
Hedged portion of expected costs denominated in
foreign currency
Weighted-average hedge rates – foreign currency/USD
Canadian dollars
2015
$3,195
2014
$2,916
Pounds sterling
2015
£367
2014
£344
81%
0.98
58%
0.95
76%
1.56
51%
1.56
Sensitivity analysis
A U.S. one-cent change in the value of the Canadian dollar
compared to the U.S. dollar would impact BA’s expected
costs for the 12-month period ending December 31, 2014 by
approximately $29 million before giving effect to forward
foreign exchange contracts ($6 million impact after giving
effect to such contracts).
A U.S. one-cent change in the value of the pound sterling
compared to the U.S. dollar would impact BA’s expected
costs for the 12-month period ending December 31, 2014 by
approximately $3 million before giving effect to forward
foreign exchange contracts ($1 million impact after giving
effect to such contracts).
EVOLUTION OF FOREIGN EXCHANGE RATES
(as at)
CAD/USD
GBP/USD
Euro/USD
1.60
1.39
0.94
1.60
1.37
1.00
1.55
1.29
0.98
1.62
1.32
1.00
1.65
1.38
0.94
Jan. 31
2011
Jan. 31
2010
Dec. 31
2011
The CAD/USD exchange rate has since decreased notably,
to 0.91 as at February 11, 2014
Dec. 31
2012
Dec. 31
2013
BT and Corporate Office
BT’s foreign currency exposure arising from its long-term
contracts spreads over periods extending over many years. Such exposures are generally entirely hedged at the
time of order intake, contract-by-contract, for a period that is often shorter than the maturity of the cash flow
exposure. Upon maturity of the hedges, BT enters into new hedges in a rollover strategy, for periods up to the
maturity of the cash flow exposure. As such, BT’s results of operations are not significantly exposed to gains and
losses from transactions in foreign currencies, but remain exposed to translation and cash flow risks on a
temporary basis. However, on a cumulative basis, cash outflows or inflows upon rollover of these hedges are
offset by cash inflows or outflows in opposite directions when the cash flow exposure materializes.
Corporate Office’s identified cash flow exposures are not significant and mainly arise from expenses denominated
in Canadian dollars. Corporate Office’s balance sheet exposure arises mainly from investments in foreign
operations and long-term debt. Despite our risk mitigation strategies, the impact of foreign currency fluctuations
on equity can be significant given the size of our investments in foreign operations with non-U.S. dollar functional
currencies, mainly the euro.
Sensitivity analysis
For our investments in foreign operations exposed to foreign currency movements, a 1% fluctuation of the
relevant currencies as at December 31, 2013 would have impacted equity, before the effect of income taxes, by
$16 million before giving effect to the related hedging items ($11 million after giving effect to the related hedging
items).
BOMBARDIER INC. FINANCIAL REPORT – FISCAL YEAR ENDED DECEMBER 31, 2013 - OVERVIEW 17
Exposure to credit risk
The effective monitoring and controlling of credit risk is a key component of our risk management activities. Credit
risk is monitored on an ongoing basis using different systems and methodologies depending on the underlying
exposure.
Credit risk management
Owner
Key risks
Risk mitigation measures initiated by management
Corporate
Office
Through our normal
treasury activities, we are
exposed to credit risk on
our derivative financial
instruments and on our
investing instruments.
Credit risks arising from our treasury activities are managed by a central
treasury function in accordance with our Corporate Foreign Exchange Risk
Management Policy and our Corporate Investment Management Policy. The
objective of these policies is to minimize our exposure to credit risk from our
treasury activities by ensuring that we transact strictly with investment-grade
financial institutions and money market funds, based on pre-established
consolidated counterparty risk limits per financial institution and fund.
BA and BT We are exposed to credit
risk through our trade
receivables arising from
normal commercial
activities and lending
activities, related primarily
to aircraft loans and lease
receivables provided to
BA customers in
connection with the sale of
commercial aircraft.
Credit risks arising from normal commercial activities and lending activities are
managed and controlled by BA and BT, in accordance with the Corporate
Office policy. Customer credit ratings and credit limits are analyzed and
established by internal credit specialists, based on inputs from external rating
agencies, recognized rating methods and our experience with the customers.
The credit risk and credit limits are dynamically reviewed based on fluctuations
in the customers’ financial results and payment behaviour. These customer
credit ratings and credit limits are critical inputs in determining the conditions
under which credit or financing is extended to customers, including obtaining
collateral to reduce our exposure to losses. Specific governance is in place to
ensure that credit risk arising from large transactions are analyzed and
approved by the appropriate level of management before financing or credit
support is offered to the customer.
BA
In connection with the sale
of certain of our products,
mainly commercial
aircraft, we may provide
credit guarantees in the
form of lease and loan
payment guarantees.
Substantially all financial
support involving potential
credit risk lies with
regional airline customers.
Credit guarantees provide support through contractually limited payments to
the guaranteed party to mitigate default-related losses. Credit guarantees are
usually triggered if customers do not perform during the term of the financing
under the relevant financing arrangements. In the event of default, we usually
act as agent for the guaranteed parties for the repossession, refurbishment
and re-marketing of the underlying assets.
Our exposure arising from credit guarantees is partially mitigated by the net
benefit expected from the estimated value of aircraft and other assets
available to mitigate our exposure under these guarantees. In addition, our
lease subsidy liabilities would be extinguished in the event of credit default by
certain customers.
Exposure to liquidity risk
The management of exposure to liquidity risk requires a constant monitoring of expected cash inflows and
outflows, which is achieved through maintenance of detailed forecasts of our cash flows and liquidity position, as
well as long-term operating and strategic plans, to ensure adequacy and efficient use of cash resources. Liquidity
adequacy is continually monitored, taking into consideration historical volatility, the economic environment,
seasonal needs, the maturity profile of indebtedness, access to capital markets, the level of customer advances,
working capital requirements, the funding of product developments and our other financial commitments. We also
monitor any financing opportunities to optimize our capital structure and maintain appropriate financial flexibility.
Exposure to interest rate risk
Our future cash flows are exposed to fluctuations from changing interest rates, arising mainly from assets and
liabilities at variable interest rates, including fixed-rate long-term debt synthetically converted to variable interest
rates. From time to time, we may also be exposed to changes in interest rates for certain financing commitments,
when a fixed financing rate has been guaranteed to a customer. For these items, cash flows could be impacted by
a change in benchmark rates such as Libor, Euribor or Banker’s Acceptance. The Corporate Office central
treasury function manages these exposures as part of our overall risk management policy.
18 BOMBARDIER INC. FINANCIAL REPORT – FISCAL YEAR ENDED DECEMBER 31, 2013
We are also exposed to gains and losses on some of our assets and liabilities as a result of changes in interest
rate, principally on financial instruments carried at fair value and on credit and residual value guarantees. The
financial instruments carried at fair value include certain aircraft loans and lease receivables, investments in
securities, investments in financing structures, lease subsidies and derivative financial instruments.
Sensitivity analysis
Assuming a 100-basis point increase in interest rates impacting the measurement of financial instruments carried
at fair value and credit and residual value guarantees, but excluding net retirement benefit liabilities, EBT for fiscal
year 2013 would have been negatively impacted by $33 million.
CONSOLIDATED RESULTS OF OPERATIONS
The results of operations and cash flows for the fourth quarter are not necessarily indicative of the results of
operations and cash flows for the full fiscal year. In general, the fourth quarter is the strongest in terms of
revenues, profitability and cash flows.
Results of operations
Revenues
Cost of sales
Gross margin
SG&A
R&D
Share of income of joint ventures and associates
Other expense (income)
EBIT before special items(1)
Special items(2)
EBIT
Financing expense
Financing income
EBT
Income taxes
Net income (loss)
Attributable to
Equity holders of Bombardier Inc.
NCI
EPS (in dollars)
Basic and diluted
Non-GAAP financial measures(1)
Fourth quarters
ended December 31
2013
$
$
$
$
$
5,324
4,698
626
351
83
(17)
23
186
1
185
62
(17)
140
43
97
95
2
0.05
$
$
$
$
$
2012
restated (3)
4,625
4,052
573
358
103
(61)
9
164
163
1
68
(19)
(48)
(44)
(4)
(6)
2
(0.01)
Fiscal years
ended December 31
2013
$ 18,151
15,658
2,493
1,417
293
(119)
9
893
(30)
923
271
(119)
771
199
572
$
$
$
$
564
8
0.31
2012
restated (3)
$ 16,414
14,053
2,361
1,442
299
(153)
(33)
806
140
666
295
(165)
536
66
470
$
$
$
$
460
10
0.25
Fourth quarters
ended December 31
2013
2012
restated (3)
108
271
181
0.10
2013
Fiscal years
ended December 31
2012
restated (3)
1,030
1,170
671
0.36
EBITDA
EBITDA before special items
Adjusted net income
Adjusted EPS
(1) Refer to the Non-GAAP financial measures section for definitions of these metrics and reconciliations to the most comparable IFRS
1,314
1,284
608
0.33
291
292
129
0.07
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
measures.
(2) Refer to Analysis of results sections in BA and BT for details.
(3) Refer to the Accounting and reporting developments section in Other for detail regarding restatements of prior period figures.
BOMBARDIER INC. FINANCIAL REPORT – FISCAL YEAR ENDED DECEMBER 31, 2013 - OVERVIEW 19
Revenues, EBIT margin and EBIT margin before special items
Fourth quarters
ended December 31
2013
2012
restated (2)
Fiscal years
ended December 31
2012
restated (2)
2013
$
$
$
2,873
2,451
5,324
Revenues
BA
BT
Consolidated
EBIT margin
BA
BT
Consolidated
EBIT margin before special items(1)
BA
BT
Consolidated
(1) Refer to the Non-GAAP financial measures section for definitions of these metrics and reconciliations to the most comparable IFRS
$
9,385
$
8,766
$ 18,151
3.2%
(4.1%)
0.0%
2,597
2,028
4,625
3.2%
3.9%
3.5%
3.3%
3.8%
3.5%
3.2%
3.8%
3.5%
4.1%
5.8%
4.9%
4.5%
5.8%
5.1%
$
$
$
$
8,628
$
7,786
$ 16,414
4.5%
3.5%
4.1%
4.3%
5.6%
4.9%
measures.
(2) Refer to the Accounting and reporting developments section in Other for detail regarding restatements of prior period figures.
A detailed analysis of EBIT is provided in the Analysis of results sections in BA and BT.
Analysis of consolidated results
Net financing expense
Net financing expense amounted to $45 million and $152 million for the fourth quarter and fiscal year ended
December 31, 2013, compared to $49 million and $130 million for the corresponding periods last fiscal year.
The $4-million decrease for the fourth quarter is mainly due to:
lower accretion on retirement benefit obligations ($8 million); and
· higher borrowing costs capitalized to PP&E and intangible assets ($23 million)
·
· higher favourable impact related to changes in discount rates for provisions ($6 million).
Partially offset by:
· higher interest expense on long-term debt, after effect of hedges, as a result of issuance of $2 billion in
unsecured Senior Notes in January 2013 ($20 million); and
· a loss on certain financial instruments ($13 million).
The $22-million increase for the fiscal year is mainly due to:
· higher interest expense on long-term debt, after effect of hedges, as a result of issuance of $2 billion in
unsecured Senior Notes in January 2013 ($90 million);
lower net gain on certain financial instruments ($45 million); and
lower interest income from investment in securities ($22 million).
·
·
Partially offset by:
· higher borrowing costs capitalized to PP&E and intangible assets ($93 million);
·
· higher favourable impact related to changes in discount rates for provisions ($21 million).
lower accretion on retirement benefit obligations ($27 million); and
20 BOMBARDIER INC. FINANCIAL REPORT – FISCAL YEAR ENDED DECEMBER 31, 2013
Income taxes
The effective income tax rate for the fourth quarter and fiscal
year ended December 31, 2013 were 30.7% and 25.8%,
respectively, compared to the statutory income tax rate in
Canada of 26.8%. For the fourth quarter period, the higher
effective tax rate is mainly due to the write down of deferred
income tax assets and adjustments to tax provisions, partially
offset by the net recognition of income tax benefits. For the
fiscal year ended December 31, 2013, the lower effective tax
rate is mainly due to the positive impact of income tax rate
differential of foreign subsidiaries and other investees,
permanent differences and the net recognition of income tax
benefits, partially offset by the write down of deferred income
tax assets and adjustments to tax provisions.
GLOBAL EFFECTIVE INCOME TAX RATES
(for fiscal years ended)
28.4%
30.0%
24.5%
Statutory income tax rate in
Canada
Effective income tax rate
26.8%
26.8%
25.8%
13.9%
12.3%
Jan. 31
2011
Dec. 31
2011
Dec. 31
2012
Dec. 31
2013
The effective income tax rate for fiscal year December 31,
2012 was 12.3%, including an income tax recovery for the fourth quarter. Compared to the statutory income tax
rate in Canada of 26.8%, the lower effective income tax rate is mainly due to the positive impact of the net
recognition of previously unrecognized income tax benefits and permanent differences, partially offset by the write
down of deferred income tax assets.
LIQUIDITY AND CAPITAL RESOURCES
Cash flows from operating activities in line with last year
Reconciliation of segmented free cash flow to cash flows from operating activities
Fourth quarters
2013
ended December 31
2012
restated (2)
Fiscal years
ended December 31
2012
restated (2)
2013
Segmented free cash flow
BA
BT
Segmented free cash flow (usage)
Net income taxes and net interest paid(1)
Free cash flow (usage)
Add back: Net additions to PP&E and
intangible assets
Cash flows from operating activities
(1) Not allocated to reportable segments.
(2) Refer to the Accounting and reporting developments section in Other for detail regarding restatements of prior period figures.
628
1,482
2,287
1,380
627
1,398
$
$
$
$
$
87
$
$
$
767
854
(83)
771
277
675
952
(98)
854
(1,239)
668
(571)
(336)
(907)
(867)
488
(379)
(257)
(636)
2,074
1,438
BOMBARDIER INC. FINANCIAL REPORT – FISCAL YEAR ENDED DECEMBER 31, 2013 - OVERVIEW 21
Variation in cash and cash equivalents
Balance at the beginning of period/year
Net proceeds from issuance of long-term debt
Free cash flow (usage)
Dividends paid
Net proceeds from disposal of a business
Net variation in AFS investments in securities
Repayments of long-term debt
Effect of exchange rate changes on cash
and cash equivalents
Other
Balance at the end of period/year
(1) Restated
Available short-term capital resources
$
$
Cash and cash equivalents
Available revolving credit facility
Available short-term capital resources
Our available short-term capital resources include cash
and cash equivalents and the amounts available under
our two unsecured revolving credit facilities. These
facilities are available for cash drawings for the general
needs of the Corporation. Under these facilities, we
must meet the same financial covenants as for our BA
and BT letter of credit facilities. Refer to the Other
credit facilities section for details on these financial
covenants.
In January 2013, we increased our financial flexibility
by issuing, at par, an aggregate of $2.0 billion of new
unsecured Senior Notes, comprised of $750 million of
4.25% Senior Notes due on January 15, 2016 and
$1.25 billion of 6.125% Senior Notes due on
January 15, 2023. In August 2013, we entered into
interest-rate swap agreements to convert the interest
rate of the $1.25-billion Senior Notes from fixed to
variable 3-month Libor + 3.4956.
2,590
2013
$
Fourth quarters
ended December 31
2012
restated
1,789
-
854
(52)
-
-
(14)
3
771
(48)
83
52
(15)
$
$
2013
Fiscal years
ended December 31
2012
restated
2,892
509
(636)
(249)
-
133
(186)
2,557 (1)
1,983
(907)
(196)
83
(70)
(51)
33
(72)
3,397
21
(41)
2,557
$
(2)
-
3,397
$
45
49
2,557
$
December 31, 2013
$
$
3,397
1,440
4,837
As at
December 31, 2012
restated
2,557
1,410
3,967
$
$
AVAILABLE SHORT-TERM CAPITAL RESOURCES(1)
(as at; in billions of dollars)
Cash and cash equivalents
Revolving credit facility
4.1
0.5
3.6
3.6
0.7
2.9
4.0
1.4
2.6
4.8
1.4
3.4
Jan. 31
2011
Dec. 31
2011
Dec. 31
2012
Dec. 31
2013
(1) Comparative figures have been restated for changes in accounting
policies and methods. Refer to the Accounting and reporting
developments section in Other for details.
Also, in August 2013, we entered into interest-rate swap agreements to convert the interest rate of our
$500-million 5.75% Senior Notes, issued in 2012, from fixed to variable 3-month Libor + 3.3657.
In May 2013, the maturity date of our $750-million unsecured revolving credit facility was extended by one year to
June 2016.
We consider that our expected cash flows from operating activities, combined with our available short-term capital
resources of $4.8 billion as at December 31, 2013, will enable the development of new products to enhance our
competitiveness and support our growth; will allow the payment of dividends, if and when declared by the Board
of Directors; and will enable us to meet all other expected financial requirements in the foreseeable future.
22 BOMBARDIER INC. FINANCIAL REPORT – FISCAL YEAR ENDED DECEMBER 31, 2013
Expected timing of future liquidity requirements
December 31, 2013
Long-term debt(1)
Interest payments
Operating lease obligations
Purchase obligations(2)
Trade and other payables
Other financial liabilities
Derivative financial liabilities
Total
6,973
3,008
1,078
11,900
4,089
1,558
408
29,014
$
$
$
Less than
1 year
213
442
161
8,026
4,070
491
256
13,659
1 to 3 years
1,952
$
856
230
3,315
10
104
(11)
6,456
$
$
3 to 5 years
678
617
183
352
1
213
41
2,085
$
Thereafter
4,130
$
1,093
504
207
8
750
122
6,814
$
$
(1) Includes principal repayments only. Debt maturing between one to three years includes the $750-million and €785-million Senior Notes due
in January and November 2016, respectively.
(2) Purchase obligations represent contractual agreements to purchase goods or services in the normal course of business that are legally
binding and specify all significant terms, including fixed or minimum quantities to be purchased; fixed, minimum, variable or indexed price
provisions; and the appropriate timing of the transaction. These agreements are generally cancellable with a substantial penalty. Purchase
obligations are generally matched with revenues over the normal course of operations.
The table above presents the expected timing of contractual liquidity requirements. Other payments contingent on
future events, such as payments in connection with credit and residual value guarantees related to the sale of
aircraft and product warranties have not been included in the above table because of the uncertainty on the
amount and timing of payments arising from their contingent nature. In addition, our required pension
contributions have not been reflected in this table, as such contributions depend on periodic actuarial valuations
for funding purposes. In 2014, our contributions to retirement benefit plans are estimated at $518 million (see the
Retirement benefits section for more details). The amounts presented in the table represent the undiscounted
payments and do not give effect to the related hedging instruments, if applicable.
OTHER CREDIT FACILITIES
Letter of credit facilities
Letter of credit facilities are only available for the issuance of letters of credit. As these facilities are unfunded
commitments from banks, they typically provide better pricing for the Corporation as compared to credit facilities
that are available for cash drawings. Letters of credit are generally issued in support of our performance
obligations and advance payments received from customers. As at December 31, 2013, we have $6.0 billion
committed under the BA, BT and our PSG facilities ($6.0 billion as at December 31, 2012). Letters of credit issued
under these facilities amounted to $4.9 billion as at December 31, 2013 ($4.1 billion as at December 31, 2012). In
April and May 2013, respectively, we extended the availability periods of our BT and BA letter of credit facilities by
one year each, to May 2016 and June 2016, respectively.
In June 2013, the BT letter of credit facility committed amount increased from €3.4 billion ($4.5 billion) to
€3.5 billion ($4.8 billion). Also in June 2013, the availability period of the PSG facility was extended by one year to
June 2014 and the amount committed reduced from $900 million to $600 million, due to lower utilization levels.
In addition to the outstanding letters of credit mentioned above, letters of credit of $1.0 billion were outstanding
under various bilateral agreements as at December 31, 2013 ($875 million as at December 31, 2012).
We also use numerous bilateral bonding facilities with insurance companies to support BT’s operations. An
amount of $2.3 billion was outstanding under such facilities as at December 31, 2013 ($2.3 billion as at
December 31, 2012).
See Note 32 – Credit facilities, to the consolidated financial statements, for additional information.
BOMBARDIER INC. FINANCIAL REPORT – FISCAL YEAR ENDED DECEMBER 31, 2013 - OVERVIEW 23
Financial covenants
Under the BA and BT letter of credit facilities and our two unsecured revolving credit facilities available for cash
drawings, we must maintain various financial covenants, which must be met on a quarterly basis. The BA
$600-million letter of credit facility and our $750-million unsecured revolving facility include financial covenants
requiring a minimum EBITDA to fixed charges ratio, a maximum net debt to EBITDA ratio and a minimum liquidity
level of $500 million at the end of each quarter, all calculated based on an adjusted consolidated basis (i.e.
excluding BT). BT’s €3.5-billion ($4.8-billion) letter of credit facility and €500-million ($690-million) unsecured
revolving facility financial covenants require a minimum liquidity level of €600 million ($827 million) at the end of
each quarter, as well as a minimum equity level and a maximum debt to EBITDA ratio, all calculated on a BT
stand-alone basis. These terms and ratios are defined in the respective agreements and do not correspond to our
global metrics or to specific terms used in the MD&A. The financial covenants under these credit facilities were all
met as at December 31, 2013 and 2012.
On balance sheet sale and leaseback facilities
In addition, BA enters into sale and leaseback facilities with third parties, under which we can sell certain
pre-owned business aircraft and lease them back for a period not greater than 24 months. We have the right to
buy the aircraft back during the term of the lease for predetermined amounts. As at December 31, 2013, we have
two committed sale and leaseback facilities with third parties for an amount of $320 million under which a total of
$138 million was outstanding as at December 31, 2013 ($295 million committed and $168 million outstanding as
at December 31, 2012).
RETIREMENT BENEFITS
Net retirement benefit liability decreases
by approximately $1 billion in 2013
Overview of our retirement benefit plans
We sponsor several Canadian and foreign retirement benefit
plans consisting of funded and unfunded pension plans, as
well as other unfunded defined benefit plans. Funded plans
are plans for which segregated plan assets are invested in
trusts. Unfunded plans are plans for which there are no
segregated plan assets, as the establishment of segregated
plan assets is generally not permitted or not in line with local
practice. Therefore unfunded plans will always be in a deficit
position.
Pension plans are categorized as DB or DC. DB plans
specify the amount of benefits an employee is to receive at
retirement, while DC plans specify how contributions are
determined. As a result, there is no deficit or surplus for DC
plans. Hybrid plans are a combination of DB and DC plans.
NET RETIREMENT BENEFIT LIABILITY(1)
(as at; in millions of dollars)
Other plans (unfunded)
Pension plans (unfunded)
Pension plans (funded)*
3,218
365
576
2,277
2,961
416
737
1,808
1,987
335
725
927
1,950
327
598
1,025
2,140
295
580
1,265
Feb. 1
2010
Jan. 31
2011
Dec. 31
2011
Dec. 31
2012
Dec. 31
2013
(1) Comparative figures have been restated for changes in
accounting policies and methods.
* Includes liability arising from minimum funding requirement
and impact of asset ceiling test.
24 BOMBARDIER INC. FINANCIAL REPORT – FISCAL YEAR ENDED DECEMBER 31, 2013
EVOLUTION OF PENSION PLAN ASSETS, FUNDED PLAN
OBLIGATIONS AND DEFICIT(1)
(as at; in billions of dollars)
EVOLUTION OF FUNDING RATIO(1)
(as at; plan assets as a percentage of funded plan obligations)
Present value of obligations of
funded plans
Deficit - Funded plans
Fair value of plan assets
10.0
8.0
6.0
4.0
2.0
0.0
95%
90%
85%
80%
75%
70%
Feb. 1
2010
Jan. 31
2011
Dec. 31
2011
Dec. 31
2012
Dec. 31
2013
Feb. 1
2010
Jan. 31
2011
Dec. 31
2011
Dec. 31
2012
Dec. 31
2013
(1) Comparative figures have been restated for changes in accounting policies and methods.
Net retirement benefit liability
The following table presents the variations in net retirement liability during the fiscal year:
Variation in net retirement benefit liability
Balance as at December 31, 2012 - restated
Changes in discount rates
Actuarial gains on pension plan assets
Employer contributions
Service costs
Net actuarial losses on defined benefit obligations
Accretion on net retirement benefit obligation
Changes in foreign exchange rates
Other
Balance as at December 31, 2013
$
$
2,961 (1)
(591)
(528)
(481)
295
254
113
(48)
12
1,987 (1)
(1) Includes retirement benefit assets of $174 million as at December 31, 2013 ($38 million as at December 31, 2012).
DECREASE IN NET RETIREMENT BENEFIT LIABILITY
(for fiscal year ended December 31, 2013; in millions of dollars)
EVOLUTION OF WEIGHTED-AVERAGE DISCOUNT RATE
(as at; used to determine the defined benefit pension obligation)
5.8%
5.3%
5.69%
5.63%
5.38%
(848)
Actual
gains on
plan
assets
(186)
Excess
contributions
over service
cost
433
Accretion
expense on
retirement
benefit
obligations
218
Other*
(591)
Change in
discount rate
assumptions
2,961
Dec. 31
2012
restated
1,987
4.8%
Dec. 31
2013
4.3%
3.8%
* Other is mainly comprised of the impact of exchange rates and
changes in actuarial assumptions
Canada
U.S.
U.K.
4.99%
4.90%
4.45%
Jan. 31
2011
Dec. 31
2011
Dec. 31
2012
Dec. 31
2013
BOMBARDIER INC. FINANCIAL REPORT – FISCAL YEAR ENDED DECEMBER 31, 2013 - OVERVIEW 25
Bombardier’s net retirement benefit liability decreased
by $974-million in 2013, due mainly to strong returns on
plan assets, increases in discount rates in Canada and
the U.S. and employer contributions in excess of
service cost. This reduction was partly offset by the use
of newer mortality tables in Canada as well as higher
inflation and lower discount rate assumptions in the
U.K.
RETIREMENT BENEFIT CONTRIBUTIONS
(for fiscal years ended; in millions of dollars)
DB contributions
DC contributions
Other contributions
482
50
13
437
52
12
497
78
15
568
87
14
518
94
14
419
The value of plan assets is highly dependent on the
pension funds’ asset performance and on the level of
contributions. The performance of the financial markets
is a key driver in determining the funds’ asset
performance as assets in the plans are composed
mostly of publicly traded equity and fixed income
securities. IFRS requires that the excess (deficit) of
actual return on plan assets compared to the estimated
return be reported as an actuarial gain or loss in other comprehensive income. The estimated return on plan
assets must be calculated using the discount rate that is used to measure the net retirement benefit liability, which
is derived using high-quality corporate bond yields. During fiscal year 2013, the actual gain on plan assets was
$848 million, of which $528 million was accounted for as an actuarial gain.
F: Forecast
*For the fiscal year ended December 31, 2011, contributions
comprise 11 months for BA plans and 12 months for BT plans.
Dec. 31
2012
Dec. 31
2013
Dec. 31
2014F
Dec. 31
2011*
Jan. 31
2011
404
467
373
410
Changes in discount rate assumptions contributed $591 million towards the reduction in net retirement benefit
liability. This reduction is explained in large part by increases in discount rates in Canada and the U.S. Refer to
the Critical accounting estimates section in Other for information on the methodology used for determining
discount rates in Canada.
DB pension contributions are estimated at $410 million for 2014. The future level of contributions will be impacted
by the evolution of market interest rates and the actual return on plan assets. DB plan contributions for 2013 of
$481 million were in excess of current service cost of $295 million, which also explains a portion of the reduction
in defined benefit liability.
In Canada and the U.S., since September 1, 2013, all new non-unionized employees join DC plans (they no
longer have the option of joining DB or hybrid plans). In the U.K., seven of nine DB plans are closed to new
members. Employees who are members of a DB or hybrid plan closed to new members continue to accrue
service in their original plan. As a result of these changes, contributions to DC plans have increased over the past
several years.
In fiscal year 2013, we made DC pension contributions totalling $87 million. These contributions are estimated at
$94 million for 2014.
Investment Policy
The investment policies are established to achieve a long-term investment return so that, in conjunction with
contributions, the plans have sufficient assets to pay for the promised benefits while maintaining a level of risk
that is acceptable given the tolerance of plan stakeholders. See below for more information about our risk
management initiatives.
The target asset allocation is determined based on expected economic and market conditions, the maturity profile
of the plans’ liabilities, the funded status of the respective plans and the plan stakeholders’ tolerance to risk.
The plans’ investment strategy is to invest broadly in fixed income and equity securities and to have a smaller
portion of the funds’ assets invested in real return asset securities (including global infrastructure and real estate
listed securities).
26 BOMBARDIER INC. FINANCIAL REPORT – FISCAL YEAR ENDED DECEMBER 31, 2013
As at December 31, 2013, the average target asset allocation was as follows:
(cid:120) 49%, 39% and 49% in fixed income securities, for Canadian, U.K. and U.S. plans, respectively;
(cid:120) 42%, 46% and 46% in equity securities, for Canadian, U.K. and U.S. plans, respectively; and
(cid:120) 9%, 15% and 5% in real return asset securities, for Canadian, U.K. and U.S. plans, respectively.
In addition, to mitigate interest rate risk, interest rate hedging overlay portfolios (comprised of long-term interest
rate swaps and long-term Gilt forwards) averaging 7% and 10% of plan assets have been implemented in 2013
for the Canadian and U.K. plans, respectively.
The plan administrators have also established dynamic de-risking strategies. As a result, asset allocation will
likely become more conservative in the future and larger interest rate hedging overlay portfolios are likely to be
established as plan funding status and market conditions continue to improve. Our Pension Asset Management
Services monitors the de-risking triggers on a daily basis to ensure timely and efficient implementation of these
strategies. We and the administrators periodically undertake asset and liability studies to determine the
appropriateness of the investment policies and de-risking strategies.
Risk management initiatives
Our pension plans are exposed to various risks, including equity, interest rate, inflation, foreign exchange, liquidity
and longevity risks. Several risk strategies and policies have been put in place to mitigate the impact these risks
could have on the funded status of DB plans and on the future level of contributions. The following is a description
of key risks together with the mitigation measures in place to address them.
Equity risk
Equity risk is the risk that results from fluctuations in equity prices. This risk is managed by maintaining
diversification of portfolios across geographies, industry sectors and investment strategies.
Interest rate risk
Interest rate risk is the risk that results from fluctuations in the fair value of plan assets and liabilities due to
movements in interest rates. This risk is managed by reducing the mismatch between the duration of plan assets
and the duration of pension obligation. This is accomplished by having a portion of the portfolio invested in
long-term bonds and interest rate hedging overlay portfolios.
Inflation risk
Inflation risk is the risk that benefits indexed to inflation increase significantly as a result of changes in inflation
rates. To manage this risk, we have capped the benefit indexation in certain plans and invested a portion of plan
assets in real return asset securities and real return bonds.
Foreign exchange risk
Currency risk exposure arises from fluctuations in the fair value of plan assets denominated in a currency other
than the currency of the plan liabilities. Currency risk is managed with foreign currency hedging strategies as per
plan investment policies.
Liquidity risk
Liquidity risk is the risk stemming from holding assets which cannot be readily converted to cash when needed for
the payment of benefits or to rebalance the portfolios. Liquidity risk is managed through investment in government
bonds and equity futures and by having no investments in private placements or hedge funds.
Longevity risk
Longevity risk is the risk that increasing life expectancy results in longer-than-expected benefit payments. This
risk is mitigated by using the most recent mortality tables to set the level of contributions.
BOMBARDIER INC. FINANCIAL REPORT – FISCAL YEAR ENDED DECEMBER 31, 2013 - OVERVIEW 27
Retirement benefit cost
The retirement benefit cost for fiscal year 2014 for DB plans is estimated at $377 million, of which $298 million
relates to EBIT expense or capitalized cost and $79 million relates to net financing expense, compared to
$409 million for fiscal year 2013. This decrease is mainly due to the positive impact of increases in discount rate
assumptions and to the return on plan assets in 2013.
DB plans
DC plans
Total retirement benefit cost
Related to
Funded DB plans
Unfunded DB plans
DC plans
Recorded as follows
EBIT expense or capitalized cost
Financing expense
2013
Pension
benefits
Other
benefits
Total
Pension
benefits
Other
benefits
380 $
87
467 $
335
45 $
87
29 $
-
29 $
409 $
414 $
87
78
496 $
492 $
n/a $
29 $
n/a $
335 $
74 $
87 $
370
44 $
78
37 $
-
37 $
n/a $
37 $
n/a $
2012
restated
(1)
Total
451
78
529
370
81
78
371 $
96 $
12 $
17 $
383 $
113 $
369 $
123 $
20 $
17 $
389
140
$
$
$
$
$
$
$
n/a: Not applicable
(1) Refer to the Accounting and reporting developments section in Other for details regarding the adoption of amended IAS 19, Employee
benefits, and the restatements for fiscal year 2012.
Sensitivity analysis
The net retirement benefit liability is highly dependent on discount rates, expected inflation rates, expected rates of
compensation increase, life expectancy assumptions and actual return on plan assets. The discount rates
represent the market rate for high-quality corporate fixed-income investments at the end of the reporting period
consistent with the currency and estimated term of the benefit obligations. As a result, discount rates change
based on market conditions.
A 0.25 percentage point increase in one of the following weighted-average actuarial assumptions would have the
following effects, all other actuarial assumptions remaining unchanged:
Increase (decrease)
Discount rate
Inflation rate
Rate of compensation increase
Retirement benefit cost
for fiscal year
2014
(Forecast)
(35)
9
9
$
$
$
Net retirement benefit
liability as at
December 31, 2013
$
$
$
(418)
131
61
A one-year increase in life expectancy for all DB plan beneficiaries would impact plans in major countries as
follows:
Increase
Canada
U.K.
U.S.
Retirement benefit cost
for fiscal year
2014
(Forecast)
10
6
2
$
$
$
Net retirement benefit
liability as at
December 31, 2013
$
$
$
114
101
26
Details regarding assumptions used are provided in Note 22 – Retirement benefits, to the consolidated financial
statements.
28 BOMBARDIER INC. FINANCIAL REPORT – FISCAL YEAR ENDED DECEMBER 31, 2013
CAPITAL STRUCTURE
We analyze our capital structure using global metrics, which are based on a broad economic view of the
Corporation. We believe that these metrics should be used to assess the creditworthiness of the Corporation. We
manage and monitor our global metrics so as to achieve an investment-grade profile over the medium to long
term.
Reconciliations of these measures to the most comparable IFRS financial measures are in the Non-GAAP
financial measures section. The adjusted EBIT and adjusted EBITDA exclude special items, such as restructuring
charges, significant impairment charges and reversals, as well as other significant unusual items, which we
believe are not representative of our core performance.
Our objectives with regard to our global metrics are as follows:
(cid:120) adjusted EBIT to adjusted interest ratio greater than 5.0; and
(cid:120) adjusted debt to adjusted EBITDA ratio lower than 2.5.
Global metrics(1)
For the fiscal years ended and as at
December 31
2013
December 31
2012
restated
Explanation of significant variances
Interest coverage ratio
Financial leverage ratio
Adjusted EBIT
Adjusted interest
Adjusted EBIT to adjusted interest ratio
Deteriorated, mainly due to interest
payments on the $2 billion long-term
debt issued in January 2013, partially
offset by higher adjusted EBIT.
Deteriorated, mainly due to the
issuance of $2 billion of long-term
debt in January 2013 and higher
operating lease obligations, partially
offset by higher adjusted EBITDA.
(1) Refer to the Non-GAAP financial measures section hereafter for definitions and reconciliations to the most comparable IFRS measures.
Adjusted debt
Adjusted EBITDA
Adjusted debt to adjusted EBITDA ratio
5,669
1,340
4.2
7,912
1,454
5.4
916
288
3.2
967
346
2.8
$
$
$
$
$
$
$
$
ADJUSTED DEBT(1)
(as at; in millions of dollars)
ADJUSTED EBIT TO ADJUSTED
INTEREST RATIO(1)
(for fiscal years ended)
ADJUSTED DEBT TO ADJUSTED EBITDA
RATIO(1)
(as at)
Actual
Target ratio (greater than 5.0)
Actual
Target ratio (lower than 2.5)
Sale and leaseback obligations
Operating lease obligations
Long-term debt, net
7,912
864
138
5.4
4.2
5,265
479
216
5,259
473
5,669
163
539
168
4,570
4,623
4,962
6,910
5.0
4.5
3.1
3.3
3.2
2.8
Jan. 31
2011
Dec. 31
2011
Dec. 31
2012
Dec. 31
2013
Jan. 31
2011
Dec. 31
2011
Dec. 31
2012
Dec. 31
2013
Jan. 31
2011
Dec. 31
2011
Dec. 31
2012
Dec. 31
2013
(1) Comparative figures have been restated. Refer to the Accounting and reporting developments section in Other for details.
These global metrics do not represent the calculations required for bank covenants. They represent our key
business metrics and as such are used to analyze our capital structure. For compliance purposes, we regularly
monitor our covenants to ensure that they are all met.
BOMBARDIER INC. FINANCIAL REPORT – FISCAL YEAR ENDED DECEMBER 31, 2013 - OVERVIEW 29
In addition to the above global metrics, we separately monitor our net retirement benefit liability which amounted
to $2.0 billion as at December 31, 2013 ($3.0 billion as at December 31, 2012). The measurement of this liability
is dependent on numerous key long-term assumptions such as those regarding future compensation increases,
inflation rates, mortality rates and current discount rates. In recent years, this liability has been particularly volatile
due to changes in discount rates. Such volatility is exacerbated by the long-term nature of the obligation. We
closely monitor the impact of the net retirement benefit liability on our future cash flows and have introduced
significant risk mitigation initiatives in recent years to gradually reduce key risks associated with our retirement
benefit plans. (See the Retirement benefits section for further details.)
NON-GAAP FINANCIAL MEASURES
This MD&A is based on reported earnings in accordance with IFRS and on the following non-GAAP financial
measures:
Non-GAAP financial measures
EBITDA
Earnings before financing expense, financing income, income taxes, amortization and
impairment charges on PP&E and intangible assets.
EBIT before special
items
EBIT excluding the impact of restructuring charges, significant impairment charges and
reversals, as well as other significant unusual items.
EBITDA before special
items
Adjusted net income
EBIT before special items, amortization and impairment charges on PP&E and intangible assets.
Net income excluding special items, accretion on net retirement benefit obligations, certain net
gains and losses arising from changes in measurement of provisions and of financial
instruments carried at FVTP&L and the related tax impacts of these items.
Adjusted EPS
EPS calculated based on adjusted net income attributable to equity holders of Bombardier Inc.,
using the treasury stock method, giving effect to the exercise of all dilutive elements.
Free cash flow
Cash flows from operating activities less net additions to PP&E and intangible assets.
Adjusted debt
Adjusted EBIT
Long-term debt as presented in our consolidated statements of financial position adjusted for the
fair value of derivatives (or settled derivatives) designated in related hedge relationships plus
sale and leaseback obligations and the net present value of operating lease obligations.
EBIT before special items plus interest adjustment for operating leases and interest received (as
per the supplemental information provided in the consolidated statements of cash flows,
adjusted, if needed, for the settlement of fair value hedge derivatives before their contractual
maturity dates).
Adjusted EBITDA
Adjusted interest
Adjusted EBIT plus amortization and impairment charges on PP&E and intangible assets, and
amortization adjustment for operating leases.
Interest paid, as per the supplemental information provided in the consolidated statements of
cash flows, plus accretion expense on sale and leaseback obligations and interest adjustment
for operating leases.
We believe that providing certain non-GAAP performance measures, in addition to IFRS measures, provides
users of our consolidated financial statements with enhanced understanding of our results and related trends and
increases transparency and clarity into the core results of the business. For these reasons a significant number of
users of our MD&A analyze our results based on these performance measures. EBIT before special items,
EBITDA before special items, adjusted net income and adjusted EPS exclude items that do not reflect, in our
opinion, our core performance and help users of our MD&A to better analyze our results, enabling better
comparability of our results from one period to another and with peers.
Non-GAAP measures are mainly derived from the consolidated financial statements, but do not have
standardized meanings prescribed by IFRS. The exclusion of certain items from non-GAAP performance
measures does not imply that these items are necessarily non-recurring. From time to time, we may exclude
additional items if we believe doing so would result in a more transparent and comparable disclosure. Other
entities in our industry may define the above measures differently than we do. In those cases, it may be difficult to
use similarly named non-GAAP measures of other entities to compare the performance of those entities to our
performance.
30 BOMBARDIER INC. FINANCIAL REPORT – FISCAL YEAR ENDED DECEMBER 31, 2013
Reconciliations to the most comparable IFRS financial measures are provided in the tables hereafter, except for
the following reconciliations:
(cid:120) EBIT before special items to EBIT – see the Results of operations table in BA and the Consolidated
(cid:120)
results of operations section; and
free cash flow usage to cash flows from operating activities – see the respective Free cash flow usage
tables in BA and in BT and the Reconciliation of segmented free cash flow usage to cash flow from
operating activities table in the Liquidity and capital resources section.
Reconciliation of EBITDA before special items and EBITDA to EBIT
Fourth quarters
ended December 31
2013
2012
restated
1
107
108
185
106
291
$
$
2013
Fiscal years
ended December 31
2012
restated
666
364
1,030
923
391
1,314
$
-
119
-
119
EBIT
Amortization
EBITDA
Special items
Restructuring charges(1) (3)
Gains on resolution of litigations in connection with
capital tax(2)(4)
$
-
24
(23)
-
-
292
Inventory write-down(2)(5)
Gain on disposal of business(2)(6)
Loss related to flooding in New Jersey, U.S.(1)
Foreign exchange hedging loss(1)
EBITDA before special items
(1) Relates to BT.
(2) Relates to BA.
(3) Restructuring charges for the fourth quarter and fiscal year ended December 31, 2012 include impairment charges on PP&E of $9 million.
(4) Represents a gain upon the successful resolution of a litigation of $43 million in connection with part IV of the Quebec Income Tax Act, the
Tax on Capital, of which $12 million represents the interest portion of the gain for fiscal year 2013 ($40 million in connection with Part I.3 of
the Canadian Income Tax Act, the Tax on Large Corporations, of which $17 million represents the interest portion of the gain for fiscal year
2012).
$
$
$
$
(5) Represents an inventory write-down related to the prolonged production pause of the Learjet 60 program.
(6) Relates to the sale of the main assets and related liabilities of our Flexjet activities.
-
-
-
19
25
271
(31)
24
(23)
-
-
1,284
(23)
-
-
19
25
1,170
Reconciliation of adjusted net income to net income
2013
(in millions of dollars) (per share)
For the fourth quarters ended December 31
2012
Net income
Adjustments to EBIT related to special items
Adjustments to net financing expense related to:
Accretion on net retirement benefit obligations
Net change in provisions arising from changes in interest
rates and net loss (gain) on certain financial instruments
Tax impact of special and other adjusting items
Adjusted net income
$
$
97
1 $
-
28
0.02
7
(4)
129
-
-
(in millions of dollars)
(per share)
restated
$
(4)
163 $ 0.09
36
0.02
(5)
(9)
181
$
-
-
Reconciliation of adjusted EPS to diluted EPS (in dollars)
Diluted EPS
Impact of adjusting items
Adjusted EPS
$
$
0.05
0.02
0.07
$ (0.01)
0.11
$ 0.10
BOMBARDIER INC. FINANCIAL REPORT – FISCAL YEAR ENDED DECEMBER 31, 2013 - OVERVIEW 31
Reconciliation of adjusted net income to net income
2013
(in millions of dollars) (per share)
For the fiscal years ended December 31
2012
(in millions of dollars)
(per share)
restated
Net income
Adjustments to EBIT related to special items
Adjustments to net financing expense related to:
Accretion on net retirement benefit obligations
Net change in provisions arising from changes in interest
rates and net loss (gain) on certain financial instruments
Interest portion of gains related to special items
Tax impact of special and other adjusting items
Adjusted net income
$
$
572
(30) $ (0.02)
$
470
140 $ 0.08
113
0.06
140
0.08
(22)
(12)
(13)
608
(0.01)
-
(0.01)
(46)
(17)
(16)
671
$
(0.03)
(0.01)
(0.01)
Reconciliation of adjusted EPS to diluted EPS (in dollars)
Diluted EPS
Impact of special and other adjusting items
Adjusted EPS
$
$
0.31
0.02
0.33
$ 0.25
0.11
$ 0.36
Reconciliation of adjusted debt to long-term debt
Long-term debt
December 31, 2013
$
7,203
As at
December 31, 2012
restated
5,405
$
Adjustment for the fair value of derivatives designated
(or settled derivatives) in related hedge relationships
(443)
4,962
Long-term debt, net
168
Sale and leaseback obligations
Operating lease obligations(1)
539
Adjusted debt
5,669
(1) Discounted using the average five-year U.S. Treasury Notes plus the average credit spread, given our credit rating, for the corresponding
(293)
6,910
138
864
7,912
$
$
period.
Reconciliation of adjusted EBITDA and adjusted EBIT to EBIT
Fiscal years
2012
restated
666
EBIT
Special items(1)
140
86
Interest received
Interest adjustment for operating leases(2)
24
Adjusted EBIT
916
Amortization adjustment for operating leases(3)
60
364
Amortization
Adjusted EBITDA
1,340
(1) Refer to Reconciliation of EBITDA before special items and EBITDA to EBIT above for details on these special items. For fiscal year 2012,
923
(30)
36
38
967
96
391
1,454
2013
$
$
$
$
special items include impairment charges on PP&E of $9 million.
(2) Represents the interest cost of a debt equivalent to operating lease obligations included in adjusted debt, bearing interest at the average
five-year U.S. swap rate plus the average credit default swap spread for the related period, given our credit rating.
(3) Represents a straight-line amortization of the amount included in adjusted debt for operating leases, based on a nine-year amortization
period.
32 BOMBARDIER INC. FINANCIAL REPORT – FISCAL YEAR ENDED DECEMBER 31, 2013
Reconciliation of adjusted interest to interest paid
2013
Fiscal years
2012
restated
259
Interest paid
5
Accretion expense on sale and leaseback obligations
Interest adjustment for operating leases(1)
24
Adjusted interest
288
(1) Represents the interest cost of a debt equivalent to operating lease obligations included in adjusted debt, bearing interest at the average
303
5
38
346
$
$
$
$
five-year U.S. swap rate plus the average credit default swap spread for the related period, given our credit rating.
BOMBARDIER INC. FINANCIAL REPORT – FISCAL YEAR ENDED DECEMBER 31, 2013 - OVERVIEW 33
CONSOLIDATED FINANCIAL POSITION
December 31 December 31
Increase (decrease)
Variance
Foreign excluding
Cash and cash
equivalents
Trade and other
receivables
Gross inventories
2013
2012 exchange
foreign Explanation of significant variances other than
restated
impact exchange foreign exchange
$
3,397 $
2,557 $
(2) $
842 See the Variation in cash and cash equivalents
table and Free cash flow in BA and BT for details
1,492
1,311
15
166 $
112 Higher level in BT
54 Higher level in BA
13,659
11,569
139
1,951 $ 1,558 Increase following ramp-up in production
related to BT contracts ahead of deliveries
393 Increase in aerospace program work-in-
process inventories mainly in the large
business aircraft category and in regional jets
and an increase in finished products, mainly
due to business aircraft not associated with
a firm order
(7,777)
(5,792)
(110)
2,095 Higher advances and progress billings on existing
contracts and new orders
Advances and
progress billings
related to long-term
contracts
Advances on
aerospace programs
PP&E
Aerospace program
tooling
Goodwill
Deferred income tax
asset
Investments in joint
ventures & associates
Other financial assets
Other assets
(4,916)
(4,653)
2,066
6,606
2,381
1,231
1,933
4,770
2,316
1,421
318
311
2,205
1,433
1,782
1,234
-
17
-
65
8
(1)
13
10
18
19
263 Mainly due to higher order intake than deliveries on
commercial and large business aircraft.
116 $
298 Net additions
(182) Amortization
1,836 $ 1,983 Net additions
(147) Amortization
- No variance
(198) Mainly due to utilization, including the reversal of net
actuarial losses on retirement benefits, and a write down
of deferred income tax assets
119 Share of income
(81) Dividends declared
(30) Capital returns, net of additional investments
319 Increase in long-term contract receivables
8 $
410 $
92 Increase in investments in securities
189 $
761 $
251 Increase in prepaid expenses
136 Increase in retirement benefit assets
61 Increase in sales tax and other taxes
(206) Decrease in fractional ownership deferred costs
410 Higher level in BA
351 Higher level in BT
(162) Mostly due to decreases in product warranty provisions
Trade and other
payables
Provisions
(4,089)
(3,310)
(1,465)
(1,608)
Long-term debt
(6,988)
(5,360)
84
1,544
for BT contracts nearing the end of their warranty periods
and usage of provisions for restructuring measures (BT)
Issuance of $2.0 billion in unsecured Senior Notes,
partially offset by a reclass of $221 million to current
liabilities and $218 million related to fair value hedge
movements
Retirement benefit
liability
Other financial
liabilities
(2,161)
(2,999)
(1,726)
(1,056)
29
3
Other liabilities
(3,217)
(3,169)
46
Equity
(2,449)
(1,257)
not
applicable
(867) See the Variation in net retirement benefit liability
table for details
667 $
267 Increase in liabilities related to derivative
financial instruments
221 Reclass of long-term debt to current liabilities
83 Increase in government refundable advances
2 $ (241) Decrease in fractional ownership deferred
revenues
165 Increase in supplier contributions to aerospace
programs
1,192 $
107 Increase in income and other taxes payable
834 OCI - mainly due to net actuarial gains on
retirement benefits
572 Net income
(205) Dividends
(9) Other
34 BOMBARDIER INC. FINANCIAL REPORT – FISCAL YEAR ENDED DECEMBER 31, 2013
AEROSPACE
The data presented in this section of the MD&A contains both IFRS and non-GAAP measures and is structured
by market segment (business aircraft, commercial aircraft and services), which is reflective of our organizational
structure.
We believe that providing certain non-GAAP performance measures, in addition to IFRS measures, provides
users of our MD&A with enhanced understanding of BA’s results and related trends and increases transparency
and clarity into the core results of the business. EBIT before special items and EBITDA before special items are
non-GAAP measures which exclude items which do not reflect, in our opinion, our core performance. Accordingly,
these non-GAAP measures provide more transparent disclosures to analyze earnings, enabling better
comparability of results from one period to another and better comparability with peers.
KEY PERFORMANCE MEASURES
AND METRICS
Key performance measures and associated metrics that we use to
monitor our progress
Our results over the last four fiscal years
HIGHLIGHTS OF THE YEAR
Highlights of the fiscal year with regard to our results and key events
GUIDANCE AND FORWARD-
LOOKING STATEMENTS
INDUSTRY AND ECONOMIC
ENVIRONMENT
ANALYSIS OF RESULTS
What we said, what we did and what’s next
Assumptions and risks related to our forward-looking statements
Industry and economic factors affecting our business
Our financial performance for the fourth quarter and fiscal year ended
December 31, 2013
Update on investments in product development
Deliveries, orders, order backlog and workforce
PAGE
36
38
40
41
50
Supplemental information regarding BA’s products and strategy, as well as the aerospace industry and market,
can be found in BA’s Profile, Strategy and Market presentation available in the Profile section on Bombardier’s
dedicated investor relations website at ir.bombardier.com.
BOMBARDIER INC. FINANCIAL REPORT – FISCAL YEAR ENDED DECEMBER 31, 2013 - AEROSPACE 35
KEY PERFORMANCE MEASURES AND METRICS
The table below summarizes our most relevant key performance measures and associated metrics.
KEY PERFORMANCE MEASURES AND ASSOCIATED METRICS
Growth and
competitive
positioning
Profitability
Liquidity
Customer
satisfaction
Execution
(cid:120) Order backlog, as a measure of future revenues.
(cid:120) Book-to-bill ratio(1), as an indicator of future revenues.
(cid:120) Revenues and delivery units, as measures of growth.
(cid:120) Market share (in terms of revenues and units delivered), as measures of competitive positioning.
(cid:120) EBIT, EBIT margin, EBIT before special items(2) and EBIT margin before special items(2), as measures
of performance.
(cid:120) Free cash flow(2), as a measure of liquidity generation.
(cid:120) On-time aircraft deliveries, as a measure of meeting our commitment to customers.
(cid:120) Fleet dispatch reliability, as a measure of our products’ reliability.
(cid:120) Regional availability of parts and material to support customer requests.
(cid:120) Achievement of program development milestones, as a measure of flawless execution.
(cid:120) Achievement of engagement and enablement targets, as a measure of employee engagement and
motivation.
(cid:120) The deployment of the Achieving Excellence System (AES), as a measure of our continuous
improvement to integrate world-class best practices in all our activities.
Our incentive-based compensation plan for non-unionized employees across all BA sites rewards the collective
efforts of our employees in achieving our objectives using performance indicator targets. A total of 17,700
employees worldwide, or 55% of our permanent employees, participate in the program. In 2013, as part of this
program, incentive-based compensation was linked to the achievement of targeted results, based on EBIT before
special items, free cash flow, executing according to plan in our new product development programs, on-time
aircraft deliveries and fleet dispatch reliability.
AES is BA’s integrated management system. It fosters both employee and customer engagement in order for us
to meet our business objectives. The system is divided into five levels from Bronze to Diamond. Having
successfully achieved the Bronze and Silver certifications, all teams are now fully engaged in the implementation
of the Gold level. Some teams have obtained Gold level certification and additional teams will obtain Gold level
certification in 2014. The results of an independently administered employee survey in 2013 ranked BA among
the highest-ranking segment of companies in terms of employee engagement.
(1) Defined as net orders received over aircraft deliveries, in units.
(2) Non-GAAP financial measures. Refer to the Non-GAAP financial measures section in Overview for definitions of these metrics. Refer to the
Analysis of results section for reconciliations to the most comparable IFRS measures.
36 BOMBARDIER INC. FINANCIAL REPORT – FISCAL YEAR ENDED DECEMBER 31, 2013
Four-year summary
For the fiscal years ended and as at
December 31
2013
December 31 December 31
2012
restated (5)
2011 (6)
(5)
restated
January 31
2011
restated
(5)
$
9,385
$ 8,628
$ 8,594
$ 8,808
Revenues
Aircraft deliveries (in units)
Business aircraft
Commercial aircraft
Amphibious aircraft
180
55
3
238
388
1.6
37.3
179
50
4
233
481
2.1
32.9
163
78
4
245
249
1.0
23.9
155
97
4
256
201
0.8
20.4
Net orders (in units)
Book-to-bill ratio(1)
Order backlog (in billions of dollars)
EBIT
EBIT margin
EBIT before special items(2)(3)
EBIT margin before special items(2)(3)
Free cash flow (usage)(2)
Total number of employees(4)
(1) Defined as net orders received over aircraft deliveries, in units.
(2) Non-GAAP financial measures. Refer to the Non-GAAP financial measures section in Overview for definitions of these metrics. Refer to the
418
4.5%
388
4.1%
$
(1,239)
37,700
491
5.7%
491
5.7%
546
6.2%
546
6.2%
390
4.5%
367
4.3%
30,300
35,500
33,600
(418)
(867)
$
$
3
$
$
$
$
$
$
$
$
$
$
$
$
$
Analysis of results section for reconciliations to the most comparable IFRS measures.
(3) The special items for the fiscal year ended December 31, 2013 relate to a $31-million gain following the successful resolution of a litigation
in connection with Part IV of the Quebec Income Tax Act, the Tax on Capital, and a $23-million gain on sale of the main assets and related
liabilities of our Flexjet activities, partially offset by a $24-million inventory write-down related to the prolonged production pause of the
Learjet 60 program. The special item for the fiscal year ended December 31, 2012 relates to a $23-million gain following the successful
resolution of a litigation in connection with Part I.3 of the Canadian Income Tax Act, the Tax on Large Corporations. Both tax gains are as a
result of resolutions of litigations related to similar matters at the Canadian federal and Quebec provincial levels.
(4) Including contractual and inactive employees.
(5) Refer to the Accounting and reporting developments section in Other for detail regarding restatements of prior year figures.
(6) The fiscal year ended December 31, 2011 comprises 11 months of results.
BOMBARDIER INC. FINANCIAL REPORT – FISCAL YEAR ENDED DECEMBER 31, 2013 - AEROSPACE 37
HIGHLIGHTS OF THE YEAR
High level of investment in product development
and record order backlog
REVENUES
$9.4 billion
EBIT MARGIN
BEFORE SPECIAL
ITEMS(1)
FREE CASH
FLOW(1)
NET ADDITIONS
TO PP&E &
INTANGIBLE
ASSETS
ORDER BACKLOG
4.1%
($1.2) billion
$2.2 billion
$37.3 billion
(cid:120) Revenues of $9.4 billion, an increase of 8.8% compared to $8.6 billion last fiscal year.
(cid:120) EBIT of $418 million, or 4.5% of revenues, compared to $390 million, or 4.5%, last fiscal year.
(cid:120) EBIT before special items(1) of $388 million, or 4.1% of revenues, compared to $367 million, or 4.3%, last fiscal
year.
S
T
L
U
S
E
R
(cid:120) EBITDA before special items(1) of $655 million, or 7.0% of revenues, compared to $609 million, or 7.1%, last fiscal
year.
(cid:120) Free cash flow usage(1) of $1.2 billion, compared to a usage of $867 million last fiscal year.
(cid:120) Net investment of $2.2 billion in PP&E and intangible assets, including $2.0 billion related to aerospace program
tooling, compared to $2.0 billion last fiscal year, including $1.7 billion related to aerospace program tooling.
238 aircraft deliveries, compared to 233 last fiscal year.
388 net orders (book-to-bill ratio(2) of 1.6), compared to 481 net orders last fiscal year.
(cid:120)
(cid:120)
(cid:120) Record order backlog of $37.3 billion as at December 31, 2013, compared to $32.9 billion as at
December 31, 2012.
REVENUES(3)
(for the fiscal years ended;
in billions of dollars)
EBIT and EBIT BEFORE
SPECIAL ITEMS(1)(3)
(for the fiscal years ended;
in millions of dollars)
FREE CASH FLOW
(USAGE)(1)(3)
(for the fiscal years ended;
in millions of dollars)
ORDER BACKLOG
(as at; in billions of dollars)
Manufacturing
Services
Other
8.8
0.5
1.6
8.6
0.6
1.5
8.6
0.7
1.7
9.4
0.7
1.9
Special items *
EBIT before special items
EBIT margin before special items
Cash flows from operating activities
Net additions to PP&E and intangible
assets
Free cash flow (usage)
6.2%
5.7%
1,013
902
1,104
974
20.4
23.9
37.3
32.9
6.7
6.5
6.2
6.8
546
491
4.3%
4.1%
390
23
367
418
30
388
3
(1,010)
(418)
(1,320)
(867)
(1,971)
(1,239)
(2,213)
Jan. 31
2011
Dec. 31
2011
Dec. 31
2013
(1) Non-GAAP financial measures. Refer to the Non-GAAP financial measures section in Overview for definitions of these metrics and to the
Dec. 31
2011
Dec. 31
2012
Jan. 31
2011
Dec. 31
2011
Dec. 31
2012
Dec. 31
2013
Jan. 31
2011
Dec. 31
2011
Dec. 31
2012
Dec. 31
2013
Dec. 31
2013
Dec. 31
2012
Jan. 31
2011
Analysis of results section for reconciliations to the most comparable IFRS measures.
(2) Defined as net orders received over aircraft deliveries, in units.
(3) Results for the fiscal years ended December 31, 2012, December 31, 2011 and January 31, 2011 have been restated for changes in
accounting policies and methods. The fiscal year ended December 31, 2011 comprises 11 months of results.
* The special items for the fiscal year ended December 31, 2013 relate to a $31-million gain following the successful resolution of a litigation
in connection with Part IV of the Quebec Income Tax Act, the Tax on Capital, and a $23-million gain on sale of the main assets and related
liabilities of our Flexjet activities, partially offset by a $24-million inventory write-down related to the prolonged production pause of
the Learjet 60 program. The special item for the fiscal year ended December 31, 2012 relates to a $23-million gain following the successful
resolution of a litigation in connection with Part I.3 of the Canadian Income Tax Act, the Tax on Large Corporations. Both tax gains are as a
result of resolutions of litigations related to similar matters at the Canadian federal and Quebec provincial levels.
38 BOMBARDIER INC. FINANCIAL REPORT – FISCAL YEAR ENDED DECEMBER 31, 2013
Business aircraft
(cid:120) The Learjet 75 and Learjet 70 aircraft have entered into service in November and December 2013, respectively.
(cid:120) On December 4, 2013, we completed the sale of the main assets and related liabilities of our Flexjet activities, to
a newly-created company, Flexjet, LLC, owned by a group led by Directional Aviation Capital (the “Flexjet
Transaction”). After taking into account purchase price adjustments and closing adjustments, the final purchase
price is $180 million, including the assumption of $71 million of customer advances, resulting in a pre-tax gain of
$23 million.
(cid:120) Upon closing of the Flexjet Transaction, Flexjet, LLC placed firm orders for 85 aircraft of the Learjet family and
30 aircraft of the Challenger family, with options for 150 additional aircraft. Based on list prices, the value of the
firm orders is $2.4 billion.
In December 2013, an undisclosed customer placed a firm order for 28 aircraft of the Global family and
10 Challenger 605 aircraft. Based on list prices, the value of the firm order is $2.2 billion.
In May 2013, we launched the new Challenger 350 aircraft, the evolution of the Challenger 300 aircraft,
expanding our Challenger family of business jets. EIS is scheduled for 2014.
(cid:120)
(cid:120)
S
T
N
E
V
E
Y
E
K
Commercial aircraft
(cid:120) The maiden flights of the first and second CS100 flight test vehicles were successfully completed on
September 16, 2013 and January 3, 2014, respectively. Initial on-the-ground and flight tests performance results
are in line with our expectations. The CS100 aircraft’s EIS is now scheduled for the second half of 2015 and the
CS300 aircraft’s EIS will follow approximately six months afterwards.
(cid:120) As at the date of this report, the number of firm orders and other agreements(1) for the CSeries family of aircraft
reached 445, including 201 firm orders, with 17 customers and operators in 14 countries:
(cid:120)
In June 2013, shareholders of Ilyushin Finance Co. (IFC) of Russia approved a firm order for 32 CS300
aircraft and options for an additional 10. Based on list price, the value of the firm order is $2.6 billion.
(cid:120) Subsequent to the end of the year, we signed a firm order with Al Qahtani Aviation Company from the
Kingdom of Saudi Arabia for 16 CS300 aircraft, with options for an additional 10. Based on list price, the firm
order is valued at $1.2 billion and is not included in our order backlog as at December 31, 2013.
(cid:120)
(cid:120)
In December 2013, American Airlines Group Inc. signed a firm order for 30 CRJ900 NextGen aircraft with options
for an additional 40. Based on list price, the firm order is valued at $1.4 billion.
In August 2013, agreements were signed with entities based in Russia including a memorandum of
understanding to validate the opportunity to set up a Q400 NextGen turboprop final assembly line in Russia and
letters of intent (LOI) for a total of 100 Q400 NextGen turboprops. Based on list price, the LOIs are valued at
$3.4 billion.
Expansion of our global presence
(cid:120) We continued to expand our customer support network across the globe with 20 new service locations for both
commercial and business aircraft.
(cid:120) The construction of our permanent manufacturing facility in Morocco began in the third quarter of 2013 and is
scheduled to be completed by mid-2014.
(1) The other agreements consist of conditional orders, letters of intent, options and purchase rights.
BOMBARDIER INC. FINANCIAL REPORT – FISCAL YEAR ENDED DECEMBER 31, 2013 - AEROSPACE 39
GUIDANCE AND FORWARD-LOOKING STATEMENTS
What we said
What we did
What’s next(1)
Profitability Maintain EBIT margin in fiscal
Liquidity
year 2013 at approximately the
same level as EBIT margin in
fiscal year 2012.
We expect to achieve an EBIT
margin in fiscal year 2014 of
approximately 6%, after an
anticipated 2% dilutive impact on
EBIT margin from the EIS of the
CSeries aircraft.
Cash flows from operating
activities of approximately
$1.4 billion, while our net
additions to PP&E and intangible
assets are expected to be
approximately $2.0 billion in fiscal
year 2013.
Our level of net additions to PP&E
and intangible assets is expected
to decrease in 2014 by
approximately $500 million and in
2015 by approximately another
$500 million.
Deliveries
Deliveries of approximately
190 business aircraft and
55 commercial aircraft in fiscal
year 2013.
EBIT margin before special items(2)
of 4.1% for fiscal year 2013,
compared to 4.3% in fiscal year
2012.
We now expect to achieve an
EBIT margin of approximately
5% in fiscal year 2014.
In fiscal year 2014, we expect
cash flows from operating
activities between $1.2 billion
and $1.6 billion, while our net
additions to PP&E and
intangible assets are expected
to be between $1.6 billion and
$1.9 billion.
Our level of net additions to
PP&E and intangible assets is
expected to be between
$1.2 billion and $1.5 billion in
2015 and to be below
$1.0 billion in 2016.
In fiscal year 2014, we expect
to deliver approximately
200 business aircraft and
80 commercial aircraft.
Cash flows from operating activities
of $1.0 billion and net additions to
PP&E and intangible assets of
$2.2 billion in fiscal year 2013.
The cash flows from operating
activities were lower than expected
due to lower customer advances as
well as lower business aircraft
deliveries.
We delivered 180 business aircraft
and 55 commercial aircraft. We
delivered 10 fewer business aircraft
in 2013 compared to our guidance,
mainly due to the late transition from
the Learjet 40 XR and Learjet 45 XR
business jets to the Learjet 70 and
Learjet 75 aircraft, which entered
into service in the fourth quarter of
2013.
(1) See Forward-looking statements below.
(2) Non-GAAP financial measures. Refer to the Non-GAAP financial measures section in Overview for definitions of these metrics and to the
Analysis of results section for reconciliations to the most comparable IFRS measures.
Forward-looking statements:
Forward-looking statements(3) in this section of the MD&A are based on:
(cid:120) current firm order backlog and estimated future order intake;(4)
(cid:120) an increase in aircraft deliveries and improved pricing in fiscal year 2014 compared to fiscal year 2013;
(cid:120) continued deployment and execution of strategic initiatives related to quality improvement and cost reductions;
(cid:120) our ability to meet scheduled EIS dates and planned costs for new aircraft programs;
(cid:120) our ability to recruit and retain highly skilled resources to deploy our product development strategy;
(cid:120)
(cid:120) stability of foreign exchange rates.
the ability of our supply base to support planned production rates; and
(3) Also see the Guidance and forward-looking statements section in Overview.
(4) Demand forecast is based on the analysis of main market indicators, including real GDP growth, industry confidence, wealth creation and
profitability within our customer base, aircraft utilization, pre-owned business jet inventory levels, pilot scope clauses, environmental
regulations, globalization of trade, replacement demand, new aircraft programs and non-traditional markets and their accessibility. For more
details, refer to the market indicators in the Industry and economic environment section.
40 BOMBARDIER INC. FINANCIAL REPORT – FISCAL YEAR ENDED DECEMBER 31, 2013
INDUSTRY AND ECONOMIC ENVIRONMENT
Well-positioned for future growth
The state of the world economy and those of individual countries are key factors in the demand for air travel. As
such, the health of the aerospace industry is a function of general economic conditions, with a lag typically
between economic recovery and the time it takes to reflect on the original equipment manufacturers’ deliveries
and revenues. Real GDP growth is a widely accepted measure of economic activity.
Worldwide real GDP increased by 2.4% in 2013, compared to an increase of 2.5% in 2012 and the world
economy is predicted to grow by 3.2% in 2014.(1)
The GDP in the U.S., the largest market for our business and commercial aircraft, is expected to grow at 2.7% in
2014, compared to 1.9% GDP growth in 2013. Europe, our second largest market in terms of sales, is
experiencing a number of economic challenges as GDP is expected to grow by only 1.5% in 2014, nevertheless
higher than the 0.3% GDP growth in 2013.(1)
Regions with high growth potential for business and commercial aviation such as China, India and the CIS are
expected to grow in 2014 by 8.0%, 5.4% and 3.2%, respectively, as compared to GDP growth in 2013 of 7.7%,
4.6% and 2.1%, respectively.(1)
(1) According to IHS Global Insight’s Comparative World Overview dated January 15, 2014.
Business aircraft
In 2013, we estimate the level of industry orders in the market categories in which we compete increased by 8%
compared to last year. During 2013, the industry experienced an increase of 5.4% in deliveries and a 24.7%
increase in billings in these market categories when compared to last year.(1)
Some aircraft manufacturers, like us, have a number of new business jets in development, with the view that the
new models will not only benefit from improved market conditions expected in the future, but also contribute to the
recovery by stimulating demand. Refer to BA’s Profile, Strategy and Market presentation on Bombardier’s
dedicated investor relations website at ir.bombardier.com for additional information.
We have achieved a net order intake of 305 aircraft, for a book-to-bill ratio of 1.7(2), compared to 343 net orders
last year. Our overall deliveries in 2013 are essentially at the same level as last year. However, we had higher
deliveries in the medium and large market categories while deliveries in the light category were down year-over-
year due to the late transition from the Learjet 40 XR and Learjet 45 XR aircraft to the Learjet 70 and Learjet 75
aircraft. Our business aircraft manufacturing revenues increased by 9.8% compared to 2012. In fiscal year 2013,
we captured 33% of the market share in the overall market in which we compete, based on revenue, and 32% of
the market share based on units delivered. We were the market leader in terms of units delivered and second in
terms of revenues.(1) This compares with a market share of 38% and 33%, based on revenues and units delivered
respectively, in fiscal year 2012.(1)
(1) Based on our estimates and other public sources.
(2) Defined as net orders received over aircraft deliveries, in units.
BOMBARDIER INC. FINANCIAL REPORT – FISCAL YEAR ENDED DECEMBER 31, 2013 - AEROSPACE 41
We use the fo
W
ollowing key in
ndicators to m
monitor the he
ealth of the bu
usiness aviati
on market in
the short term
m.
Business airc
B
ndicator
I
craft market
Current situa
ation
indicators
I
ndustry
confidence
c
C
Corporate
profits
p
Pre-owned
P
b
business
je
et
nventory
i
evels
le
Aircraft
A
utilization
u
rates
r
A
Aircraft
s
shipments
and billings
a
The UBS Busi
unchanged an
iness Jet Mark
nd continues to
et Index, which
be below the t
h measures ind
threshold of ma
dustry confiden
arket stability.
nce, remains es
ssentially
U.S. corporate
2013.(1) Corpo
demand for ai
e profits increas
orate profits are
rcraft from corp
sed year-over-
e at an all-time
porations.
year by 5.7% t
high which is a
to $2.1 trillion fo
anticipated to t
for the first nine
ranslate into fu
e months of
uture
The total num
fleet has been
level of pre-ow
In the
down
norm
In the
2013
the n
In the
down
range
ber of pre-own
n trending down
wned inventory
e light category
nward over sev
mal range for the
e medium cate
3 after remainin
ormal range fo
e large categor
nward in the cu
e for the overal
ed aircraft ava
nward over the
to be within th
y, the level of p
veral years and
e overall marke
gory, the level
ng stable the pr
or the overall m
ry, the level of p
urrent year and
ll market.
ilable for sale a
past several y
e normal range
pre-owned busi
is now at the u
et.
of pre-owned b
revious two yea
market.
as a percentag
years and is at
e for the overa
ness aircraft in
upper end of w
ge of the total in
12.7%. We co
ll market.
nventory has be
what we conside
n-service
nsider this
een trending
er to be the
business aircra
ars and is withi
aft inventory de
in what we con
ecreased in
nsider to be
pre-owned bus
remains below
siness aircraft i
w what we cons
nventory has m
sider to be the
moved
normal
Business jet u
jet utilization in
tilization in the
n Europe decre
U.S. increased
eased slightly b
d slightly by 1.3
by 1.6% in 201
3% in 2013 co
3 compared to
mpared to 201
o 2012.
2. Business
In the busines
increased by 5
ss aircraft mark
5.4% and total
ket categories in
billings increas
n which we com
sed by 24.7% i
mpete, busines
n 2013 as com
ss aircraft deliv
mpared to 2012
veries
2.(2)
Status
(cid:377)
(cid:376)
(cid:376)
(cid:377)
(cid:376)
s a favourable, n
eutral or negativ
e status, respect
tively, in the mar
rket categories in
n which we comp
pete, based on th
he current
(cid:376)
(cid:376) (cid:377) (cid:378) Identifies
e
environment.
1) According to th
(1
2) Based on our e
(2
he U.S. Bureau o
estimates and ot
of Economic Ana
her public source
alysis.
es.
U
UBS BUSINESS
for calendar qua
(f
JET MARKET I
rters; average on
NDEX(1)
n a 100-point sca
ale)
PRE-OWN
(for calenda
excluding v
ED BUSINESS J
ar years; as a pe
very light jets)
JET INVENTOR
ercentage of tota
RY
al business jet fle
eet,
Stabilit
ty threshold = 50
48
49
42
41
41
43
38
40
40
41
39
40
Q1
2011
Q2
2011
Q3
2011
Q4
2011
Q1
2012
Q2
2012
Q3
2012
Q4
2012
Q1
2013
3
Q2
2013
Q3
2013
Q4
3
2013
20.0%
16.0%
12.0%
8.0%
4.0%
0.0%
Light
Medium
M
Large
Total
T
13.8%
13
12
12.7%
12.3%
12
7.5%
2013
2004
4 2005 2006 20
007 2008 2009 2
2010 2011 2012
S
Source: UBS
1) The UBS Busin
(1
confidence from
bi-monthly surv
providers, finan
ness Jet Market
m industry profes
veys of brokers,
nciers and others
Index is a measu
ssionals, gathere
dealers, manufa
s.
ure of market
ed through
al
cturers, fractiona
Sources: JE
Shad
rang
i.e. b
ETNET and Asce
ded area indicate
ge of pre-owned b
between 11% an
end Online
es what we cons
business jet inve
d 14%.
sider to be a norm
entory available f
mal
for sale,
42 BOMBARDIER
4
R INC. FINANCIAL
REPORT – FISCA
AL YEAR ENDED D
DECEMBER 31, 20
013
U.S. BUSINESS JET UTILIZATION
(for calendar years; in thousands of departures and arrivals for all
business jets)
EUROPEAN BUSINESS JET UTILIZATION
(for calendar years; in thousands of departures and arrivals for all
business jets)
4,824
4,797
4,872
4,324
3,572
3,997
4,069
4,089
4,142
420
398
512
501
470
458
451
444
429
2005
2006
2007
2008
2009
2010
2011
2012
2013
Source: U.S. Federal Aviation Administration (FAA) website
2005
2007
2006
Source: Eurocontrol
2008
2009
2010
2011
2012
2013
Short-term outlook
Current indicators in the business aviation market remain mixed. Pricing pressure remains, particularly in the light
and medium business aircraft categories. We expect to deliver approximately 200 business aircraft in fiscal year
2014 compared to 180 deliveries in 2013.
Long-term outlook
We believe that the long-term market drivers of growth for the business jet industry, such as GDP growth,
globalization of trade, fleet replacement, new aircraft programs and growth in non-traditional markets, remain
solid. The continued wealth creation in major non-traditional markets coupled with aviation infrastructure
development is expected to accelerate the use of business aircraft dramatically from levels seen today. We
estimate 24,000 aircraft deliveries in the light to large categories for the 20-year period from 2013 to 2032, valued
at $650 billion in constant 2012 U.S. dollars. Average worldwide GDP growth for the 20-year period is expected to
be 3.2%. The worldwide business aircraft fleet is expected to more than double from 14,875 aircraft at the end of
2012 to 30,975 aircraft in 2032. We predict that North America will receive the greatest number of new business
jet deliveries in the 20-year period with 9,490 aircraft, followed by Europe with 3,900 aircraft. Notably, China is
expected to become the third largest market for business jet deliveries, with 2,420 deliveries between 2013 and
2032. We also expect other key growth markets in non-traditional economies to receive a significant share of
business jet deliveries during the next 20 years.(1)
BUSINESS AIRCRAFT FLEET EVOLUTION BY GEOGRAPHIC
REGION(1)
(for calendar years 2013 to 2032; in units)
BUSINESS AIRCRAFT DELIVERIES FORECAST BY
CATEGORY(1)
(for calendar years 2013 to 2032; in billions of constant 2012
U.S. dollars and in units)
24,000
5,870
2,320
2,420
3,900
9,490
North America
Europe
China
Other Asia-Pacific
Rest of world
14,875
2,960
1,500
9,600
525
290
7,900
1,440
5,450
280
70
660
30,975
7,390
2,565
2,640
4,740
13,640
Light
Medium
Large
$119
18%
$238
37%
$293
45%
10,500
44%
8,000
33%
5,500
23%
Fleet 2012
Deliveries
Retirements
Fleet 2032
Value of $650 billion
24,000 units
(1) As stated in our Business Aircraft Market Forecast, published in June 2013 and available on Bombardier’s dedicated investor relations
website at ir.bombardier.com.
BOMBARDIER INC. FINANCIAL REPORT – FISCAL YEAR ENDED DECEMBER 31, 2013 - AEROSPACE 43
Commercial aircraft
The commercial aircraft market is building momentum. Passenger traffic levels and airline financial performance
have improved in 2013 and industry deliveries of aircraft in the 20- to 149-seat category have increased
compared to last year. The economic environment is improving in the U.S., the largest market for our aircraft, and
in most emerging economies, while some countries in Europe continue to lag.
Airline financial performance continued to improve in most regions during the year, particularly in the U.S. where
airline mergers have helped improve asset utilization and generate efficiencies.(1)
Several U.S. major network carriers have reached agreements with their respective pilot unions to modify scope
clauses, thus permitting a higher number of larger regional aircraft (e.g. 70 seats and larger) to be flown by
regional airlines’ pilots affiliated with mainline airlines. To benefit from these agreements, some airlines have
ordered larger and more efficient regional aircraft to replace older and smaller regional jet aircraft. Approximately
70% of the industry’s demand in the 20- to 149-seat category in 2013 originated from North America(2) and we
expect scope clause relaxation will continue to drive option conversions for larger regional aircraft in the near
term.
We delivered 10% more commercial aircraft in 2013 compared to 2012. Our net orders decreased by 41%
compared to 2012. However, we have geographically diversified our customer base and obtained several orders
in key fast-growing countries. For the three-year period ended December 31, 2013, we ranked second, capturing
31% of the market share in the 20- to 99-seat category based on units delivered.(3) This compares to a market
share of 36% for the three-year period ended December 31, 2012.(3)
(1) As stated in the International Air Transport Association (“IATA”) December 2013 Financial Forecast.
(2) Based on aircraft order data available from OAG Fleet iNet and other public sources.
(3) Based on delivery data available from OAG Fleet iNet and other public sources.
We use the following key indicators to monitor the health of the commercial airline industry in the short term.
Commercial aircraft market indicators
Indicator
Current situation
Passenger
traffic
levels
The demand for new aircraft is primarily driven by the demand for air travel. Scheduled domestic
and international passenger traffic, measured by revenue passenger kilometres (“RPK”), were 4.7%
and 5.3% higher, respectively, for the year-to-date period ended November 2013 compared to the
same period last year.(1)
Airlines achieved both domestic and international passenger load factors of 77.7% and 75.5%,
respectively, in November 2013 (79.6% and 76.5%, respectively, in November 2012). Continued
increases in capacity over recent months have placed downward pressure on load factors. Yields,
defined as average passenger revenue per revenue passenger kilometre, remained stable in 2013
compared to 2012.(1)
During 2013, regional passenger traffic measured by RPK for the five leading U.S. network carriers
and their affiliates, which represent a major portion of the regional airline passenger traffic in the
U.S., our largest market, remained essentially at the same level as last year.
These airlines achieved an average passenger load factor of 81.6% in December 2013, up from the
78.1% experienced in December 2012.
Fuel prices
Planning is difficult for airlines when prices for one of the largest components of their operating costs
remain volatile. The price of Brent crude oil decreased from $112 per barrel in 2012 to $109 per
barrel in 2013, and is expected to decline gradually to average $105 per barrel and $102 per barrel
in 2014 and 2015, respectively.(2) In the short term, this should help improve airline profitability.
However, the high volatility in crude oil prices should result in continued demand for more fuel-
efficient aircraft.
Status
(cid:376)
(cid:378)
(cid:377)
(cid:376)
(cid:377)
(cid:376) (cid:377) (cid:378) Identifies a favourable, neutral or negative status, respectively, in the market categories in which we compete, based on the current
environment.
(1) Per IATA’s November 2013 Air Passenger Market Analysis report.
(2) According to the U.S. Energy Information Administration’s (EIA) January 2014 Short-term Energy Outlook.
44 BOMBARDIER INC. FINANCIAL REPORT – FISCAL YEAR ENDED DECEMBER 31, 2013
Commercial aircraft market indicators (continued)
Indicator
Current situation
Airline
profitability
Environ-
mental
regulations
Airline financial performance continued to improve in 2013. Airlines’ net profit should amount to
$12.9 billion in 2013, a fourth consecutive year of positive net profits for the industry. North
American airlines are forecast to generate the highest profits in terms of dollars and percentage of
revenues due to a combination of consolidation, a more efficient industry and an improving
economy, followed by airlines in the Asia-Pacific region. European airlines will generate the third
highest net profit but will have lower profit margins than airlines in the Middle East and Latin
America.(1)
Stringent environmental regulations speed up the retirement of old generation aircraft as carriers
seek lower per-passenger fuel burns and emissions. On the other hand, fees and charges
associated with these regulations hamper airline operating economics, adversely impacting airlines’
re-fleeting decisions. Although the International Civil Aviation Organization (ICAO) is looking at
developing a global market based measure (MBMs) scheme from 2020, Europe has tabled another
version of its Emissions Trading System which could apply to intra-European Union flights before
2020. These schemes and other similar ones in other countries are designed to reduce overall
environmental impact of aircraft and will likely speed up retirement of older aircraft worldwide over
the coming years as airlines and operators will need to account for their carbon dioxide (CO2)
emissions.
Aircraft
shipments
In 2013, there were 278 deliveries for the industry of aircraft in the 20- to 149-seat category, an
increase of 3.3% compared to 2012.(2)
Replace-
ment
demand
We estimate that most commercial aircraft have life cycles ranging between 15 to 30 years. At the
end of 2013, approximately 5,400 aircraft representing an estimated 44% of the world’s active fleet
in the 20- to 149-seat aircraft category were over 15 years old compared to approximately 5,600
aircraft representing 45% at the end of 2012.(3)
Status
(cid:376)
(cid:376)
(cid:376)
(cid:377)
(cid:376) (cid:377) (cid:378) Identifies a favourable, neutral or negative status, respectively, in the market categories in which we compete, based on the current
environment.
(1) Per IATA’s December 2013 Financial Forecast.
(2) Based on delivery data available from OAG Fleet iNet and other public sources.
(3) Based on data obtained from OAG Fleet iNet.
FUEL PRICES
(Brent crude oil prices; in dollars per barrel)
GLOBAL AIRLINES’ NET PROFIT (LOSS)
(for calendar years; in billions of dollars)
130
125
120
115
110
105
100
95
90
85
80
5.0
(4.1)
14.7
19.2
19.7
12.9
8.4
7.4
(4.6)
(26.1)
Dec. 31
2010
Dec. 31
2011
Dec. 31
2012
Dec. 31
2013
2005
2006
2007
2008
2009
2010
2011
2012
2013F 2014F
Source: U.S. EIA
Source: IATA Financial Forecast, December 2013
F: Forecast
BOMBARDIER INC. FINANCIAL REPORT – FISCAL YEAR ENDED DECEMBER 31, 2013 - AEROSPACE 45
DOMESTIC PASSENGER LOAD FACTOR
(as a percentage of available seat kilometres in the month and year-to-date period)
January - November 2013
January - November 2012
Year-to-date average : November 2013
Year-to-date average: November 2012
86%
84%
82%
80%
78%
76%
74%
72%
70%
Jan
Apr
Source: latest available data from IATA statistics for domestic air travel
May
Mar
Feb
Jun
Jul
Aug
Sept
Oct
Nov
INTERNATIONAL PASSENGER LOAD FACTOR
(as a percentage of available seat kilometres in the month and year-to-date period)
January - November 2013
January - November 2012
Year-to-date average: November 2013
Year-to-date average: November 2012
86%
84%
82%
80%
78%
76%
74%
72%
70%
Jan
Aug
Apr
Source: latest available data from IATA statistics for international air travel
May
Mar
Feb
Jun
Jul
Sept
Oct
Nov
U.S. REGIONAL PASSENGER LOAD FACTOR FOR THE FIVE LEADING U.S. NETWORK CARRIERS AND
THEIR AFFILIATES
(as a percentage of available seat kilometres in the month and year-to-date period)
January - December 2013
Year-to-date average: 2013
January - December 2012
Year-to-date average: 2012
86%
84%
82%
80%
78%
76%
74%
72%
70%
Passenger load
factor is defined
as the percentage
of available seat
kilometres used
(revenue
passenger
kilometres divided
by available seat
kilometres).
Revenue
passenger
kilometres is a
measure of paying
passenger traffic
and represents
passenger demand
for air transport,
defined as one
fare-paying
passenger
transported over
one kilometre.
Available seat
kilometres are
measured as the
number of seats
multiplied by the
kilometres flown,
whether a
passenger
occupied the seat
or not.
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sept
Oct
Nov
Dec
Source: U.S. regional load factors published by the five leading U.S. network carriers (Delta Air Lines, American
Airlines, United Airlines, US Airways and Alaska Air) and their affiliates.
Short-term outlook
The world economy is predicted to grow by 3.2%, 3.6% and 3.7% over each of the next three years.(1) Historically,
as the world economy improves, demand for air travel increases and order intake follows. We believe that the
market for larger regional aircraft and smaller mainline aircraft will grow in North America as airlines continue to
focus on fleet optimization, efficiency and reducing environmental impacts.
In Europe, GDP is expected to grow at only 1.5% in 2014. In this context, we do not expect much growth in
demand for regional aircraft in Europe in 2014. European airlines are likely to continue to focus on consolidation
and operational restructuring.
(1) According to IHS Global Insight’s Comparative World Overview dated January 15, 2014.
46 BOMBARDIER INC. FINANCIAL REPORT – FISCAL YEAR ENDED DECEMBER 31, 2013
The strong correlation between passenger traffic and economic growth in non-traditional markets should translate
into continued aircraft demand in the near future. This demand will be met by a combination of pre-owned and
new aircraft.
We expect to deliver approximately 80 commercial aircraft in fiscal year 2014 compared to 55 deliveries in 2013.
Long-term outlook
We estimate 12,800 new aircraft deliveries for the 20- to 149-seat commercial aircraft category for the 20-year
period from 2013 to 2032, with 250 deliveries in the 20- to 59-seat category, 5,650 deliveries in the 60- to 99-seat
category and 6,900 deliveries in the 100- to 149-seat category. The total forecast deliveries are valued at over
$646 billion in constant 2012 U.S. dollars. Average worldwide GDP growth for the 20-year period is expected to
be 3.2%.(1)
WORLDWIDE FLEET FORECAST FOR 20- TO 149-SEAT
COMMERCIAL AIRCRAFT(1)
(for calendar years 2013 to 2032; in units)
20- TO 149-SEAT COMMERCIAL AIRCRAFT DELIVERIES
FORECAST BY REGION(1)
(for calendar years 2013 to 2032; in units)
20 to 59 seats
60 to 99 seats
100 to 149 seats
Rest of world
North America
7,000
3,000
1,300
2,700
12,800
6,900
5,650
250
10,900
4,800
2,600
3,500
Fleet 2012
Deliveries
Retirements
16,700
8,700
6,950
1,050
Fleet 2032
3,040
3,710
2,020
China
1,700
2,330
Europe
Other Asia-Pacific
Global demand for air travel and new aircraft continues to shift towards non-traditional markets. Nevertheless,
North America is expected to lead the way in aircraft deliveries over the forecast period, taking in an expected
3,710 new aircraft, followed by China, the second largest market, with 2,330 new aircraft. The forecast demand
for Europe is expected to be 1,700 aircraft.(1)
Oil prices are expected to decrease until 2017 and then subsequently increase thereafter as a result of expanding
energy demand.(2) We believe that high fuel costs will accelerate the retirement of old, less efficient aircraft types
increasing demand for new fuel-efficient aircraft.
The 60- to 99-seat category’s growth will be driven largely by the evolving relationship between mainline and
regional carriers. The outsourcing of regional aircraft operations to carriers with lower-cost structures, namely
regional airlines, continues to be the main thrust of network optimization efforts. Furthermore, the attractive
economics and operational flexibility of regional aircraft can be used to right-size aircraft capacity according to
traffic demand.
Our strategy to occupy the 100-to 149-seat market category with the efficient CSeries family of aircraft will help
stimulate new aircraft demand and accelerate the retirement of older aircraft in the larger regional and smaller
mainline aircraft markets.
(1) According to our Commercial Aircraft Market Forecast, published in June 2013 and available on Bombardier’s dedicated investor relations
website at ir.bombardier.com.
(2) As predicted by the U.S. EIA in its Annual Energy Outlook 2014 Early Release report.
BOMBARDIER INC. FINANCIAL REPORT – FISCAL YEAR ENDED DECEMBER 31, 2013 - AEROSPACE 47
Customer services
Our worldwide customer services network includes parts hubs, parts depots, authorized service facilities (“ASF”),
line maintenance facilities (“LMF”), service centres, mobile repair parties, regional support offices (“RSO”),
customer response centres (“CRC”), as well as training centres and authorized training providers (“ATP”).
The customer services market represents a
large growth opportunity for Bombardier. In
order to capture a larger share of this market
and to further improve customer satisfaction,
we continue to develop innovative and
comprehensive service solutions and to invest
in building our international service and support
capabilities.
In 2013, we continued to expand our customer
service network across the globe by opening
new support locations to better serve our
customers as well as developing new services
to cater to changing needs, including the new
Smart Parts Preferred option from the portfolio
of Smart Services cost-per-flight-hour parts and
services coverage programs. Currently there
are over 1,200 business aircraft enrolled in
Smart Services. On the commercial side, over
20% of the active Q400 and Q400 NextGen
fleet is enrolled in the Smart Parts program.
20 new customer support locations
RSO
Johannesburg, South Africa(1)
Service Centre
Business and commercial aircraft
Seletar, Singapore
ASF / LMF
Addis Ababa, Ethiopia
Vantaa, Finland
Luton, U.K.
Campinas, Brazil
Le Bourget, France
Kazan, Russia
Luqa, Malta
Belo Horizonte, Brazil
Business aircraft
Commercial aircraft
Business aircraft
Business aircraft
Business aircraft
Business aircraft
Business aircraft
Business aircraft
Business aircraft
Line Maintenance Service Agreement
Beijing, China
Business aircraft
Mobile Repair Parties
Atlanta, Georgia, U.S.
Business aircraft
Ft. Lauderdale, Florida, U.S.
Business aircraft
Van Nuys, California, U.S.
Business aircraft
Denver, Colorado, U.S.
Chicago, Illinois, U.S.
Business aircraft
Business aircraft
Seattle, Washington, U.S.
Business aircraft
Teterboro, New Jersey, U.S.
Business aircraft
(1) This RSO counts as two locations because it serves
both business and commercial aircraft.
Parts Depot
Johannesburg, South Africa
Business and commercial aircraft
Our customer services network around the world
Americas
Europe and CIS
Asia-Pacific
Company-owned service
centres
RSO
ASF / LMF
Line maintenance service
agreement
CRC
Mobile repair parties
Parts depots / hubs
Training centres
ATP
Total
8
5
23
-
4
7
2
2
7
58
1
3
20
-
-
-
1
-
3
28
1
9
13
1
-
-
5
-
1
30
Africa and
Middle East
-
3
9
-
-
-
2
-
1
15
Total
10
20
65
1
4
7
10
2
12
131
In 2013, we remained focused on customer satisfaction and continued to improve fleet reliability (measured in
terms of missed departures) and on-time delivery compared to 2012. Our customers are appreciating our efforts
as demonstrated by the results of independent industry surveys conducted by Professional Pilot Magazine
(ProPilot) and Aviation International News (AIN). The customer satisfaction ranking increased for Bombardier
48 BOMBARDIER INC. FINANCIAL REPORT – FISCAL YEAR ENDED DECEMBER 31, 2013
business aircraft overall in the ProPilot survey and increased for both Learjet and Global aircraft in the AIN
survey.
The demand for customer services is driven by the size of the fleet of Bombardier aircraft, by the number of hours
flown by said fleet (aircraft utilization rates) and the average age of the fleet.
Customer services market indicators
Current situation
Indicator
Installed
base
The installed base for active in-service Bombardier commercial aircraft increased by 2.2% in
2013 compared to 2012.(1) The installed base for active in-service Bombardier business aircraft
increased by 3.6% in 2013 compared to 2012.(2)
Aircraft
utilization
rates
Based on our estimates, Bombardier aircraft fleet utilization, measured by the average hours
flown per aircraft, increased by 2.4% for commercial aircraft for the year-to-date period ended
October 31, 2013, and by 0.6% for business aircraft for the year-to-date period ended December
31, 2013, compared to the same periods last year.
Average
age of
fleet
Typically, aircraft direct maintenance costs increase as an aircraft ages. Therefore, the average
age of the fleet of Bombardier aircraft will impact the size of the maintenance market. There has
been a slight increase in the average age of the Bombardier commercial aircraft fleet in 2013
compared to 2012.(1) There was no significant change in the average age of the Bombardier
business aircraft fleet in 2013 compared to 2012.(2)
Status
(cid:376)
(cid:376)
(cid:377)
(cid:376) (cid:377) (cid:378) Identifies a favourable, neutral or negative status, respectively, in the market categories in which we compete, based on the current
environment.
(1) Based on data obtained from OAG Fleet iNet.
(2) Based on data obtained from the Ascend fleet database.
Short-term outlook
Based on the market indicators above, the demand for comprehensive spare parts and service programs is
expected to continue growing. We continue to actively seek out strategic locations for expansion in order to move
closer to customers, improve response times and build stronger relationships around the globe. Historically, the
U.S. represented the largest share of deliveries for both business and commercial aircraft, however, wealth
creation and economic development in non-traditional markets is driving a shift in the proportion of business and
commercial aircraft delivered outside of the U.S. This trend in demand impacts the geographical layout of our
support network. In the non-traditional markets, our strategy is to increase our local customer support presence
and leverage our partnerships to deploy our full span of services.
Long-term outlook
The continued growth of the installed base will contribute to growth in demand for customer services. While
traditional markets such as North America and Europe will dominate in terms of market size, the fleet growth in
non-traditional markets is accelerating and creating new opportunities for customer services.
With respect to the commercial aircraft market, the global air transport maintenance, repair and overhaul (“MRO”)
market in 2013 was approximately $59 billion for a current total global fleet of approximately 27,000 aircraft, over
30% of which are turboprops and regional jets. The global MRO market for commercial aircraft is expected to
grow to approximately $85 billion by 2022, representing a 4.1% CAGR over 10 years. The growth will vary by
region, with the highest CAGRs in the Middle East (8.5%), CIS and Eastern Europe (7.3%), Africa (6.9%) and
South America (6.7%). The lowest CAGRs are expected in developed regions such as North America (1.4%) and
Western Europe (1.5%). Over the next ten years, MRO growth is expected to be the largest in Asia-Pacific and
the Middle East in terms of absolute dollars. However, established markets such as North America and Western
Europe, along with Asia-Pacific, will still represent the largest overall MRO markets in 2022.(1)
With respect to the business aircraft market, the business and general aviation MRO market in 2012 totaled
$12.4 billion.(2)
(1) According to a report titled Global MRO Market: Forecast & Trends published by ICF SH&E in February 2013.
(2) According to a report titled Global MRO Market Economic Assessment published by the Aeronautical Repair Station Association in March
2013.
BOMBARDIER INC. FINANCIAL REPORT – FISCAL YEAR ENDED DECEMBER 31, 2013 - AEROSPACE 49
ANALYSIS OF RESULTS
Good revenue growth and stable EBIT margin
Results of operations
Revenues
Manufacturing
Business aircraft
Commercial aircraft
Other
Total manufacturing
Services(1)
Other(2)
Total revenues
Cost of sales
Gross margin
SG&A
R&D
Other expense (income)(3)
EBIT before special items(4)
Special items(5)
EBIT
Amortization(6)
EBITDA(4)
EBITDA before special items(4)
(as a percentage of total revenues)
Gross margin
EBIT before special items
EBIT
EBITDA before special items
EBITDA
Fourth quarters
ended December 31
2013
2012
restated (7)
Fiscal years
ended December 31
2012
restated (7)
2013
$
$
$
1,544
467
184
2,195
508
170
2,873
2,535
338
176
47
21
94
1
93
74
167
168
11.8%
3.3%
3.2%
5.8%
5.8%
$
$
$
1,448
375
133
1,956
458
183
2,597
2,256
341
190
52
15
84
-
84
75
159
159
13.1%
3.2%
3.2%
6.1%
6.1%
$
$
$
5,038
1,248
550
6,836
1,897
652
9,385
8,118
1,267
699
173
7
388
(30)
418
267
685
655
13.5%
4.1%
4.5%
7.0%
7.3%
$
$
$
4,590
1,115
521
6,226
1,718
684
8,628
7,427
1,201
705
155
(26)
367
(23)
390
242
632
609
13.9%
4.3%
4.5%
7.1%
7.3%
(1) Includes revenues from parts services, Flexjet fractional ownership and hourly flight entitlement programs’ service activities, product support
activities (including aircraft maintenance and commercial training), Specialized Aircraft Solutions and Military Aviation Training.
(2) Includes mainly sales of pre-owned aircraft.
(3) Includes i) net loss (gain) on certain financial instruments measured at fair value and changes in estimates related to certain provisions or
certain financial instruments, excluding the losses (gains) arising from changes in interest rates; ii) severance and other involuntary
termination costs (including changes in estimates); and iii) (gains) losses on disposals of PP&E and intangible assets.
(4) Non-GAAP financial measures. Refer to the Non-GAAP financial measures section in Overview for definitions of these metrics.
(5) The special items for the fourth quarter and fiscal year ended December 31, 2013 relate to a $24-million inventory write-down related to the
prolonged production pause of the Learjet 60 program, partially offset by a $23-million gain on sale of the main assets and related liabilities
of our Flexjet activities. The special items for the fiscal year ended December 31, 2013 also include a $31-million gain following the
successful resolution of a litigation in connection with Part IV of the Quebec Income Tax Act, the Tax on Capital. The special item for the
fiscal year ended December 31, 2012 relates to a $23-million gain following the successful resolution of a litigation in connection with Part
I.3 of the Canadian Income Tax Act, the Tax on Large Corporations. Both tax gains are as a result of resolutions of litigations related to
similar matters at the Canadian federal and Quebec provincial levels.
(6) Amortization is included in cost of sales, SG&A and R&D expense, based on the underlying function of the asset.
(7) Refer to the Accounting and reporting developments section in Other for detail regarding restatements of 2012 figures.
Revenues by geographic region(1)
North America
Europe
Asia-Pacific
Rest of world(2)
$
$
5,503
2,036
1,170
676
9,385
Fiscal years ended December 31
2012
56%
20%
13%
11%
100%
4,811
1,723
1,126
968
8,628
2013
59% $
22%
12%
7%
100% $
(1) Revenues are attributed to countries based on the location of the customer.
(2) The Rest of world region includes South America, Central America, Africa, the Middle East and the CIS.
50 BOMBARDIER INC. FINANCIAL REPORT – FISCAL YEAR ENDED DECEMBER 31, 2013
Total aircraft deliveries
(in units)
Business aircraft
Commercial aircraft
Amphibious aircraft
Fourth quarters
ended December 31
2013
60
21
2
83
2012
60
16
1
77
Fiscal years
ended December 31
2012
179
50
4
233
2013
180
55
3
238
BUSINESS AIRCRAFT DELIVERIES(1)
(for the fiscal years ended; in units)
COMMERCIAL AIRCRAFT DELIVERIES(1)
(for the fiscal years ended; in units)
REVENUE DISTRIBUTION BY
GEOGRAPHIC REGION(2) (for the fiscal
years ended)
Large
Medium
Light
CRJ Series
Q-Series
North America
Europe
Asia-Pacific
Rest of world
155
33
72
163
33
79
50
51
179
39
86
54
180
29
89
62
97
41
56
78
33
45
50
14
36
55
26
29
19%
11%
28%
13%
15%
22%
11%
13%
20%
7%
12%
22%
42%
50%
56%
59%
Jan. 31
2011
Dec. 31
2011
Dec. 31
2012
Dec. 31
2013
Jan. 31
2011
Dec. 31
2011
Dec. 31
2012
Dec. 31
2013
Jan. 31
2011
Dec. 31
2011
Dec. 31
2012
Dec. 31
2013
(1) The fiscal year ended December 31, 2011 comprises 11 months of results.
(2) Revenues are attributed to countries based on the location of the customer.
Manufacturing revenues
The $239-million increase for the fourth quarter is mainly due to:
(cid:120) higher revenues from business aircraft ($96 million), mainly due to the acceleration of recognition of
fractional ownership deferred revenue; and
(cid:120) higher deliveries of commercial aircraft ($92 million), mainly regional jets.
The $610-million increase for the fiscal year is mainly due to:
(cid:120) higher revenues from business aircraft ($448 million), mainly due to a favourable mix of large and
medium versus light business aircraft deliveries, and to the acceleration of recognition of fractional
ownership deferred revenue; and
(cid:120) higher deliveries of regional jets, partially offset by lower deliveries of turboprops ($133 million).
Services revenues
The $50-million increase for the fourth quarter is due to higher volume of activities from parts services and aircraft
maintenance, partially offset by lower revenues from the Flexjet fractional ownership and hourly flight entitlement
programs’ service activities.
The $179-million increase for the fiscal year is due to higher volume of activities from parts services and aircraft
maintenance.
BOMBARDIER INC. FINANCIAL REPORT – FISCAL YEAR ENDED DECEMBER 31, 2013 - AEROSPACE 51
EBIT margin
The EBIT margin percentage for the fourth quarter ended December 31, 2013 was at the same level as the
corresponding period last year. The EBIT margin before special items (see explanation of special items below) for
the fourth quarter increased by 0.1 percentage points mainly as a result of:
the acceleration of recognition of fractional ownership deferred revenues.
· higher absorption of a lower SG&A expense; and
·
Partially offset by:
· write-down of inventory to net realizable value for the CSeries aircraft program(1) and higher write-downs
of pre-owned aircraft inventory; and
lower liquidated damage payments from customers upon cancellation of orders.
·
The EBIT margin percentage for the fiscal year ended December 31, 2013 was at the same level as last year.
The EBIT margin before special items (see explanation of special items below) for the fiscal year decreased by
0.2 percentage points mainly as a result of:
· write-down of inventory to net realizable value for the CSeries aircraft program(1) and higher write-downs
of pre-owned aircraft inventory;
· a net negative variance on provisions for credit and residual value guarantees recognized in other
expense (income);
lower net selling prices for business aircraft; and
lower liquidated damage payments from customers upon cancellation of orders.
·
·
Partially offset by:
· higher absorption of lower SG&A expense;
· a favourable mix of large and medium versus light business aircraft deliveries;
the acceleration of recognition of fractional ownership deferred revenues; and
·
· higher margins from service activities.
For the fourth quarter and fiscal year ended December 31, 2013, special items impacted the EBIT margin
negatively by 0.1 and positively by 0.4 percentage points, respectively. The special items related to a $23-million
gain on sale of the main assets and related liabilities of our Flexjet activities and a $24-million inventory write-
down for the Learjet 60 aircraft program related to the prolonged production pause, recognized in the fourth
quarter, and a $31-million gain following the successful resolution of a litigation in connection with Part IV of the
Quebec Income Tax Act, the Tax on Capital recognized in the second quarter.
For the fiscal year ended December 31, 2012, a special item positively impacted the EBIT margin by
0.2 percentage points, related to a $23-million gain following the successful resolution of a litigation in connection
with Part I.3 of the Canadian Income Tax Act, the Tax on Large Corporations.
(1) Early production units in a new aircraft program require higher costs than units produced later in the program and the selling prices of early
units are generally lower.
52 BOMBARDIER INC. FINANCIAL REPORT – FISCAL YEAR ENDED DECEMBER 31, 2013
Liquidity generated by our operations partially financed
our significant investment in product development
Free cash flow (usage)
Fourth quarters
ended December 31
2013
2012
restated (1)
84
-
75
159
2013
Fiscal years
ended December 31
2012
restated (1)
390
(23)
242
609
$
$
$
$
93
1
74
168
EBIT
Special items
Amortization
EBITDA before special items
Other non-cash items
(Gains) losses on disposals of PP&E and intangible assets
Share-based expense (income)
Cash inflow from special items
Net change in non-cash balances
Cash flows from operating activities
Net additions to PP&E and intangible assets
Free cash flow (usage)
(1) Refer to the Accounting and reporting developments section in Other for details regarding restatements of 2012 figures.
(1)
5
7
308
974
(2,213)
(1,239)
-
(8)
-
518
678
(591)
87
1
2
-
690
852
(575)
277
418
(30)
267
655
$
$
$
(2)
3
16
478
1,104
(1,971)
(867)
$
The $190-million decrease for the fourth quarter is mainly due to:
(cid:120) a negative period-over-period variation in net change in non-cash balances ($172 million)
(see explanation below).
The $372-million decrease for the fiscal year is mainly due to:
(cid:120) higher net additions to PP&E and intangible assets ($242 million), due to our continued significant
investment in product development; and
(cid:120) a negative period-over-period variation in net change in non-cash balances ($170 million)
(see explanation below).
Partially offset by:
(cid:120) higher EBITDA before special items ($46 million).
Net change in non-cash balances
For the fourth quarter ended December 31, 2013, the $518-million cash inflow is mainly due to:
(cid:120) a decrease in raw material and work-in-process inventories, mainly in the light and medium business
aircraft categories;
(cid:120) an increase in advances on aerospace programs, mainly in the medium business aircraft category; and
(cid:120) an increase in trade and other payables.
Partially offset by:
(cid:120) an increase in finished product inventories, mainly due to business aircraft not associated with a firm
order.
For the fourth quarter ended December 31, 2012, the $690-million cash inflow was mainly due to:
(cid:120) an increase in advances on aerospace programs mainly resulting from higher order intake than deliveries
for business and commercial aircraft; and
(cid:120) a decrease in work-in-process and finished goods inventories mainly in the light category in business
aircraft and in pre-owned business aircraft.
For the fiscal year ended December 31, 2013, the $308-million cash inflow is mainly due to:
(cid:120) an increase in other liabilities, mainly related to supplier contributions to aerospace programs under
development;
(cid:120) an increase in advances on aerospace programs in commercial aircraft and in the large business aircraft
category; and
(cid:120) an increase in trade and other payables.
BOMBARDIER INC. FINANCIAL REPORT – FISCAL YEAR ENDED DECEMBER 31, 2013 - AEROSPACE 53
Partially offset by:
(cid:120) an increase in aerospace program work-in-process inventories, mainly in the large business aircraft
category and in regional jets;
(cid:120) an increase in other assets, mainly in prepaid expenses and retirement benefit assets; and
(cid:120) an increase in finished product inventories, mainly due to business aircraft not associated with a firm
order.
For the fiscal year ended December 31, 2012, the $478-million cash inflow was mainly due to:
(cid:120) an increase in advances on aerospace programs mainly resulting from higher order intake than deliveries
for business and commercial aircraft;
(cid:120) an increase in trade and other payables; and
(cid:120) a decrease in pre-owned business aircraft inventories.
Partially offset by:
(cid:120) an increase in work-in-process inventories mainly for business aircraft.
Significant investment in product development
Investment in product development
Fourth quarters
ended December 31
2013
490
5
495
22.6%
2012
512
9
521
26.6%
$
$
$
$
2013
1,983
Fiscal years
ended December 31
2012
1,728
29
1,757
28.2%
26
2,009
29.4%
$
$
Program tooling(1)
R&D expense(2)
$
$
As a percentage of manufacturing revenues
(1) Net amount capitalized in aerospace program tooling.
(2) Excluding amortization of aerospace program tooling of $42 million and $147 million, respectively, for the fourth quarter and fiscal year
ended December 31, 2013 ($43 million and $126 million, respectively, for the fourth quarter and fiscal year ended December 31, 2012), as
the related investments are already included in aerospace program tooling.
Our program tooling additions essentially relate to the development of the CSeries family of aircraft, the Learjet 85
aircraft, as well as the Global 7000 and Global 8000 aircraft programs.
EXPENDITURES ON PRODUCT DEVELOPMENT
(for the fiscal years ended)
AEROSPACE PROGRAM TOOLING(1)
(as at)
R&D expenses
Net additions to PP&E & other
intangibles
Program tooling additions
1,351
149
31
46
1,171
1,056
181
829
Jan. 31
2011*
2,239
230
2,000
243
29
1,728
1,983
CRJ
Business aircraft
26
CSeries
3,168
488
1,317
1,363
Dec. 31
2011
2,088
503
839
746
Jan. 31
2011
6,606
435
2,860
3,311
Dec. 31
2013
4,770
469
2,004
2,297
Dec. 31
2012
Dec. 31
2011**
Dec. 31
2012
Dec. 31
2013
* Restated as a result of changes in accounting policies and
methods.
** The fiscal year ended December 31, 2011 comprises 11 months of
operations.
(1) Capitalized borrowing costs included in the aerospace program
tooling balance amounted to $609 million as at December 31, 2013
($352 million as at December 31, 2012, $178 million as at
December 31, 2011 and $99 million as at January 31, 2011).
Until EIS of the CS300 aircraft program, we anticipate our CSeries aerospace program tooling to increase by
approximately $750 million in relation to development spending and approximately $300 million in relation to
capitalized borrowing costs.
54 BOMBARDIER INC. FINANCIAL REPORT – FISCAL YEAR ENDED DECEMBER 31, 2013
We follow a thorough review process which starts before an aircraft is launched, by assessing all new programs
through the Aircraft Portfolio Strategy Board (APSB). With representation from all key functions involved, APSB
ensures that we are internally aligned and capable of delivering on our commitments at all levels of the
organization. Among others, this review confirms the availability of human and financial resources, the maturity
and manufacturing readiness of new technologies and the overall strength of the business case, by imposing
increasingly strict business guidelines as a program approaches launch. This process is performed in parallel with
the pre-launch Bombardier Engineering System stages (conceptual definition and launch preparation), and
ultimately culminates with the approval of Bombardier’s Board of Directors, at which time we usually begin
capitalization of product development expenditures as program tooling.
Recognizing the long-term nature of product development activities, as well as the significant human and financial
resources required, we follow a gated product development process focusing on early identification and mitigation
of potential risks. All programs follow our Bombardier Engineering System, the heart of the process, throughout
the product development cycle. The product development process is constantly refined to integrate the lessons
learned from our own programs and from the industry. The stages in the process are described hereafter and
specific milestones must be met before a product can move from one stage of development to another. The gates
consist of exit reviews with different levels of management and technical experts to demonstrate feasibility,
customer acceptance and financial return. Designing products with minimal environmental impacts throughout
their entire lifecycle is central to our product responsibility strategy. In addition to our Design for Environment
approach, we also embed health and safety considerations in our product design.
OUR PRODUCT DEVELOPMENT PROCESS
Stage
Conceptual
definition
JTAP
JCDP
Launch preparation
Preliminary
definition
JDP
DDP
Detail
definition
Product definition
release
Product certification
Program completion
Description
Joint Technical Assessment Phase - Preliminary review with our potential partners and suppliers
to analyze technologies desired to build or modify an aircraft.
Joint Conceptual Definition Phase - Cooperative effort with our potential partners and suppliers
to perform a configuration trade-off study and define the system architecture and functionality.
Continuation of the design definition and technical activities.
Creation of a project plan to define the schedule, cost, scope, statement of work and resource
requirements for the program.
Joint Definition Phase - Joint determination with our partners and suppliers of the technical
design of the aircraft and sharing of the work required. Optimization of the aircraft design with
respect to manufacturing, assembly and total life-cycle costs.
Detailed Design Phase - Preparation of detailed production drawings and confirmation of the
design based on the preliminary design definition agreed in the previous phase.
Formal issue of the engineering drawings to manufacturing, allowing for the completion of tool
designs and the assembly of the first produced aircraft.
Completion of certification activities to demonstrate that the aircraft complies with the original
design requirements and all regulatory airworthiness standards.
Conclusion of final design activity.
Preparation for EIS.
BOMBARDIER INC. FINANCIAL REPORT – FISCAL YEAR ENDED DECEMBER 31, 2013 - AEROSPACE 55
THE CSERIES AIRCRAFT PROGRAMS
The CS100 aircraft program has moved into the product certification phase, and the CS300 aircraft program is
transitioning from the detailed design phase to the product definition release phase. The CS100 aircraft’s EIS is now
scheduled for the second half of 2015 and CS300 aircraft’s EIS will follow approximately six months afterwards.
Production
and testing
The first flight test vehicle (FTV1) completed its successful maiden flight on September 16, 2013, thus
beginning the extensive flight test program. FTV2 completed its successful first flight on January 3, 2014. The
initial on-the-ground and flight tests performance results are in line with our expectations and no major design
changes have been identified.
In addition to FTV1 and FTV2, the remaining flight test vehicles are currently in various stages of fabrication
and assembly and will join the flight test program in the coming months. Additionally, the components for the
CS300 flight test vehicles and the first few CS100 production aircraft are in various stages of fabrication.
Suppliers
Facilities
Both our internal and external suppliers are manufacturing production components. Components and systems
continue to be tested worldwide, and the data received to date confirms that the aircraft development
programs are on track to reach key performance targets.(1)
The construction of the final assembly line for the aircraft programs is underway alongside our existing facility
in Mirabel, Québec, Canada. Additionally, on October 11, 2013, we officially opened our Belfast Wing Facility
in Northern Ireland, U.K., where the assembly of the composite wings will be housed.
(1) Key performance targets, under certain operating conditions, when compared to aircraft currently in production, for flights of 500 nautical
miles. See the CSeries family of aircraft program disclaimer at the end of this MD&A.
THE LEARJET 85 AIRCRAFT PROGRAM
The Learjet 85 aircraft program is in the product definition release phase. An update on the EIS date of the Learjet 85
aircraft will be provided once our review of the upcoming first flight activities of FTV1 and of the flight test program
timeline have been completed.
Production
and testing
The build of FTV1 is complete. Functional testing procedures are advancing as expected. We have
successfully completed auxiliary power unit (APU) and engine runs and low-speed taxiing tests. Additionally,
ground vibration and flight control ground testing, requirements for safety-of-flight, have been completed. To
date, tests have shown results as expected. We expect to apply for a flight test permit from the U.S. Federal
Aviation Administration (FAA) shortly.
Other flight test vehicles are in various stages of fabrication and assembly.
The Complete Airframe Static Test (CAST) article testing for structural safety-of-flight was completed at the
National Institute for Aviation Research (NIAR). Results to date are aligned with our expectations. As part of
the Wichita State University, NIAR is an aviation research centre in the U.S. that specializes in the testing of
composite materials.
As part of the Bombardier composite structural technology readiness program, we are continuing to validate
and certify the manufacturing process for our composite technology with the U.S. FAA.
Suppliers
Facilities
All suppliers are well underway with the manufacturing and delivery of components to the final assembly line.
Testing on supplier rigs for safety-of-flight purposes is complete. These test rigs are initially used to ensure
that system safety critical tests are conducted for components prior to shipment of flightworthy parts to the final
assembly line in Wichita.
The final assembly line in Wichita and the new production flight hangar are operational. Plans for other
facilities, such as the paint facilities and a new delivery centre to support the Learjet 85 aircraft program are
progressing.
THE LEARJET 70 AND LEARJET 75 AIRCRAFT PROGRAMS
The Learjet 70 and Learjet 75 aircraft have entered into service in the fourth quarter of 2013.
Production
and testing
Following certification from the U.S. FAA, the Learjet 75 and Learjet 70 aircraft entered into service in
November and December 2013, respectively.
56 BOMBARDIER INC. FINANCIAL REPORT – FISCAL YEAR ENDED DECEMBER 31, 2013
THE GLOBAL 7000 AND GLOBAL 8000 AIRCRAFT PROGRAMS
The Global 7000 and Global 8000 aircraft programs have transitioned to the detailed design phase. EIS is scheduled
in 2016 and 2017, respectively.
Production
and testing
Our product development team and our suppliers’ representatives, co-located at our Aerospace Product
Development Centre in Montréal, are making progress as planned on the design definition of the aircraft. The
experimental and ground test teams are progressing on the design and build of the various ground test rigs
that will be used throughout the development and certification of the aircraft.
The production and assembly of the cockpit and rear fuselage for the first FTV has begun.
Suppliers
Major structural suppliers are active in producing production parts, manufacturing and installing assembly
tools, and getting their facilities ready to build the FTVs. The first development engine began its first full engine
ground test in June 2013. The integrated propulsion system for the new Passport 20 engine is being
developed by GE Aviation specifically for the new Global aircraft platform.
THE CHALLENGER 350 AIRCRAFT PROGRAM
The Challenger 350 aircraft program is in the product certification phase and is progressing towards EIS in 2014.
Production
and testing
The Challenger 350 aircraft program was launched in May 2013. First flight was successfully completed using
a modified Challenger 300 aircraft with upgraded avionics, new winglets and upgraded engines. As at
December 31, 2013, the flight test vehicles have logged approximately 75% of the flight test program.
Certification of the interior was completed on December 19, 2013, on a modified Challenger 300 aircraft. The
first Challenger 350 production aircraft completed its first flight on December 27, 2013.
Business aircraft deliveries at the same level as last year
Business aircraft deliveries
(in units)
Light
Learjet 40 XR/45 XR and Learjet 70/75
Learjet 60 XR
Medium
Challenger 300
Challenger 605
Challenger 800 Series
Large
Global 5000/Global 6000
Fourth quarters
ended December 31
2013
2012
Fiscal years
ended December 31
2013
2012
18
2
13
8
2
17
60
11
8
13
7
2
19
60
19
10
55
32
2
62
180
24
15
48
34
4
54
179
Deliveries of business aircraft in the fourth quarter are at the same level compared to the fourth quarter last year,
and reflect the transition to the Learjet 75 and Learjet 70 aircraft, which entered into service in November and
December 2013, respectively. In fiscal year 2013, overall business aircraft deliveries are at a similar level
compared to last year, due to an increase in the large and medium business jet categories, offset by a decrease
in the light business jet category. Compared to guidance, we delivered 10 fewer business aircraft in fiscal year
2013, mainly due to the late transition to the Learjet 75 and Learjet 70 aircraft.
BOMBARDIER INC. FINANCIAL REPORT – FISCAL YEAR ENDED DECEMBER 31, 2013 - AEROSPACE 57
Commercial aircraft deliveries slightly higher than last year
Commercial aircraft deliveries
(in units)
Regional jets
CRJ700 NextGen
CRJ900 NextGen
CRJ1000 NextGen
Turboprops
Q400 NextGen
Fourth quarters
ended December 31
2012
2013
Fiscal years
ended December 31
2012
2013
-
11
-
10
21
-
2
5
9
16
1
18
7
29
55
1
5
8
36
50
Deliveries of commercial aircraft increased compared to the same periods last year, mainly due to deliveries of
CRJ900 NextGen aircraft related to the significant orders received in fiscal year 2012. Commercial aircraft
deliveries were in line with our guidance.
Strong order intake
Gross
orders Cancellations
December 31, 2013
Net
orders
Gross
orders Cancellations
December 31, 2012
Net
orders
231
42
2
275
369
92
2
463
(23)
-
-
(23)
(64)
(11)
-
(75)
208
42
2
252
305
81
2
388
141
60
-
201
392
138
-
530
(17)
-
-
(17)
(49)
-
-
(49)
124
60
-
184
343
138
-
481
Total aircraft net orders
(in units)
Fourth quarters ended
Business aircraft
Commercial aircraft
Amphibious aircraft
Fiscal years ended
Business aircraft
Commercial aircraft
Amphibious aircraft
Business aircraft
Order intake was strong during the fourth quarter of
fiscal year 2013 in all business aircraft categories mainly
due to the two large orders, from Flexjet, LLC and an
undisclosed customer.
BUSINESS AIRCRAFT GROSS/NET ORDERS
(for fiscal years ended; gross orders exclude swaps)
Gross order intake
Cancellations
Net orders
We have achieved a net order intake of 305 aircraft, for
a book-to-bill ratio of 1.7(1), compared to 343 net orders
last fiscal year.
107
158
(51)
191
223
(32)
(1) Defined as net orders received over aircraft deliveries, in units.
Jan. 31
2011
Dec. 31
2011
343
305
392
(49)
Dec. 31
2012
369
(64)
Dec. 31
2013
58 BOMBARDIER INC. FINANCIAL REPORT – FISCAL YEAR ENDED DECEMBER 31, 2013
The following significant orders were received during fiscal year 2013:
Customer
Firm order
Flexjet, LLC (U.S.)
Undisclosed customer
25 Learjet 75
60 Learjet 85
20 Challenger 350
10 Challenger 605
28 Global aircraft
10 Challenger 605
Undisclosed customer
12 Global 8000
VistaJet (Switzerland)
20 Challenger 350
Undisclosed customer
5 Challenger 300
5 Challenger 605
Value(1)
$ 2,400
$ 2,200
$
$
804
518
$ 280
Undisclosed customer
10 Challenger 350
$ 259
(1) Value of firm order based on list prices.
(2) Not included in the order backlog.
Options(2)
35 Learjet 75
65 Learjet 85
40 Challenger 350
10 Challenger 605
-
-
20 Challenger 350
-
-
Subsequent to the end of the fiscal year, we signed a firm order with an undisclosed customer for three
Global 6000, two Global 7000 and three Global 8000 business jets. Based on list prices, the value of the firm
order is $537 million, and is not included in the order backlog as at December 31, 2013.
Commercial aircraft
Commercial aircraft net orders
(in units)
Regional jets
CRJ700 NextGen
CRJ900 NextGen
CRJ1000 NextGen
Commercial jets
CS100
CS300
Turboprops
Q400 NextGen
Fourth quarters
ended December 31
2012
2013
Fiscal years
ended December 31
2012
2013
-
33
-
-
5
4
42
7
40
-
-
10
3
60
2
25
3
(3)
37
17
81
7
48
18
5
10
50
138
COMMERCIAL AIRCRAFT GROSS/NET ORDERS
(for fiscal years ended; gross orders exclude swaps)
Gross order intake
Cancellations
Net orders
93
108
(15)
54
54
138
138
81
92
(11)
Jan. 31
2011
Dec. 31
2011
Dec. 31
2012
Dec. 31
2013
BOMBARDIER INC. FINANCIAL REPORT – FISCAL YEAR ENDED DECEMBER 31, 2013 - AEROSPACE 59
The following significant orders were received during fiscal year 2013:
Customer
Firm order
Ilyushin Finance Co. (IFC) (Russia)
32 CS300
American Airlines Group Inc. (U.S.)
30 CRJ900 NextGen
Iraqi Airways (Iraq)
Arik Air (Nigeria)
5 CS300
3 CRJ1000 NextGen
4 Q400 NextGen
(1) Value of firm order based on list prices.
(2) Not included in the order backlog.
Value(1)
$ 2,560
$ 1,420
$ 387
$
297
Options(2)
10 CS300
40 CRJ900 NextGen
11 CS300
-
During the first quarter of fiscal year 2013, we terminated and removed from the order backlog an order from an
undisclosed customer for three CSeries aircraft due to financial difficulties of the customer. This customer also
had options for three additional CSeries aircraft.
During the second quarter of fiscal year 2013, we terminated and removed from the order backlog orders from
two customers for a total of eight CRJ900 NextGen aircraft along with options for a total of four aircraft.
During the third quarter of fiscal year 2013, we signed a memorandum of understanding with Rostec to validate
the opportunity to set up a Q400 NextGen turboprop final assembly line in Russia, which would be managed by a
joint venture between BA and Rostec, and would be incremental to our current Q400 NextGen turboprop
production operations in Toronto, Canada. We are working with Rostec towards definitive agreements to be
concluded in 2014, subject to obtaining the required internal, governmental and third-party approvals, as well as
meeting other customary conditions. We also signed LOIs for a total of 100 Q400 NextGen turboprops with
Rostec and IFC.
Subsequent to the end of the fiscal year, we signed a firm order with Al Qahtani Aviation Company from the
Kingdom of Saudi Arabia for 16 CS300 aircraft with options for an additional 10. The aircraft will be operated by
SaudiGulf Airlines, a newly launched national carrier. Based on list price, the firm order is valued at $1.2 billion
and could increase to $2.0 billion if the 10 options are converted into firm orders. This order is not included in the
order backlog as at December 31, 2013.
60 BOMBARDIER INC. FINANCIAL REPORT – FISCAL YEAR ENDED DECEMBER 31, 2013
Record order backlog and robust book-to-bill ratio
Book-to-bill ratio(1)
Business aircraft
Commercial aircraft
Total
(1) Defined as net orders received over aircraft deliveries, in units.
2013
Fourth quarters
ended December 31
2012
2.1
3.8
2.4
3.5
2.0
3.0
Fiscal years
ended December 31
2012
1.9
2.8
2.1
2013
1.7
1.5
1.6
For fiscal year 2013, the book-to-bill ratio for business aircraft
mainly reflects a good order intake in all business aircraft
categories.
The book-to-bill ratio for commercial aircraft for fiscal year
2013 mainly reflects the significant orders from IFC for
32 CS300 aircraft and from American Airlines Group Inc. for
30 CRJ900 NextGen aircraft.
NET ORDERS AND BOOK-TO-BILL RATIO
(for the fiscal years ended)
Net orders (in units)
Deliveries (in units)
2.1
Book-to-bill ratio
1.6
0.8
1.0
481
388
256
249
245
201
233
238
Jan. 31
2011
Dec. 31
2011
Dec. 31
2012
Dec. 31
2013
Order backlog
(in billions of dollars)
Aircraft programs
Long-term maintenance and spares support agreements
Military Aviation Training
$
December 31, 2013
33.9
2.9
0.5
37.3
$
As at
December 31, 2012
29.5
2.8
0.6
32.9
$
$
Our order backlog reflects higher net orders than deliveries for all business jet categories and an increase in the
net order intake for the CSeries family of aircraft, partly offset by lower order intake than deliveries for turboprops.
We continue to monitor our order backlog and the production horizon for our programs and to align our production
rates to reflect market demand.
ORDER BACKLOG IN MONTHS OF PRODUCTION (1)
(as at December 31, 2013)
(1) The number of months in production is
calculated by dividing the order backlog
in units as at December 31, 2013 for
each family of aircraft (excluding orders
for the Learjet 85, Global 7000 and
Global 8000 aircraft) by the number of
aircraft delivered in the previous 12
months, converted into an equivalent
number of months. Our order backlog in
months of production provides insight on
the depth of our order backlog based on
the last 12-month production rates. This
metric is not forward looking, and does
not take into account potential changes
in production rates or the ability of our
customers to take delivery of the aircraft
and the timing of such delivery.
BOMBARDIER INC. FINANCIAL REPORT – FISCAL YEAR ENDED DECEMBER 31, 2013 - AEROSPACE 61
Commercial aircraft order backlog and options
(in units)
Regional jets
CRJ700 NextGen
CRJ900 NextGen
CRJ1000 NextGen
Commercial jets
CS100
CS300
Turboprops
Q400 NextGen
December 31, 2013
Options
Firm orders
As at
December 31, 2012
Options
Firm orders
16
60
35
63 (1)
119 (1)
26
319
-
73
22
49
93
90
327
15
53
39
66 (2)
82 (2)
38
293
2
42
22
52
72
101
291
The total CSeries firm order backlog comprises 182 aircraft with 11 customers as at December 31, 2013. As at
the date of this report, we have signed firm orders and other agreements(3) for a total of 445 CSeries aircraft,
including 201 firm orders, with 17 customers and operators.
The following significant conditional orders, options, letters of intent and purchase rights are not included in our
order backlog, as they are not firm orders:
Customer
Conditional
Order
Letter of
Intent
Options
Porter Airlines (Canada)
12 CS100
18 CS100
Purchase
Rights
6 Q400
NextGen
CDB Leasing Co., Ltd
(China)
5 CS100
10 CS300
5 CS100
10 CS300
Rostec (Russia)
Ilyushin Finance Co.
(IFC) (Russia)
Nantong Tongzhou Bay
Aviation Industry Co., Ltd
(China)
50 Q400
NextGen
50 Q400
NextGen
30 Q400
NextGen
China Express Airlines
(China)(5)
5 CRJ900
NextGen
8 CRJ900
NextGen
Middle East and Africa-
based undisclosed
customer
12 CRJ900
NextGen
Total
aircraft
30 CS100
6 Q400
NextGen
10 CS100
20 CS300
50 Q400
NextGen
50 Q400
NextGen
30 Q400
NextGen
13 CRJ900
NextGen
12 CRJ900
NextGen
Value(4)
$2,290
$2,070
$1,695
$1,695
$ 995
$ 599
$ 563
(1) The total of 182 orders includes 80 firm orders with conversion rights to the other CSeries aircraft model.
(2) The total of 148 orders includes 83 firm orders with conversion rights to the other CSeries aircraft model.
(3) The other agreements consist of conditional orders, letters of intent, options and purchase rights.
(4) Total value based on list prices.
(5) In addition to the conditional order for five CRJ900 NextGen and options for an additional eight, China Express Airlines also placed a firm
order for three CRJ900 NextGen aircraft in December 2013. The firm order is included in our order backlog as at December 31, 2013.
62 BOMBARDIER INC. FINANCIAL REPORT – FISCAL YEAR ENDED DECEMBER 31, 2013
Expansion of our global presence
In February 2013, production started at our transitional facility in Casablanca, Morocco. The facility is currently
producing smaller aerostructures including flight controls for the CRJ Series aircraft. In September 2013, we
celebrated the opening of the Midparc Casablanca Free Zone with a groundbreaking celebration on the site of our
future manufacturing facility in the presence of King Mohammed VI of Morocco. The construction of our
permanent manufacturing facility in Morocco has begun and is scheduled to be completed by mid-2014.
In August 2013, a LOI was signed with Russian aircraft manufacturer Irkut Corporation to explore business
opportunities centred around customer support for Irkut’s MC-21 aircraft. This LOI could lead to an agreement for
joint customer support of the MC-21 and our CSeries aircraft in Russia and/or other markets.
Workforce
Total number of employees
Permanent(1)
Contractual
Percentage of permanent employees covered by collective agreements
(1) Including inactive employees.
December 31, 2013
32,400
5,300
37,700
47%
As at
December 31, 2012
31,400
4,100
35,500
47%
The increase in the number of employees is mainly due to new hires related to the CSeries, Global 7000 and
Global 8000 and Learjet 85 aircraft programs, partially offset by the exclusion of Flexjet employees (800 Flexjet
employees as at December 31, 2012) as a result of the sale of our Flexjet activities. Our long-term human
resources strategy is to maintain a mix of permanent and contractual employees to allow increased flexibility in
periods of fluctuation while ensuring the stability of our permanent workforce.
In January 2014, we announced a reduction in our workforce by approximately 1,700 positions, located mostly in
Canada and the U.S., affecting both contractual and permanent employees. These reductions will be completed
in the coming weeks. A provision of approximately $20 million will be recorded during the first quarter of fiscal
year 2014.
Major collective agreements
Union
Approximate number of
permanent employees covered
as at December 31, 2013
Expiration of current
collective agreement
Location
Montréal
Belfast
International Association of Machinists and
Aerospace Workers (IAMAW) – Local 712
Unite the Union and the General
Machinists & Boilermakers
Toronto
Canadian Auto Workers (CAW)
Montréal Global
aircraft
completion centre
National Automobile, Aerospace, Transport
and Other Workers of Canada (CAW) –
Local 62
Querétaro
Confederación de Trabajadores de México
Wichita
International Association of Machinists and
Aerospace Workers (IAMAW) – Local 639
5,000
November 28, 2014
4,200
January 24, 2015
2,400
1,700
900
900
June 22, 2015
December 5, 2016
April 30, 2014
October 9, 2017
BOMBARDIER INC. FINANCIAL REPORT – FISCAL YEAR ENDED DECEMBER 31, 2013 - AEROSPACE 63
TRANSPORTATION
The data presented in this section of the MD&A contains both IFRS and non-GAAP measures and is structured
by market segment (rolling stock, services, system and signalling), which is reflective of our organizational
structure, and by geographic region (Europe, North America, Asia-Pacific and Rest of world).
We believe that providing certain non-GAAP performance measures, in addition to IFRS measures, provides
users of our MD&A with enhanced understanding of BT’s results and related trends and increases transparency
and clarity into the core results of the business. EBIT before special items and EBITDA before special items are
non-GAAP measures which exclude items which do not reflect, in our opinion, our core performance. Accordingly,
these non-GAAP measures provide more transparent disclosures to analyze earnings, enabling better
comparability of results from one period to another and better comparability with peers.
KEY PERFORMANCE MEASURES
AND METRICS
Key performance measures and associated metrics that we use to
monitor our progress
Our results over the last four fiscal years
HIGHLIGHTS OF THE YEAR
Highlights of the fiscal year with regard to our results and key events
GUIDANCE AND FORWARD-
LOOKING STATEMENTS
INDUSTRY AND ECONOMIC
ENVIRONMENT
ANALYSIS OF RESULTS
What we said, what we did and what’s next
Assumptions and risks related to our forward-looking statements
Industry and economic factors affecting our business
Our financial performance for the fourth quarter and fiscal year ended
December 31, 2013
Orders, order backlog and workforce
PAGE
65
66
67
69
72
Supplemental information regarding BT’s products and strategy, as well as the rail industry and market, can be
found in BT’s Profile, Strategy and Market presentation available in the Profile section on Bombardier’s dedicated
investor relations website at ir.bombardier.com.
Changes in the presentation of our results of operations for joint ventures
Upon the adoption of IFRS 11, Joint arrangements, effective January 1, 2013, we are using the equity method to
account for our interests in joint ventures and presenting our pro rata share of net income arising from joint
ventures as a net of tax one-line item in the results of operations. Prior to the adoption of IFRS 11, our share of
revenues and expenses of joint ventures was consolidated line-by-line in our results of operations using the
proportionate consolidation method. IFRS 11 was adopted retrospectively and comparative figures have been
restated.
As a result of the application of the equity method, certain transactions between us and our joint ventures, such
as inter-company sales, are no longer eliminated, but transactions entered into by our joint ventures are not
included in each line item. Accordingly, our revenues include the sales between us and our joint ventures, but
exclude the sales of our joint ventures to their final customers. Also as a result of this change, we present our
order intake and order backlog on a basis consistent with the presentation of our revenues, i.e. our order intake
and order backlog include firm orders between us and our joint ventures, but exclude our pro rata share of our
joint ventures’ order intake and order backlog. This change in presentation impacts how the results of our joint
ventures are presented in the MD&A, but does not affect the economics of our underlying businesses.
64 BOMBARDIER INC. FINANCIAL REPORT – FISCAL YEAR ENDED DECEMBER 31, 2013
KEY PERFORMANCE MEASURES AND METRICS
The table below summarizes our most relevant key performance measures and associated metrics.
KEY PERFORMANCE MEASURES AND ASSOCIATED METRICS
Growth and
competitive
positioning
(cid:120) Order backlog, as a measure of future revenues.
(cid:120) Book-to-bill ratio(1), as an indicator of future revenues.
(cid:120) Revenues and geographic diversification of revenues, as measures of growth and
sustainability of our competitive positioning.
(cid:120) Market position, as a measure of our competitive positioning.
Profitability
(cid:120) EBIT, EBIT margin, EBIT before special items(2) and EBIT margin before special items(2), as
measures of performance.
Liquidity
(cid:120) Free cash flow(2), as a measure of liquidity generation.
Customer satisfaction
(cid:120) Various customer satisfaction metrics, focusing on the four main dimensions: sales and
prices, customer orientation, project execution and product offering.
Execution
(cid:120) Achievement of product development and delivery milestones, as a measure of flawless
execution.
(cid:120) Achievement of engagement and enablement targets, as a measure of employee
engagement and motivation.
In 2013, our employee incentive-based compensation was linked to the achievement of targeted results, based on
EBIT before special items, free cash flow and employee engagement.
Four-year summary
For the fiscal years ended and as at
Revenues
Rolling stock
Services
System and signalling
December 31
2013
December 31
2012
restated (5)
December 31
2011
restated (5)
January 31
2011
restated (5)
$
$
5,511
1,596
1,659
8,766
$ 5,071
1,437
1,278
$ 7,786
$ 6,412
1,409
1,489
$ 9,310
$ 5,991
1,308
1,390
$ 8,689
Order intake (in billions of dollars)
Book-to-bill ratio(1)
Order backlog (in billions of dollars)
EBIT
EBIT margin
EBIT before special items(2)(3)
EBIT margin before special items(2)(3)
Free cash flow (usage)(2)
Number of employees(4)
(1) Defined as new orders over revenues.
(2)
$
$
$
8.8
1.0
32.4
505
5.8%
505
5.8%
$
668
38,500
$
$
$
$
$
9.2
1.2
32.0
276
3.5%
439
5.6%
488
36,000
$
$
$
$
$
9.5
1.0
30.1
675
7.3%
675
7.3%
(296)
36,200
$
$
$
$
$
13.9
1.6
31.5
652
7.5%
652
7.5%
586
34,900
$
Non-GAAP financial measure. Refer to the Non-GAAP financial measures section in Overview for definitions of these metrics. Refer to the
Analysis of results section for reconciliations to the most comparable IFRS measures.
(3) The special items for the fiscal year ended December 31, 2012 include restructuring charges of $119 million related to the closure of a plant
in Aachen, Germany, and the reduction of worldwide direct and indirect personnel by 1,200 employees; a foreign exchange hedging loss of
$25 million; and a loss of $19 million related to flooding in New Jersey, U.S.
(4) Including contractual and inactive employees.
(5) Refer to the Accounting and reporting developments section in Other for detail regarding restatements of prior year figures.
BOMBARDIER INC. FINANCIAL REPORT – FISCAL YEAR ENDED DECEMBER 31, 2013 - TRANSPORTATION 65
HIGHLIGHTS OF THE YEAR
Improved revenues and a strong order backlog
REVENUES
EBIT MARGIN
$8.8 billion
5.8%
FREE CASH
FLOW(1)
$668 million
ORDER INTAKE
ORDER BACKLOG
$8.8 billion
$32.4 billion
S
T
L
U
S
E
R
· Revenues increased by 11% excluding currency impacts to $8.8 billion, compared to $7.8 billion last fiscal year.
· EBIT of $505 million, or 5.8%, of revenues, compared to $276 million, or 3.5%, last fiscal year.
· EBIT before special items(1) of $505 million, or 5.8% of revenues, compared to $439 million, or 5.6%, last fiscal
year.
· EBITDA before special items(1) of $629 million, or 7.2% of revenues, compared to $561 million, or 7.2%, last fiscal
year.
· Free cash flow(1) of $668 million, compared to $488 million last fiscal year.
· $8.8 billion in new orders (book-to-bill ratio(2) of 1.0), compared to $9.2 billion last fiscal year.
· Strong order backlog of $32.4 billion as at December 31, 2013, compared to $32.0 billion as at
December 31, 2012.
REVENUES
(for the fiscal years ended; in
billions of dollars; restated)
EBIT BEFORE SPECIAL
ITEMS(1)
(for the fiscal years ended; in
millions of dollars; restated)
FREE CASH FLOW (USAGE)
(for the fiscal years ended; in
millions of dollars; restated)
ORDER BACKLOG
(as at; in billions of dollars;
restated)
System and signalling
Services
Rolling stock
9.3
1.5
1.4
8.7
1.4
1.3
8.8
1.7
1.6
7.8
1.3
1.4
6.0
6.4
5.1
5.5
Special items*
EBIT
EBIT margin before special items*
586
668
488
7.5%
7.3%
652
675
5.6%
5.8%
439
163
276
505
(296)
32.0
32.4
31.5
30.1
Jan. 31
2011
Dec. 31
2011
Dec. 31
2012
Dec. 31
2013
Jan. 31
2011
Dec. 31
2011
Dec. 31
2012
Dec. 31
2013
Jan. 31
2011
Dec. 31
2011
Dec. 31
2012
Dec. 31
2013
Jan. 31
2011
Dec. 31
2011
Dec. 31
2012
Dec. 31
2013
(1) Non-GAAP financial measure. Refer to the Non-GAAP financial measures section in Overview for definitions of these metrics. Refer to the
Analysis of results section for reconciliations to the most comparable IFRS measures.
(2) Defined as new orders over revenues.
* The special items for the fiscal year ended December 31, 2012 include restructuring charges of $119 million related to the closure of a plant
in Aachen, Germany, and the reduction of worldwide direct and indirect personnel by 1,200 employees; a foreign exchange hedging loss of
$25 million; and a loss of $19 million related to flooding in New Jersey, U.S.
66 BOMBARDIER INC. FINANCIAL REPORT – FISCAL YEAR ENDED DECEMBER 31, 2013
S
T
N
E
V
E
Y
E
K
(cid:120) Significant contracts were signed across all product segments and geographic regions. Refer to the significant
order table in Analysis of results for more information.
(cid:120) We entered the growing tram market in China through our technology-licensing agreement with CSR Nanjing
Puzhen Rolling Stock Co. Ltd. (CSR Puzhen). CSR Puzhen won orders for 18 low-floor trams and 15 catenary-free
low-floor trams, for which we will act as a key supplier. With our support, CSR Puzhen will build these trams based
on our FLEXITY 2 technology.
(cid:120) We signed agreements with Russian rail manufacturer Uralvagonzavod (UVZ) establishing a partnership for joint
development of metros for the CIS and with Russian First Locomotive Company (FLC) to develop and produce
locomotives in Russia.
(cid:120) On April 10, 2013, the ZEFIRO 380 very high speed train reached 385 km/h during testing in China, the fastest
speed in BT’s history.
(cid:120) On June 3, 2013, Lutz Bertling replaced André Navarri as President and Chief Operating Officer of BT.
(cid:120) Subsequent to the end of the fiscal year, we took the following steps towards increasing our order backlog:
(cid:120) As part of a consortium, we signed a contract with a value of $4.1 billion with the State of Queensland,
Australia for the New Generation Rollingstock Project. Our share of the contract, which consists of the supply
of 75 electrical multiple units (EMUs), construction of a purpose-built maintenance centre and 30 years of
maintenance services, is valued at $2.7 billion;
(cid:120) The San Francisco Bay Area Rapid Transit District (BART), U.S., exercised an option for 365 additional rail
cars, valued at $639 million, thus increasing the firm order to 775 cars with a total value of $1.5 billion; and
(cid:120) We have been notified by Transport for London (TfL) and the Department for Transport, U.K., of their
intention to award us a contract for Crossrail. The intended contract between TfL and BT covers the supply,
delivery and maintenance of 65 trains and a new depot at Old Oak Common.
GUIDANCE AND FORWARD-LOOKING STATEMENTS
What we said
What we did
What’s next(1)
Profitability We have extended our target date
to achieve an EBIT margin of 8%
by 2014.
EBIT of 5.8%.
Liquidity
Growth and
order intake
Maintain free cash flow generally in
line with EBIT, although it may vary
significantly from quarter to
quarter.
Excluding currency impacts,
revenues in 2013 are expected to
be higher than in 2012, with
percentage growth in the
high-single digits.
Maintain a book-to-bill ratio(3)
around 1.0, in line with market
evolution.
Free cash flow(2) of
$668 million, above EBIT
of $505 million.
Revenue growth of 11%
excluding currency
impacts.
Book-to-bill ratio(3) of 1.0.
While an EBIT margin of 8% remains
our objective, we expect an EBIT
margin of approximately 6% in 2014 as
we focus on contract execution
improvement.
We expect to maintain free cash flow
generally in line with EBIT, although it
may vary significantly from quarter to
quarter.
Excluding currency impacts, revenues
in 2014 are expected to be higher than
in 2013, with percentage growth in the
mid-single digits.
In fiscal year 2014, we expect a book-
to-bill(3) ratio in excess of 1.0.
(1) See Forward-looking statements below.
(2) Non-GAAP financial measure. Refer to the Non-GAAP financial measures section in Overview for definitions of these metrics.
(3) Defined as new orders over revenues.
BOMBARDIER INC. FINANCIAL REPORT – FISCAL YEAR ENDED DECEMBER 31, 2013 - TRANSPORTATION 67
We have built the foundation for sustainable profitability
Our strong level of order activity across all segments
and geographies, is an expression of our customers’
continued confidence in our innovative products and
services.
EVOLUTION OF EBIT MARGIN
(EBIT margin before special items and target EBIT margins;
comparative periods restated)
We ended the year with a strong backlog of
$32.4 billion. In 2013 we experienced a modest
increase in EBIT margin before special items as a result
of higher absorption of lower SG&A and R&D expenses,
while we had a lower overall gross margin in the rolling
stock segment as a result of continuing execution
issues in a few large contracts.
7.5% 7.3%
7.5%
7.3%
EBIT margin
Special items
Objective of
8.0%
5.6%
5.8%
Target of
6.0%
2.1%
3.5%
5.8%
6.0%
8.0%
To address these execution issues, we are creating a
centralized product design and development function
and increasing the level of upfront R&D. These
measures, combined with a higher share of options in
the order intake, will reduce execution risk by increasing
product standardization, resulting in increased use of
proven technologies and processes across contracts.
Dec. 31
2011
Dec. 31
2014F
Dec. 31
2012
Dec. 31
2013
Jan. 31
2011
Levers
(cid:120) Focus on flawless execution.
(cid:120) Leverage our project management capability.
(cid:120) Continue to reduce costs (SG&A).
(cid:120) Capitalize on our worldwide presence (mature and emerging
markets).
Our project management capability continues to be a
key component of achieving our EBIT margin targets.
Under the Bombardier Operations System (BOS), we
have made good progress in our lean operations approach, which supports our ongoing objectives of improved
execution and cost reduction. We are now further expanding such efforts by adopting initiatives from BA’s
Achieving Excellence System program.
The special items for the fiscal year ended December 31, 2012
include restructuring charges of $119 million; a foreign exchange
hedging loss of $25 million; and a flooding related loss of
$19 million.
In addition, we established a new organisational structure on January 1, 2014 to further empower project
management, reduce organisational layers and overhead costs, speed up decision making, implement leaner
processes and foster upfront product development and standardization. These measures are also expected to
significantly reduce execution risks.
BT’s new organisational structure is an initiative aimed at securing our long-term competitiveness and improving
our cost structure. Our commitment to customer support and flawless execution remains our focus. An 8% EBIT
margin continues to be our objective and, based on our order backlog and order intake prospects, we are
confident it can be achieved.
Forward-looking statements
Forward-looking statements(1) in this section of the MD&A are based on:
(cid:120)
(cid:120)
(cid:120)
our current order backlog;
the realization of upcoming tenders and our ability to capture them;
normal contract execution and continued deployment and execution of leading initiatives, especially those linked to cost
reductions, including operational improvement initiatives;
a sustained level of public sector spending; and
the ability of our supply base to support the execution of our projects.
(cid:120)
(cid:120)
(1) Also see the Guidance and forward-looking statements section in Overview.
68 BOMBARDIER INC. FINANCIAL REPORT – FISCAL YEAR ENDED DECEMBER 31, 2013
INDUSTRY AND ECONOMIC ENVIRONMENT
The rail industry continues to be solid and the outlook is promising
Over the past few years, the rail industry has been
resilient despite economic uncertainty. The rail
market continued to have high order levels, showing
that it is less subject to short-term volatility than other
industries.
In the next few years, we continue to expect a
growing level of activity in our accessible markets(1)
as the fundamental drivers for the rail industry, such
as the global trend towards urbanization and a rising
need for mobility, remain positive. Good demand for
rail solutions, which is evidenced today by concrete
investment plans to be realized over the next three
years, is expected(2). Numerous turnkey projects in
emerging markets as well as large fleet replacement-
driven projects in mature markets are encouraging
indicators for the continued growth of the industry.
In Europe, the rail market remained very dynamic in
2013, driven by major projects awarded in Germany,
France, Sweden and the U.K. The economic
uncertainty which still affects some European
countries, such as Greece, Spain and Portugal, does
not impact BT significantly as these are not key
markets for us. Furthermore, European operators have
experienced growth both in freight and passenger
transport. We produce locomotives for freight transport
by rail, the only method of freight transport which is
growing at the moment, recovering after a steep
decline in 2008(3). Non-urban passenger transport and
urban transport by metro and tram have continuously
increased since 1995, except for a slight decrease in
non-urban passenger transport in 2009. This data
shows the stability and resiliency of the European rail
passenger market.
ANNUAL ACCESSIBLE MARKET(1) BY REGION
(three-year average orders; in billions of dollars)
Rest of world
North America
Asia-Pacific
Europe
100.5
20.9
17.2
23.4
39.0
112.6
26.3
19.7
24.1
42.5
2011-2013
2015-2017
Source: UNIFE World Rail Market Study “Forecast 2012 to 2017” and
extrapolated figures(2)
EUROPE ANNUAL ACCESSIBLE MARKET(1)
(three-year average orders; in billions of dollars)
39.0
7.8
13.2
System and
signalling
Services
Rolling stock
18.0
42.5
8.7
14.6
19.2
Source: UNIFE World Rail Market Study “Forecast 2012 to 2017” and
extrapolated figures
2011-2013
2015-2017
(1) Our accessible market is the world rail market, excluding the share of markets associated with contracts that are awarded to local players
without open-bid competition. Our accessible market also excludes the infrastructure, freight wagon and shunter segments.
(2) Based on data from the UNIFE World Rail Market Study “Forecast 2012 to 2017” published in September 2012 for our accessible markets
only. UNIFE data is updated every two years based on a survey conducted in the 50 largest rail markets worldwide. UNIFE figures are
published in euro. An exchange rate of 1€ = $1.33746, the average cumulative exchange rate over the 2011-13 period, was used to convert
all figures. Figures for 2011-2013 were extrapolated based on UNIFE data for 2009-2011 and 2012-2014.
(3) Based on the latest available data as per the “EU transport in figures – Statistical pocketbook 2013”. EU-27 refers to the 27 member-states
of the European Union prior to July 1, 2013.
BOMBARDIER INC. FINANCIAL REPORT – FISCAL YEAR ENDED DECEMBER 31, 2013 - TRANSPORTATION 69
PERFORMANCE FOR RAIL TRANSPORT IN EU-27 1995-2011
(Percentage variation with respect to volumes achieved in 1995, in billion tonne-km or passenger-km)
135
130
125
120
115
110
105
100
95
90
1995
Freight
Passenger
Tram & Metro
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
Source: latest available data as per the “EU transport in figures – Statistical pocketbook 2013”. EU-27 refers to the 27 member-states of the
European Union prior to July 1, 2013
We continue to be well positioned for future growth in Western Europe, which remains our largest market. Several
large projects are planned in the next years across the continent and in different market segments, such as a new
commuter rail line for London, several metro projects in Paris and London and commuter and regional trains in
Germany, Belgium and the Netherlands.
The Asia-Pacific market showed dynamic growth over
the past years, mainly driven by large orders in China
in the high speed and very high speed segment, and
the outlook remains positive, confirming the region’s
strong commitment to investment in rail.
In China, new high speed and light rail orders are
expected in the near future and additional growth
potential exists in the opening of new rolling stock
segments, such as the commuter segment. We also
expect new opportunities to be awarded in the growing
signalling and services businesses in the years to
come.
ASIA-PACIFIC ANNUAL ACCESSIBLE MARKET(1)
(three-year average orders; in billions of dollars)
System and
signalling
Services
Rolling stock
23.4
2.9
6.3
14.2
24.1
3.5
6.9
13.7
The recent large order from the state of Queensland,
Australia, proves the commitment of Australian
authorities to rail systems.
Source: UNIFE World Rail Market Study “Forecast 2012 to 2017” and
extrapolated figures
2011-2013
2015-2017
In India, several rail projects are planned and the market potential remains very attractive, although concrete
realization dates are sometimes difficult to forecast. The demand in India is mainly driven by active mass transit
and locomotives segments as well as by regional train projects.
In Southeast Asia, we expect growth in rail investment to continue, mainly driven by metro projects in large urban
areas, where a strong need for mobility exists due to the rapid urbanization.
(1) Our accessible market is the world rail market, excluding the share of markets associated with contracts that are awarded to local players
without open-bid competition. Our accessible market also excludes the infrastructure, freight wagon and shunter segments.
70 BOMBARDIER INC. FINANCIAL REPORT – FISCAL YEAR ENDED DECEMBER 31, 2013
The North American rail market is forecast to show
positive trends after an already high level of activity in
recent years. In mass transit, rail orders have been
placed to renew fleets for suburban services and
urban centres across Canada and the U.S. In the
future, urban train projects (metros, light rail vehicles
and commuter trains) are expected to continue. In
addition, the deployment of new signalling standards in
the U.S. is forecast to trigger a wave of investments
across the country. Finally, in the long term, we
continue to see potential for very high speed corridors
and keep tracking these projects. In Mexico, new
opportunities are on the horizon, especially for urban
transport in several cities, ranging from light rail
solutions to metros and commuter trains.
In the Rest of world(2) region, growth in rail investment
is driven by upcoming projects across all geographies.
The building of new rail systems and the replacement
of ageing fleets continues.
In South America, Brazil remains the largest market.
The 2016 Olympic Games in Rio de Janeiro are
triggering new investments in rail solutions, but other
countries like Peru, Chile and Colombia are also
investing in new urban transport systems or upgrading
existing ones.
In South Africa, further opportunities for locomotives
will arise, while the government continues its railway
modernisation program. In the North African region,
public investments are expected to grow in all
segments during the upcoming years, especially in
Egypt, Morocco and Tunisia.
NORTH AMERICA ANNUAL ACCESSIBLE MARKET(1)
(three-year average orders; in billions of dollars)
System and
signalling
Services
Rolling stock
17.2
1.6
9.8
5.8
19.7
2.0
11.2
6.5
Source: UNIFE World Rail Market Study “Forecast 2012 to 2017” and
extrapolated figures
2011-2013
2015-2017
REST OF WORLD ANNUAL ACCESSIBLE MARKET(1)
(three-year average orders; in billions of dollars)
System and
signalling
Services
Rolling stock
20.9
3.0
6.7
11.2
26.3
3.8
8.2
14.3
Source: UNIFE World Rail Market Study “Forecast 2012 to 2017” and
extrapolated figures
2011-2013
2015-2017
In the Middle East, the 2022 FIFA World Cup in Qatar is driving new investments in rail solutions, while other
countries in the region are also upgrading their transport systems.
In the CIS, particularly in Russia, the modernization of ageing fleets and infrastructure continues and represents a
large market potential across all segments.
(1) Our accessible market is the world rail market, excluding the share of markets associated with contracts that are awarded to local players
without open-bid competition. Our accessible market also excludes the infrastructure, freight wagon and shunter segments.
(2) The Rest of world region includes South America, Central America, Africa, the Middle East and the CIS.
BOMBARDIER INC. FINANCIAL REPORT – FISCAL YEAR ENDED DECEMBER 31, 2013 - TRANSPORTATION 71
ANALYSIS OF RESULTS
Increase in revenues and free cash flow
Results of operations
Fourth quarters
ended December 31
2012
restated (8)
2013
Fiscal years
ended December 31
2012
restated (8)
2013
$
$
$
$
Revenues
Rolling stock(1)
Services(2)
System and signalling(3)
Total revenues
Cost of sales
Gross margin
SG&A
R&D
Share of income of joint ventures and associates
Other expense (income)(4)
EBIT before special items(5)
Special items(6)
EBIT
Amortization(7)
EBITDA(5)
EBITDA before special items(5)
(as a percentage of total revenues)
Gross margin
EBIT before special items
EBIT
EBITDA before special items
EBITDA
(1) Comprised of revenues from light rail vehicles, metros, commuter and regional trains, intercity trains, high speed and very high speed trains,
5,511
1,596
1,659
8,766
7,540
1,226
718
120
(119)
2
505
-
505
124
629
629
1,480
450
521
2,451
2,163
288
175
36
(17)
2
92
-
92
32
124
124
1,290
414
324
2,028
1,796
232
168
51
(61)
(6)
80
163
(83)
32
(51)
112
5,071
1,437
1,278
7,786
6,626
1,160
737
144
(153)
(7)
439
163
276
122
398
561
14.0%
5.8%
5.8%
7.2%
7.2%
11.4%
3.9%
(4.1%)
5.5%
(2.5%)
14.9%
5.6%
3.5%
7.2%
5.1%
11.8%
3.8%
3.8%
5.1%
5.1%
$
$
$
$
$
$
$
$
locomotives, propulsion and controls and bogies.
(2) Comprised of revenues from fleet maintenance, refurbishment and overhaul and material solutions.
(3) Comprised of revenues from mass transit and airport systems, mainline systems, operation and maintenance services, e-mobility solutions,
mass transit signalling and mainline signalling. Excludes the rolling stock portion of system orders manufactured by our other divisions.
(4) Includes i) severance and other involuntary termination costs (including changes in estimates); and ii) (gains) losses on disposals of PP&E;
except when such items are reported as special items.
(5) Non-GAAP financial measure. Refer to the Non-GAAP financial measures section in Overview for a definition of this metric.
(6) The special items for the fourth quarter and fiscal year ended December 31, 2012 include a restructuring charge of $119 million related to
the closure of a plant in Aachen, Germany, and the reduction of worldwide direct and indirect personnel by 1,200 employees (including
Aachen); a foreign exchange hedging loss of $25 million; and a loss of $19 million related to flooding in New Jersey, U.S.
Amortization is included in cost of sales, SG&A and R&D expense, based on the nature of the underlying function of the asset. For the
fourth quarter and fiscal year ended December 31, 2012, impairment charges on PP&E of $9 million are included in the restructuring
charges of $119 million reported as special items.
(7)
(8) Refer to the Accounting and reporting developments section in Other for detail regarding restatements of 2012 figures.
72 BOMBARDIER INC. FINANCIAL REPORT – FISCAL YEAR ENDED DECEMBER 31, 2013
Revenues by geographic region
Fourth quarters ended December 31
2012
restated
2013
Europe(1)
North America
Asia-Pacific(1)
Rest of world(2)
$ 1,677
429
189
156
$ 2,451
68% $ 1,325
18%
359
8%
201
6%
143
100% $ 2,028
65% $ 5,874
1,581
18%
770
10%
541
7%
100% $ 8,766
2013
Fiscal years ended December 31
2012
restated
66%
19%
8%
7%
100%
$ 5,139
1,454
658
535
$ 7,786
67%
18%
9%
6%
100%
(1) The increases in Europe reflect positive currency impacts of $109 million and $176 million, respectively, for the fourth quarter and fiscal
year ended December 31, 2013, while the variances in Asia-Pacific reflect negative currency impacts of $6 million and $23 million
respectively.
(2) The Rest of world region includes South America, Central America, Africa, the Middle East and the CIS.
Foreign exchange impact on revenues(1)
Fourth quarter ended December 31, 2013
Revenues
excluding
foreign
exchange
Foreign
exchange
impact
Revenues
Fiscal year ended December 31, 2013
Revenues
excluding
foreign
exchange
Foreign
exchange
impact
Revenues
Revenues
Rolling stock
Services
System and
signalling
$ 1,480
450
521
$ 2,451
$
$
65
18
20
103
$ 1,415
432
501
$ 2,348
$ 5,511
1,596
$
105
18
$ 5,406
1,578
1,659
18
$ 8,766
$
141
1,641
$ 8,625
(1) The results of operations of entities using functional currencies other than the U.S. dollar (mainly the euro, pound sterling and other
European currencies) are translated into U.S. dollars using the average exchange rates for the relevant periods. The impact of lower
exchange rates of foreign currencies compared to the U.S. dollar negatively affects revenues and positively affects expenses, while higher
exchange rates have the opposite impacts (defined as “negative currency impact” and “positive currency impact”). See the Foreign
exchange rates section in Other for the average exchange rates used to translate revenues and expenses.
Total revenues for the fourth quarter and fiscal year have increased due to ramp-up of production. In the fourth
quarter, the increase was mostly related to contracts in Europe and North America, while for the fiscal year, it was
driven by contracts in Europe, North America and Asia-Pacific.
The following analysis is based on revenues excluding the impact of foreign exchange.
Rolling stock revenues
The $125-million increase for the fourth quarter is explained by higher activities in Europe and North America,
mainly due to the ramp-up of production related to some commuter and regional train and metro contracts,
partially offset by a lower level of activities for some locomotive contracts in Europe and North America nearing
completion ($135 million).
The $335-million increase for the fiscal year is mainly explained by higher activities in Europe, North America and
Asia-Pacific, mainly due to the ramp-up of production related to some commuter and regional train and high
speed train contracts in these regions as well as metro contracts in North America, partially offset by a lower level
of activities for some locomotive contracts in Europe and North America and some intercity train, light rail vehicle
and metro contracts in Europe nearing completion ($353 million).
Service revenues
The $18-million increase in service revenues for the fourth quarter mainly arose from higher activities in Europe
($46 million), partially offset by lower activities in the Rest of world, North America and Asia-Pacific regions
($28 million).
The $141-million increase in service revenues for the fiscal year mainly arose from higher activities in Europe and
North America ($168 million), partially offset by lower activities in the Rest of world and Asia-Pacific regions
($27 million).
BOMBARDIER INC. FINANCIAL REPORT – FISCAL YEAR ENDED DECEMBER 31, 2013 - TRANSPORTATION 73
System and signalling revenues
The $177-million increase for the fourth quarter and $363-million increase for the fiscal year are mainly due to
higher activities in all regions, better performance in systems in Europe as well as the ramp-up of production
related to some systems and signalling contracts.
EBIT margin
The EBIT margin for the fourth quarter increased by 7.9 percentage points. The EBIT margin before special items
(see explanations of special items below) decreased by 0.1 percentage point mainly as a result of:
(cid:120) a lower share of income of joint ventures and associates;
(cid:120) a lower gross margin in rolling stock due to execution issues in a few large contracts;
(cid:120) a lower gross margin in services due to an unfavourable contract mix in the quarter; and
(cid:120) a net loss related to foreign exchange fluctuations and certain financial instruments carried at fair value
recorded in cost of sales compared to a net gain in the same period last fiscal year.
Partially offset by:
(cid:120) a higher gross margin in system and signalling due to overall better contract execution;
(cid:120) higher absorption of SG&A expenses; and
(cid:120) higher absorption of lower R&D expenses.
The EBIT margin for the fiscal year increased by 2.3 percentage points. The EBIT margin before special items
(see explanations of special items below) increased by 0.2 percentage point mainly as a result of:
(cid:120) a higher gross margin in system and signalling and services due to overall better contract execution; and
(cid:120) higher absorption of lower SG&A and R&D expenses.
Partially offset by:
(cid:120) a lower gross margin in rolling stock due to execution issues in a few large contracts;
(cid:120) a lower share of income of joint ventures and associates; and
(cid:120) a higher net loss related to foreign exchange fluctuations and certain financial instruments carried at fair
value recorded in cost of sales.
For the fourth quarter and fiscal year ended December 31, 2012, the EBIT margins were negatively impacted by
the following special items:
(cid:120) a restructuring charge of $119 million related to measures to improve our competitiveness and cost
structure, mainly the closure of a plant in Aachen, Germany, and the reduction of worldwide direct and
indirect personnel by approximately 1,200 employees, including Aachen, negatively impacting EBIT
margin by 5.5% and 1.5%, respectively;
(cid:120) a $25 million foreign exchange hedging loss, negatively impacting EBIT margin by 1.2% and 0.3%,
respectively; and
(cid:120) a $19 million loss related to the flooding in New Jersey, U.S., negatively impacting EBIT margin by 0.9%
and 0.2%, respectively.
74 BOMBARDIER INC. FINANCIAL REPORT – FISCAL YEAR ENDED DECEMBER 31, 2013
Free Cash Flow above EBIT
Free cash flow
Fourth quarters
ended December 31
2013
2012
restated (1)
(83)
163
32
112
92
-
32
124
$
$
Fiscal years
ended December 31
2013
2012
restated (1)
276
163
122
561
505
-
124
629
$
EBIT
Special items(2)
Amortization
EBITDA before special items
Other non-cash items
Share of income of joint ventures and associates
$
(Gains) losses on disposals of PP&E
Share-based expense (income)
Dividends received from joint ventures and associates
Net change in non-cash balances
Cash flows from operating activities
Net additions to PP&E and intangible assets
Free cash flow
(1) Refer to the Accounting and reporting developments section in Other for details regarding restatements of 2012 figures.
(2) For the fourth quarter and fiscal year ended December 31, 2012, special items include impairment charges on PP&E of $9 million.
$
$
$
$
(119)
1
6
115
110
742
(74)
668
(61)
(1)
2
59
617
728
(53)
675
(17)
-
(6)
18
684
803
(36)
767
(153)
(4)
4
94
89
591
(103)
488
The $92-million improvement for the fourth quarter is mainly due to:
(cid:120) a positive period-over-period variation in net change in non-cash balances ($67 million) (see explanation
(cid:120)
below);
lower negative impact arising from other non-cash items, mainly from lower share of income of joint
ventures and associates ($37 million); and
lower net additions to PP&E and intangible assets ($17 million).
(cid:120)
Partially offset by:
(cid:120)
lower dividends received from joint ventures and associates ($41 million).
The $180-million improvement for the fiscal year is mainly due to:
(cid:120) higher EBITDA before special items ($68 million);
(cid:120)
lower negative impact arising from other non-cash items, mainly from lower share of income of joint
ventures and associates ($41 million);
lower net additions to PP&E and intangible assets ($29 million);
(cid:120)
(cid:120) higher dividends received from joint ventures and associates ($21 million); and
(cid:120) a positive period-over-period variation in net change in non-cash balances ($21 million) (see explanation
below).
Net change in non-cash balances
For the fourth quarter ended December 31, 2013, the $684-million cash inflow is mainly due to:
(cid:120) deliveries in several contracts as well as the impact of orders recently received, which led to an increase
in advances and progress billings for new orders and existing contracts and a reduction in inventories;
and
(cid:120) an increase in trade and other payables.
For the fourth quarter ended December 31, 2012, the $617-million cash inflow was mainly due to deliveries in
several contracts as well as the impact of orders recently received, which led to:
(cid:120) a reduction in inventories, ahead of the ramp-up of contracts in the start-up phase; and
(cid:120) an increase in advances and progress billings for new orders and existing contracts, ahead of the impact
from deliveries.
BOMBARDIER INC. FINANCIAL REPORT – FISCAL YEAR ENDED DECEMBER 31, 2013 - TRANSPORTATION 75
For the fiscal year ended December 31, 2013, the $110-million cash inflow is mainly due to:
· deliveries in several contracts as well as the impact of orders recently received which led to an increase in
advances and progress billings on existing contracts and new orders; and
· an increase in trade and other payables.
Partially offset by:
· an increase in inventories due to ramp-up of production ahead of deliveries; and
·
lower provisions, mostly as a result of a decrease in product warranty provisions, mainly for contracts
nearing the end of their warranty periods.
For the fiscal year ended December 31, 2012, the $89-million cash inflow was mainly due to deliveries in several
contracts which led to:
· a reduction in inventories, ahead of the ramp-up of contracts in the start-up phase.
Partially offset by:
· a reduction in advances and progress billings related to existing contracts, partly compensated by
advances on new orders and existing contracts.
The net cash inflow from the above-mentioned items is partly compensated by:
·
·
the impact of settlements of derivative financial instruments used in roll-forward cash flow hedge
relationships; and
lower provisions, mostly as a result of a decrease in product warranty provisions for contracts nearing the
end of their warranty periods.
We continue to secure significant orders
Order intake and book-to-bill ratio
Order intake (in billions of dollars)(1)
Rolling stock
Services
System and signalling
$
$
Fourth quarters
ended December 31
2013
2012
restated
$
$
1.4
0.5
-
1.9
0.8
$
$
0.6
1.5
0.8
2.9
1.4
Fiscal years
ended December 31
2012
2013
restated
4.9
2.5
1.8
9.2
1.2
5.4
2.0
1.4
8.8
1.0
$
$
Book-to-bill ratio(2)
(1) Including any new orders between BT and its joint ventures, but excluding the order intake of our joint ventures.
(2) Ratio of new orders over revenues.
The order intakes for the fourth quarter and fiscal year
ended December 31, 2013 reflect a positive currency
impact of $63 million and $132 million respectively.
ORDER INTAKE AND
BOOK-TO-BILL RATIO
(for the fiscal years ended;
restated)
BT is a leader in the worldwide rail industry(1) with a
cumulative order intake of $27.5 billion over the past
three years.
Order intake (in billions of dollars)
Book-to-bill ratio
1.6
13.9
1.2
1.0
1.0
9.5
9.2
8.8
ORDER INTAKE BY
GEOGRAPHIC REGION
(for fiscal years ended; in billions
of dollars; restated)
Europe
North America
Asia-Pacific
Rest of world
13.9
1.3
0.8
2.8
9.0
9.5
0.4
1.4
1.3
6.4
9.2
0.7
0.9
3.6
4.0
8.8
1.1
0.3
1.4
6.0
(1) Based on a rolling 36-month order intake with latest data
published by companies publishing order intake for at least
36 months.
Jan. 31
2011
Dec. 31
2011
Dec. 31
2012
Dec. 31
2013
Jan. 31
2011
Dec. 31
2011
Dec. 31
2012
Dec. 31
2013
76 BOMBARDIER INC. FINANCIAL REPORT – FISCAL YEAR ENDED DECEMBER 31, 2013
In the fourth quarter of 2013, we won several orders across all divisions and geographies and maintained a
leading position in the rail industry.(1) The significant orders during the fiscal year ended December 31, 2013 were
as follows:
Customer
Fourth quarter
Société Nationale des Chemins
de fer Français (SNCF)
Third quarter
Arriyadh Development Authority
(ADA)
Saudi
Arabia
Deutsche Bahn AG (DB)
Germany
Southern Railway
U.K.
Country
Product or service
Number Market
of cars
segment
Value
France
Double-deck electrical
multiple units (EMUs)
234
Rolling stock
$ 379
System interface
management, project
management, design, and
INNOVIA Metro 300 trains
TWINDEXX double-deck
trains
ELECTROSTAR EMUs and
spares supply agreement
94
System and
signalling
$ 383
(2)
102
Rolling stock
$ 289
116
Rolling stock
$ 274
n/a
System and
signalling
$ 203
(2)
Azerbaijan Railways CJSC
Azerbaijan
INTERFLO 200 signalling
Second quarter
Stockholm Public Transport
Authority (SL)
Sweden
MOVIA metro cars
384
Rolling stock
$ 771
Deutsche Bahn AG (DB)
Germany
TRAXX electric locomotives
S-Bahn Hamburg GmbH
Germany
ET490 series EMUs
National Express Rail GmbH
Germany
TALENT 2 EMUs
State of Florida Department of
U.S.
Transportation
Mobilization and 10 years
operations and
maintenance services of
commuter rail system
130
180
155
Rolling stock
Rolling stock
Rolling stock
n/a
Services
$ 573
$ 427
$ 221
$ 195
Transport for London (TfL)
U.K.
ELECTROSTAR rail cars
57
Rolling stock
$ 137
First quarter
Siemens AG
Germany
Deutsche Bahn AG (DB)
Germany
Development and supply of
components for ICx high
speed trains for a DB
contract
TWINDEXX double-deck
trains
170
Rolling stock
$ 440
48
Rolling stock
$ 145
(1) Based on a rolling 36-month order intake with latest data published by companies publishing order intake for at least 36 months.
(2) Contract signed as part of a consortium. Only the value of our share is stated.
n/a: Not applicable
Subsequent to the end of the fiscal year, we won the following orders which are not included in our order backlog
as at December 31, 2013:
(cid:120) As part of a consortium with John Laing, ITOCHU Corporation and Uberior, we have entered into a
contract valued at approximately $4.1 billion with the State of Queensland, Australia, for the New
Generation Rollingstock Project. Our share of the contract, which consists of the supply of 75 EMUs,
construction of a purpose-built maintenance centre and 30 years of maintenance services, is valued at
$2.7 billion.
(cid:120) The San Francisco Bay Area Rapid Transit District (BART), U.S., exercised an option for 365 additional
rail cars, valued at $639 million, thus increasing the firm order to 775 cars with a total value of $1.5 billion.
(cid:120) We have been notified by Transport for London (TfL) and the Department for Transport, U.K., of their
intention to award us a contract for Crossrail. The intended contract between TfL and BT covers the
supply, delivery and maintenance of 65 trains and a new depot at Old Oak Common.
BOMBARDIER INC. FINANCIAL REPORT – FISCAL YEAR ENDED DECEMBER 31, 2013 - TRANSPORTATION 77
Order backlog(1)
(in billions of dollars)
Rolling stock(2)
Services
System and signalling
December 31, 2013
$
$
21.1
7.4
3.9
32.4
As at
December 31, 2012
restated
20.7
7.0
4.3
32.0
$
$
(1) Including the order backlog for contracts between BT and its joint ventures, but excluding our share of joint ventures’ backlog.
(2) Of which $12.0 billion, or 57% of rolling stock order backlog, had a percentage of completion from 0% to 25% as at December 31, 2013
($12.9 billion, or 62%, as at December 31, 2012).
The increase in order backlog includes the impact of the
strengthening of some foreign currencies versus the
U.S. dollar as at December 31, 2013 compared to
December 31, 2012, mainly the euro ($0.4 billion).
Upon adoption of IFRS 11, Joint arrangements, effective
January 1, 2013, we began using the equity method to
account for interests in joint ventures instead of using
proportionate consolidation. We restated our backlog by
removing our proportionate share of backlog of joint ventures,
to align with the presentation of revenues.
ORDER BACKLOG
(as at; in billions of dollars; restated)
Rolling stock
Services
System and signalling
31.5
3.4
6.2
21.9
30.1
3.8
5.4
32.0
4.3
7.0
32.4
3.9
7.4
20.9
20.7
21.1
Jan. 31
2011
Dec. 31
2011
Dec. 31
2012
Dec. 31
2013
Increase in workforce across all regions
in line with higher level of activities
Total number of employees
Permanent(1)
Contractual
Percentage of permanent employees covered by collective agreements
(1) Including inactive employees.
December 31, 2013
34,250
4,250
38,500
55%
As at
December 31, 2012
32,350
3,650
36,000
60%
Since December 31, 2012 the number of employees has
increased in all regions by 7% or 2,500 employees.
WORKFORCE BY GEOGRAPHIC REGION
(as at)
Headcount in North America, Asia-Pacific and the Rest of
world region has increased mainly as a result of the start of
work on major orders received in these regions in previous
fiscal years.
The increase in Europe is mostly due to the hiring of
contractual employees to support increased workload in
connection with the development of new products as well as
the start of work on major orders received this year and in
previous years. At the same time, this increase in contractual
workforce was partially offset by reduction of permanent
headcount related to the measures announced last fiscal
year.
Europe
North America
Asia-Pacific
Rest of world
34,950
employees
34,900
employees
36,200
employees
36,000
employees
38,500
employees
1%
6%
18%
8%
18%
1%
7%
19%
2%
2%
8%
21%
2%
8%
23%
75%
73%
72%
69%
67%
Jan. 31
2010
Jan. 31
2011
Dec. 31
2011
Dec. 31
2012
Dec. 31
2013
78 BOMBARDIER INC. FINANCIAL REPORT – FISCAL YEAR ENDED DECEMBER 31, 2013
OTHER
OFF-BALANCE SHEET ARRANGEMENTS
RISKS AND UNCERTAINTIES
ACCOUNTING AND REPORTING DEVELOPMENTS
FINANCIAL INSTRUMENTS
RELATED PARTY TRANSACTIONS
CRITICAL JUDGMENTS AND ACCOUNTING ESTIMATES
CONTROLS AND PROCEDURES
FOREIGN EXCHANGE RATES
SHAREHOLDER INFORMATION
SELECTED FINANCIAL INFORMATION
QUARTERLY DATA (UNAUDITED)
PAGE
80
81
88
93
94
94
99
99
100
101
102
BOMBARDIER INC. FINANCIAL REPORT – FISCAL YEAR ENDED DECEMBER 31, 2013 - OTHER 79
OFF-BALANCE SHEET ARRANGEMENTS
Factoring facilities
In the normal course of its business, BT has set up factoring facilities in Europe under which it can sell, without
credit recourse, qualifying trade receivables. For more details, refer to Note 16 – Trade and other receivables, to
the consolidated financial statements.
Credit and residual value guarantees
In connection with the sale of certain of our products, mainly commercial aircraft, we have provided financing
support in the form of credit and residual value guarantees to enhance the ability of certain customers to arrange
third-party financing for their acquisitions.
Credit guarantees provide support through contractually limited payments to the guaranteed party to mitigate
default-related losses. Credit guarantees are triggered if customers do not perform during the term of the
financing under the relevant financing arrangements. The remaining terms of these financing arrangements range
from 1 to 13 years. In the event of default, we usually act as an agent for the guaranteed parties for the
repossession, refurbishment and re-marketing of the underlying assets. We typically receive a fee for these
services.
Residual value guarantees provide protection to the guaranteed parties in cases where the market value of the
underlying asset falls below the guaranteed value at an agreed-upon date. In most cases, these guarantees are
provided as part of a customer financing arrangement (these arrangements have remaining terms ranging from
1 to 13 years). The value of the underlying asset may be adversely affected by a number of factors. To mitigate
our exposure, the financing arrangements generally require the aircraft used as collateral to meet certain
contractual return conditions in order to exercise the guarantee. If a residual value guarantee is exercised, it
provides for a contractually limited payment to the guaranteed parties, which is typically a specified maximum
amount of the first losses incurred by the guaranteed party. A claim under the guarantee may typically be made
only at the end of the financing arrangement, upon the sale of the underlying asset to a third party.
When credit and residual value guarantees are provided in connection with a financing arrangement for the same
underlying asset, residual value guarantees can only be exercised if the credit guarantee expires without having
been exercised and, as such, the guarantees are mutually exclusive.
For more details, refer to Note 39 – Commitments and contingencies, to the consolidated financial statements.
Financing commitments
We sometimes provide financing support to facilitate our customers’ access to capital. This support may take a
variety of forms, including providing assistance to customers in accessing and structuring debt and equity for
aircraft acquisitions or providing assurance that debt and equity are available to finance such acquisitions.
As at December 31, 2013, we had no commitments to arrange financing for customers in relation to the future
sale of aircraft.
Financing structures related to the sale of commercial aircraft
In connection with the sale of commercial aircraft, BA has provided credit and/or residual value guarantees and
subordinated debt to, and retained residual interests in, certain entities created solely to provide financing related
to the sale of commercial aircraft. BA also provides administrative services to certain of these entities in return for
a market fee.
Typically, these entities are financed by third-party long-term debt and equity. Often, equity investors benefit from
tax incentives. The aircraft serve as collateral for the entities’ long-term debt.
For more details, refer to Note 38 – Unconsolidated structured entities, to the consolidated financial statements.
80 BOMBARDIER INC. FINANCIAL REPORT – FISCAL YEAR ENDED DECEMBER 31, 2013
RISKS AND UNCERTAINTIES
We operate in industry segments which present a variety of risk factors and uncertainties. The risks and
uncertainties described below are risks that could materially affect our business activities, financial condition, cash
flows and results of operations, but are not necessarily the only risks that we face. Additional risks and
uncertainties, presently unknown to us or that we currently believe to be immaterial, may also adversely affect our
business. To the extent possible, we perform risk assessment and apply mitigation practices to reduce the nature
and extent of our exposure to these risks to an acceptable level.
General economic
risk
Business
environment risk
Operational risk
Potential loss due to unfavourable economic conditions, such as a macroeconomic downturn in key
markets, could result in potential buyers postponing the purchase of our products or services, lower
order intake, order cancellations or deferral of deliveries, lower availability of customer financing, an
increase in our involvement in customer financing, downward pressure on selling prices, increased
inventory levels, decreased level of customer advances, slower collection of receivables, reduction in
production activities, discontinued production of certain products, termination of employees or adverse
impacts on our suppliers.
Business environment risk is the risk of potential loss due to external risk factors. These factors may
include the financial condition of the airline industry, business aircraft customers and major rail
operators; government policies related to import and export restrictions and business acquisitions;
changing priorities and possible spending cuts by government agencies; government support for
export sales; world trade policies including specific regional trade practices; increased competition
from other businesses including new entrants in market segments in which we compete; as well as
scope clauses in pilot union agreements restricting the operation of smaller jetliners by major airlines
or by their regional affiliates. In addition, acts of terrorism, natural disasters, global health risks,
political instability or the outbreak of war or continued hostilities in certain regions of the world could
result in lower orders or the rescheduling or cancellation of part of the existing order backlog for some
of our products.
Operational risk is the risk of potential loss due to the nature of our operations. Sources of operational
risk include development of new products and services; development of new business; actions of
business partners; product performance warranty and casualty claim losses; regulatory and legal
conditions; environmental, health and safety issues; as well as dependence on customers, suppliers,
partners and human resources. In addition, the large and complex projects which are common in our
businesses are often structured as fixed-price contracts and thus exposed to production and project
execution risks. We are also subject to risks related to problems with supply chain management,
reliance on information systems, reliance on intellectual property rights as well as the successful
integration of new business acquisitions.
Financing risk
Market risk
Financing risk is the risk of potential loss related to the liquidity of our financial assets, including
counterparty credit risk; access to capital markets; restrictive debt covenants; financing support
provided for the benefit of certain customers; and government support.
Market risk is the risk of potential loss due to adverse movements in market factors, including foreign
currency fluctuations, changing interest rates, decreases in residual values of assets and increases in
commodity prices.
Business environment risk
Financial condition of the airline industry and business aircraft customers
The airline industry’s financial condition and viability, including airlines’ ability to secure financing, can influence
the demand for BA’s commercial aircraft. The nature of the airline industry makes it difficult to predict when
economic downturns or recoveries will impact the industry and economic cycles may be longer than expected.
Continued cost pressures and efforts to achieve acceptable profitability in the airline industry may constrain the
selling price of BA’s products. Scope clauses in pilot union agreements in the U.S. restrict the operation of smaller
jetliners by major airlines or by their regional affiliates and, therefore, may restrict demand in the regional aircraft
market.
BOMBARDIER INC. FINANCIAL REPORT – FISCAL YEAR ENDED DECEMBER 31, 2013 - OTHER 81
The purchase of our products and services may represent a significant investment for a corporation, an individual
or a government. When economic or business conditions are unfavourable, potential buyers may delay the
purchase of our products and services. The availability of financing is also an important factor and credit scarcity
can cause customers to either defer deliveries or cancel orders.
An increased supply of used aircraft as companies restructure, downsize or discontinue operations could also add
downward pressure on the selling price of new and used business and commercial aircraft. We could then be
faced with the challenge of finding ways to reduce costs and improve productivity to sustain a favourable market
position at acceptable profit margins. The loss of any major commercial airline or fractional ownership or charter
operator as a customer or the termination of a contract could significantly reduce our revenues and profitability.
Financial condition of the rail industry
The rail industry is usually resilient during economic downturns. Challenging economic and financial conditions in
specific areas, however, may have a negative impact on some rail operators. As governments respond to
economic crises with austerity measures or by increasing their level of indebtedness to fund economic stimulus
plans, it may become more difficult for publicly-owned rail operators to obtain government funding. Funding
shortages may result in projects being reduced in size, postponed or even cancelled. Such actions by rail
operators or governments would negatively impact BT’s order intake and revenues and put pressure on our cost
structure and prices, therefore reducing our competitiveness. In addition, payment terms, including the level and
timing of advance payments from our customers, may deteriorate and negatively impact our cash flows.
Political instability
Political unrest in certain regions of the world may be prolonged and unpredictable. A prolongation of political
instability could lead to delays or cancellation of orders, deliveries or projects in which we have invested
significant resources, particularly when our customers are state-owned or state-controlled entities.
Force majeure events or natural disasters
Force majeure events or natural disasters (including seismic and severe weather-related events such as ice
storms, hurricanes, flooding, tornadoes or other calamities) are unpredictable and may have significant adverse
results such as: personal injury or fatality; damage to or destruction of ongoing projects, facilities or equipment;
environmental damage; delays or cancellations of orders and deliveries; delays in the receipt of materials from
our suppliers; delays in projects; or legal liability.
Developing new products and services
Operational risk
Changes as a result of global trends such as climate change, oil scarcity, the rising cost of energy, urbanization,
population growth and demographic factors influence customer demands in our main markets. To meet our
customers’ needs, we must continuously develop and design new products, improve existing products and
services and invest in and develop new technologies. Introducing new products or technologies requires a
significant commitment to R&D investment, including maintaining a significant level of highly skilled employees.
Furthermore, our investments in new products or technologies may or may not be successful.
Our results may be impacted if we invest in products that are not accepted in the marketplace, if customer
demand or preferences change, if new products are not approved by regulatory authorities or are not brought to
market in a timely manner or if our products become obsolete. We may incur cost overruns in developing our new
products and there is the risk that our products will not meet performance specifications to which we have
committed to customers. Despite measures used to protect our proprietary information such as confidentiality
agreements, patents and licenses, we may not always be able to enforce our rights to our intellectual property or
preclude misuse of our technology.
82 BOMBARDIER INC. FINANCIAL REPORT – FISCAL YEAR ENDED DECEMBER 31, 2013
We are subject to stringent certification and approval requirements, as well as to the ability of regulatory bodies to
perform these assessments on a timely basis, which vary by country and can delay the certification of our
products. Non-compliance with current or future regulatory requirements imposed by Transport Canada (TC), the
U.S. Federal Aviation Administration (FAA), the European Aviation Safety Agency (EASA), the Transport Safety
Institute in the U.S., national rail regulatory bodies or other regulatory authorities could result in service
interruption of our products, fewer sales or slower deliveries, reduction in inventory values or impairment of
assets.
In the market segments in which BA competes, our competitors are developing numerous aircraft programs, with
entries-into-service expected throughout the next decade. We face the risk that our market share may be eroded
if potential customers opt for our competitors’ products. We may also be negatively impacted if we are not able to
meet product support expectations or provide an international presence for our diverse customer base.
Customer acceptance of BT’s highly complex and customized products may be delayed for various reasons,
including customer requirements not being met or a divergence in the interpretation of customer requirements,
which may also result in delayed deliveries, a build-up of inventories and a consequential financial impact. BT’s
results could also be negatively impacted if we fail to design or obtain accreditation for new technologies and
platforms on budget and in a timely manner. Further, our long-term growth, competitiveness and continued
profitability are dependent on our ability to continue to develop our product mix and align our global presence with
worldwide market opportunities.
Fixed-price commitments and production and project execution
We have historically offered, and will continue to offer, virtually all of our products on fixed-price contracts rather
than contracts under which payment is determined solely on a time-and-material basis. Generally, we cannot
terminate contracts unilaterally.
We are exposed to risks associated with fixed-price contracts, including unexpected technological problems,
difficulties with our partners and subcontractors, logistical difficulties and other execution issues that could lead to
cost overruns, late delivery penalties or delays in receiving milestone payments. We may also incur late delivery
penalties if we are unable to increase production rates quickly enough to meet our commitments. In addition, due
to the nature of the bidding process, long-term contract revenues are based, in part, on cost estimates which in
turn are subject to a number of assumptions such as forecasted costs of materials, inflation rates, foreign
exchange rates, labour productivity, employment levels and salaries, and are influenced by the nature and
complexity of the work to be performed. Long-term contract revenues and costs may also vary from initial
forecasts due to the impact of change orders and delayed deliveries.
Business partners
In some of the projects carried out through consortia or other partnership vehicles in which we participate,
partners are jointly and severally liable to the customer. The success of these partnerships is dependent on
satisfactory performance by us and our business partners. Failure of the business partners to fulfill their
contractual obligations could subject us to additional financial and performance obligations which could result in
increased costs, unforeseen delays or impairment of assets. In addition, a partner withdrawing from a consortium
during the bid phase may result in the loss of potential order intake.
Product performance warranty and casualty claim losses
The products that we manufacture are highly complex and sophisticated and may contain defects that are difficult
to detect or correct. Our products are subject to detailed specifications, which are listed in the individual contracts
with customers, as well as to stringent certification or approval requirements. Defects may be found in our
products before and after they are delivered to the customer. When discovered, we may incur significant
additional costs to modify and/or retrofit our products and we may not be able to correct defects in a timely
manner or at all. The occurrence of defects and failures in our products could give rise to non-conformity costs,
including warranty and damage claims, negatively affect our reputation and profitability and result in the loss of
customers. Correcting such defects could require significant capital investment.
BOMBARDIER INC. FINANCIAL REPORT – FISCAL YEAR ENDED DECEMBER 31, 2013 - OTHER 83
In addition, due to the nature of our business, we may be subject to liability claims arising from accidents,
incidents or disasters involving our products or products for which we have provided services, including claims for
serious personal injuries or death. These accidents may include misfortunes caused by climatic factors or human
error. We cannot be certain that our insurance coverage will be sufficient to cover one or more substantial claims.
Furthermore, there can be no assurance that we will be able to obtain insurance coverage at acceptable levels
and costs in the future.
Regulatory and legal risks
We are subject to numerous risks relating to current and future regulations, as well as legal proceedings to which
we are currently a party or that could arise in the future. We become party to lawsuits in the ordinary course of our
business, including those involving allegations of late deliveries of goods or services, product liability, product
defects, quality problems and intellectual property infringement. We may incur material losses relating to litigation
beyond the limits or outside the coverage of our insurance and our provisions for litigation-related losses may not
be sufficient to cover the ultimate loss or expenditure. In addition, employee, agent, supplier or partner
misconduct or failure to comply with anti-bribery and other government laws and regulations could harm our
reputation, reduce our revenues and profitability, and subject us to criminal and civil enforcement actions.
Also refer to Note 39 – Commitments and contingencies, to the consolidated financial statements, for information
regarding current litigation proceedings, related to the S-Bahn claim and the investigation in Brazil.
Environmental, health and safety risks
Our products, as well as our manufacturing and service activities, are subject to environmental laws and
regulations in each of the jurisdictions in which we operate, governing, among other things: product performance
or content; energy use and greenhouse gas emission; air, water and noise pollution; the use, storage,
transportation, labelling and disposal or release of hazardous substances; human health risks arising from the
exposure to hazardous or toxic materials; and the remediation of soil and groundwater contamination on or under
our properties (whether or not caused by us), or on or under other properties and caused by our current or past
operations.
Environmental regulatory requirements, or enforcements thereof, may become more stringent in the future and
we may incur additional costs to be compliant with such future requirements or enforcements. In addition, we may
have contractual or other liabilities for environmental matters relating to businesses, products or properties that
we have in the past closed, sold or otherwise disposed of, or that we will close, sell or dispose of in the future.
Dependence on customers
We depend on a limited number of customers and we believe that we will continue to depend on a limited number
of customers. Consequently, the loss of such a customer could result in fewer sales and/or a lower market share.
Since the majority of BT’s customers are public-sector companies or operate under public contracts, BT’s order
intake is also dependent on public-sector budgets and spending policies.
Business development
BA and BT’s businesses are dependent on obtaining new orders and customers, thus continuously replenishing
our order backlog. BA and BT’s results may be negatively impacted if we are unable to effectively execute our
strategies to gain access to new markets, capture growth or successfully establish roots in new markets.
84 BOMBARDIER INC. FINANCIAL REPORT – FISCAL YEAR ENDED DECEMBER 31, 2013
Dependence on suppliers
Our manufacturing operations are dependent on a limited number of suppliers for the delivery of raw materials
(mainly aluminum, advanced aluminum alloy and titanium) and major systems (such as engines, wings, nacelles,
landing gear, avionics, flight controls and fuselages) at BA, and raw materials (mainly steel and aluminum),
services (mainly engineering, civil and electrical subcontracts) and major systems (such as brakes, doors,
heating, ventilation and air conditioning) at BT. A failure by one or more suppliers to meet performance
specifications, quality standards or delivery schedules could adversely affect our ability to meet our commitments
to customers.
Some of our suppliers participate in the development of products such as aircraft or rolling stock platforms. The
advancement of many of our new product development programs also relies on the performance of these key
suppliers and, therefore, supplier delays which we are not able to mitigate could result in delays to a program as a
whole. These suppliers subsequently deliver major components to us and own some of the intellectual property
related to key components they have developed. Our contracts with these suppliers are therefore on a long-term
basis. The replacement of such suppliers could be costly and take a significant amount of time.
Human resources (including collective agreements)
Human resource risk includes the risk that we may incur delays in the recruitment of or be unable to retain and
motivate highly skilled employees, including those involved in R&D and manufacturing activities that are essential
to our success. In addition, we are party to several collective agreements that are due to expire at various times in
the future. Our inability to renew these collective agreements on mutually agreeable terms, as they become
subject to renegotiation from time to time, could result in work stoppages or other labour disturbances such as
strikes, walk-outs or lock-outs, and/or increased costs of labour, which could adversely affect our ability to deliver
our products and services in a timely manner.
Liquidity and access to capital markets
Financing risk
We require sufficient capital resources and continued access to capital markets to support our operating activities
and the development of new products. To satisfy our financing needs, we rely on cash and cash equivalents, cash
flows generated by operations, capital market resources such as debt and equity and other financing
arrangements such as revolving credit facilities. A decline in credit ratings, a significant reduction in the surety or
financing market global capacity, widening credit spreads, significant changes in market interest rates or general
economic conditions or an adverse perception in bank and capital markets of our financial condition or prospects
could all significantly increase our cost of financing or impede our ability to access financial markets. Our credit
ratings may be impacted by many factors and, accordingly, no assurance can be given that they may not be
downgraded in the future. Also, new regulatory requirements on bank capital adequacy and market liquidity risk
may reduce the availability of financing causing access to credit to become more difficult and borrowing costs to
increase.
Our right to convert into cash certain deposits or investments, held in financing structures to guarantee our
obligations, may be subject to restrictions. Additionally, in some countries, cash generated by operations may be
subject to restrictions on the right to convert and/or repatriate money and may thus not be available for immediate
use.
Retirement benefit plan risk
We are required to make contributions to a number of pension plans, most of which are presently in a deficit
position. Our funding requirements are dependent on regulatory requirements and on the valuations of our plans’
assets and liabilities, which are subject to a number of factors, including expected returns on plan assets, long-
term interest rates, as well as applicable actuarial practices and various other assumptions. The potential
requirement to make additional contributions as a result of changes to regulations or other factors may reduce the
amount of funds available for operating purposes, thus weakening our financial condition.
BOMBARDIER INC. FINANCIAL REPORT – FISCAL YEAR ENDED DECEMBER 31, 2013 - OTHER 85
We have no assurance that our retirement benefit plan assets will earn the expected rates of return. The ability of
our retirement benefit plan assets to earn the expected rates of return depends in large part on the performance
of capital markets. Market conditions also affect the discount rates used to calculate our net retirement benefit
liabilities and could also impact our retirement benefit costs, cash funding requirements and liquidity position.
Credit risk
We are exposed to credit risk through our derivative financial instruments and other investing activities carried out
as part of our normal treasury activities, as well as through our trade receivables arising from normal commercial
activities and through financing activities provided to BA customers primarily in the form of aircraft loans and lease
receivables. If our customers or other counterparties are unable to make payment of amounts owed to us, or
delay payments, we may be subject to reduced liquidity and may incur impairment losses on these assets.
Furthermore, if our customers experience deteriorating credit quality, we may need to: i) provide additional direct
or indirect financing support to maintain sales, increasing our exposure to credit risk, or ii) reduce our customers’
credit limits, which could negatively affect our revenues.
We also have exposure to banks in the form of credit commitments. In the event the banks with which we transact
are unable to withstand regulatory or liquidity pressures, credit facilities, including letter of credit facilities, may
become unavailable or we may not be able to extend such facilities upon their maturity.
Restrictive debt covenants
incur additional debt and provide guarantees;
repay subordinated debt;
create or permit certain liens;
The indentures governing certain of our indebtedness, revolving credit facilities and letter of credit facilities
contain covenants that, among other things, restrict our ability to:
(cid:120)
(cid:120)
(cid:120)
(cid:120) use the proceeds from the sale of assets and capital stock of subsidiaries;
(cid:120) pay dividends and make certain other disbursements;
(cid:120) allow our subsidiaries to pay dividends or make other payments;
(cid:120) engage in certain transactions with affiliates; and
(cid:120) enter into certain consolidations, mergers or transfers of all or certain assets.
These restrictions could impair our ability to finance our future operations or capital needs, or engage in other
business activities that may be in our interest.
We are subject to various financial covenants under our BA and BT letter of credit facilities and our unsecured
revolving credit facilities which must be met on a quarterly basis. The BA $600-million letter of credit facility and
the $750-million unsecured revolving facility include financial covenants requiring a minimum EBITDA to fixed
charges ratio, a maximum net debt to EBITDA ratio and a minimum liquidity level of $500 million, all calculated
based on an adjusted consolidated basis (i.e. excluding BT). BT’s €3.5-billion letter of credit facility and €500-
million unsecured revolving facility require a minimum liquidity level of €600 million as well as a minimum equity
level and a maximum debt to EBITDA ratio, all calculated on a BT stand-alone basis. These terms and ratios are
defined in their respective agreements and do not correspond to our global metrics or to specific terms used in the
MD&A.
Our ability to comply with these covenants may be affected by events beyond our control. A breach of any of
these agreements or our inability to comply with these covenants could result in a default under these facilities,
which would permit our banks to request the immediate cash collateralization of all outstanding letters of credit,
and our bond holders and other lenders to declare amounts owed to them to be immediately payable.
If repayment of our indebtedness is accelerated, we may not be able to repay or borrow sufficient funds to
refinance it.
86 BOMBARDIER INC. FINANCIAL REPORT – FISCAL YEAR ENDED DECEMBER 31, 2013
Financing support provided for the benefit of certain customers
From time to time, we provide aircraft financing support to customers. We may provide, directly or indirectly, credit
and residual value guarantees or guarantee a maximum credit spread, to support financing for certain customers
such as airlines or to support financing by certain special purpose entities created solely i) to purchase our
commercial aircraft and to lease those aircraft to airline companies or ii) to purchase financial assets such as
loans and lease receivables related to the sale of our commercial aircraft. Under these arrangements, we are
obligated to make payments to a guaranteed party in the event that the original debtor or lessee does not make
the loan or lease payments, or if the market or resale value of the aircraft is below the guaranteed residual value
amount at an agreed-upon date. A substantial portion of these guarantees has been extended to support original
debtors or lessees with less than investment grade credit ratings.
Government support
From time to time, we receive various types of government financial support. Some of these financial support
programs require that we repay amounts to the government at the time of product delivery. The level of
government support reflects government policy and depends on fiscal spending levels and other political and
economic factors. We cannot predict if future government-sponsored support will be available. The loss of or any
substantial reduction in the availability of government support could negatively impact our liquidity assumptions
related to the development of aircraft or rail products and services. In addition, any future government support
received by our competitors could have a negative impact on our competitiveness, sales and market share.
Foreign exchange risk
Market risk
Our financial results are reported in U.S. dollars and a significant portion of our sales and operating costs are
transacted in currencies other than U.S. dollars, most often euros, Canadian dollars, pounds sterling, Swiss
francs and Swedish kronor. Our results of operations are therefore affected by movements in these currencies
against the U.S. dollar. Significant fluctuations in relative currency values against the U.S. dollar could thus have
a significant impact on our future profitability. Additionally, the settlement timing of our foreign currency derivatives
could significantly impact our liquidity.
Interest rate risk
Changes in interest rates may result in fluctuations in our future cash flows related to variable-rate financial assets
and liabilities, including long-term fixed-rate debt synthetically converted to variable interest rates. Changes in
interest rates may also affect our future cash flows related to commitments to provide financing support to
facilitate our customers’ access to capital. For these items, cash flows could be impacted by changes in
benchmark rates such as Libor, Euribor or Bankers’ Acceptance. In addition, we are exposed to gains and losses
arising from changes in interest rates, including marketability risk, through our financial instruments carried at fair
value such as certain aircraft loans and lease receivables, investments in securities and certain derivatives.
Residual value risk
We are exposed to residual value risks through RVGs provided in support of commercial aircraft sales. We may
provide RVGs either directly to an airline, a lessor or to a financing party that participates in a long-term financing
associated with the sale of commercial aircraft. RVGs are offered as a strip of the value of an aircraft with a
ceiling and a floor. If the underlying aircraft is sold at the end of the financing period (or during this period in
limited circumstances), the resale value is compared to the RVG strip. We are required to make payments under
these RVGs when the resale value of the aircraft falls below the ceiling of the strip covered by the guarantee, but
our payment is capped at the floor of the strip if the resale value of the aircraft is below that level.
BOMBARDIER INC. FINANCIAL REPORT – FISCAL YEAR ENDED DECEMBER 31, 2013 - OTHER 87
Commodity price risk
We are exposed to commodity price risk relating principally to fluctuations in the cost of materials used in our
supply chain, such as aluminum, advanced aluminum alloy, titanium and steel, which could adversely affect our
business and results of operations.
ACCOUNTING AND REPORTING DEVELOPMENTS
Changes in accounting policies and methods
Financial statement presentation
In June 2011, the IASB amended IAS 1, Presentation of financial statements. The principal change resulting from
the amendments to IAS 1 is a requirement to group items within OCI that may be reclassified to the statement of
income. The amendments also reaffirmed existing requirements that items in OCI and net income should be
presented as either a single statement or two consecutive statements. The amended IAS 1 was adopted effective
January 1, 2013. The presentation of our consolidated financial statement was not impacted by these
amendments as the items within OCI that may be reclassified to the consolidated statement of income are already
disclosed together.
Fair value measurement
In May 2011, the IASB released IFRS 13, Fair value measurement. IFRS 13 improves consistency and reduces
complexity by providing a precise definition of fair value and a single source of fair value measurement and
disclosure requirements for use across IFRS when another IFRS requires or permits the item to be measured at
fair value. IFRS 13 was adopted effective January 1, 2013. The adoption of this standard had no significant
impact on our consolidated financial statements other than to give rise to additional disclosures, see Note 35, Fair
value of financial instruments, to the consolidated financial statements.
Consolidation
In May 2011, the IASB released IFRS 10, Consolidated financial statements, which replaces SIC-12,
Consolidation – special purpose entities, and the parts of IAS 27, Consolidated and separate financial statements
related to the preparation and the presentation of consolidated financial statements. The new standard builds on
existing principles by identifying the concept of control as the determining factor to assess whether an entity
should be included in an entity’s consolidated financial statements. The standard provides additional guidance to
assist in the determination of control where it is difficult to assess. IFRS 10 was adopted effective
January 1, 2013. The adoption of this standard had no impact on our consolidated financial statements.
Disclosure of interests in other entities
In May 2011, the IASB released IFRS 12, Disclosure of interests in other entities. IFRS 12 is a new and
comprehensive standard on disclosure requirements for all forms of interests in other entities, including
subsidiaries, joint arrangements, associates, special purpose vehicles and other off-balance sheet vehicles. The
standard requires an entity to disclose information regarding the nature and risks associated with its interests in
other entities and the effects of those interests on its financial position, financial performance and cash flows.
IFRS 12 was adopted effective January 1, 2013. See Note 36 – Investments in joint ventures and associates and
Note 38 – Unconsolidated structured entities, to the consolidated financial statements.
Joint arrangements
In May 2011, the IASB released IFRS 11, Joint arrangements, which supersedes IAS 31, Interests in joint
ventures, and SIC-13, Jointly controlled entities - non-monetary contributions by venturers. IFRS 11 focuses on
the rights and obligations of a joint arrangement, rather than its legal form as was the case under IAS 31. IFRS 11
classifies joint arrangements into two types: joint ventures and joint operations. Joint ventures are arrangements
whereby the parties have rights to the net assets, while joint operations are arrangements whereby the parties
have rights to the assets and obligations for the liabilities. The standard eliminates choices in the reporting of joint
arrangements by requiring the use of the equity method to account for interests in joint ventures, and by requiring
joint operators to recognize assets and liabilities in relation to their interests in the arrangements. IFRS 11 was
adopted effective January 1, 2013 and the change has been accounted for retroactively in accordance with the
transition rules of IFRS 11.
88 BOMBARDIER INC. FINANCIAL REPORT – FISCAL YEAR ENDED DECEMBER 31, 2013
A large part of our investments in joint arrangements qualify as joint ventures and are now accounted for using
the equity method of accounting. These investments were previously accounted for using the proportionate
consolidation method. Under the equity method of accounting, our share of net assets, net income and OCI of
joint ventures are presented as one-line items on the consolidated statement of financial position, the
consolidated statement of income and the consolidated statement of comprehensive income, respectively. In
addition, the consolidated statement of cash flows under the equity method of accounting includes the cash flows
between us and our joint ventures, and not our proportionate share of the joint ventures’ cash flows.
Employee benefits
In June 2011, the IASB amended IAS 19, Employee benefits. Among other changes, the amendments require
entities to compute the financing cost component of defined benefit plans by applying the discount rate used to
measure post-employment benefit obligations to the net post-employment benefit obligations (usually, the present
value of defined benefit obligations less the fair value of plan assets). Under the previous IAS 19, interest income
was presented separately from interest expense and calculated based on the expected return on the plan assets.
Furthermore, the amendments to IAS 19 enhance the disclosure requirements for defined benefit plans, providing
additional information about the characteristics of defined benefit plans and the risks that entities are exposed to
through participation in those plans. The amended IAS 19 was adopted effective January 1, 2013. The changes in
accounting policy have been accounted for retroactively in accordance with the transition rules of the amended
IAS 19 and the required disclosures are provided in Note 22 – Retirement benefits, to the consolidated financial
statements.
Change in methods of measurement of certain financial assets
We revised our methods of measurement of certain financial assets carried at fair value, mainly investments in
financing structures. The carrying value of these financial assets is determined using a valuation model based on
stochastic simulations and discounted cash flow analysis. In the past, the methods used to determine the discount
rate did not include all the components that market participants would consider as inputs to establish fair value.
Therefore, the impacted financial assets have been re-measured using revised discount rates and the change of
method has been accounted for retroactively. Also, certain of these remeasured financial assets have been
reclassified on the consolidated statements of financial position to present them separately from related
provisions.
Impact of adopting the above-mentioned changes in accounting policies and methods
The following tables summarize the retroactive restatements to our consolidated financial statements resulting
from the adoption of the amended IAS 19, Employee benefits, IFRS 11, Joint arrangements and the change in
methods of measurement of certain financial assets, including the impact of reclassification.
BOMBARDIER INC. FINANCIAL REPORT – FISCAL YEAR ENDED DECEMBER 31, 2013 - OTHER 89
The impacts on the consolidated statement of income are as follows:
Revenues
Cost of sales
Gross margin
SG&A
R&D
Share of income of joint ventures and
associates
Other expense
Special items
EBIT
Financing expense
Financing income
EBT
Income taxes
Net income
EPS (in dollars)
Basic and diluted
Fourth quarter ended December 31, 2012
Restatements
Joint
arrangements (1)
$
$
(130)
(80)
(50)
(3)
-
(43)
-
-
(4)
-
2
(6)
(6)
-
As
presented
4,755
$
4,129
626
357
103
(18)
9
163
12
144
(111)
(21)
(35)
14
-
$
$
$
Employee
benefits
-
3
(3)
4
-
$
Remeasurement
of certain
financial assets
-
-
-
-
-
$
As
restated
4,625
4,052
573
358
103
-
-
-
(7)
(75)
108
(40)
(5)
(35)
$
-
-
-
-
(1)
(18)
19
2
17
$
(61)
9
163
1
68
(19)
(48)
(44)
(4)
$
(0.01)
$
The impacts on the consolidated statement of income are as follows, for fiscal year:
2012
As
presented
$ 16,768
14,269
2,499
1,443
299
Revenues
Cost of sales
Gross margin
SG&A
R&D
Share of income of joint ventures
and associates
Other income
Special items
EBIT
Financing expense
Financing income
EBT
Income taxes
Net income
EPS (in dollars)
Basic and diluted
(1) Adjustments resulting from the application of the equity method:
(45)
(33)
140
695
596
(599)
698
100
598
0.32
$
$
Joint
arrangements (1)
Remeasurement
of certain
financial assets
Restatements
$
Employee
benefits
-
14
(14)
7
-
-
-
-
(21)
(301)
427
(147)
(16)
(131)
$
$
$
(354)
(230)
(124)
(8)
-
(108)
-
-
(8)
-
12
(20)
(20)
-
$
$
As
restated
- $ 16,414
14,053
-
2,361
-
1,442
-
299
-
-
-
-
-
-
(5)
5
2
3 $
(153)
(33)
140
666
295
(165)
536
66
470
$
0.25
i. Impact of ceasing to consolidate proportionally our share of revenues and expenses of joint ventures;
ii. Impact of not eliminating certain transactions between us and our joint ventures; and
iii. Impact of recording our pro-rata share of net income arising from joint ventures as a one-line item under the caption share of income
of joint ventures and associates.
90 BOMBARDIER INC. FINANCIAL REPORT – FISCAL YEAR ENDED DECEMBER 31, 2013
The impacts on the consolidated statements of financial position are as follows, as at:
Restatements
December 31, 2012
As
presented
Joint
arrangements
Employee
benefits
Remeasurement
of certain
financial assets (1)
As
restated
$
2,896
9,937
$
(339)
(406)
66
1,759
11,132
$ 25,790
$ 11,312
1,586
2,997
8,518
24,413
1,377
$ 25,790
245
(6)
(128)
(634)
(578)
(58)
(2)
-
(638)
4
(634)
$
$
$
$
$
$
$
-
-
-
-
-
-
-
-
4
-
4
(4)
-
$
$
$
$
$
-
-
2,557
9,531
311
-
1,782
29
(10)
10,994
19 $ 25,175
59 $ 10,793
1,608
80
2,999
-
8,518
-
23,918
139
1,257
(120)
19 $ 25,175
January 1, 2012
Restatements
As
presented
Joint
arrangements
Employee
benefits
Remeasurement
of certain
financial assets (1)
As
restated
$
3,372
9,365
$
37
1,831
9,259
$ 23,864
$ 10,877
1,672
3,226
7,418
23,193
671
$ 23,864
$
$
$
(480)
(159)
238
(15)
(118)
(534)
(479)
(59)
-
-
(538)
4
(534)
$
$
$
$
-
-
-
-
-
-
-
-
5
-
5
(5)
-
$
$
$
$
- $
-
2,892
9,206
275
-
1,833
17
(8)
9,133
9 $ 23,339
132
-
-
132
(123)
- $ 10,398
1,745
3,231
7,418
22,792
547
9 $ 23,339
Assets
Cash and cash equivalents
Other current assets
Investments in joint ventures and
associates
Other financial assets
Other non-current assets
Liabilities
Other current liabilities
Provisions
Retirement benefits
Other non-current liabilities
Equity
Assets
Cash and cash equivalents
Other current assets
Investments in joint ventures and
associates
Other financial assets
Other non-current assets
Liabilities
Other current liabilities
Provisions
Retirement benefits
Other non-current liabilities
Equity
(1) Including reclassification.
The employee benefit restatement on the consolidated statements of financial position is not significant because
the cumulative impact of the higher net interest expense under the revised standard is mostly offset by the
reversal of accumulated actuarial losses on plan assets previously recognized in AOCI.
BOMBARDIER INC. FINANCIAL REPORT – FISCAL YEAR ENDED DECEMBER 31, 2013 - OTHER 91
The impacts on the consolidated statements of comprehensive income, net of income taxes, are as follows:
Comprehensive income as presented
Net income
Employee benefits
Remeasurement of certain financial assets
OCI
Employee benefits
Net increase in comprehensive income
Comprehensive income as restated
Fourth quarter ended
December 31, 2012
191
$
Fiscal year 2012
904
$
(35)
17
35
17
208
(131)
3
132
4
908
$
$
The impacts on the consolidated statement of cash flows are as follows, for fiscal year:
Cash flow from operating activities
Cash flow from investing activities
Cash flow from financing activities
Effect of exchange rates
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
Restatements
Joint
arrangements
$
$
90 $
51
4
(4)
141
(480)
(339) $
2012
As
restated
1,438
(1,899)
81
45
(335)
2,892
2,557
$
As
presented
1,348
(1,950)
77
49
(476)
3,372
2,896
$
Future changes in accounting policies
Financial instruments
In October 2010, the IASB released IFRS 9, Financial instruments, which is the first part of a three-part project to
replace IAS 39, Financial instruments: recognition and measurement. This first part only covers classification and
measurement of financial assets and financial liabilities. The other two parts, impairment of financial assets and
hedge accounting, are still under development. The IASB is currently considering making limited modifications to
the first part of IFRS 9. Those limited modifications include the introduction of a fair value through OCI category
for debt instruments that would be based on an entity’s business model.
The first part of IFRS 9 uses a new approach to determine whether a financial asset is measured at amortized
cost or fair value, replacing the multiple rules in IAS 39. The approach in IFRS 9 is based on how an entity
manages its financial instruments and the contractual cash flow characteristics of the financial assets. Most of the
requirements in IAS 39 for classification and measurement of financial liabilities were carried forward in IFRS 9.
However, the portion of the changes in fair value related to the entity’s own credit risk, in measuring a financial
liability at FVTP&L, will be presented in OCI rather than in the statement of income. The mandatory effective date
of IFRS 9, initially set for our fiscal year beginning on January 1, 2015, is currently under review by the IASB.
IFRS 9 is still available for early adoption. We have not yet assessed the impact of the adoption of this standard
on our consolidated financial statements.
In June 2013, the IASB has amended IAS 39 to provide relief from discontinuing hedge accounting when novation
of a derivative designated as a hedging instrument meets certain criteria. This amendment will be effective for our
fiscal year beginning on January 1, 2014. Similar relief will be included in IFRS 9.
92 BOMBARDIER INC. FINANCIAL REPORT – FISCAL YEAR ENDED DECEMBER 31, 2013
Employee benefits
In November 2013, the IASB has amended IAS 19, Employee benefits, in order to simplify the accounting for
contributions of defined benefit plans that are independent of the number of years of employee service, for
example, employee contributions that are calculated according to a fixed percentage of salary. This amendment
will be effective for our fiscal year beginning on January 1, 2015, with earlier application permitted. We have not
yet assessed the impact of the adoption of this standard on our consolidated financial statements.
FINANCIAL INSTRUMENTS
An important portion of our consolidated balance sheets is composed of financial instruments. Our financial
assets include cash and cash equivalents, trade and other receivables, derivative financial instruments with a
positive fair value, aircraft loans and lease receivables, investments in securities, investments in financing
structures and restricted cash. Our financial liabilities include trade and other payables, long-term debt, derivative
financial instruments with a negative fair value, government refundable advances, lease subsidies, sale and
leaseback obligations and vendor non-recurring cost liabilities. Derivative financial instruments are mainly used to
manage our exposure to foreign exchange and interest rate risks. They consist mostly of forward foreign
exchange contracts, interest rate swap agreements and cross-currency interest rate swap agreements.
The use of financial instruments exposes us primarily to credit, liquidity and market risks, including foreign
exchange and interest rate risks. A description on how we manage these risks is included in the Risk
management section of Overview and in Note 34 – Financial risk management, to the consolidated financial
statements.
Fair value of financial instruments
All financial instruments are required to be recognized at their fair value on initial recognition, plus transaction
costs for financial instruments not at FVTP&L. Subsequent measurement is at amortized cost or fair value
depending on the classifications of the financial instruments. Financial instruments classified as FVTP&L or AFS
are carried at fair value, while all others are carried at amortized cost. The classification of our financial
instruments as well as the revenues, expenses, gains and losses associated with these instruments is provided in
Note 2 – Summary of significant accounting policies and in Note 14 – Financial instruments, to the consolidated
financial statements.
Note 35 - Fair value of financial instruments, to the consolidated financial statements, provides a detailed
description of the methods and assumptions used to determine the fair values of financial instruments. Fair values
are determined by reference to quoted prices in the principal market at the measurement date under current
market conditions. They are point-in-time estimates that may change in subsequent reporting periods due to
changes in market conditions or other factors. When quoted prices are unavailable, which is the case for most of
our financial assets and liabilities, we determine fair value based on internal or external valuations. We use
stochastic models, option-pricing models and discounted cash flow models when cash flow modeling is required.
Fair value determined using internal valuation models requires the use of assumptions regarding the amount and
timing of estimated future cash flows, discount rates, the creditworthiness of the borrower, the aircraft’s expected
future value, default probability, generic industrial bond spreads and marketability risk. When available, we use
external readily observable market inputs, such as interest rates, credit ratings, credit spreads, default
probabilities, currency rates, and price and rate volatilities, as applicable. Assumptions or inputs that are not
based on observable market data are used when external data are not available. Since they are based on
estimates, the fair values may not be realized in an actual sale or immediate settlement of the instruments.
Note 35 provides a three level fair value hierarchy, categorizing financial instruments by the inputs used to
measure their fair value. The fair value hierarchy gives the highest priority to unadjusted quoted prices in active
markets (Level 1) and the lowest priority to unobservable inputs (Level 3). In cases where the inputs used to
measure fair value are categorized within different levels of hierarchy, the fair value measurement is reported at
the lowest level of the input that is significant to the entire measurement. Assessing the significance of a particular
input to the fair value measurement in its entirety requires judgment, taking into account factors specific to the
asset or liability. The fair value hierarchy is not meant to provide insight on the liquidity characteristics of a
particular asset or on the degree of sensitivity of an asset or liability to other market inputs or factors.
BOMBARDIER INC. FINANCIAL REPORT – FISCAL YEAR ENDED DECEMBER 31, 2013 - OTHER 93
We consider gains and losses arising from certain changes in fair value of financial instruments incidental to our
core performance, such as those arising from changes in market yields, as our intention is to continue to hold
these instruments for the foreseeable future. These gains and losses are excluded from our measures of adjusted
net income and adjusted EPS to provide users of our financial statements a better understanding of the core
results of our business and enable better comparability of our results from one period to another and with peers.
In recent years, the call option attached to the €785-million Senior Notes maturing in November 2016 gave rise to
significant accounting gains or losses. This financial instrument is in an asset position. The unrealized gain on this
instrument could only be materialized from the early repayment of the notes.
In connection with the sale of commercial aircraft, we hold financial assets and have incurred financial liabilities,
measured at fair value, some of which are reported as Level 3 financial instruments, including certain aircraft
loans and lease receivables, certain investments in financing structures and lease subsidies. The fair values of
these financial instruments are determined using various assumptions, with the assumption on marketability risk
being the most likely to change the fair value significantly from period to period. The fair value of aircraft loans and
lease receivables was also moderately impacted by credit rating changes in the recent past.
Sensitivity analysis
Our main exposures to changes in fair value of financial instruments are related to changes in foreign exchange,
interest rates, aircraft residual value curves, credit ratings and marketability adjustments. Note 34 – Financial risk
management and Note 35 – Fair value of financial instruments, to the consolidated financial statements, present
sensitivity analyses assuming variations in foreign exchange and interest rates.
RELATED PARTY TRANSACTIONS
Our related parties, as defined by IFRS, are our joint ventures, associates and key management personnel. A
description of our transactions with these related parties is included in Note 37 – Transactions with related parties,
to the consolidated financial statements.
CRITICAL JUDGMENTS AND ACCOUNTING ESTIMATES
Our significant accounting policies and use of estimates and judgment are described in Note 2 – Summary of
significant accounting policies and Note 5 – Use of estimates and judgment, to the consolidated financial
statements. The preparation of financial statements, in conformity with IFRS, requires the use of estimates and
judgment. Critical accounting estimates, which are evaluated on a regular ongoing basis and can change from
period to period, are described in this section. An accounting estimate is considered critical if:
(cid:120)
the estimate requires us to make assumptions about matters that are highly uncertain at the time the
estimate is made; and
(cid:120) we could have reasonably used different estimates in the current period, or changes in the estimate are
reasonably likely to occur from period to period that would have a material impact on our financial
condition, our changes in financial condition or our results of operations.
Our best estimates regarding the future are based on the facts and circumstances available at the time estimates
are made. We use historical experience, general economic conditions and trends, as well as assumptions
regarding probable future outcomes as the basis for determining estimates. Estimates and their underlying
assumptions are reviewed periodically and the effects of any changes are recognized immediately. Actual results
will differ from the estimates used, and such differences could be material.
Our budget and strategic plan cover a three-year period and are fundamental information used as a basis for
many estimates necessary to prepare financial information. We prepare a budget and strategic plan covering a
three-year period, on an annual basis, using a process whereby a detailed one-year budget and two-year
strategic plan are prepared by each business unit and then consolidated at the reportable segment and
Corporation levels. Cash flows and profitability included in the budget and strategic plan are based on existing
and future contracts and orders, general market conditions, current cost structures, anticipated cost variations and
in-force collective agreements. The budget and strategic plan are subject to approval at various levels, including
senior management and the Board of Directors. We use the budget and strategic plan, as well as additional
94 BOMBARDIER INC. FINANCIAL REPORT – FISCAL YEAR ENDED DECEMBER 31, 2013
projections or assumptions, to derive the expected results for periods thereafter. We then track performance as
compared to the budget and strategic plan at various levels within the Corporation. Significant variances in actual
performance are a key trigger to assess whether certain estimates used in the preparation of financial information
must be revised.
The following areas require management’s most critical estimates and judgments. The sensitivity analyses
included in this section should be used with caution as the changes are hypothetical and the impact of changes in
each key assumption may not be linear.
Long-term contracts
BT conducts most of its business under long-term manufacturing and service contracts and BA has some long-
term maintenance service contracts as well as design and development contracts for third parties. Revenues and
margins from long-term contracts relating to the designing, engineering or manufacturing of specially designed
products (including rail vehicles and component overhaul) and service contracts are recognized using the
percentage-of-completion method of accounting. The percentage of completion is generally determined by
comparing the actual costs incurred to the total costs anticipated for the entire contract, excluding costs that are
not representative of the measure of performance. The long-term nature of these contracts requires estimates of
total contract costs and revenues at completion.
Estimated revenues at completion are adjusted for change orders, claims, performance incentives and other
contract terms that provide for the adjustment of prices. If it is probable that additional revenues will occur, they
are included in estimated revenues at completion.
Contract costs include material, direct labour, manufacturing overhead and other costs, such as warranty and
freight. Estimated contract costs at completion incorporate forecasts for material and labour usage and costs,
foreign exchange rates (including the effect of hedges) and labour productivity. These costs are influenced by the
nature and complexity of the work to be performed, as well as the impact of change orders and potential delays in
delivery. Cost estimates are based mainly on historical performance trends, economic trends, collective
agreements and contracts signed with suppliers. We apply judgment to determine the probability that we will incur
additional costs from delays or other penalties and such costs, if probable, are included in estimated costs at
completion.
Recognized revenues and margins are subject to revisions as contracts progress towards completion. We
conduct quarterly reviews of estimated costs and revenues to completion on a contract-by-contract basis. In
addition, a detailed annual review is performed on a contract-by-contract basis as part of our budget and strategic
plan process. The effect of any revision may be significant and is recorded by way of a cumulative catch-up
adjustment in the period in which the estimates are revised.
Sensitivity analysis
A 1% increase in the estimated future costs to complete all ongoing long-term contracts would have decreased
BT’s gross margin for fiscal year 2013 by approximately $89 million.
Aerospace program tooling
BA capitalizes development costs as aerospace program tooling when certain criteria for deferral are met.
Aerospace program tooling is amortized over the expected number of aircraft to be produced, beginning on the
delivery date of the first aircraft of a program, and an impairment test is performed at least annually for aircraft
programs under development and, for all programs, when there is an indication that the asset may be impaired.
An impairment charge is recorded when the recoverable amount of a group of assets generating independent
cash inflows (a CGU) is less than the carrying value of those assets. The recoverable amount of a group of assets
is based on the higher of fair value less costs to sell and value in use, generally determined using a discounted
cash flow model.
If key estimates change significantly, amortization expense may be understated or capitalized costs may not be
recoverable and aerospace program tooling may be overstated.
BOMBARDIER INC. FINANCIAL REPORT – FISCAL YEAR ENDED DECEMBER 31, 2013 - OTHER 95
Aerospace program tooling amortization and the calculation of recoverable amounts used in impairment testing
require estimates of the expected number of aircraft to be delivered over the life of each program. The expected
number of aircraft is based on management’s aircraft market forecasts and our expected share of each market.
Such estimates are reviewed in detail as part of the budget and strategic plan process. For purposes of
impairment testing, we exercise judgment to identify independent cash inflows to identify CGUs by family of
aircraft. Other key estimates used in determining the recoverable amount include the applicable discount rate and
the expected future cash flows over the remaining life of each program.
The discount rate is based on a weighted average cost of capital calculated using market-based inputs, available
directly from financial markets or based on a benchmark sampling of representative publicly traded companies.
Forecast future cash flows are based on management’s risk-adjusted best estimate of future sales under existing
firm orders, expected future orders, timing of payments based on expected delivery schedule, revenues from
related services, procurement costs based on existing contracts with suppliers, future labour costs, general
market conditions and applicable income tax rates.
The recoverable amounts were established during the fourth quarter of fiscal year 2013 based on fair value less
costs to sell using a discounted cash flow model. In applying the discounted cash flow model, the estimated future
cash flows for the first three years are based on the budget and strategic plan and on long-range forecasts
thereafter. A post-tax discount rate of 7.5% was used.
Sensitivity analysis
The following analyses are presented in isolation from one another, i.e. all other estimates left unchanged:
A 10% decrease in the expected future net cash inflow for all programs, evenly distributed over future periods,
would have resulted in an impairment charge of approximately $300 million in fiscal year 2013 for programs under
development.
An increase of 100 basis points in the discount rate used to perform the impairment test would have resulted in an
impairment charge of approximately $280 million in fiscal year 2013 for programs under development.
Goodwill
Goodwill is related to the DaimlerChrysler Rail Systems GmbH (Adtranz) acquisition in May 2001. This goodwill
has been allocated to the BT reportable segment. An impairment assessment is performed at least annually, and
whenever circumstances such as significant declines in expected sales, earnings or cash flows indicate that it is
more likely than not that goodwill might be impaired. We selected the fourth quarter to perform our annual
impairment assessment of goodwill. The recoverable amount of the BT reportable segment is based on the higher
of fair value less costs to sell and value in use.
During the fourth quarter of fiscal year 2012 we completed an impairment test and in the fourth quarter of fiscal
year 2013, we concluded that all criteria for using the recoverable amount from a previous period were met and
the impairment assessment was performed by carrying forward the recoverable amount calculated in fiscal year
2012. No impairment was identified. The recoverable amount calculated in fiscal year 2012 was based on fair
value less costs to sell using a discounted cash flow model. Estimated future cash flows were based on the
budget and strategic plan for the first three years and a constant growth rate of 1% was applied to derive
estimated cash flows beyond the initial three-year period. For purposes of this test, we used a 15-year period to
project future cash flows. The post-tax discount rate is also a key estimate in the discounted cash flow model and
was based on a representative weighted average cost of capital. The post-tax discount rate used to calculate the
recoverable amount in fiscal year 2012 was 6.8%. A 100-basis point change in the post-tax discount rate would
not have resulted in an impairment charge in fiscal year 2013.
96 BOMBARDIER INC. FINANCIAL REPORT – FISCAL YEAR ENDED DECEMBER 31, 2013
Valuation of deferred income tax assets
To determine the extent to which deferred income tax assets can be recognized, we estimate the amount of
probable future taxable profits that will be available against which deductible temporary differences and unused
tax losses can be utilized. Such estimates are made as part of the budget and strategic plan by tax jurisdiction on
an undiscounted basis and are reviewed on a quarterly basis. Judgment is used to determine the extent to which
realization of future taxable benefits is probable, considering factors such as the number of years to include in the
forecast period, the history of taxable profits and availability of tax strategies.
Tax contingencies
Uncertainties exist with respect to the interpretation of complex tax regulations, changes in tax laws, and the
amount and timing of future taxable income. Given the wide range of international business relationships and the
long-term nature and complexity of existing contractual agreements, differences arising between the actual results
and the assumptions made, or future changes to such assumptions, could necessitate future adjustments to tax
income and expense already recorded. We establish tax provisions for possible consequences of audits by the
tax authorities of the respective counties in which we operate. The amount of such provisions is based on various
factors, such as experience of previous tax audits and differing interpretations of tax regulations by the taxable
entity and the responsible tax authority. Such differences in interpretation may arise for a wide variety of issues
depending on the conditions prevailing in the respective domicile of the legal entities.
Credit and residual value guarantees
Credit and residual value guarantees are generally provided to airlines or to participants in financing structures
created in connection with the sale of commercial aircraft. A corresponding provision is recorded, measured at the
amounts expected to be paid under the guarantees, using an internal valuation model based on stochastic
simulations.
The amounts expected to be paid under the guarantees depend on whether credit defaults occur during the term
of the original financing. When a credit default occurs, the credit guarantee may be called upon. In the absence of
a credit default, the residual value guarantee may be triggered. In both cases, the guarantees can only be called
upon if there is a loss upon the sale of the aircraft. Therefore, the value of the guarantee is in large part impacted
by the future value of the underlying aircraft. Aircraft residual value curves, prepared by management based on
information from external appraisals and adjusted to reflect specific factors of the current aircraft market and a
balanced market in the medium and long term, are used to estimate this future value. The amount of the liability is
also significantly impacted by the current market assumption for interest rates since payments under these
guarantees are mostly expected to be made in the medium to long term. Other key estimates in calculating the
value of the guarantees include default probabilities, estimated based on published credit ratings when available
or, when not available, on internal assumptions regarding the credit risk of customers, as well as on the likelihood
that credit or residual value guarantees will be called upon at the expiry of the financing arrangements. The
estimates are reviewed on a quarterly basis.
Sensitivity analysis
The following analyses are presented in isolation from one another, i.e. all other estimates left unchanged:
Assuming a decrease of 5% in the residual value curves of all aircraft as at December 31, 2013, EBIT for fiscal
year 2013 would have been negatively impacted by $26 million.
Assuming a 100-basis point decrease in interest rates as at December 31, 2013, EBT for fiscal year 2013 would
have been negatively impacted by $15 million. Assuming a 100-basis point increase in interest rates as at
December 31, 2013, EBT for fiscal year 2013 would have been positively impacted by $16 million.
BOMBARDIER INC. FINANCIAL REPORT – FISCAL YEAR ENDED DECEMBER 31, 2013 - OTHER 97
Retirement and other long-term employee benefits
The actuarial valuation process used to measure pension and other post-employment benefit costs, assets and
obligations is dependent on assumptions regarding discount rates, compensation and pre-retirement benefit
increases, inflation rates, health-care cost trends, as well as demographic factors such as employee turnover,
retirement and mortality rates. The impacts from changes in discount rates and, when significant, from key events
and other circumstances, are recorded quarterly.
Discount rates are used to determine the present value of the expected future benefit payments and represent the
market rates for high-quality corporate fixed-income investments consistent with the currency and the estimated
term of the retirement benefit liabilities.
As the Canadian high-quality corporate bond market, as defined under IFRS, includes relatively few medium- and
long-term maturity bonds, we established the discount rate for our Canadian pension and other post-employment
plans by constructing a yield curve using four maturity ranges. The first maturity range of the curve is based on
observed market rates for AA-rated corporate bonds with maturities of less than six years. In the longer maturity
ranges, due to the smaller number of high-quality bonds available, the curve was derived using market
observations and extrapolated data. The extrapolated data points were created by adding a term-based yield
spread over long-term provincial bond yields. This spread is based on the observed spreads between AA-rated
corporate bonds and AA-rated provincial bonds in the last three maturity ranges of the curve.
Expected rates of compensation increases are determined considering the current salary structure, as well as
historical and anticipated wage increases, in the context of current economic conditions.
A sensitivity analysis to changes in critical actuarial assumptions is presented in the Retirement Benefits section
in Overview. Details regarding assumptions used are provided in Note 22 – Retirement benefits, to the
consolidated financial statements.
Consolidation
We consolidate entities when, based on an evaluation of the substance of our relationship, we establish that we
control the investee. We control an investee when we are exposed to, or have rights to, variable returns from our
involvement with the investee and the ability to use power over the investee to affect the amount of our returns.
We reassess our initial determination of control if facts or circumstances indicate that there may be changes to
one or more elements of control.
From time to time, we participate in structured entities where voting rights are not the dominant factor in
determining control. In these situations, we may use a variety of complex estimation processes involving both
qualitative and quantitative factors to determine whether we are exposed to, or have rights to, significant variable
returns. The quantitative analyses involve estimating the future cash flows and performance of the investee and
analyzing the variability in those cash flows. The qualitative analyses involve consideration of factors such as the
purpose and design of the investee and whether we are acting as an agent or principal. There is a significant
amount of judgment exercised in evaluating these analyses as well as in determining if we have power to affect
the investee’s returns, including an assessment of the impact of potential voting rights, contractual agreements
and de facto control.
98 BOMBARDIER INC. FINANCIAL REPORT – FISCAL YEAR ENDED DECEMBER 31, 2013
CONTROLS AND PROCEDURES
In compliance with the Canadian Securities Administrators’ National Instrument 52-109, we have filed certificates
signed by the Chief Executive Officer (“CEO”) and the Chief Financial Officer (“CFO”) that, among other things,
report on the design and effectiveness of disclosure controls and procedures and the design and effectiveness of
internal controls over financial reporting.
Disclosure controls and procedures
The CEO and the CFO have designed disclosure controls and procedures, or have caused them to be designed
under their supervision, in order to provide reasonable assurance that:
(cid:120) material information relating to the Corporation has been made known to them; and
(cid:120) information required to be disclosed in the Corporation’s filings is recorded, processed, summarized and
reported within the time periods specified in securities legislation.
An evaluation was carried out, under the supervision of the CEO and the CFO, of the design and effectiveness of
our disclosure controls and procedures. Based on this evaluation, the CEO and the CFO concluded that the
disclosure controls and procedures are effective.
Internal controls over financial reporting
The CEO and the CFO have also designed internal controls over financial reporting, or have caused them to be
designed under their supervision, in order to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in accordance with IFRS.
An evaluation was carried out, under the supervision of the CEO and the CFO, of the design and effectiveness of
our internal controls over financial reporting. Based on this evaluation, the CEO and the CFO concluded that the
internal controls over financial reporting are effective, using the criteria set forth by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO) on Internal Control – Integrated Framework (1992
Framework).
Changes in internal controls over financial reporting
No changes were made to our internal controls over financial reporting that occurred during the quarter and fiscal
year ended December 31, 2013 that have materially affected, or are reasonably likely to materially affect, our
internal controls over financial reporting.
FOREIGN EXCHANGE RATES
We are subject to currency fluctuations from the translation of revenues, expenses, assets and liabilities of our
foreign operations with non-U.S. dollar functional currencies, mainly the euro, pound sterling and other European
currencies, and from transactions denominated in foreign currencies, mainly the Canadian dollar and pound
sterling.
The foreign exchange rates used to translate assets and liabilities into U.S. dollars were as follows, as at:
Euro
Canadian dollar
Pound sterling
December 31, 2013
1.3791
0.9400
1.6542
December 31, 2012
1.3194
1.0043
1.6167
Increase (decrease)
5%
(6%)
2%
BOMBARDIER INC. FINANCIAL REPORT – FISCAL YEAR ENDED DECEMBER 31, 2013 - OTHER 99
The average foreign exchange rates used to translate revenues and expenses into U.S. dollars were as follows,
for the fourth quarters ended:
Euro
Canadian dollar
Pound sterling
December 31, 2013
1.3616
0.9537
1.6194
December 31, 2012
1.2980
1.0096
1.6069
Increase (decrease)
5%
(6%)
1%
The average foreign exchange rates used to translate revenues and expenses into U.S. dollars were as follows,
for the fiscal years ended:
Euro
Canadian dollar
Pound sterling
December 31, 2013
1.3285
0.9717
1.5654
December 31, 2012
1.2860
1.0008
1.5854
Increase (decrease)
3%
(3%)
(1%)
SHAREHOLDER INFORMATION
Authorized, issued and outstanding share data, as at February 11, 2014
Class A Shares (multiple voting)(1)
Class B Shares (subordinate voting)(2)
Series 2 Cumulative Redeemable Preferred Shares
Series 3 Cumulative Redeemable Preferred Shares
Series 4 Cumulative Redeemable Preferred Shares
(1) Ten votes each, convertible at the option of the holder into one Class B Share (subordinate voting).
(2) Convertible at the option of the holder into one Class A Share (multiple voting) under certain conditions.
(3) Net of 18,736,908 Class B Shares (subordinate voting) purchased and held in trust in connection with the PSU plan.
12,000,000
12,000,000
9,400,000
Authorized
1,892,000,000
1,892,000,000 1,424,759,510 (3)
Issued and
outstanding
314,530,462
9,692,521
2,307,479
9,400,000
29,355,757
31,766,531
18,736,908
Share option, PSU and DSU data as at December 31, 2013
Options issued and outstanding under the share option plans
PSUs and DSUs issued and outstanding under the PSU and DSU plans
Class B Shares held in trust to satisfy PSU obligations
Information
Bombardier Inc.
Investor Relations
800 René-Lévesque Blvd. West
Montréal, Québec, Canada H3B 1Y8
Telephone: +1 514 861 9481, extension 13273
Fax: +1 514 861 2420
Email: investors@bombardier.com
100 BOMBARDIER INC. FINANCIAL REPORT – FISCAL YEAR ENDED DECEMBER 31, 2013
SELECTED FINANCIAL INFORMATION
The following selected financial information has been derived from, and should be read in conjunction with, the
consolidated financial statements for fiscal years ended December 31, 2011, 2012 and 2013.
The following table provides selected financial information for the last three fiscal years.
Fiscal years
2013
Revenues
Net income attributable to equity holders of Bombardier Inc.
$
$
18,151
564
2012
restated (2)
16,414
460
$
$
(1)
2011
restated (2)
17,904
737
$
$
EPS (in dollars)
Basic and diluted
Cash dividends declared per share (in Canadian dollars)
Class A Shares (multiple voting)
Class B Shares (subordinate voting)
Series 2 Preferred Shares
Series 3 Preferred Shares
Series 4 Preferred Shares
$
0.31
$
0.25
$
0.41
$
$
$
$
$
0.10
0.10
0.75
0.78
1.56
$
$
$
$
$
0.10
0.10
0.75
1.05
1.56
$
$
$
$
$
0.10
0.10
0.69
1.32
1.56
As at
December 31
2013
Total assets
Non-current financial liabilities
(1) Our fiscal year ended December 31, 2011 comprises 11 months of BA's results and 12 months of BT's results.
(2) Refer to the Accounting and reporting developments section for detail regarding restatements of prior year figures.
29,363
7,705
$
$
$
$
December 31
2012
restated (2)
25,175
5,961
January 1
2012
restated (2)
23,339
5,250
$
$
The quarterly data table is shown hereafter.
February 12, 2014
BOMBARDIER INC. FINANCIAL REPORT – FISCAL YEAR ENDED DECEMBER 31, 2013 - OTHER 101
BOMBARDIER INC.
QUARTERLY DATA (UNAUDITED)
(the quarterly data has been prepared in accordance with IAS 34, Interim financial reporting, except market price ranges)
(in millions of U.S. dollars, except per share amounts)
Fiscal years
Revenues
BA
BT
EBIT
BA
BT
Financing expense(1)
Financing income(1)
EBT
Income taxes
Net income
Attributable to
Equity holders of Bombardier Inc.
NCI
EPS (in dollars)
Basic and diluted
Total
Fourth
quarter
Third
quarter
Second
quarter
First
quarter
Total
Fourth
quarter
Third
quarter
Second
quarter
2013
2012
restated
First
quarter
(2)
$
$
$
$
$
$
$
9,385 $
8,766
18,151 $
2,873 $
2,451
5,324 $
1,999 $
2,059
4,058 $
2,255 $
2,175
4,430 $
2,258 $
2,081
4,339 $
8,628 $
7,786
16,414 $
2,597 $
2,028
4,625 $
2,267 $
1,944
4,211 $
2,265 $
1,832
4,097 $
1,499
1,982
3,481
418 $
505
923
271
(119)
771
199
572 $
564 $
8
572 $
93 $
92
185
55
(10)
140
43
97 $
86 $
124
210
58
(22)
174
27
147 $
138 $
150
288
83
(47)
252
72
180 $
101 $
139
240
75
(40)
205
57
148 $
390 $
276
666
295
(165)
536
66
470 $
84 $
(83)
1
68
(19)
(48)
(44)
(4) $
118 $
122
240
67
(52)
225
53
172 $
99 $
115
214
89
(60)
185
38
147 $
95 $
2
97 $
145 $
2
147 $
181 $
(1)
180 $
143 $
5
148 $
460 $
10
470 $
(6) $
2
(4) $
169 $
3
172 $
147 $
-
147 $
89
122
211
82
(45)
174
19
155
150
5
155
0.31 $
0.05 $
0.08 $
0.10 $
0.08 $
0.25 $
(0.01) $
0.09 $
0.08 $
0.08
Market price range of Class B Shares (in Canadian dollars)
5.43 $
High
3.80 $
Low
$
$
5.43 $
4.32 $
5.18 $
4.55 $
5.00 $
3.80 $
4.35 $
3.81 $
4.93 $
2.97 $
3.84 $
2.97 $
4.25 $
3.37 $
4.31 $
3.53 $
4.93
3.86
(1) The amounts presented on a yearly basis may not correspond to the sum of the four quarters as certain reclassifications to quarterly figures to or from financing income and financing expense
may be required on a cumulative basis.
(2) Refer to the Accounting and reporting developments section for detail regarding restatements of prior year figures.
102 BOMBARDIER INC. FINANCIAL REPORT – FISCAL YEAR ENDED DECEMBER 31, 2013
December 31
December 31
2011 (1)
restated (2)
8,594
9,310
17,904
January 31
2011
restated (2)
8,808
8,689
17,497
$
$
491
675
1,166
$
546
652
1,198
BOMBARDIER INC.
HISTORICAL FINANCIAL SUMMARY
(in millions of U.S. dollars, except per share amounts, number of common shares and shareholders of record)
For the fiscal years ended
Revenues
BA
BT
EBIT before special items
BA
BT
Special items
BA
BT
EBIT
BA
BT
Financing expense
Financing income
EBT
Income taxes
Net income
Attributable to
Equity holders of Bombardier Inc.
NCI
Adjusted net income
EPS (in dollars)
Basic
Diluted
Adjusted
General information
Export revenues from Canada
Net additions to PP&E and intangible assets
Amortization
Impairment charges on PP&E
Dividend per common share (in Canadian dollars)
Class A
Class B
Dividend per preferred share (in Canadian dollars)
Series 2
Series 3
Series 4
Market price ranges (in Canadian dollars)
Class A
High
Low
Close
Class B
High
Low
Close
December 31
2013
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
9,385
8,766
18,151
388
505
893
(30)
-
(30)
418
505
923
271
(119)
771
199
572
564
8
608
0.31
0.31
0.33
6,767
2,287
391
-
0.10
0.10
0.75
0.78
1.56
5.42
3.81
4.60
5.43
3.80
4.61
2012
restated (2)
8,628
7,786
16,414
367
439
806
(23)
163
140
390
276
666
295
(165)
536
66
470
460
10
671
0.25
0.25
0.36
6,129
2,074
364
9
0.10
0.10
0.75
1.05
1.56
5.00
3.08
3.83
4.93
2.97
3.76
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
As at
Number of common shares (in millions)
Book value per common share (in dollars)
Shareholders of record
(1) The fiscal year ended December 31, 2011 comprises 11 months of BA’s results and 12 months of BT’s results.
(2) Refer to the Accounting and reporting developments section for detail regarding restatements of prior year figures.
1,730
0.50
13,544
1,739
1.20
13,503
$
$
$
1,724
0.10
13,427
-
-
-
491
675
1,166
380
(70)
856
119
737
737
-
887
0.41
0.41
0.49
5,866
1,447
325
-
0.10
0.10
0.69
1.32
1.56
7.29
3.41
4.06
7.29
3.30
4.06
-
-
-
546
652
1,198
395
(86)
889
218
671
658
13
772
0.37
0.36
0.42
6,285
1,189
413
8
0.10
0.10
0.66
1.32
1.56
6.24
4.28
5.72
6.24
4.25
5.70
1,726
0.58
13,591
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
BOMBARDIER INC. FINANCIAL REPORT – FISCAL YEAR ENDED DECEMBER 31, 2013 – HISTORICAL FINANCIAL SUMMARY 103
BOMBARDIER INC.
HISTORICAL FINANCIAL SUMMARY (CONTINUED)
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(in millions of U.S. dollars)
As at
Assets
Cash and cash equivalents
Trade and other receivables
Inventories
Other financial assets
Other assets
Current assets
Invested collateral
PP&E
Aerospace program tooling
Goodwill
Deferred income taxes
Investments in joint ventures and
associates
Other financial assets
Other assets
Non-current assets
Liabilities
Trade and other payables
Provisions
$
2013
December 31 December 31 December 31
2011
restated (1)
2,892 $
1,342
7,305
522
559
12,620
2012
restated (1)
2,557 $
1,311
7,540
443
680
12,531
3,397 $
1,492
8,234
637
881
14,641
January 31
2011
restated (1)
3,559 $
1,356
7,191
690
648
13,444
February 1
2010
restated (1)
2,887
1,043
7,644
511
517
12,602
-
2,066
6,606
2,381
1,231
-
1,933
4,770
2,316
1,421
-
1,779
3,168
2,244
1,476
676
1,816
2,088
2,349
1,210
682
1,637
1,385
2,237
1,335
318
1,568
552
14,722
29,363 $
311
1,339
554
12,644
25,175 $
226
259
275
1,011
1,111
1,311
512
403
466
10,719
9,025
9,912
23,339 $ 23,356 $ 21,627
4,089 $
881
3,310 $
1,000
3,032 $
1,019
2,857 $
1,136
2,836
1,107
$
$
Advances and progress billings in excess of
long-term contract inventories
Advances on aerospace programs
Other financial liabilities
Other liabilities
Current liabilities
Provisions
Advances on aerospace programs
Long-term debt
Retirement benefits
Other financial liabilities
Other liabilities
Non-current liabilities
Equity
Attributable to equity holders of Bombardier Inc.
Attributable to NCI
2,352
3,228
1,009
2,227
13,786
584
1,688
6,988
2,161
717
990
13,128
26,914
2,426
23
2,449
1,763
3,053
455
2,212
11,793
608
1,600
5,360
2,999
601
957
12,125
23,918
1,211
46
1,257
$
29,363 $
25,175 $
1,638
2,788
732
2,208
11,417
726
1,266
4,748
3,231
502
902
11,375
22,792
1,971
2,989
860
2,168
11,981
709
1,193
4,645
1,978
532
908
9,965
21,946
1,654
3,055
537
2,001
11,190
733
1,373
4,134
2,184
558
576
9,558
20,748
515
32
547
821
1,343
58
67
879
1,410
23,339 $ 23,356 $ 21,627
(1) Refer to the Accounting and reporting developments section for detail regarding restatements of prior year figures.
104 BOMBARDIER INC. FINANCIAL REPORT – FISCAL YEAR ENDED DECEMBER 31, 2013
CONSOLIDATED FINANCIAL STATEMENTS
For the fiscal years ended
December 31, 2013 and 2012
BOMBARDIER INC. FINANCIAL REPORT – FISCAL YEAR ENDED DECEMBER 31, 2013 – CONSOLIDATED FINANCIAL STATEMENTS 105
MANAGEME
M
NT’S RESPO
ONSIBILITY F
FOR FINANC
CIAL REPORT
TING
The consolida
T
report are the
r
ated financial
responsibility
statements a
y of managem
and MD&A of
ment and have
Bombardier I
e been review
nc. and all ot
wed and appr
ther informatio
roved by the B
on in the finan
Board of Dire
ncial
ctors.
T
The consolida
he Internation
t
r
requirements
b
based on best
h
has determine
p
presented fair
consolidated f
c
ated financial
nal Accountin
of Canadian
t estimates an
ed such items
rly in all mater
financial state
statements h
ng Standards
Securities Ad
nd judgments
s on a reason
rial respects.
ements.
have been pre
Board. The M
dministrators.
s of the expec
able basis in
Financial info
epared by ma
MD&A has be
The financial
cted effects of
order to ensu
ormation pres
anagement in
en prepared
l statements a
f current even
ure that the fin
sented in the
accordance w
in accordance
and MD&A in
nts and transa
nancial statem
MD&A is con
with IFRS as
e with the
nclude items t
actions. Mana
ments and MD
sistent with th
hat are
agement
D&A are
hat in the
issued by
B
Bombardier In
controls and p
c
heir supervisi
t
m
made known t
summarized a
s
nc.’s Chief Ex
procedures an
ion, to provide
to them; and
and reported w
xecutive Office
nd internal co
e reasonable
information re
within the tim
er (“CEO”) an
ontrols over fin
assurance th
equired to be
e periods spe
nd Chief Finan
nancial report
hat material in
disclosed in
ecified in Can
ncial Officer (
ting, or have c
nformation rel
Bombardier I
nadian securit
(“CFO”) have
caused them
lating to Bom
Inc.’s filings is
ties legislation
designed dis
to be design
bardier Inc. h
s recorded, pr
n.
sclosure
ed under
has been
rocessed,
Bombardier In
B
a
and procedure
e
evaluation, the
o
over financial
Organizations
O
framework). In
f
in
nternal contro
S
Securities Adm
c
certification re
he consolidat
t
nc.’s CEO and
es and interna
e CEO and th
reporting wer
s of the Tread
n addition, ba
ol over financ
ministrators’ N
elated to Bom
ted financial s
d CFO have a
al controls ov
he CFO concl
re effective as
way Commis
ased on this a
ial reporting a
National Instr
mbardier Inc.’s
statements an
also evaluate
ver financial re
luded that the
s of that date
ssion (COSO)
ssessment, th
as of the end
ument 52-109
s annual disclo
nd MD&A.
d the effective
eporting as of
e disclosure c
, using the cr
) on Internal C
hey determin
of the fiscal y
9, Bombardie
osure to the C
eness of Bom
f the end of th
controls and p
riteria set forth
Control – Integ
ed that there
year 2013. In
er Inc.’s CEO
Canadian Sec
mbardier Inc.’s
he fiscal year
procedures an
h by the Com
grated Frame
were no mat
compliance w
and CFO hav
curities Admin
controls
d on this
ntrols
onsoring
s disclosure c
2013. Based
nd internal co
mittee of Spo
ework (1992
erial weaknes
sses in
with the Cana
adian
a
ve provided a
cluding
nistrators, inc
T
The Board of
r
reporting and
MD&A. The B
M
Directors is re
is ultimately r
Board of Direc
esponsible fo
responsible fo
ctors carries o
or ensuring tha
or reviewing a
out this respon
at manageme
and approving
nsibility princi
ent fulfills its r
g the consolid
ipally through
responsibilitie
dated financia
h its Audit Com
es for financia
al statements
mmittee.
al
and
T
The Audit Com
f
financially liter
nternal and in
in
MD&A, auditin
M
p
process, and t
C
Committee ha
ju
udgments un
make recomm
m
in
ndependent a
when it approv
w
mmittee is ap
rate directors
ndependent a
ng matters an
to satisfy itse
as the duty to
derlying the c
mendations to
auditors. The
ves the conso
pointed by th
. The Audit C
auditors, to rev
nd financial re
lf that each p
review the ap
consolidated f
the Board of
Audit Commi
olidated finan
e Board of Di
Committee me
view the cons
eporting issue
arty is proper
ppropriatenes
financial state
f Directors wit
ittee reports it
ncial statemen
irectors and is
eets periodica
solidated finan
es, to discuss
rly discharging
ss of the acco
ements as pre
th respect to t
ts findings to
nts and MD&A
s comprised e
ally with mana
ncial stateme
internal contr
g its respons
ounting policie
esented by m
the independe
the Board of
A for issuance
entirely of ind
agement, as w
ents, independ
rols over the f
ibilities. In ad
es and signific
management, a
ence and the
Directors for
e to sharehold
dependent an
well as with th
dent auditors
financial repo
dition, the Au
cant estimate
and to review
e fees of the
d
he
’ report,
orting
udit
es and
w and
its considera
ders.
ation
The consolida
T
a
accordance w
b
behalf of the s
heir audit and
t
ated financial
with Canadian
shareholders.
d related matt
statements h
generally ac
The indepen
ters.
have been aud
cepted auditin
ndent auditors
dited by Ernst
ng standards
s have full and
t & Young LL
and Internati
d free access
LP, the indepe
ional Standar
s to the Audit
endent audito
rds on auditin
Committee to
ors, in
ng on
o discuss
Pierre Beaudo
P
President and
P
oin,
d Chief Execu
tive Officer
February 12, 2
F
2014
Pie
Se
erre Alary, FC
enior Vice Pre
CPA, FCA
esident and C
Chief Financia
al Officer
1
06 BOMBARDIE
R INC. FINANCIAL
L REPORT – FISC
CAL YEAR ENDED
DECEMBER 31, 2
2013
INDEPENDENT AUDITORS’ REPORT
TO THE SHAREHOLDERS OF BOMBARDIER INC.
We have audited the accompanying consolidated financial statements of Bombardier Inc. which comprise the
consolidated statements of financial position as at December 31, 2013, 2012 and January 1, 2012, and the
consolidated statements of income, comprehensive income, changes in equity and cash flows for fiscal years
ended December 31, 2013 and 2012, and a summary of significant accounting policies and other explanatory
information.
Management's Responsibility for the consolidated financial statements
Management is responsible for the preparation and fair presentation of these consolidated financial statements in
accordance with International Financial Reporting Standards, as issued by the International Accounting Standards
Board, and for such internal control as Management determines is necessary to enable the preparation of
consolidated financial statements that are free from material misstatement, whether due to fraud or error.
Auditors’ Responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We
conducted our audits in accordance with Canadian generally accepted auditing standards and International
Standards on auditing. Those standards require that we comply with ethical requirements and plan and perform
the audit to obtain reasonable assurance about whether the consolidated financial statements are free from
material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the
consolidated financial statements. The procedures selected depend on the auditors’ judgment, including the
assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or
error. In making those risk assessments, the auditors consider internal control relevant to the entity's preparation
and fair presentation of the consolidated financial statements in order to design audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the
entity's internal control. An audit also includes evaluating the appropriateness of accounting policies used and the
reasonableness of accounting estimates made by Management, as well as evaluating the overall presentation of
the consolidated financial statements.
We believe that the audit evidence we have obtained in our audits is sufficient and appropriate to provide a basis
for our audit opinion.
Opinion
In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of
Bombardier Inc. as at December 31, 2013, 2012 and January 1, 2012, and its financial performance and its cash
flows for fiscal years ended December 31, 2013 and 2012 in accordance with International Financial Reporting
Standards, as issued by the International Accounting Standards Board.
(1)
Ernst & Young LLP1
Montréal, Canada
February 12, 2014
(1) CPA auditor, CA, public accountancy permit no. A112431
BOMBARDIER INC. FINANCIAL REPORT – FISCAL YEAR ENDED DECEMBER 31, 2013 – AUDITORS’ REPORT 107
CONSOLIDATED FINANCIAL STATEMENTS
For fiscal years 2013 and 2012
(Tabular figures are in millions of U.S. dollars, unless otherwise indicated)
TRADE AND OTHER RECEIVABLES
INVENTORIES
BASIS OF PREPARATION
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CHANGES IN ACCOUNTING POLICIES AND METHODS
FUTURE CHANGES IN ACCOUNTING POLICIES
USE OF ESTIMATES AND JUDGMENT
SEGMENT DISCLOSURE
RESEARCH AND DEVELOPMENT
OTHER EXPENSE (INCOME)
SPECIAL ITEMS
Consolidated financial statements
Notes to consolidated financial statements
1.
2.
3.
4.
5.
6.
7.
8.
9.
10. FINANCING EXPENSE AND FINANCING INCOME
11. EMPLOYEE BENEFIT COSTS
12.
INCOME TAXES
13. EARNINGS PER SHARE
14.
FINANCIAL INSTRUMENTS
15. CASH AND CASH EQUIVALENTS
16.
17.
18. OTHER FINANCIAL ASSETS
19. OTHER ASSETS
20. PROPERTY, PLANT AND EQUIPMENT
21.
22. RETIREMENT BENEFITS
23.
24. PROVISIONS
25. OTHER FINANCIAL LIABILITIES
26. OTHER LIABILITIES
27.
LONG-TERM DEBT
28. DISPOSAL OF A BUSINESS
29. SHARE CAPITAL
30. SHARE-BASED PLANS
31. NET CHANGE IN NON-CASH BALANCES
32. CREDIT FACILITIES
33. CAPITAL MANAGEMENT
34.
35.
36.
37.
38. UNCONSOLIDATED STRUCTURED ENTITIES
39. COMMITMENTS AND CONTINGENCIES
40. RECLASSIFICATION
FINANCIAL RISK MANAGEMENT
FAIR VALUE OF FINANCIAL INSTRUMENTS
INVESTMENTS IN JOINT VENTURES AND ASSOCIATES
TRANSACTIONS WITH RELATED PARTIES
TRADE AND OTHER PAYABLES
INTANGIBLE ASSETS
See MD&A for the abbreviations used in the consolidated financial statements.
108 BOMBARDIER INC. FINANCIAL REPORT – FISCAL YEAR ENDED DECEMBER 31, 2013
109
114
114
114
124
127
128
132
135
135
135
136
136
137
139
139
142
142
143
144
144
145
146
147
156
157
158
158
159
160
160
163
166
166
167
168
172
175
176
177
178
181
BOMBARDIER INC.
CONSOLIDATED STATEMENTS OF INCOME
For the fiscal years ended December 31
(in millions of U.S. dollars, except per share amounts)
Revenues
Cost of sales
Gross margin
SG&A
R&D
Share of income of joint ventures and associates
Other expense (income)
Special items
EBIT
Financing expense
Financing income
EBT
Income taxes
Net income
Attributable to
Equity holders of Bombardier Inc.
NCI
EPS (in dollars)
Basic and diluted
(1) Refer to Note 3 for the impact of changes in accounting policies and methods.
13
The notes are an integral part of these consolidated financial statements.
Notes
2013
17
7
36
8
9
10
10
12
$
$
$
$
$
18,151
15,658
2,493
1,417
293
(119)
9
(30)
923
271
(119)
771
199
572
564
8
572
0.31
2012
restated (1)
16,414
14,053
2,361
1,442
299
(153)
(33)
140
666
295
(165)
536
66
470
460
10
470
0.25
$
$
$
$
$
BOMBARDIER INC. FINANCIAL REPORT – FISCAL YEAR ENDED DECEMBER 31, 2013 – CONSOLIDATED FINANCIAL STATEMENTS 109
BOMBARDIER INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the fiscal years ended December 31
(in millions of U.S. dollars)
Net income
OCI
Items that may be reclassified to net income
Net change in cash flow hedges
Foreign exchange re-evaluation
Net gain on derivative financial instruments
Reclassification to income or to the related non-financial asset(2)(3)
Income taxes
AFS financial assets
Net unrealized gain (loss)
Reclassification to income
Income taxes
CCTD
Net investments in foreign operations
Net loss on related hedging items
Items that are never reclassified to net income
Retirement benefits
Net actuarial gains
Income taxes
Total OCI
Total comprehensive income
Attributable to
Equity holders of Bombardier Inc.
NCI
2013
$
572
$
2012
restated (1)
470
(6)
26
(32)
6
(6)
(5)
-
-
(5)
36
(15)
21
911
(87)
824
834
1,406
1,399
7
1,406
$
$
$
$
$
$
(5)
163
25
(64)
119
6
(29)
6
(17)
75
(18)
57
318
(39)
279
438
908
895
13
908
(1) Refer to Note 3 for the impact of changes in accounting policies and methods.
(2) Include $10 million of gain reclassified to the related non-financial asset for fiscal year 2013 ($22 million of gain for fiscal year 2012).
(3) $104 million of net deferred loss is expected to be reclassified from OCI to the carrying amount of the related non-financial asset or to
income during fiscal year 2014.
The notes are an integral part of these consolidated financial statements.
110 BOMBARDIER INC. FINANCIAL REPORT – FISCAL YEAR ENDED DECEMBER 31, 2013
B
BOMBARDIER
CONSOLIDATE
C
As at
A
in millions of U
(
R INC.
ED STATEME
U.S. dollars)
NTS OF FINAN
NCIAL POSITI
ION
Assets
A
C
Cash and cash
T
Trade and othe
In
nventories
O
Other financial
Other assets
O
s
Current assets
C
P
PP&E
A
Aerospace prog
G
Goodwill
Deferred incom
D
In
nvestments in j
O
Other financial
O
Other assets
Non-current as
N
equivalents
er receivables
assets
gram tooling
me taxes
joint ventures a
assets
ssets
s
and associates
gs in excess of
es
rams
er payables
progress billing
ntract inventorie
erospace progr
liabilities
L
Liabilities
T
Trade and othe
P
Provisions
Advances and p
A
long-term con
A
Advances on ae
O
Other financial
O
Other liabilities
Current liabilit
C
P
Provisions
Advances on ae
erospace progr
A
t
L
Long-term debt
nefits
Retirement ben
R
liabilities
Other financial
O
O
Other liabilities
Non-current lia
N
abilities
ties
rams
Equity
E
A
Attributable to e
Attributable to N
A
equity holders o
NCI
of Bombardier
Inc.
Commitments a
C
and contingenc
cies
Notes
December 31
2013
15
16
17
18
19
20
21
21
12
36
18
19
23
24
17
25
26
24
27
22
25
26
39
$
$
$
$
3,397
1,492
8,234
637
881
14,641
2,066
6,606
2,381
1,231
318
1,568
552
14,722
29,363
4,089
881
2,352
3,228
1,009
2,227
13,786
584
1,688
6,988
2,161
717
990
13,128
26,914
2,426
23
2,449
29,363
$
er 31
Decembe
20
012
tated (1)
rest
557
2,5
311
1,3
540
7,5
4
443
680
6
531
12,5
933
1,9
770
4,7
316
2,3
421
1,4
3
311
339
1,3
5
554
644
12,6
175
25,1
$
$
3,3
1,0
310
000
763
1,7
053
3,0
4
455
212
2,2
793
11,7
6
608
600
1,6
360
5,3
999
2,9
601
6
9
957
125
12,1
918
23,9
1,2
211
46
257
175
1,2
25,1
$
Ja
$
$
$
$
nuary 1
2012
restated (1)
2,892
1,342
7,305
522
559
12,620
1,779
3,168
2,244
1,476
275
1,311
466
10,719
23,339
2
3,032
1,019
1,638
2,788
732
2,208
11,417
726
1,266
4,748
3,231
502
902
11,375
22,792
2
515
32
547
23,339
2
1) Refer to Note 3
(1
The notes are an
T
3 for the impact o
of changes in ac
counting policies
s and methods.
integral part of t
these consolidate
ed financial state
ements.
On behalf of t
O
he Board of D
Directors,
Laurent Beau
L
Director
D
doin, C.C., FC
CPA, FCA
L. De
Direc
enis Desaute
ctor
els, O.C., FCP
PA, FCA
BOM
MBARDIER INC. F
FINANCIAL REPOR
RT – FISCAL YEAR
R ENDED DECEM
MBER 31, 2013 – C
CONSOLIDATED F
FINANCIAL STATE
EMENTS 111
BOMBARDIER INC.
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
For the fiscal years ended
(in millions of U.S. dollars)
Attributable to equity holders of Bombardier Inc.
Share capital
Retained earnings
(deficit)
Preferred
shares
347
$
Common
shares
$ 1,323
Other
retained
earnings
$ 1,988
Net
actuarial
losses
(3,073) $
Contributed
surplus
118
$
Accumulated OCI
AFS
financial
assets
27
$
Cash flow
hedges
CCTD
$
(316) $ 101 $
Total
515
NCI
32 $
$
Total
Equity
547
470
438
908
3
-
-
-
(2)
-
-
-
(14)
7
-
109
-
-
-
(3)
-
-
-
(25)
11
92
$
$
-
(17)
(17)
-
-
-
-
-
-
-
10
-
(5)
(5)
-
-
-
-
-
-
5
$
$
-
119
119
-
-
54
54
-
460
435
895
3
10
3
13
-
-
-
-
-
-
-
(177)
(29)
-
-
7
(3)
(197) $ 155 $ 1,211
-
-
-
-
-
-
-
(6)
(6)
-
-
22
22
-
564
835
1,399
10
-
-
-
-
-
(173)
(32)
-
-
11
(203) $ 177 $ 2,426
-
-
-
-
-
-
-
(2)
-
-
3
(177)
(29)
(2)
-
7
-
46 $ 1,257
8
(1)
7
-
572
834
1,406
10
-
-
(30)
-
-
(173)
(32)
(30)
-
11
23 $ 2,449
$
$
As at January 1, 2012(1)
Total comprehensive income
Net income
OCI
Options exercised
Dividends
Common shares
Preferred shares
Capital distribution
Shares distributed - PSU plans
Share-based expense
Purchase of NCI
As at December 31, 2012(1)
Total comprehensive income
Net income
OCI
Options exercised
Dividends
-
-
-
-
-
-
-
-
-
-
347
-
-
-
-
$
-
-
-
5
460
-
460
-
-
279
279
-
-
-
-
14
-
-
$ 1,342
(177)
(29)
-
-
-
(3)
$ 2,239
$
-
-
-
-
-
-
(2,794) $
-
-
-
13
564
-
564
-
-
824
824
-
Common shares
Preferred shares
Capital distribution
Shares distributed - PSU plans
Share-based expense
As at December 31, 2013
(1) Restated, refer to Note 3 for the impact of changes in accounting policies and methods.
-
-
-
25
-
$ 1,380
(173)
(32)
-
-
-
$ 2,598
-
-
-
-
-
347
-
-
-
-
-
(1,970) $
$
$
The notes are an integral part of these consolidated financial statements.
112 BOMBARDIER INC. FINANCIAL REPORT – FISCAL YEAR ENDED DECEMBER 31, 2013
BOMBARDIER INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the fiscal years ended December 31
(in millions of U.S. dollars)
Operating activities
Net income
Non-cash items
Amortization
Impairment charges on PP&E
Deferred income taxes
Gains on disposal of PP&E and intangible assets
Gain on disposal of a business
Share of income of joint ventures and associates
Share-based expense
Dividends received from joint ventures and associates
Net change in non-cash balances
Cash flows from operating activities
Investing activities
Additions to PP&E and intangible assets
Proceeds from disposals of PP&E and intangible assets
Additions to AFS investments in securities
Proceeds from disposal of AFS investments in securities
Net proceeds from disposal of a business
Other
Cash flows from investing activities
Financing activities
Net proceeds from issuance of long-term debt
Repayments of long-term debt
Dividends paid(2)
Other
Cash flows from financing activities
Effect of exchange rates on cash and cash equivalents
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
Supplemental information(3)(4)
Cash paid for
Interest
Income taxes
Cash received for
Interest
Notes
2013
$
572
$
2012
restated (1)
470
9
12
8
28
30
31
28
391
-
74
-
(23)
(119)
11
115
359
1,380
(2,357)
70
(122)
52
83
13
(2,261)
1,983
(51)
(196)
(13)
1,723
(2)
840
2,557 (1)
3,397
303
80
$
$
$
364
9
(41)
(6)
-
(153)
7
94
694
1,438
(2,125)
51
-
133
-
42
(1,899)
509
(186)
(249)
7
81
45
(335)
2,892
2,557
259
87
$
$
$
$
$
36
20
$
$
86
19
Income taxes
(1) Restated, refer to Note 3 for the impact of changes in accounting policies and methods.
(2) $23 million of dividends paid relate to preferred shares for fiscal year 2013 ($25 million for fiscal year 2012).
(3) Amounts paid or received for interest are reflected as cash flows from operating activities, except if they were capitalized in PP&E or
intangible assets, in which case they are reflected as cash flows from investing activities. Amounts paid or received for income taxes are
reflected as cash flows from operating activities.
(4) Interest paid comprises interest on long-term debt after the effect of hedges, if any, excluding up-front costs paid related to the negotiation
of debts or credit facilities. Interest received comprises interest received related to cash and cash equivalents, investments in securities,
loans and lease receivable after the effect of hedges, if any, gain on the sale of AFS investments in securities and the interest portion of a
gain related to the resolution of a litigation in connection with part 1.3 of the Canadian Income Tax Act, the Tax on Large Corporations.
The notes are an integral part of these consolidated financial statements.
BOMBARDIER INC. FINANCIAL REPORT – FISCAL YEAR ENDED DECEMBER 31, 2013 – CONSOLIDATED FINANCIAL STATEMENTS 113
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS
For the fiscal years ended December 31, 2013 and 2012
(Tabular figures are in millions of U.S. dollars, unless otherwise indicated)
1.
BASIS OF PREPARATION
Bombardier Inc. is incorporated under the laws of Canada. The consolidated financial statements include the
accounts of Bombardier Inc. and its subsidiaries (“the Corporation”). The Corporation is a manufacturer of
transportation equipment, including business and commercial aircraft and rail transportation equipment and
systems, and is a provider of related services. The Corporation carries out its operations in two distinct segments,
the aerospace segment (BA) and the transportation segment (BT). The main activities of the Corporation are
described in Note 6 – Segment disclosure.
The Corporation’s consolidated financial statements for fiscal years 2013 and 2012 were authorized for issuance
by the Board of Directors on February 12, 2014.
Statement of compliance
The Corporation’s consolidated financial statements are expressed in U.S. dollars and have been prepared in
accordance with IFRS, as issued by the IASB.
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting policies set out below have been applied consistently to all periods presented in these
consolidated financial statements, unless otherwise stated. See also Note 3 – Changes in accounting policies and
methods.
Basis of consolidation
Subsidiaries – Subsidiaries are fully consolidated from the date of acquisition and continue to be consolidated
until the date control over the subsidiaries ceases.
The Corporation consolidates investees, including structured entities when, based on the evaluation of the
substance of the relationship with the Corporation, it concludes that it controls the investees. The Corporation
controls an investee when it is exposed, or has rights, to variable returns from its involvement with the investee
and has the ability to affect those returns through its power over the investee.
The Corporation’s principal subsidiaries, whose revenues represent more than 10% of total revenues of their
respective segment, are as follows:
Subsidiary
Bombardier Transportation GmbH
Bombardier Transportation (Holdings) UK Ltd.
Bombardier Aerospace Corporation
Learjet Inc.
Location
Germany
U.K.
U.S.
U.S.
Revenues of these subsidiaries combined with those of Bombardier Inc. totalled 69% of consolidated revenues for
fiscal year 2013 (67% for fiscal year 2012).
Joint ventures – Joint ventures are those entities over which the Corporation exercises joint control, requiring
unanimous consent of the parties sharing control for strategic financial and operating decision making and where
the parties have rights to the net assets of the arrangement. The Corporation recognizes its interest in joint
ventures using the equity method of accounting.
Associates – Associates are entities in which the Corporation has the ability to exercise significant influence over
the financial and operating policies. Investments in associates are accounted for using the equity method of
accounting.
114 BOMBARDIER INC. FINANCIAL REPORT – FISCAL YEAR ENDED DECEMBER 31, 2013
Foreign currency translation
The consolidated financial statements are expressed in U.S. dollars, the functional currency of Bombardier Inc.
The functional currency is the currency of the primary economic environment in which an entity operates. The
functional currency of most foreign subsidiaries is their local currency, mainly the U.S. dollar in BA, and the euro,
pound sterling, various other European currencies and the U.S. dollar in BT.
Foreign currency transactions – Transactions denominated in foreign currencies are initially recorded in the
functional currency of the related entity using the exchange rates in effect at the date of the transaction. Monetary
assets and liabilities denominated in foreign currencies are translated using the closing exchange rates. Any
resulting exchange difference is recognized in income except for exchange differences related to retirement
benefits asset and liability, as well as financial liabilities designated as hedges of the Corporation’s net
investments in foreign operations, which are recognized in OCI. Non-monetary assets and liabilities denominated
in foreign currencies and measured at historical cost are translated using historical exchange rates, and those
measured at fair value are translated using the exchange rate in effect at the date the fair value is determined.
Revenues and expenses are translated using the average exchange rates for the period or the exchange rate at
the date of the transaction for significant items.
Foreign operations – Assets and liabilities of foreign operations whose functional currency is other than the U.S.
dollar are translated into U.S. dollars using closing exchange rates. Revenues and expenses, as well as cash
flows, are translated using the average exchange rates for the period. Translation gains or losses are recognized
in OCI and are reclassified in income on disposal or partial disposal of the investment in the related foreign
operation.
The exchange rates for the major currencies used in the preparation of the consolidated financial statements were
as follows:
Exchange rates
as at
Average exchange rates
for fiscal years
December 31
2013
1.3791
0.9400
1.6542
December 31
2012
1.3194
1.0043
1.6167
January 1
2012
1.2939
0.9791
1.5490
2013
1.3285
0.9717
1.5654
2012
1.2860
1.0008
1.5854
Euro
Canadian dollar
Pound sterling
Revenue recognition
Long-term contracts – Revenues from long-term contracts related to designing, engineering or manufacturing
specifically designed products (including rail vehicles and component overhaul) and service contracts are
recognized using the percentage-of-completion method of accounting. The percentage of completion is generally
determined by comparing the actual costs incurred to the total costs anticipated for the entire contract, excluding
costs that are not representative of the measure of performance. Estimated revenues include revenues from
change orders, claims and performance incentives when it is probable that they will result in additional revenues
and the amount can be reliably estimated. If a contract review indicates a negative gross margin, the entire
expected loss on the contract is recognized in cost of sales in the period in which the negative gross margin is
identified. When the contract outcome cannot be measured reliably, revenue is recognized only to the extent that
the expenses incurred are expected to be recovered.
When a contract covers a number of products, the construction of each product is treated as a separate contract
when (1) separate proposals have been submitted for each product, (2) each product has been subject to
separate negotiation, and (3) the costs and revenues of each product can be identified. A group of contracts,
whether with a single customer or with several customers, are treated as a single contract when (1) the group of
contracts is negotiated as a single package, (2) the contracts are so closely interrelated that they are, in effect,
part of a single project with an overall profit margin, and (3) the contracts are performed concurrently or in a
continuous sequence. Options for additional assets are treated as a separate contract when (1) the asset differs
significantly in design, technology or function from the asset or assets covered by the original contract or (2) the
price of the asset is negotiated without regard to the original contract price.
BOMBARDIER INC. FINANCIAL REPORT – FISCAL YEAR ENDED DECEMBER 31, 2013 – NOTES 115
Aerospace programs – Revenues from the sale of new aircraft are recognized when the aircraft has been
delivered, risks and rewards of ownership have been transferred to the customer, the amount of revenue can be
measured reliably, and collection of the related receivable is reasonably assured. All costs incurred or to be
incurred in connection with the sale, including warranty costs and sales incentives, are charged to cost of sales or
as a deduction from revenues at the time revenue is recognized.
Multiple deliverables – Sales of goods and services sometimes involve the provision of multiple components. In
these cases, the Corporation determines whether the contract or arrangement contains more than one unit of
accounting. When certain criteria are met, such as when the delivered item has value to the customer on a stand-
alone basis, the recognition criteria are applied to the separate identifiable components of a single transaction to
reflect the substance of the transaction. Conversely, two or more transactions may be considered together for
revenue recognition purposes, when the commercial effect cannot be understood without reference to a series of
transactions as a whole. Revenue is allocated to the separate components based on their relative fair value.
Sales of aircraft fractional shares are considered together with the related service agreement for purpose of
revenue recognition. Accordingly, revenues from such sale are recognized over the period during which the
related services are rendered to the customer, generally five years. At the time of sale, the proceeds from the sale
are recorded in other liabilities, under Flexjet fractional ownership deferred revenues. The carrying value of the
related aircraft is transferred to other assets, under Flexjet fractional ownership deferred costs, and is charged to
cost of sales over the same period.
Other – Revenues from the sale of pre-owned aircraft and spare parts are recognized when the goods have been
delivered, risks and rewards of ownership have been transferred to the customer, the amount of revenue can be
measured reliably, and collection of the related receivable is reasonably assured.
Government assistance and refundable advances
Government assistance, including investment tax credits, is recognized when there is a reasonable assurance
that the assistance will be received and that the Corporation will comply with all relevant conditions. Government
assistance related to the acquisition of inventories, PP&E and intangible assets is recorded as a reduction of the
cost of the related asset. Government assistance related to current expenses is recorded as a reduction of the
related expenses.
Government refundable advances are recorded as a financial liability if there is reasonable assurance that the
amount will be repaid.
Income taxes
The Corporation applies the liability method of accounting for income taxes. Deferred income tax assets and
liabilities are recognized for the future income tax consequences of temporary differences between the carrying
amounts of assets and liabilities and their respective tax bases, and for tax losses carried forward. Deferred
income tax assets and liabilities are measured using the substantively enacted tax rates that will be in effect for
the year in which the differences are expected to reverse.
Deferred income tax assets are recognized to the extent that it is probable that future taxable income will be
available against which the deductible temporary differences and unused tax losses can be utilized.
Deferred income tax assets and liabilities are recognized directly in income, OCI or equity based on the
classification of the item to which they relate.
Earnings per share
Basic EPS is computed based on net income attributable to equity holders of Bombardier Inc. less dividends on
preferred shares, including taxes, divided by the weighted-average number of Class A Shares (Multiple Voting)
and Class B Shares (Subordinate Voting) outstanding during the fiscal year.
Diluted EPS are computed using the treasury stock method, giving effect to the exercise of all dilutive elements.
116 BOMBARDIER INC. FINANCIAL REPORT – FISCAL YEAR ENDED DECEMBER 31, 2013
Financial instruments
A financial instrument is any contract that gives rise to a financial asset of one party and a financial liability or
equity instrument of another party. Financial assets of the Corporation include cash and cash equivalents, trade
and other receivables, aircraft loans and lease receivables, investments in securities, investments in financing
structures, restricted cash and derivative financial instruments with a positive fair value. Financial liabilities of the
Corporation include trade and other payables, long-term debt, lease subsidies, government refundable advances,
vendor non-recurring costs, sale and leaseback obligations and derivative financial instruments with a negative
fair value.
Financial instruments are recognized in the consolidated statement of financial position when the Corporation
becomes a party to the contractual obligations of the instrument. On initial recognition, financial instruments are
recognized at their fair value plus, in the case of financial instruments not at FVTP&L, transaction costs that are
directly attributable to the acquisition or issue of financial instruments. Subsequent to initial recognition, financial
instruments are measured according to the category to which they are classified, which are: a) financial
instruments classified as HFT, b) financial instruments designated as FVTP&L, c) AFS financial assets, d) L&R, or
e) other than HFT financial liabilities. Their classification is determined by management on initial recognition
based on the purpose for their acquisition. Financial instruments are subsequently measured at amortized cost,
unless they are classified as AFS or HFT or designated as FVTP&L, in which case they are subsequently
measured at fair value.
a) Financial instruments classified as HFT
Cash and cash equivalents – Cash and cash equivalents consist of cash and highly liquid investments
held with investment-grade financial institutions and money market funds, with maturities of three months
or less from the date of acquisition.
Derivative financial instruments – Derivative financial instruments are mainly used to manage the
Corporation’s exposure to foreign exchange and interest-rate market risks, generally through forward
foreign exchange contracts, interest rate swap agreements and cross-currency interest-rate swap
agreements. Derivative financial instruments include derivatives that are embedded in financial or
non-financial contracts that are not closely related to the host contracts.
Derivative financial instruments are classified as HFT, unless they are designated as hedging instruments
for which hedge accounting is applied (see below). Changes in the fair value of derivative financial
instruments not designated in a hedging relationship, excluding embedded derivatives, are recognized in
cost of sales or financing expense or financing income, based on the nature of the exposure.
Embedded derivatives of the Corporation include financing rate commitments related to the sale of
aircraft, call options on long-term debt and foreign exchange instruments included in sale or purchase
agreements. Upon initial recognition, the fair value of financing rate commitments linked to the sale of
products is recognized as deferred charge in other assets. The deferred charge is recorded as an
adjustment of the sale price of the related products. Call options on long-term debt that are not closely
related to the host contract are measured at fair value, with the initial value recognized as an increase of
the related long-term debt and amortized to net income using the effective interest method. Upon initial
recognition, the fair value of the foreign exchange instruments not designated in a hedge relationship is
recognized in cost of sales. Subsequent changes in fair value of embedded derivatives are recorded in
cost of sales, other expense (income) or financing expense or financing income, based on the nature of
the exposure.
b) Financial instruments designated as FVTP&L
Financial instruments may be designated on initial recognition as FVTP&L if any of the following criteria is
met: (i) the financial instrument contains one or more embedded derivatives that otherwise would have to
be accounted for separately; (ii) the designation eliminates or significantly reduces a measurement or
recognition inconsistency that would otherwise arise from measuring the financial asset or liability or
recognizing the gains and losses on them on a different basis; or (iii) the financial asset and financial
liability are part of a group of financial assets, financial liabilities, or both that is managed and its
performance is evaluated on a fair value basis, in accordance with a documented risk management or
investment strategy. The Corporation has designated as FVTP&L, certain aircraft loans and lease
BOMBARDIER INC. FINANCIAL REPORT – FISCAL YEAR ENDED DECEMBER 31, 2013 – NOTES 117
receivables, certain investments in financing structures, trade-in commitments and lease subsidies, which
were all designated as FVTP&L based on the above criterion (iii).
Subsequent changes in fair value of such financial instruments are recorded in other expense (income),
except for the fair value changes arising from a change in interest rates which are recorded in financing
expense or financing income.
c) AFS financial assets
Investments in securities are usually classified as AFS. They are accounted for at fair value if reliably
measurable, with unrealized gains and losses included in OCI, except for foreign exchange gains and
losses on monetary investments, such as fixed income investments, which are recognized in income.
Equity instruments that do not have a quoted market price in an active market and whose fair value
cannot be reliably measured are recorded at cost.
When a decline in the fair value of an AFS financial asset has been recognised in OCI and there is
objective evidence that the asset is impaired, the cumulative loss equal to the difference between the
acquisition cost of the investments and its current fair value, less any impairment loss on that financial
asset previously recognized in net income, is removed from AOCI and recognized in net income.
Impairment losses recognized in net income for financial instruments classified as AFS can be reversed,
except for investments in equity instruments.
d) L&R
Trade and other receivables, restricted cash, certain aircraft loans and lease receivables, certain
investments in financing structures and other financial assets, are classified as L&R. Financial assets
classified as L&R are measured at amortized cost using the effective interest rate method less any
impairment losses.
Trade receivables as well as aircraft loans and lease receivables classified as L&R are subject to periodic
impairment review and are classified as impaired when there is objective evidence that an impairment
loss has been incurred. The amount of the loss is measured as the difference between the asset's
carrying amount and the present value of estimated future cash flows discounted at the original effective
interest rate. If, in a subsequent period, the amount of the impairment loss decreases and the decrease
can be related objectively to an event occurring after the impairment was recognized, the previously
recognized impairment loss is reversed.
e) Other than HFT financial liabilities
Trade and other payables, long-term debt, government refundable advances, vendor non-recurring costs,
sale and leaseback obligations and certain other financial liabilities are classified as other than HFT
liabilities and are measured at amortized cost using the effective interest rate method.
Hedge accounting
Designation as a hedge is only allowed if, both at the inception of the hedge and throughout the hedge period, the
changes in the fair value of the derivative and non-derivative hedging financial instruments are expected to
substantially offset the changes in the fair value of the hedged item attributable to the underlying risk exposure.
The Corporation formally documents all relationships between the hedging instruments and hedged items, as well
as its risk management objectives and strategy for undertaking various hedge transactions. This process includes
linking all derivatives to forecasted cash flows or to a specific asset or liability. The Corporation also formally
documents and assesses, both at the hedge’s inception and on an ongoing basis, whether the hedging
instruments are highly effective in offsetting the changes in the fair value or cash flows of the hedged items. There
are three permitted hedging strategies.
Fair value hedges – The Corporation generally applies fair value hedge accounting to certain interest-rate
derivatives and forward foreign exchange contracts hedging the exposures to changes in the fair value of
recognised financial assets and financial liabilities. In a fair value hedge relationship, gains or losses from the
measurement of derivative hedging instruments at fair value are recorded in net income, while gains or losses
on hedged items attributable to the hedged risks are accounted for as an adjustment to the carrying amount
of hedged items and are recorded in net income.
118 BOMBARDIER INC. FINANCIAL REPORT – FISCAL YEAR ENDED DECEMBER 31, 2013
Cash flow hedges – The Corporation generally applies cash flow hedge accounting to forward foreign
exchange contracts and interest-rate derivatives entered into to hedge foreign exchange risks on forecasted
transactions and recognized assets and liabilities. In a cash flow hedge relationship, the portion of gains or
losses on the hedging item that is determined to be an effective hedge is recognized in OCI, while the
ineffective portion is recorded in net income. The amounts recognized in OCI are reclassified in net income as
a reclassification adjustment when the hedged item affects net income. However, when an anticipated
transaction is subsequently recorded as a non-financial asset, the amounts recognized in OCI are reclassified
in the initial carrying amount of the related asset.
Hedge of net investments in foreign operations – The Corporation generally designates certain long-term
debt as hedges of its net investments in foreign operations. The portion of gains or losses on the hedging
instrument that is determined to be an effective hedge is recognized in OCI, while the ineffective portion is
recorded in net income. The amounts recognized in OCI are reclassified in net income when corresponding
exchange gains or losses arising from the translation of the foreign operations are recorded in net income.
The portion of gains or losses on the hedging instrument that is determined to be an effective hedge is recorded
as an adjustment of the cost or revenue of the related hedged item. Gains and losses on derivatives not
designated in a hedge relationship and gains and losses on the ineffective portion of effective hedges are
recorded in cost of sales or financing expense or financing income for the interest component of the derivatives or
when the derivatives were entered into for interest rate management purposes.
Hedge accounting is discontinued prospectively when it is determined that the hedging instrument is no longer
effective as a hedge, the hedging instrument is terminated or sold, or upon the sale or early termination of the
hedged item.
Leases
The determination of whether an arrangement is or contains a lease is based on the substance of the
arrangement and requires an assessment of whether the arrangement conveys a right to use the asset. When
substantially all risks and rewards of ownership are transferred from the lessor to the lessee, lease transactions
are accounted for as finance leases. All other leases are accounted for as operating leases.
When the Corporation is the lessee – Leases of assets classified as finance leases are presented in the
consolidated statements of financial position according to their nature. The interest element of the lease payment
is recognized over the term of the lease based on the effective interest rate method and is included in financing
expense. Payments made under operating leases are recognized in income on a straight-line basis over the term
of the lease.
When the Corporation is the lessor – Assets subject to finance leases, mainly commercial aircraft, are initially
recognized at an amount equal to the net investment in the lease and are included in aircraft lease receivables.
Interest income is recognized over the term of the applicable leases based on the effective interest rate method.
Assets under operating leases, mostly pre-owned regional and business aircraft, are included in PP&E. Lease
income from operating leases is recognized on a straight-line basis over the term of the lease and is included in
revenues.
Inventory valuation
Long-term contracts – Long-term contract inventories include materials, direct labour, manufacturing overhead
and other costs incurred in bringing the inventories to their present location and condition, as well as estimated
contract margins. Advances and progress billings received on accounts of work performed for long-term contracts
are deducted from related long-term contract inventories. Advances and progress billings received in excess of
related long-term contract inventories are shown as liabilities.
BOMBARDIER INC. FINANCIAL REPORT – FISCAL YEAR ENDED DECEMBER 31, 2013 – NOTES 119
Aerospace program and finished products – Aerospace program work in progress, raw materials, and finished
product inventories are valued at the lower of cost or net realizable value. Cost is generally determined using the
unit cost method, except for the cost of spare part inventory that is determined using the moving average method.
The cost of manufactured inventories comprises all costs that are directly attributable to the manufacturing
process, such as materials, direct labour, manufacturing overhead, and other costs incurred in bringing the
inventories to their present location and condition. Net realizable value is the estimated selling price in the
ordinary course of business less the estimated costs of completion and the estimated selling costs, except for raw
materials for which it is determined using replacement cost. The Corporation estimates the net realizable value
using both external and internal aircraft valuations, including information developed from the sale of similar aircraft
in the secondary market.
Impairment of inventories – Inventories are written down to net realizable value when the cost of inventories is
determined not to be recoverable. When the circumstances that previously caused inventories to be written down
no longer exist or when there is clear evidence of an increase in net realizable value because of changed
economic circumstances, the amount of the write-down is reversed.
Retirement and other long-term employee benefits
Retirement benefit plans are classified as either defined benefit plans or defined contribution plans.
Defined benefit plans
Retirement benefit liability or asset recognised on the consolidated statement of financial position is measured at
the difference between the present value of the defined benefit obligation and the fair value of plan asset at the
reporting date. When the Corporation has a surplus in a defined benefit plan, the value of any plan asset
recognized is restricted to the asset ceiling - i.e. the present value of economic benefits available in the form of
refunds from the plan or reductions in future contributions to the plan (“asset ceiling test”). A minimum liability is
recorded when legal minimum funding requirements for past services exceed economic benefits available in the
form of refunds from the plan or reductions in future contributions to the plan. A constructive obligation is recorded
as a defined benefit obligation when there is no realistic alternative but to pay employee benefits. Retirement
benefit liability or asset includes the effect of any asset ceiling, minimum liability and constructive obligation.
The cost of pension and other benefits earned by employees is actuarially determined for each plan using the
projected unit credit method, and management’s best estimate of salary escalation, retirement ages, life
expectancy, inflation, discount rates and health care costs. Plan assets are assets that are held by a long-term
employee benefit fund or qualifying insurance policies. These assets are measured at fair value at the end of the
reporting period, which is based on published market mid-price information in the case of quoted securities. The
discount factors are determined at each reporting date by reference to market yields at the end of the reporting
period on high quality corporate fixed-income investments consistent with the currency and the estimated terms of
the related retirement benefit liability.
The actuarial gains and losses (including the foreign exchange impact) arising on the plan assets and defined
benefit obligation and the effect of any asset ceiling and minimum liability are recognized directly in OCI in the
period in which they occur and are never reclassified to net income. Past service costs (credits) are recognized
directly in income in the period in which they occur.
The accretion on net retirement benefit obligations is included in financing income or financing expense. The
remaining components of the benefit cost are either capitalized as part of labour costs and included in inventories
and in certain PP&E and intangible assets during their construction, or are recognized directly in income. The
benefit cost recorded in net income is allocated to labour costs based on the function of the employee accruing
the benefits.
Defined contribution plans
Contributions to defined contribution plans are recognized in net income when they are earned by the employees.
Other long-term employee benefits – The accounting method is similar to the method used for defined benefit
plans, except that all actuarial gains and losses are recognized immediately in income. Other long-term employee
benefits are included in other liabilities.
120 BOMBARDIER INC. FINANCIAL REPORT – FISCAL YEAR ENDED DECEMBER 31, 2013
Property, plant and equipment
PP&E are carried at cost less accumulated amortization and impairment losses. The cost of an item of PP&E
includes its purchase price or manufacturing cost, borrowing costs as well as other costs incurred in bringing the
asset to its present location and condition. If the cost of certain components of an item of PP&E is significant in
relation to the total cost of the item, the total cost is allocated between the various components, which are then
separately depreciated over the estimated useful lives of each respective component. The amortization of PP&E
is computed on a straight-line basis over the following useful lives:
Buildings
Equipment
Other
5 to 75 years
2 to 15 years
3 to 20 years
The amortization method and useful lives are reviewed on a regular basis, at least annually, and changes are
accounted for prospectively. The amortization expense and impairments are recorded in cost of sales, SG&A or
R&D expenses based on the function of the underlying asset or in special items. Amortization of assets under
construction begins when the asset is ready for its intended use.
When a significant part is replaced or a major inspection or overhaul is performed, its cost is recognized in the
carrying amount of the PP&E if the recognition criteria are satisfied, and the carrying amount of the replaced part
or previous inspection or overhaul is derecognized. All other repair and maintenance costs are charged to income
when incurred.
Intangible assets
Internally generated intangible assets include development costs (mostly aircraft prototype design and testing
costs) and internally developed or modified application software. These costs are capitalized when certain criteria
for deferral such as proven technical feasibility are met. The costs of internally generated intangible assets
include the cost of materials, direct labour, manufacturing overheads and borrowing costs.
Acquired intangible assets include the cost of development activities carried out by vendors for which the
Corporation controls the underlying output from the usage of the technology, as well as the cost related to
externally acquired licences, patents and trademarks.
Intangible assets are recorded at cost less accumulated amortization and impairment losses and include goodwill,
aerospace program tooling, as well as other intangible assets such as licenses, patents and trademarks. Other
intangible assets are included in other assets.
Amortization of aerospace program tooling begins at the date of completion of the first aircraft of the program.
Amortization of other intangibles begins when the asset is ready for its intended use. Amortization expense is
recognized as follows:
Aerospace program tooling
Method
Unit of production
Estimated useful life
Expected number of aircraft to be
Other intangible assets
Licenses, patent and trademarks
Other
Straight-line
Straight-line
produced(1)
3 to 20 years
3 to 5 years
(1) As at December 31, 2013, the remaining number of units to fully amortize the aerospace program tooling, except for aerospace program
tooling under development, is expected to be produced over the next seven years.
The amortization methods and estimated useful lives are reviewed on a regular basis, at least annually, and
changes are accounted for prospectively. The amortization expense is recorded in cost of sales, SG&A or R&D
expenses based on the function of the underlying assets.
The Corporation does not have indefinite-lived intangible assets, other than goodwill. Goodwill represents the
excess of the purchase price over the fair value of the identifiable net assets acquired in a business acquisition.
After initial recognition, goodwill is measured at cost less any accumulated impairment losses.
BOMBARDIER INC. FINANCIAL REPORT – FISCAL YEAR ENDED DECEMBER 31, 2013 – NOTES 121
Borrowing costs
Borrowing costs consist of interest on long-term debt and other costs that the Corporation incurs in connection
with the borrowing of funds. Borrowing costs directly attributable to the acquisition, construction or production of a
qualifying asset are capitalised as part of the cost of that asset and are deducted from the financing expense to
which they relate. All other borrowing costs are expensed in the period they occur.
Impairment of PP&E and intangible assets
The Corporation assesses at each reporting date whether there is an indication that a PP&E or intangible asset
may be impaired. If any indication exists, the Corporation estimates the recoverable amount of the individual
asset, when possible.
When the asset does not generate cash inflows that are largely independent of those from other assets or group
of assets, the asset is tested at the CGU level. Most of the Corporation’s non-financial assets are tested for
impairment at the CGU level. The recoverable amount of an asset or CGU is the higher of its fair value less costs
to sell and its value in use.
(cid:120) The fair value less costs to sell reflects the amount the Corporation could obtain from the asset’s disposal
in an arm’s length transaction between knowledgeable, willing parties, after deducting the costs of
disposal. If there is no binding sales agreement or active market for the asset, the fair value is assessed
by using appropriate valuation models dependent on the nature of the asset or CGU, such as the
discounted cash flow models.
(cid:120) The value in use is calculated using estimated net cash flows, with detailed projections generally over a
three-year period and subsequent years being extrapolated using a growth assumption. The estimated
net cash flows are discounted to their present value using a discount rate before income taxes that
reflects current market assessments of the time value of money and the risk specific to the asset or CGU.
When the recoverable amount is less than the carrying value of the related asset or CGU, the related assets are
written down to their recoverable amount and an impairment loss is recognized in net income.
For PP&E and intangible assets other than goodwill, an assessment is made at each reporting date as to whether
there is any indication that previously recognized impairment losses may no longer exist or may have decreased.
If such indication exists, the Corporation estimates the recoverable amount of the asset or CGU. A previously
recognized impairment loss is reversed only if there has been a change in the estimates used to determine the
recoverable amount since the last impairment loss was recognized. The reversal of impairment losses is limited to
the amount that would bring the carrying value of the asset or CGU to the amount that would have been recorded,
net of amortization, had no impairment loss been recognized for the asset or CGU in prior years. Such reversal is
recognized to income in the same line item where the original impairment was recognized.
Intangible assets and PP&E not yet available for use and goodwill are reviewed for impairment at least annually
or more frequently if circumstances such as significant declines in expected sales, earnings or cash flows indicate
that it is more likely than not that the asset or CGU might be impaired. Impairment losses relating to goodwill are
not reversed in future periods.
Provisions
Provisions are recognised when the Corporation has a present legal or constructive obligation as a result of a
past event, it is probable that an outflow of resources will be required to settle the obligation and the cost can be
reliably estimated. These liabilities are presented as provisions when they are of uncertain timing or amount.
Provisions are measured at their present value.
Product warranties – A provision for warranty cost is recorded in cost of sales when the revenue for the related
product is recognized. The interest component associated with product warranties, when applicable, is recorded
in financing expense. The cost is estimated based on a number of factors, including the historical warranty claims
and cost experience, the type and duration of warranty coverage, the nature of products sold and in service and
counter-warranty coverage available from the Corporation’s suppliers. Claims for reimbursement from third parties
are recorded if their realization is virtually certain. Product warranties typically range from one to five years,
except for aircraft structural and bogie warranties that extend up to 20 years.
Credit and residual value guarantees – Credit and residual value guarantees related to the sale of aircraft are
recorded at the amount the Corporation expects to pay under these guarantees when the revenue for the related
product is recognized. Subsequent to initial recognition, changes in the value of these guarantees are recorded in
122 BOMBARDIER INC. FINANCIAL REPORT – FISCAL YEAR ENDED DECEMBER 31, 2013
other expense (income), except for the changes in value arising from a change in interest rates, which are
recorded in financing expense or financing income.
Credit guarantees provide support through contractually limited payments to the guaranteed party to mitigate
default-related losses. Credit guarantees are triggered if customers do not perform during the term of the
financing.
Residual value guarantees provide protection, through contractually limited payments, to the guaranteed parties
in cases where the market value of the underlying asset falls below the guaranteed value. In most cases, these
guarantees are provided as part of a financing arrangement.
Restructuring provisions – Restructuring provisions are recognised only when the Corporation has an actual or
a constructive obligation. The Corporation has a constructive obligation when a detailed formal plan identifies the
business or part of the business concerned, the location and number of employees affected, a detailed estimate
of the associated costs and an appropriate timeline. Furthermore, the affected employees or worker councils must
have been notified of the plan’s main features.
Onerous contracts – If it is more likely than not that the unavoidable costs of meeting the obligations under a
contract, other than a long-term contract, exceed the economic benefits expected to be received under it, a
provision for onerous contracts is recorded in cost of sales, except for the interest component, which is recorded
in financing expense. Unavoidable costs include anticipated cost overruns, as well as expected costs associated
with late delivery penalties and technological problems. Costs incurred to set up an efficient manufacturing
process in the early phase of an aircraft program are not considered unavoidable costs related to a specific
contract. Provisions for onerous contracts are measured at the lower of the expected cost of fulfilling the contract
and the expected cost of terminating the contract.
Termination benefits – Termination benefits are usually paid when employment is terminated before the normal
retirement date or when an employee accepts voluntary redundancy in exchange for these benefits. The
Corporation recognizes termination benefits when it is demonstrably committed, through a detailed formal plan
without possibility of withdrawal, to terminate the employment of current employees. Termination benefits are
included in provisions.
Environmental costs – A provision for environmental costs is recorded when environmental claims or remedial
efforts are probable and the costs can be reasonably estimated. Legal asset retirement obligations and
environmental costs of a capital nature that extend the life, increase the capacity or improve the safety of an asset
or that mitigate, or prevent environmental contamination that has yet to occur, are included in PP&E and are
generally amortized over the remaining useful life of the underlying asset. Costs that relate to an existing
condition caused by past operations and that do not contribute to future revenue generation are expensed and
included in cost of sales.
Litigation – A provision for litigation is recorded in case of legal actions, governmental investigations or
proceedings when it is probable that an outflow of resources will be required to settle the obligation and the cost
can be reliably estimated.
Share-based payments
Equity-settled share-based payment plans – Equity-settled share-based payments are measured at fair value
at the grant date. For the PSUs and DSUs, the value of the compensation is measured based on the closing price
of a Class B Share (Subordinate Voting) of the Corporation on the Toronto Stock Exchange adjusted to take into
account the terms and conditions upon which the shares were granted, if any, and is based on the PSUs and
DSUs that are expected to vest. For share option plans, the value of the compensation is measured using a
Black-Scholes option pricing model, modified to incorporate target prices related to the performance share option
plan for options granted before June 1, 2009. The effect of any change in the number of options, PSUs and DSUs
that are expected to vest is accounted for in the period in which the estimate is revised. Compensation expense is
recognized on a straight-line basis over the vesting period, with a corresponding increase in contributed surplus.
Any consideration paid by plan participants on the exercise of stock options is credited to share capital.
Employee share purchase plan – The Corporation’s contributions to the employee share purchase plan are
measured at cost and accounted for in the same manner as the related employee payroll costs. Compensation
expense is recorded at the time of the employee contribution.
BOMBARDIER INC. FINANCIAL REPORT – FISCAL YEAR ENDED DECEMBER 31, 2013 – NOTES 123
3.
CHANGES IN ACCOUNTING POLICIES AND METHODS
Financial statement presentation
In June 2011, the IASB amended IAS 1, Presentation of financial statements. The principal change resulting from
the amendments to IAS 1 is a requirement to group items within OCI that may be reclassified to the statement of
income. The amendments also reaffirmed existing requirements that items in OCI and net income should be
presented as either a single statement or two consecutive statements. The amended IAS 1 was adopted effective
January 1, 2013. The presentation of the Corporation’s consolidated financial statement was not impacted by
these amendments as the items within OCI that may be reclassified to the consolidated statement of income are
already disclosed together.
Fair value measurement
In May 2011, the IASB released IFRS 13, Fair value measurement. IFRS 13 improves consistency and reduces
complexity by providing a precise definition of fair value and a single source of fair value measurement and
disclosure requirements for use across IFRS when another IFRS requires or permits the item to be measured at
fair value. IFRS 13 was adopted effective January 1, 2013. The adoption of this standard had no significant
impact on the Corporation’s consolidated financial statements other than to give rise to additional disclosures, see
Note 35 – Fair value of financial instruments.
Consolidation
In May 2011, the IASB released IFRS 10, Consolidated financial statements, which replaces SIC-12,
Consolidation – special purpose entities, and the parts of IAS 27, Consolidated and separate financial statements
related to the preparation and the presentation of consolidated financial statements. The new standard builds on
existing principles by identifying the concept of control as the determining factor to assess whether an entity
should be included in an entity’s consolidated financial statements. The standard provides additional guidance to
assist in the determination of control where it is difficult to assess. IFRS 10 was adopted effective January 1,
2013. The adoption of this standard had no impact on the consolidated financial statements of the Corporation.
Disclosure of interests in other entities
In May 2011, the IASB released IFRS 12, Disclosure of interests in other entities. IFRS 12 is a new and
comprehensive standard on disclosure requirements for all forms of interests in other entities, including
subsidiaries, joint arrangements, associates, special purpose vehicles and other off-balance sheet vehicles. The
standard requires an entity to disclose information regarding the nature and risks associated with its interests in
other entities and the effects of those interests on its financial position, financial performance and cash flows.
IFRS 12 was adopted effective January 1, 2013. See Note 36 – Investments in joint ventures and associates and
Note 38 – Unconsolidated structured entities.
Joint arrangements
In May 2011, the IASB released IFRS 11, Joint arrangements, which supersedes IAS 31, Interests in joint
ventures, and SIC-13, Jointly controlled entities - non-monetary contributions by venturers. IFRS 11 focuses on
the rights and obligations of a joint arrangement, rather than its legal form as was the case under IAS 31. IFRS 11
classifies joint arrangements into two types: joint ventures and joint operations. Joint ventures are arrangements
whereby the parties have rights to the net assets, while joint operations are arrangements whereby the parties
have rights to the assets and obligations for the liabilities. The standard eliminates choices in the reporting of joint
arrangements by requiring the use of the equity method to account for interests in joint ventures, and by requiring
joint operators to recognize assets and liabilities in relation to their interests in the arrangements. IFRS 11 was
adopted effective January 1, 2013 and the change has been accounted for retroactively in accordance with the
transition rules of IFRS 11.
A large part of the Corporation’s investments in joint arrangements qualify as joint ventures and are now
accounted for using the equity method of accounting. These investments were previously accounted for using the
proportionate consolidation method. Under the equity method of accounting, the Corporation’s share of net
assets, net income and OCI of joint ventures are presented as one-line items on the consolidated statement of
financial position, the consolidated statement of income and the consolidated statement of comprehensive
income, respectively. In addition, the consolidated statement of cash flows under the equity method of accounting
includes the cash flows between the Corporation and its joint ventures, and not the Corporation’s proportionate
share of the joint ventures’ cash flows.
124 BOMBARDIER INC. FINANCIAL REPORT – FISCAL YEAR ENDED DECEMBER 31, 2013
Employee benefits
In June 2011, the IASB amended IAS 19, Employee benefits. Among other changes, the amendments require
entities to compute the financing cost component of defined benefit plans by applying the discount rate used to
measure post-employment benefit obligations to the net post-employment benefit obligations (usually, the present
value of defined benefit obligations less the fair value of plan assets). Under the previous IAS 19, interest income
was presented separately from interest expense and calculated based on the expected return on the plan assets.
Furthermore, the amendments to IAS 19 enhance the disclosure requirements for defined benefit plans, providing
additional information about the characteristics of defined benefit plans and the risks that entities are exposed to
through participation in those plans. The amended IAS 19 was adopted effective January 1, 2013. The changes in
accounting policy have been accounted for retroactively in accordance with the transition rules of the amended
IAS 19 and the additional disclosures are provided in Note 22 – Retirement benefits.
Change in methods of measurement of certain financial assets
The Corporation revised its methods of measurement of certain financial assets carried at fair value, mainly
investments in financing structures. The carrying value of these financial assets is determined using a valuation
model based on stochastic simulations and discounted cash flow analysis. In the past, the methods used to
determine the discount rate did not include all the components that market participants would consider as inputs
to establish fair value. Therefore, the impacted financial assets have been re-measured using revised discount
rates and the change of method has been accounted for retroactively. Also, certain of these remeasured financial
assets have been reclassified on the consolidated statements of financial position to present them separately
from related provisions.
Impact of adopting the above-mentioned changes in accounting policies and methods
The following tables summarize the Corporation’s retroactive restatements to its consolidated financial statements
resulting from the adoption of the amended IAS 19, Employee benefits, IFRS 11, Joint arrangements and the
change in methods of measurement of certain financial assets, including the impact of reclassification.
The impacts on the consolidated statement of income are as follows, for fiscal year:
2012
As
presented
$ 16,768
14,269
2,499
1,443
299
Revenues
Cost of sales
Gross margin
SG&A
R&D
Share of income of joint ventures
and associates
Other income
Special items
EBIT
Financing expense
Financing income
EBT
Income taxes
Net income
EPS (in dollars)
Basic and diluted
(1) Adjustments resulting from the application of the equity method:
(45)
(33)
140
695
596
(599)
698
100
598
0.32
$
$
Joint
arrangements (1)
Remeasurement
of certain
financial assets
Restatements
$
Employee
benefits
-
14
(14)
7
-
-
-
-
(21)
(301)
427
(147)
(16)
(131)
$
$
$
(354)
(230)
(124)
(8)
-
(108)
-
-
(8)
-
12
(20)
(20)
-
$
$
As
restated
- $ 16,414
14,053
-
2,361
-
1,442
-
299
-
-
-
-
-
-
(5)
5
2
3 $
(153)
(33)
140
666
295
(165)
536
66
470
$
0.25
i.
ii.
iii.
impact of ceasing to consolidate proportionally the Corporation’s share of revenues and expenses of joint ventures;
impact of not eliminating certain transactions between the Corporation and the joint ventures; and
impact of recording the Corporation‘s pro-rata share of net income arising from joint ventures as a one-line item under the caption
share of income of joint ventures and associates.
BOMBARDIER INC. FINANCIAL REPORT – FISCAL YEAR ENDED DECEMBER 31, 2013 – NOTES 125
The impacts on the consolidated statements of financial position are as follows, as at:
Restatements
December 31, 2012
As
presented
Joint
arrangements
Employee
benefits
Remeasurement
of certain
financial assets (1)
As
restated
$
2,896
9,937
$
(339)
(406)
66
1,759
11,132
$ 25,790
$ 11,312
1,586
2,997
8,518
24,413
1,377
$ 25,790
245
(6)
(128)
(634)
(578)
(58)
(2)
-
(638)
4
(634)
$
$
$
$
$
$
$
-
-
-
-
-
-
-
-
4
-
4
(4)
-
$
$
$
$
$
-
-
2,557
9,531
311
-
1,782
29
(10)
10,994
19 $ 25,175
59 $ 10,793
1,608
80
2,999
-
8,518
-
23,918
139
1,257
(120)
19 $ 25,175
January 1, 2012
Restatements
As
presented
Joint
arrangements
Employee
benefits
Remeasurement
of certain
financial assets (1)
As
restated
$
3,372
9,365
$
37
1,831
9,259
$ 23,864
$ 10,877
1,672
3,226
7,418
23,193
671
$ 23,864
$
$
$
(480)
(159)
238
(15)
(118)
(534)
(479)
(59)
-
-
(538)
4
(534)
$
$
$
$
-
-
-
-
-
-
-
-
5
-
5
(5)
-
$
$
$
$
- $
-
2,892
9,206
275
-
1,833
17
(8)
9,133
9 $ 23,339
132
-
-
132
(123)
- $ 10,398
1,745
3,231
7,418
22,792
547
9 $ 23,339
Assets
Cash and cash equivalents
Other current assets
Investments in joint ventures and
associates
Other financial assets
Other non-current assets
Liabilities
Other current liabilities
Provisions
Retirement benefits
Other non-current liabilities
Equity
Assets
Cash and cash equivalents
Other current assets
Investments in joint ventures and
associates
Other financial assets
Other non-current assets
Liabilities
Other current liabilities
Provisions
Retirement benefits
Other non-current liabilities
Equity
(1) Including reclassifications.
126 BOMBARDIER INC. FINANCIAL REPORT – FISCAL YEAR ENDED DECEMBER 31, 2013
The impacts on the consolidated statement of comprehensive income and on the consolidated equity position, net
of income taxes, are as follows:
Comprehensive income as presented
Net income
Employee benefits
Remeasurement of certain financial assets
OCI
Employee benefits
Net increase in comprehensive income
Comprehensive income as restated
Equity as presented
Joint arrangements
Employee benefits
Remeasurement of certain financial assets
Equity as restated
The impacts on the consolidated statement of cash flows are as follows, for fiscal year:
Fiscal year 2012
904
$
(131)
3
132
4
908
$
$
As at December 31, 2012
1,377
4
(4)
(120)
1,257
$
Cash flow from operating activities
Cash flow from investing activities
Cash flow from financing activities
Effect of exchange rates
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
Restatements
Joint
arrangements
$
$
90 $
51
4
(4)
141
(480)
(339) $
2012
As
restated
1,438
(1,899)
81
45
(335)
2,892
2,557
$
As
presented
1,348
(1,950)
77
49
(476)
3,372
2,896
$
4.
FUTURE CHANGES IN ACCOUNTING POLICIES
Financial instruments
In October 2010, the IASB released IFRS 9, Financial instruments, which is the first part of a three-part project to
replace IAS 39, Financial instruments: recognition and measurement. This first part only covers classification and
measurement of financial assets and financial liabilities. In November 2013, the IASB released the hedge
accounting part, which introduced a new hedge accounting model, together with corresponding disclosures about
risk management activity. The third part, impairment of financial assets, is still under development. The IASB is
currently considering making limited modifications to the first part of IFRS 9. Those limited modifications include
the introduction of a fair value through OCI category for debt instruments that would be based on an entity’s
business model.
The first part of IFRS 9 uses a new approach to determine whether a financial asset is measured at amortized
cost or fair value, replacing the multiple rules in IAS 39. The approach in IFRS 9 is based on how an entity
manages its financial instruments and the contractual cash flow characteristics of the financial assets. Most of the
requirements in IAS 39 for classification and measurement of financial liabilities were carried forward in IFRS 9.
However, the portion of the changes in fair value related to the entity’s own credit risk, in measuring a financial
liability at FVTP&L, will be presented in OCI rather than in the statement of income. The new hedge accounting
model represents a substantial overhaul of hedge accounting that will enable entities to better reflect their risk
management activities in their financial statements.
BOMBARDIER INC. FINANCIAL REPORT – FISCAL YEAR ENDED DECEMBER 31, 2013 – NOTES 127
The mandatory effective date of IFRS 9, initially set for the Corporation’s fiscal year beginning on
January 1, 2015, has been removed by the IASB. The new mandatory effective date will be determined by the
IASB when the entire IFRS 9 project is closer to completion. IFRS 9 is still available for early adoption. The
Corporation has not yet assessed the impact of the adoption of this standard on its consolidated financial
statements.
In June 2013, the IASB has amended IAS 39 to provide relief from discontinuing hedge accounting when novation
of a derivative designated as a hedging instrument meets certain criteria. This amendment will be effective for the
Corporation’s fiscal year beginning on January 1, 2014. Similar relief will be included in IFRS 9.
Employee benefits
In November 2013, the IASB has amended IAS 19, Employee benefits, in order to simplify the accounting for
contributions of defined benefit plans that are independent of the number of years of employee service, for
example, employee contributions that are calculated according to a fixed percentage of salary. This amendment
will be effective for the Corporation’s fiscal year beginning on January 1, 2015, with earlier application permitted.
The Corporation has not yet assessed the impact of the adoption of this standard on its consolidated financial
statements.
5.
USE OF ESTIMATES AND JUDGMENT
The application of the Corporation’s accounting policies requires management to use estimates and judgments
that can have a significant effect on the revenues, expenses, comprehensive income, assets and liabilities
recognized and disclosures made in the consolidated financial statements. Estimates and judgments are
significant when:
(cid:120)
(cid:120)
the outcome is highly uncertain at the time the estimates and judgments are made; and
if different estimates or judgments could reasonably have been used that would have had a material
impact on the consolidated financial statements.
Management’s best estimates regarding the future are based on the facts and circumstances available at the time
estimates are made. Management uses historical experience, general economic conditions and trends, as well as
assumptions regarding probable future outcomes as the basis for determining estimates. Estimates and their
underlying assumptions are reviewed periodically and the effects of any changes are recognized immediately.
Actual results will differ from the estimates used, and such differences could be material.
Management’s budget and strategic plan cover a three-year period and are fundamental information used as a
basis for many estimates necessary to prepare financial information. Management prepares a budget and
strategic plan covering a three-year period, on an annual basis, using a process whereby a detailed one-year
budget and two-year strategic plan are prepared by each business unit and then consolidated at the reportable
segment and Corporation levels. Cash flows and profitability included in the budget and strategic plan are based
on existing and future contracts and orders, general market conditions, current cost structures, anticipated cost
variations and in-force collective agreements. The budget and strategic plan are subject to approval at various
levels, including senior management and the Board of Directors. Management uses the budget and strategic plan
as well as additional projections or assumptions to derive the expected results for periods thereafter.
Management then tracks performance as compared to the budget and strategic plan at various levels within the
Corporation. Significant variances in actual performance are a key trigger to assess whether certain estimates
used in the preparation of financial information must be revised.
The following areas require management’s most critical estimates and judgments. The sensitivity analyses below
should be used with caution as the changes are hypothetical and the impact of changes in each key assumption
may not be linear.
Long-term contracts – BT conducts most of its business under long-term manufacturing and service contracts
and BA has some long-term maintenance service contracts, as well as design and development contracts for third
parties. Revenues and margins from long-term contracts relating to the designing, engineering or manufacturing
of specially designed products (including rail vehicles and component overhaul) and service contracts are
recognized using the percentage-of-completion method of accounting. The long-term nature of these contracts
requires estimates of total contract costs and revenues at completion.
128 BOMBARDIER INC. FINANCIAL REPORT – FISCAL YEAR ENDED DECEMBER 31, 2013
Estimated revenues at completion are adjusted for change orders, claims, performance incentives and other
contract terms that provide for the adjustment of prices. If it is probable that additional revenues will occur, they
are included in estimated revenues at completion.
Estimated contract costs at completion incorporate forecasts for material and labour usage and costs, foreign
exchange rates (including the effect of hedges) and labour productivity. These costs are influenced by the nature
and complexity of the work to be performed, as well as the impact of change orders and potential delays in
delivery. Cost estimates are based mainly on historical performance trends, economic trends, collective
agreements and contracts signed with suppliers. Management applies judgment to determine the probability that
the Corporation will incur additional costs from delays or other penalties and such costs, if probable, are included
in estimated costs at completion.
Recognized revenues and margins are subject to revisions as contracts progress towards completion.
Management conducts quarterly reviews of estimated costs and revenues to completion on a contract-by-contract
basis. In addition, a detailed annual review is performed on a contract-by-contract basis as part of the budget and
strategic plan process. The effect of any revision may be significant and is recorded by way of a cumulative
catch-up adjustment in the period in which the estimates are revised.
Sensitivity analysis
A 1% increase in the estimated future costs to complete all ongoing long-term contracts would have decreased
BT’s gross margin for fiscal year 2013 by approximately $89 million.
Aerospace program tooling – Aerospace program tooling amortization and the calculation of recoverable
amounts used in impairment testing require estimates of the expected number of aircraft to be delivered over the
life of each program. The expected number of aircraft is based on management’s aircraft market forecasts and
the Corporation’s expected share of each market. Such estimates are reviewed in detail as part of the budget and
strategic plan process. For purposes of impairment testing, management exercises judgment to identify
independent cash inflows to identify CGUs by family of aircraft. The recoverable amount of a group of assets is
based on the higher of fair value less costs to sell and value in use, generally determined using a discounted cash
flow model. Other key estimates used to determine the recoverable amount include the applicable discount rate
and the expected future cash flows over the remaining life of each programs. The inputs used in the discounted
cash flow model are Level 3 inputs (inputs for the asset that are not based on observable market data).
The discount rate is based on a weighted average cost of capital calculated using market-based inputs, available
directly from financial markets or based on a benchmark sampling of representative publicly traded companies.
Forecast future cash flows are based on management’s risk-adjusted best estimate of future sales under existing
firm orders, expected future orders, timing of payments based on expected delivery schedule, revenues from
related services, procurement costs based on existing contracts with suppliers, future labour costs, general
market conditions and applicable income tax rates.
The recoverable amounts were established during the fourth quarter of fiscal year 2013 based on fair value less
costs to sell using a discounted cash flow model. In applying the discounted cash flow model, the estimated future
cash flows for the first three years are based on the budget and strategic plan and on long-range forecasts
thereafter. A post-tax discount rate of 7.5% was used.
Sensitivity analysis
The following analyses are presented in isolation from one another, i.e. all other estimates left unchanged:
A 10% decrease in the expected future net cash inflow for all programs, evenly distributed over future periods,
would have resulted in an impairment charge of approximately $300 million in fiscal year 2013 for programs under
development.
An increase of 100-basis points in the discount rate used to perform the impairment test would have resulted in an
impairment charge of approximately $280 million in fiscal year 2013 for programs under development.
BOMBARDIER INC. FINANCIAL REPORT – FISCAL YEAR ENDED DECEMBER 31, 2013 – NOTES 129
Goodwill – The recoverable amount of the BT reportable segment, the group of CGUs to which goodwill is
allocated, is based on the higher of fair value less costs to sell and value in use. The recoverable amount was
calculated during the fourth quarter of fiscal year 2012 based on fair value less costs to sell using a discounted
cash flow model. The inputs used in the discounted cash flow model are Level 3 inputs (inputs that are not based
on observable market data). During fiscal year 2013, the Corporation concluded that all criteria for using the
recoverable amount from a previous period were met and the impairment assessment was performed by carrying
forward the recoverable amount calculated during the fourth quarter of fiscal year 2012. The Corporation did not
identify any impairment.
Estimated future cash flows were based on the budget and strategic plan for the first three years and a constant
growth rate of 1% was applied to derive estimated cash flows beyond the initial three-year period. For purposes of
this test, management used a 15-year period to project future cash flows.
The post-tax discount rate is also a key estimate in the discounted cash flow model and was based on a
representative weighted average cost of capital. The post-tax discount rate used to calculate the recoverable
amount in fiscal year 2012 was 6.8%. A 100-basis point change in the post-tax discount rate would not have
resulted in an impairment charge in fiscal year 2013.
Valuation of deferred income tax assets – To determine the extent to which deferred income tax assets can be
recognized, management estimates the amount of probable future taxable profits that will be available against
which deductible temporary differences and unused tax losses can be utilized. Such estimates are made as part
of the budget and strategic plan by tax jurisdiction on an undiscounted basis and are reviewed on a quarterly
basis. Management exercises judgment to determine the extent to which realization of future taxable benefits is
probable, considering factors such as the number of years to include in the forecast period, the history of taxable
profits and availability of tax strategies.
Tax contingencies – Uncertainties exist with respect to the interpretation of complex tax regulations, changes in
tax laws, and the amount and timing of future taxable income. Given the wide range of international business
relationships and the long-term nature and complexity of existing contractual agreements, differences arising
between the actual results and the assumptions made, or future changes to such assumptions, could necessitate
future adjustments to tax income and expense already recorded. The Corporation establishes tax provisions for
possible consequences of audits by the tax authorities of the respective counties in which it operates. The amount
of such provisions is based on various factors, such as experience of previous tax audits and differing
interpretations of tax regulations by the taxable entity and the responsible tax authority. Such differences in
interpretation may arise for a wide variety of issues depending on the conditions prevailing in the respective
domicile of the legal entities.
Credit and residual value guarantees – The Corporation uses an internal valuation model based on stochastic
simulations to measure the amounts expected to be paid under credit and residual value guarantees. The
amounts expected to be paid under the guarantees depend on whether credit defaults occur during the term of
the original financing. When a credit default occurs, the credit guarantee may be called upon. In the absence of a
credit default the residual value guarantee may be triggered. In both cases, the guarantees can only be called
upon if there is a loss upon the sale of the aircraft. Therefore, the value of the guarantee is in large part impacted
by the future value of the underlying aircraft. Aircraft residual value curves, prepared by management based on
information from external appraisals and adjusted to reflect specific factors of the current aircraft market and a
balanced market in the medium and long term, are used to estimate this future value. The amount of the liability is
also significantly impacted by the current market assumption for interest rates since payments under these
guarantees are mostly expected to be made in the medium to long term. Other key estimates in calculating the
value of the guarantees include default probabilities, estimated based on published credit ratings when available
or, when not available, on internal assumptions regarding the credit risk of customers, as well as on the likelihood
that credit or residual value guarantees will be called upon at the expiry of the financing arrangements. The
estimates are reviewed on a quarterly basis.
Sensitivity analysis
The following analyses are presented in isolation from one another, i.e. all other estimates left unchanged:
Assuming a decrease of 5% in the residual value curves of all aircraft as at December 31, 2013, EBIT for fiscal
year 2013 would have been negatively impacted by $26 million.
130 BOMBARDIER INC. FINANCIAL REPORT – FISCAL YEAR ENDED DECEMBER 31, 2013
Assuming a 100-basis point decrease in interest rates as at December 31, 2013, EBT for fiscal year 2013 would
have been negatively impacted by $15 million. Assuming a 100-basis point increase in interest rates as at
December 31, 2013, EBT for fiscal year 2013 would have been positively impacted by $16 million.
Retirement and other long-term employee benefits – The actuarial valuation process used to measure
pension and other post-employment benefit costs, assets and obligations is dependent on assumptions regarding
discount rates, compensation and pre-retirement benefit increases, inflation rates, health-care cost trends, as well
as demographic factors such as employee turnover, retirement and mortality rates. The impacts from changes in
discount rates and, when significant, from key events and other circumstances, are recorded quarterly.
Discount rates are used to determine the present value of the expected future benefit payments and represent the
market rates for high-quality corporate fixed-income investments consistent with the currency and the estimated
term of the retirement benefit liabilities. As the Canadian high-quality corporate bond market, as defined under
IFRS, includes relatively few medium- and long- term maturity bonds, the discount rate for our Canadian pension
and other post-employment plans is established by constructing a yield curve using four maturity ranges. The first
maturity range of the curve was based on observed market rates for AA-rated corporate bonds with maturities of
less than six years. In the longer maturity ranges, due to the smaller number of high-quality bonds available, the
curve is derived using market observations and extrapolated data. The extrapolated data points were created by
adding a term-based yield spread over long-term provincial bond yields. This spread is based on the observed
spreads between AA-rated corporate bonds and AA-rated provincial bonds in the last three maturity ranges of the
curve.
Expected rates of compensation increases are determined considering the current salary structure, as well as
historical and anticipated wage increases, in the context of current economic conditions.
See Note 22 – Retirement benefits for further details regarding assumptions used and sensitivity to changes in
critical actuarial assumptions.
Consolidation – From time to time, the Corporation participates in structured entities where voting rights are not
the dominant factor in determining control. In these situations, management may use a variety of complex
estimation processes involving both qualitative and quantitative factors to determine whether the Corporation is
exposed to, or has rights to, significant variable returns. The quantitative analyses involve estimating the future
cash flows and performance of the investee and analyzing the variability in those cash flows. The qualitative
analyses involve consideration of factors such as the purpose and design of the investee and whether the
Corporation is acting as an agent or principal. There is a significant amount of judgment exercised in evaluating
the results of these analyses as well as in determining if we have power to affect the investee’s returns, including
an assessment of the impact of potential voting rights, contractual agreements and de facto control. Management
reassesses its initial determination of control if facts or circumstances indicate that there may be changes to one
or more elements of control.
BOMBARDIER INC. FINANCIAL REPORT – FISCAL YEAR ENDED DECEMBER 31, 2013 – NOTES 131
6.
SEGMENT DISCLOSURE
The Corporation has two reportable segments: BA and BT. Each reportable segment offers different products and
services and requires different technology and marketing strategies.
BA
BA is a world leader in the design, manufacture and support
of innovative aviation products. BA's aircraft portfolio
includes a comprehensive line of business aircraft,
commercial aircraft including regional jets, turboprops and
single-aisle mainline jets, as well as specialized and
amphibious aircraft. BA also offers aftermarket services as
well as Flexjet fractional ownership and flight entitlement
programs. Refer to Note 28 – Disposal of a business for the
sale of main assets and related liabilities of the
Corporation’s Flexjet activities.
BT
BT is a world leader in the design, manufacture and
support of rail equipment and systems, offering a full range
of passenger railcars, locomotives, light rail vehicles and
automated people movers. It also provides bogies, electric
propulsion, control equipment and maintenance services,
as well as complete rail transportation systems and rail
control solutions.
The segmented information is prepared using the accounting policies described in Note 2 – Summary of
significant accounting policies.
Management assesses segment performance based on EBIT and EBIT before special items. Corporate charges
are allocated to segments mostly based on each segment’s revenues. The segmented results of operations and
other information are as follows, for fiscal years:
$
$
BA
BT
2013
Total
BA
BT
2012
Total
9,385 $
8,118
1,267
699
173
8,766 $ 18,151 $
7,540
1,226
718
120
15,658
2,493
1,417
293
8,628
7,427
1,201
705
155
$
7,786
6,626
1,160
737
144
$ 16,414
14,053
2,361
1,442
299
-
7
388
(30)
418 $
(119)
2
505
-
505
$
(119)
9
893
(30)
923 $
271
(119)
771
199
572
-
(26)
367
(23)
390
$
(153)
(7)
439
163
276
$
(153)
(33)
806
140
666
295
(165)
536
66
470
Results of operations
Revenues
Cost of sales
Gross margin
SG&A
R&D
Share of income of joint ventures
and associates
Other expense (income)
EBIT before special items
Special items(1)
EBIT
Financing expense
Financing income
EBT
Income taxes
Net income
Other information
Net additions to PP&E and
intangible assets(2)
Amortization
Impairment charges on PP&E
(1) See Note 9 – Special items for more details.
(2) As per the consolidated statements of cash flows.
$
$
$
2,213 $
267 $
- $
74 $
124 $
- $
2,287 $
391 $
- $
1,971
242
-
$
$
$
103
122
9
$
$
$
2,074
364
9
132 BOMBARDIER INC. FINANCIAL REPORT – FISCAL YEAR ENDED DECEMBER 31, 2013
The reconciliation of total assets and total liabilities to segmented assets and liabilities is as follows, as at:
Assets
Total assets
Assets not allocated to segments
Cash and cash equivalents
Income tax receivable(1)
Deferred income taxes
Segmented assets
Liabilities
Total liabilities
Liabilities not allocated to segments
Interest payable(2)
Income taxes payable(3)
Long-term debt(4)
Deferred income taxes(3)
Segmented liabilities
Net segmented assets
December 31, 2013 December 31, 2012
January 1, 2012
$ 29,363
$ 25,175
$ 23,339
3,397
27
1,231
24,708
26,914
116
198
7,203
-
$ 19,397
2,557
-
1,421
21,197
2,892
-
1,476
18,971
23,918
22,792
66
109
5,405
46
$ 18,292
59
106
4,941
67
$ 17,619
4,921
390
$
$
2,618
287
$
$
899
453
BA
BT
(1) Included in other assets.
(2) Included in trade and other payables.
(3) Included in other liabilities.
(4) The current portion of long-term debt is included in other financial liabilities.
$
$
The Corporation’s revenues by market segments are as follows, for fiscal years:
BA
Manufacturing
Business aircraft
Commercial aircraft
Other
Total manufacturing
Services(1)
Other(2)
BT
Rolling stock(3)
Services(4)
System and signalling(5)
2013
2012
$
5,038
1,248
550
6,836
1,897
652
9,385
5,511
1,596
1,659
8,766
18,151
$
$
4,590
1,115
521
6,226
1,718
684
8,628
5,071
1,437
1,278
7,786
$ 16,414
(1) Includes revenues from parts services, Flexjet fractional ownership and hourly flight entitlement programs’ service activities, product support
activities (including aircraft maintenance and commercial training), Specialized Aircraft Solutions and Military Aviation Training.
(2) Includes mainly sales of pre-owned aircraft.
(3) Comprised of revenues from light rail vehicles, metros, commuter and regional trains, intercity trains, high speed and very high speed trains,
locomotives, propulsion and controls, and bogies.
(4) Comprised of revenues from fleet maintenance, refurbishment and overhaul, and material solutions.
(5) Comprised of revenues from mass transit and airport systems, mainline systems, operation and maintenance systems, e-mobility solutions,
mass transit signalling and mainline signalling. Excludes the rolling stock portion of system orders manufactured by our other divisions.
BOMBARDIER INC. FINANCIAL REPORT – FISCAL YEAR ENDED DECEMBER 31, 2013 – NOTES 133
The Corporation’s revenues and PP&E and intangible assets are, allocated to countries, as follows:
Revenues for fiscal years (1)
PP&E and intangible assets as at (2)
$
$
2013
5,640
1,351
93
7,084
1,954
1,913
960
575
2,508
7,910
560
224
1,156
1,940
2012
5,011
1,130
124
6,265
1,717
1,472
897
534
2,242
6,862
442
345
997
1,784
December 31
2013
December 31
2012
January 1
2012
$
2,003
4,746
151
6,900
1,235
1,767
50
398
803
4,253
7
27
22
56
$
1,517
3,565
106
5,188
1,214
1,501
52
387
797
3,951
8
34
23
65
$
1,150
2,595
39
3,784
1,211
1,135
54
379
763
3,542
9
40
17
66
North America
United States
Canada
Mexico
Europe
Germany
United Kingdom
France
Switzerland
Other
Asia-Pacific
China
India
Other
Other
Russia
Other
240
977
1,217
18,151
270
1,233
1,503
16,414
1
29
30
$ 11,239
1
24
25
9,229
1
23
24
7,416
$
(1) Allocated to countries based on the location of the customer.
(2) PP&E and intangible assets, excluding goodwill, are attributed to countries based on the location of the assets. Goodwill is attributed to
$
$
$
countries based on the Corporation’s allocation of the related purchase price.
134 BOMBARDIER INC. FINANCIAL REPORT – FISCAL YEAR ENDED DECEMBER 31, 2013
7. RESEARCH AND DEVELOPMENT
R&D expense, net of government assistance, was as follows, for fiscal years:
R&D expenditures
Less: development expenditures capitalized to aerospace program tooling
$
Add: amortization of aerospace program tooling
$
2013
2,130
(1,984)
146
147
$
293
$
2012
1,901
(1,728)
173
126
299
8.
OTHER EXPENSE (INCOME)
Other expense (income) was as follows, for fiscal years:
Changes in estimates and fair value(1)
Gain on disposals of PP&E and intangible assets
Severance and other involuntary termination costs (including changes in estimates)(2)
Other
2013
17
-
(2)
(6)
9
$
$
2012
(23)
(6)
-
(4)
(33)
$
$
(1) Includes net loss (gain) on certain financial instruments measured at fair value and changes in estimates related to certain provisions or
certain financial instruments, excluding losses (gains) arising from changes in interest rates.
(2) Excludes those presented in special items for fiscal year 2012.
9.
SPECIAL ITEMS
Special items comprise items which do not reflect, in management’s opinion, the Corporation’s core performance
such as the impact of restructuring charges, significant impairment charges and reversals, as well as other
significant unusual items.
Special items were as follows, for fiscal years:
Gains on resolution of litigations(1)
Inventory write-down(2)
Gain on disposal of a business(3)
BT restructuring charges(4)
Loss related to flooding in New Jersey, U.S.
Foreign exchange hedging loss(5)
Of which is presented in
Special items in EBIT
Financing income - interest related to the resolution of a litigation
$
$
$
$
2013
(43)
24
(23)
-
-
-
(42)
(30)
(12)
(42)
$
$
$
$
2012
(40)
-
-
119
19
25
123
140
(17)
123
(1) Represents a gain upon the successful resolution of a litigation of $43 million in connection with Part IV of the Quebec Income Tax Act, the
Tax on Capital, of which $12 million represents the interest portion of the gain for fiscal year 2013 ($40 million in connection with Part I.3 of
the Canadian Income Tax Act, the Tax on Large Corporations, of which $17 million represents the interest portion of the gain for fiscal year
2012).
(2) Represents a BA inventory write-down related to the prolonged production pause for the Learjet 60 program.
(3) Related to the sale of Flexjet activities, see Note 28 – Disposal of a business for more details.
(4) During the fourth quarter of 2012, BT announced measures to improve its competitiveness and cost structure. A restructuring charge of
$119 million related to these planned measures was recorded, which includes $9 million of impairment charge on PP&E.
(5) Relates to a change of currency for a large contract.
BOMBARDIER INC. FINANCIAL REPORT – FISCAL YEAR ENDED DECEMBER 31, 2013 – NOTES 135
10.
FINANCING EXPENSE AND FINANCING INCOME
Financing expense and financing income were as follows, for fiscal years:
Financing expense
Accretion on net retirement benefit obligations
Accretion on other financial liabilities
Amortization of letter of credit facility costs
Accretion on provisions
Changes in discount rates of provisions
Other
Interest on long-term debt, after effect of hedges
Financing income
Changes in discount rates of provisions
Interest related to the resolution of litigations(2)
Net gain on certain financial instruments(3)
Other
Interest on loans and lease receivables - after effect of hedges
Interest on cash and cash equivalents
Income from investment in securities
2013
2012
$
113
29
16
4
-
21
183
88
271 (1) $
$
(18)
(12)
(4)
(27)
(61)
(33)
(14)
(11)
(119) (4) $
140
28
20
5
3
26
222
73
295 (1)
-
(17)
(49)
(13)
(79)
(34)
(19)
(33)
(165) (4)
$
$
$
$
(1) Of which $125 million represents the interest expense calculated using the effective interest rate method for financial liabilities classified as
other than HFT for fiscal year 2013 ($121 million for fiscal year 2012).
(2) Represents the interest portion of a gain of $43 million for fiscal year 2013 upon the successful resolution of a litigation in connection with
Part IV of the Quebec Income Tax Act, the Tax on Capital ($40 million upon the successful resolution of a litigation in connection with
Part I.3 of the Canadian Income Tax Act, the Tax on Large Corporations for fiscal year 2012). The remaining $31 million of the gain was
recorded in special items for fiscal year 2013 ($23 million for fiscal year 2012).
(3) Net gains on certain financial instruments classified as FVTP&L, including (gains) losses arising from changes in interest rates.
(4) Of which $16 million represents the interest income calculated using the effective interest rate method for financial assets classified as L&R
for fiscal year 2013 ($9 million for fiscal year 2012).
Borrowing costs capitalized to PP&E and intangible assets totalled $271 million for fiscal year 2013, using an
average capitalization rate of 5.48% ($178 million and 5.65% for fiscal year 2012). Capitalized borrowing costs
are deducted from the related interest expense (i.e. interest on long-term debt or accretion on other financial
liabilities, if any).
11.
EMPLOYEE BENEFIT COSTS
Employee benefit costs (1) were as follows, for fiscal years:
Wages, salaries and other employee benefits
Retirement benefits(2)
Share-based expense
Restructuring, severance and other involuntary termination costs
Notes
22
30
8, 9
2013
5,961
496
11
(2)
6,466
$
$
2012
5,485
529
7
110
6,131
$
$
(1) Employee benefit costs include costs capitalized as part of the cost of inventories and other self-constructed assets.
(2) Includes defined benefit and defined contribution plans.
136 BOMBARDIER INC. FINANCIAL REPORT – FISCAL YEAR ENDED DECEMBER 31, 2013
12.
INCOME TAXES
Analysis of income tax expense
Details of income tax expense were as follows, for fiscal years:
Current income taxes
Deferred income taxes
2013
125
74
$
2012
107
(41)
199
$
66
$
$
The reconciliation of income taxes, computed at the Canadian statutory rates, to income tax expense was as
follows, for fiscal years:
EBT
Canadian statutory tax rate
Income tax expense at statutory rate
Increase (decrease) resulting from
Recognition of previously unrecognized tax losses or temporary differences
Non-recognition of tax benefits related to tax losses and temporary differences
Effect of substantively enacted income tax rate changes and
tax status changes in certain entities
Permanent differences
Write-down of deferred income tax assets
Income tax rates differential of foreign subsidiaries and other investees
Other
Income tax expense
Effective tax rate
$
$
2013
771
26.8%
207
2012
536
26.8%
144
(211)
200
(6)
(40)
51
(29)
27
$
199
$
(245)
131
15
(34)
76
(30)
9
66
25.8%
12.3%
The Corporation’s applicable Canadian statutory tax rate is the Federal and Provincial combined tax rate
applicable in the jurisdiction in which the Corporation operates.
Details of deferred income tax expense were as follows, for fiscal years:
Origination and reversal of temporary differences
Recognition of previously unrecognized tax losses or temporary differences
Non-recognition of tax benefits related to tax losses and temporary differences
Effect of substantively enacted income tax rate changes
and tax status changes in certain entities
Write-down of deferred income tax assets
$
$
2013
40
(211)
200
(6)
51
$
74
$
2012
(18)
(245)
131
15
76
(41)
BOMBARDIER INC. FINANCIAL REPORT – FISCAL YEAR ENDED DECEMBER 31, 2013 – NOTES 137
Deferred income taxes
The significant components of the Corporation’s deferred income tax asset and liability were as follows, as at:
Operating tax losses carried forward
Retirement benefits
$
December 31, 2013
Asset
Liability
-
1,985
$
444
-
December 31, 2012
Liability
Asset
-
1,788
-
714
$
$
$
January 1, 2012
Liability
-
-
$
Asset
1,501
894
Advance and progress billings
in excess of long-term contract
inventories and advances on
aerospace programs
Inventories
Provisions
Other financial assets and other
assets
PP&E
Other financial liabilities and other
liabilities
Intangible assets
Other
Unrecognized deferred tax assets
927
240
370
(172)
(63)
155
(821)
167
3,232
(2,001)
1,231
$
$
-
-
-
-
-
-
-
-
-
-
-
900
305
448
(183)
(36)
61
(591)
166
3,572
(2,151)
1,421
$
$
-
(46)
-
-
-
-
-
-
(46)
-
(46)
The changes in the net deferred income tax asset were as follows for the fiscal years:
Balance at beginning of year, net
In net income
In OCI
Retirement benefits
Cash flow hedges
AFS financial assets
Other(1)
Balance at end of year, net
(1) Mainly comprises foreign exchange rate effects.
847
422
498
(360)
(12)
127
(371)
128
3,674
(2,198)
1,476
$
-
(67)
-
-
-
-
-
-
(67)
-
(67)
2013
1,375
(74)
(87)
6
-
11
1,231
$
2012
1,409
41
(39)
(64)
6
22
$
1,375
$
$
$
The net operating losses carried forward and deductible temporary differences for which deferred tax assets have
not been recognized amounted to $7,121 million as at December 31, 2013, of which $954 million relates to
retirement benefits that will reverse through OCI ($7,852 million as at December 31, 2012 of which $1,678 million
relates to retirement benefits that will reverse through OCI and $8,046 million as at January 1, 2012 of which
$1,890 million relates to retirement benefits that will reverse through OCI). Of these amounts, approximately
$6,506 million as at December 31, 2013 has no expiration date ($7,390 million as at December 31, 2012 and
$8,013 million as at January 1, 2012) and approximately $2,066 million relates to the Corporation’s operations in
Germany where a minimum income tax is payable on 40% of taxable income ($1,636 million as at December 31,
2012 and $1,033 million as at January 1, 2012) and $338 million relate to the Corporation’s operations in France
where a minimum income tax is payable on 50% of taxable income (no minimum tax prior to year ended
December 31, 2013).
In addition, the Corporation has $517 million of unused investment tax credits, most of which can be carried
forward for 20 years and $57 million of net capital losses carried forward for which deferred tax assets have not
been recognized ($360 million and $50 million as at December 31, 2012). Net capital losses can be carried
forward indefinitely and can only be used against future taxable capital gains.
138 BOMBARDIER INC. FINANCIAL REPORT – FISCAL YEAR ENDED DECEMBER 31, 2013
Net deferred tax assets of $639 million were recognized as at December 31, 2013 ($821 million as at December
31, 2012 and $545 million as at January 1, 2012) in jurisdictions that incurred losses this fiscal year or the
preceding fiscal year. Based upon the level of historical taxable income, projections for future taxable income and
tax planning strategies, management believes it is probable the Corporation will realize the benefits of these
deductible differences and operating tax losses carried forward. See Note 5 – Use of estimates and judgment for
more information on how the Corporation determines the extent to which deferred income tax assets are
recognized.
No deferred tax liabilities have been recognized on undistributed earnings of the Corporation’s foreign
subsidiaries, joint ventures and associates when they are considered to be indefinitely reinvested, unless it is
probable that these temporary differences will reverse. Upon distribution of these earnings in the form of
dividends or otherwise, the Corporation may be subject to corporation and/or withholding taxes. Taxable
temporary differences for which a deferred tax liability was not recognized amount to approximately $364 million
as at December 31, 2013 ($269 million as at December 31, 2012 and $225 million as at January 1, 2012).
13. EARNINGS PER SHARE
Basic and diluted EPS were computed as follows, for fiscal years:
(Number of shares, stock options, PSUs and DSUs, in thousands)
Net income attributable to equity holders of Bombardier Inc.
Preferred share dividends, including taxes
Net income attributable to common equity holders of Bombardier Inc.
Weighted-average number of common shares outstanding
Net effect of stock options, PSUs and DSUs
Weighted-average diluted number of common shares
EPS (in dollars)
Basic and diluted
2013
2012
$
$
$
$
564
(32)
532
$
1,738,916
2,213
1,741,129
460
(29)
431
1,730,767
7,082
1,737,849
0.31
$
0.25
The effect of the exercise of stock options, PSUs and DSUs was included in the calculation of diluted EPS in the
above table, except for 45,300,120 stock options, PSUs and DSUs for fiscal year 2013 (30,353,637 stock options,
PSUs and DSUs for fiscal year 2012) since the average market value of the underlying shares was lower than the
exercise price, or because the predetermined target market price thresholds of the Corporation’s Class B Shares
(subordinate voting) or predetermined financial performance targets had not been met.
14.
FINANCIAL INSTRUMENTS
Net gains (losses) on financial instruments recognized in income were as follows, for fiscal years:
Financial instruments measured at amortized cost
L&R - impairment charges
Financial instruments measured at fair value
AFS - gains from disposal
FVTP&L - changes in fair value
Designated as FVTP&L
Financial assets
2013
(13)
-
$
$
2012
(9)
29
$
$
$
$
(37)
(13)
$
$
(20)
(20)
Financial liabilities
Required to be classified as HFT
Derivatives not designated in hedging relationships
Other(1)
(1) Excluding the interest income portion related to cash and cash equivalents of $14 million for the fiscal year 2013 ($19 million for fiscal year
(20)
37
(15)
65
$
$
$
$
2012).
BOMBARDIER INC. FINANCIAL REPORT – FISCAL YEAR ENDED DECEMBER 31, 2013 – NOTES 139
Carrying amounts and fair value of financial instruments
The classification of financial instruments and their carrying amounts and fair value of financial instruments were
as follows as at:
FVTP&L
HFT Designated
AFS
Amortized
cost
(1)
DDHR
Total
carrying
value Fair value
December 31, 2013
Financial assets
Cash and cash equivalents
Trade and other receivables
Other financial assets
Financial liabilities
Trade and other payables
Long-term debt(2)
Other financial liabilities
$
3,397 $
-
129
3,526 $
- $
-
25
25 $
$
$
$
December 31, 2012
Financial assets
Cash and cash equivalents
$
2,557 $
Trade and other receivables
Other financial assets
Financial liabilities
Trade and other payables
Long-term debt(2)
Other financial liabilities
-
92
2,649 $
- $
-
15
15 $
$
$
$
- $
-
673
673 $
-
-
142
142
- $
-
697
697 $
-
-
158
158
- $
- $
3,397 $
3,397
- $
-
315
315 $
1,492
425
1,917 $
n/a $
n/a
n/a
n/a $
4,089 $
7,203
958
12,250 $
-
663
663 $
- $
-
386
386 $
1,492
2,205
7,094 $
1,492
2,203
7,092
4,089 $
7,203
1,511
12,803 $
4,089
7,346
1,656
13,091
- $
-
217
217 $
n/a $
n/a
n/a
n/a $
- $
- $
2,557 $
2,557
1,311
133
1,444 $
3,310 $
5,405
712
9,427 $
-
643
643 $
- $
-
126
126 $
1,311
1,782
5,650 $
1,311
1,782
5,650
3,310 $
5,405
1,011
9,726 $
3,310
5,272
1,146
9,728
January 1, 2012
Financial assets
Cash and cash equivalents
Trade and other receivables
Other financial assets
Financial liabilities
$
2,892 $
-
44
2,936 $
$
- $
-
713
713 $
- $
-
399
399 $
$
Trade and other payables
Long-term debt(2)
Other financial liabilities
n/a $
n/a
n/a
$
n/a $
(1) Financial assets are classified as L&R and financial liabilities as other than HFT.
(2) Includes the current portion of long-term debt.
n/a: Not applicable
- $
-
21
21 $
-
-
140
140
- $
- $
2,892 $
2,892
1,342
173
1,515 $
3,032 $
4,941
557
8,530 $
-
504
504 $
- $
-
323
323 $
1,342
1,833
6,067 $
1,342
1,832
6,066
3,032 $
4,941
1,041
9,014 $
3,032
4,649
1,118
8,799
Offsetting financial assets and financial liabilities
Following the amendment to IFRS 7, Financial instruments: disclosures, the Corporation is now required to
disclose information about rights to set-off financial instruments on its consolidated statements of financial
position and related arrangements.
140 BOMBARDIER INC. FINANCIAL REPORT – FISCAL YEAR ENDED DECEMBER 31, 2013
The Corporation is subject to enforceable master netting agreements related mainly to its derivative financial
instruments and cash and cash equivalents which contain a right of set-off in case of default, insolvency or
bankruptcy. The amounts that are subject to the enforceable master netting agreements, but which do not meet
some or all of the offsetting criteria, are as follows as at December 31, 2013:
Description of recognized financial assets and
liabilities
Derivative financial instruments - assets
Derivative financial instruments - liabilities
Cash and cash equivalents
Amount
recognized
in the financial
statements
Amounts
subject to
master netting
agreements
Net amount not
subject to
master netting
agreements
$
792
$
(411)
$ 3,397
$
$
$
(304)
316
(12)
488
$
(95)
$
$ 3,385
Derivatives and hedging activities
The carrying amounts of all derivative and non-derivative financial instruments in a hedge relationship were as
follows, as at:
December 31, 2013
Liabilities
Assets
December 31, 2012
Liabilities
Assets
January 1, 2012
Liabilities
Assets
Derivative financial instruments
designated as fair value hedges
Cross-currency interest-rate swaps $
Interest-rate swaps
Derivative financial instruments
designated as cash flow hedges(1)
Forward foreign exchange contracts
Derivative financial instruments
classified as HFT(2)
Forward foreign exchange contracts
Interest-rate swaps
Embedded derivative financial
instruments
Foreign exchange
Call options on long-term debt
36
296
332
331
27
-
1
101
129
$
$
-
67
67
$
17
394
411
$
6
-
6
$
12
297
309
39
-
39
319
232
120
195
284
22
2
1
-
25
13
-
3
76
92
12
2
1
-
15
19
-
4
21
44
14
4
3
-
21
$
792
$
411
$
735
$
141
$
548
$
344
Total derivative financial
instruments
Non-derivative financial
instruments designated as
hedges of net investment
Long-term debt
1,029
(1) The maximum length of time of derivative financial instruments hedging the Corporation’s exposure to the variability in future cash flows for
$ 1,042
517
$
$
$
$
-
-
-
$
anticipated transactions is 23 months as at December 31, 2013.
(2) Held as economic hedges, except for embedded derivative financial instruments.
The net losses on hedging instruments designated in fair value hedge relationships and net gains on the related
hedged items attributable to the hedged risk recognized in financing expense, amounted to $205 million and $213
million respectively for fiscal year 2013 (net gains of $101 million and net losses of $95 million respectively for
fiscal year 2012).
The methods and assumptions used to measure the fair value of financial instruments are described in
Note 35 - Fair value of financial instruments.
BOMBARDIER INC. FINANCIAL REPORT – FISCAL YEAR ENDED DECEMBER 31, 2013 – NOTES 141
15. CASH AND CASH EQUIVALENTS
Cash and cash equivalents were as follows, as at:
Cash
Cash equivalents
Term deposits
Money market funds
Cash and cash equivalents
December 31, 2013 December 31, 2012 January 1, 2012
613
1,475
916
$
$
$
762
1,160
3,397
$
$
656
985
2,557
$
748
1,531
2,892
See Note 32 – Credit facilities for details on covenants related to cash and cash equivalents.
16.
TRADE AND OTHER RECEIVABLES
Trade and other receivables were as follows, as at:
Total
Not past
due
Past due but not impaired (3)
less than
90 days
more than
90 days
Impaired (4)
December 31, 2013(1)(2)
Trade receivables, gross
Allowance for doubtful accounts
Other
Total
December 31, 2012(1)(2)
Trade receivables, gross
Allowance for doubtful accounts
Other
Total
January 1, 2012(1)(2)
Trade receivables, gross
Allowance for doubtful accounts
$
$
$
$
$
796 $
-
796 $
194
-
194
813 $
-
813 $
204
-
204
932 $
-
932 $
172
-
172
$
$
$
$
$
$
359
-
359
200
-
200
134
-
134
$
$
$
$
$
$
81
(44)
37
39
(34)
5
46
(42)
4
1,430 $
(44)
1,386 $
106
1,492
1,256 $
(34)
1,222 $
89
1,311
1,284 $
(42)
1,242 $
100
1,342
Other
Total
(1) Of which $465 million and $411 million are denominated in euros and other foreign currencies, respectively, as at December 31, 2013
($396 million and $356 million, respectively, as at December 31, 2012 and $432 million and $274 million, respectively, as at January 1,
2012).
$
(2) Of which $392 million represents customer retentions relating to long-term contracts as at December 31, 2013 based on normal terms and
conditions ($240 million as at December 31, 2012 and $172 million as at January 1, 2012).
(3) Of which $509 million of trade receivables relates to BT long-term contracts as at December 31, 2013, of which $353 million were more
than 90 days past due ($335 million as at December 31, 2012 of which $190 million were more than 90 days past due and $211 million as
at January 1, 2012, of which $109 million were more than 90 days past due). BT assesses whether these receivables are collectible as part
of its risk management practices applicable to long-term contracts as a whole.
(4) Of which a gross amount of $73 million of trade receivables are individually impaired as at December 31, 2013 ($34 million as at December
31, 2012 and $38 million as at January 1, 2012).
The factors that the Corporation considers to classify trade receivables as impaired are as follows: the customer
is in bankruptcy or under administration, payments are in dispute, or payments are in arrears. Further information
on financial risk is provided in Note 34 – Financial risk management.
142 BOMBARDIER INC. FINANCIAL REPORT – FISCAL YEAR ENDED DECEMBER 31, 2013
Allowance for doubtful accounts – Changes in the allowance for doubtful accounts were as follows, for fiscal
years:
Balance at beginning of year
Provision for doubtful accounts
Amounts written-off
Recoveries
Effect of foreign currency exchange rate changes
Balance at end of year
2013
(34)
(13)
3
3
(3)
(44)
$
$
2012
(42)
(9)
15
2
-
(34)
$
$
Off-balance sheet factoring facilities
In the normal course of its business, BT has factoring facilities in Europe to which it can sell, without recourse,
qualifying trade receivables. Trade receivables of €1,084 million ($1,495 million) were outstanding under such
facilities as at December 31, 2013 (€886 million ($1,169 million) as at December 31, 2012 and €580 million
($751 million) as at January 1, 2012). Trade receivables of €1,213 million ($1,611 million) were sold to these
facilities during fiscal year 2013 (€963 million ($1,239 million) during fiscal year 2012).
17.
INVENTORIES
Inventories were as follows, as at:
Aerospace programs
Long-term contracts
Production contracts
Cost incurred and recorded margins
Less: advances and progress billings
Service contracts
Cost incurred and recorded margins
Less: advances and progress billings
Finished products(1)
December 31, 2013
4,847
$
December 31, 2012
4,345
$
January 1, 2012
3,845
$
7,064
(5,406)
1,658
420
(19)
401
1,328
8,234
$
5,387
(4,014)
1,373
408
(15)
393
1,429
7,540
$
5,940
(4,296)
1,644
380
(45)
335
1,481
7,305
$
(1) Finished products include 11 new aircraft not associated with a firm aircraft order and 43 pre-owned aircraft, totalling $535 million as at
December 31, 2013 (3 new aircraft and 74 pre-owned aircraft, totalling $551 million as at December 31, 2012 and 5 new aircraft and 95
pre-owned aircraft, totalling $691 million as at January 1, 2012).
Finished products as at December 31, 2013 include $134 million of pre-owned aircraft legally sold to third parties
and leased back under sale and leaseback facilities ($147 million as at December 31, 2012 and $162 million as at
January 1, 2012). The related sales proceeds are accounted for as sale and leaseback obligations.
The amount of inventories recognized as cost of sales totalled $14,106 million for fiscal year 2013
($12,810 million for fiscal year 2012). These amounts include $147 million of write-downs for fiscal year 2013
($104 million for fiscal year 2012). An additional write-down of $24 million is recognized in special items.
Under certain contracts, title to inventories is vested to the customer as the work is performed, in accordance with
contractual arrangements and industry practice. In the normal course of business, the Corporation provides
performance bonds, bank guarantees and other forms of guarantees to customers, mainly in BT, as security for
advances received from customers pending performance under certain contracts. In accordance with industry
practice, the Corporation remains liable to the purchasers for the usual contractor’s obligations relating to contract
completion in accordance with predetermined specifications, timely delivery and product performance.
Advances and progress billings received on long-term contracts in progress were $7,777 million as at December
31, 2013 ($5,792 million as at December 31, 2012 and $5,979 million as at January 1, 2012). Revenues include
revenues from BT long-term contracts, which amounted to $6,409 million for fiscal year 2013 ($5,839 million for
fiscal year 2012).
BOMBARDIER INC. FINANCIAL REPORT – FISCAL YEAR ENDED DECEMBER 31, 2013 – NOTES 143
18. OTHER FINANCIAL ASSETS
Other financial assets were as follows, as at:
Derivative financial instruments(1)
Aircraft loans and lease receivables(2) (3)
Investments in securities(2) (4)
Investments in financing structures(2)
Long-term contract receivables
Restricted cash
Other
Of which current
Of which non-current
$
$
December 31, 2013 December 31, 2012
735
423
243
329
-
25
27
1,782
443
1,339
1,782
792
400
335
331
319
19
9
2,205
637
1,568
2,205
$
$
$
$
$
$
$
January 1, 2012
548
467
423
320
-
44
31
1,833
522
1,311
1,833
$
$
$
(1) See Note 14 – Financial instruments.
(2) Carried at fair value, except for $12 million of aircraft loans and lease receivables, $20 million of investments in securities and $46 million of
investment in financing structure carried at amortized cost as at December 31, 2013 ($11 million, $26 million and $44 million, respectively,
as at December 31, 2012 and $32 million, $24 million and $42 million, respectively, as at January 1, 2012).
(3) Financing with four airlines represents 59% of the total aircraft loans and lease receivables as at December 31, 2013 (four airlines
represented 60% as at December 31, 2012 and three airlines represented 47% as at January 1, 2012). Aircraft loans and lease receivables
are generally collateralized by the related assets. The value of the collateral is closely related to commercial airline industry performance
and aircraft-specific factors (age, type-variant and seating capacity), as well as other factors.
(4) Includes $70 million of securities to secure contingent capital contributions to be made in relation to guarantees issued in connection with
the sale of aircraft as at December 31, 2013 (nil as at December 31, 2012, and $167 million as at January 1, 2012).
19. OTHER ASSETS
Other assets were as follows, as at:
Prepaid expenses
Sales tax and other taxes
Intangible assets other than aerospace program
tooling and goodwill(1)
Retirement benefits(2)
Deferred financing charges
Flexjet fractional ownership deferred costs(3)
Other
Of which current
Of which non-current
(1) See Note 21 – Intangible assets.
(2) See Note 22 – Retirement benefits.
(3) See Note 28 – Disposal of a business.
December 31, 2013 December 31, 2012
366
281
620
344
$
$
186
174
100
-
9
1,433
881
552
1,433
$
$
$
210
38
103
206
30
1,234
680
554
1,234
$
$
$
January 1, 2012
299
184
$
225
13
85
186
33
1,025
559
466
1,025
$
$
$
144 BOMBARDIER INC. FINANCIAL REPORT – FISCAL YEAR ENDED DECEMBER 31, 2013
20.
PROPERTY, PLANT AND EQUIPMENT
PP&E were as follows, as at:
Cost
Balance as at December 31, 2012
Additions
Disposals
Transfers
$
Effect of foreign currency
exchange rate changes
Land Buildings Equipment
Construction
in progress
Other
Total
99 $
1
(3)
-
2,132 $
68
(29)
13
1,333 $
41
(149)
68
179 $
254
-
(78)
447 $
27
(42)
(3)
4,190
391
(223)
-
1
34
(6)
1
-
30
Balance as at December 31, 2013
$
98 $
2,218 $
1,287 $
356 $
429 $
4,388
Accumulated amortization and impairment
Balance as at December 31, 2012
Amortization
Disposals
$
Effect of foreign currency
exchange rate changes
Balance as at December 31, 2013
Net carrying value
Cost
Balance as at January 1, 2012
Additions
Disposals
Transfers
$
$
$
Effect of foreign currency
exchange rate changes
Balance as at December 31, 2012
Accumulated amortization and impairment
Balance as at January 1, 2012
Amortization
Impairment
Disposals
Transfers
$
$
Effect of foreign currency
exchange rate changes
Balance as at December 31, 2012
Net carrying value
$
$
- $
-
-
(1,164) $
(60)
17
-
(25)
- $
(1,232) $
98 $
986 $
(832) $
(104)
101
10
(825) $
462 $
- $
-
-
-
(261) $
(18)
12
(2,257)
(182)
130
2
(13)
- $
(265) $
(2,322)
356 $
164 $
2,066
Land
Buildings
Equipment
Construction
in progress
Other
Total
95 $
7
(5)
-
1,968 $
106
(4)
34
1,145 $
60
(47)
162
141 $
216
-
(178)
539 $
12
(85)
(18)
3,888
401
(141)
-
2
28
13
-
(1)
42
99 $
2,132 $
1,333 $
179 $
447 $
4,190
- $
-
-
-
-
(1,088) $
(59)
(2)
3
-
-
(18)
- $
(1,164) $
99 $
968 $
(741) $
(106)
(7)
31
(2)
(7)
(832) $
501 $
- $
-
-
-
-
-
- $
(280) $
(12)
-
29
2
(2,109)
(177)
(9)
63
-
-
(25)
(261) $
(2,257)
179 $
186 $
1,933
Included in the above table are assets under finance lease, where the Corporation is the lessee, presented in
Other, with cost and accumulated amortization amounting to $195 million and $83 million, respectively, as at
December 31, 2013 ($225 million and $103 million as at December 31, 2012 and $214 million and $88 million as
at January 1, 2012).
Also included in the previous table are aircraft under operating leases where the Corporation is the lessor,
presented in Other, with a cost and accumulated amortization amounting to $40 million and $12 million,
respectively, as at December 31, 2013 ($51 million and $12 million as at December 31, 2012 and $88 million and
$10 million as at January 1, 2012). Rental income from operating leases and amortization of assets under
operating leases amounted to $10 million and $3 million, respectively, for fiscal year 2013 ($10 million and
$5 million, respectively, for fiscal year 2012).
BOMBARDIER INC. FINANCIAL REPORT – FISCAL YEAR ENDED DECEMBER 31, 2013 – NOTES 145
21.
INTANGIBLE ASSETS
Intangible assets were as follows, as at:
Aerospace program tooling
Goodwill
Other (1) (2)
Total
Acquired
Internally
generated
Total (3)
Cost
Balance as at December 31, 2012
Additions
Disposals
Effect of foreign currency
exchange rate changes
$
1,254 $
150
-
6,670 $
1,834
(1)
7,924 $
1,984
(1)
2,316 $
-
-
-
-
-
65
Balance as at December 31, 2013 $
1,404 $
8,503 $
9,907 $
2,381 $
737
44
(56)
14
739
$ 10,977
2,028
(57)
79
$ 13,027
Accumulated amortization and impairment
Balance as at December 31, 2012
Amortization
Disposals
$
(604) $
(16)
-
(2,550) $
(131)
-
(3,154) $
(147)
-
- $
-
-
(527)
(62)
47
$
(3,681)
(209)
47
Effect of foreign currency
exchange rate changes
-
-
-
Balance as at December 31, 2013 $
(620) $
(2,681) $
(3,301) $
-
(11)
- $
(553)
Net carrying value
$
784 $
5,822 $
6,606 $
2,381 $
186
(11)
$
$
(3,854)
9,173
Cost
Balance as at January 1, 2012
Additions
Disposals
Effect of foreign currency
exchange rate changes
Aerospace program tooling
Goodwill
Other (1) (2)
Total
Acquired
Internally
generated
Total (3)
$
1,091 $
163
-
5,105 $
1,565
-
6,196 $
1,728
-
2,244 $
-
-
688
43
(4)
$
9,128
1,771
(4)
-
-
-
72
10
82
Balance as at December 31, 2012
$
1,254 $
6,670 $
7,924 $
2,316 $
737
$ 10,977
Accumulated amortization and impairment
Balance as at January 1, 2012
Amortization
Disposals
$
(588) $
(16)
-
(2,440) $
(110)
-
(3,028) $
(126)
-
- $
-
-
(463)
(61)
3
$
(3,491)
(187)
3
Effect of foreign currency
exchange rate changes
-
-
-
-
(6)
(6)
$
Balance as at December 31, 2012
Net carrying value
(1) Presented in Note 19 – Other assets
(2) Includes internally generated intangible assets with a cost and accumulated amortization of $359 million and $243 million, respectively, as
at December 31, 2013 ($325 million and $207 million as at December 31, 2012 and $294 million and $176 million as at January 1, 2012).
(3) Includes intangible assets under development with a cost of $5,923 million as at December 31, 2013 ($4,059 million as at December 31,
(2,550) $
(3,154) $
2,316 $
4,770 $
4,120 $
(3,681)
(604) $
7,296
650 $
(527)
210
- $
$
$
$
2012 and $2,489 million as at January 1, 2012).
Aerospace program tooling
The net carrying value of aerospace program tooling comprises $3,746 million for commercial aircraft and
$2,860 million for business aircraft as at December 31, 2013 ($2,766 million and $2,004 million, respectively, as
at December 31, 2012 and $1,851 million and $1,317 million, respectively, as at January 1, 2012).
146 BOMBARDIER INC. FINANCIAL REPORT – FISCAL YEAR ENDED DECEMBER 31, 2013
Goodwill
Goodwill is related to the DaimlerChrysler Rail Systems GmbH (Adtranz) acquisition in May 2001. This goodwill
has been allocated to the BT reportable segment as a group of CGUs. The Corporation carried out an impairment
test during the fourth quarter of fiscal year 2012. During the fourth quarter of fiscal year 2013, the Corporation
completed an impairment assessment carrying forward the recoverable amount calculated during the fourth
quarter of fiscal year 2012. The Corporation did not identify any impairment.
22. RETIREMENT BENEFITS
The Corporation sponsors several funded and unfunded defined benefit pension plans as well as defined
contribution pension plans in Canada and abroad, covering a majority of its employees. The Corporation also
provides other unfunded defined benefit plans, covering certain groups of employees mainly in Canada and the
U.S.
Pension plans are categorized as defined benefit (“DB”) or defined contribution (“DC”), based on the risk sharing
involved in the plan. DB plans specify the amount of benefits an employee is to receive at retirement, while DC
plans specify how contributions are determined. As a result, there is no deficit or surplus for DC plans. Hybrid
plans are a combination of DB and DC plans.
Funded plans are plans for which segregated plan assets are invested in trust. Unfunded plans are plans for
which there are no segregated plan assets, as the establishment of segregated plan assets is generally not
permitted or not in line with local practice.
FUNDED DB PLANS
The Corporation’s major DB plans reside in Canada, the U.K. and the U.S., therefore very significant portions of
the DB pension plan assets and benefit obligation are located in those countries. The following text focuses
mainly on plans registered in these three countries.
Governance
Under applicable pension legislations, the administrator of each plan is either the Corporation, in the case of U.S.
plans and Canadian plans registered outside of Quebec, or a pension committee or board of trustees in the case
of plans registered in Quebec and the U.K.
Plan administrators are responsible for the management of plan assets and the establishment of investment
policies, which define, for each plan, investment objectives, target asset allocation, risk mitigation strategies, and
other elements required by pension legislation.
Plan assets are pooled in three common investment funds (CIFs) for Canadian, U.K. and U.S. plans, respectively,
in order to achieve economies of scale and greater efficiency, diversification and liquidity. The CIFs are broken
down by sub-funds or asset classes in order to allow each plan to have its own asset allocation given its
associated pension obligation liability profile.
The management of the CIFs has been delegated to three (Canadian, U.K. and U.S.) investment committees
(ICs). The ICs are responsible for allocating assets among various sub-funds and asset classes in accordance
with each plan’s investment policy. They are also responsible for hiring, monitoring and terminating investment
managers and have established a multi-manager structure for each sub-fund and asset class. They are supported
by Bombardier Inc. Pension Asset Management Services, who oversee the management of the plans’ assets and
of the CIFs on a daily basis. Daily administration of the plans is delegated to either Bombardier Inc. or to external
pension administration service providers. The administrators, the ICs and Bombardier Inc. also rely on the
expertise of external legal advisors, actuaries, auditors and investment consultants.
BOMBARDIER INC. FINANCIAL REPORT – FISCAL YEAR ENDED DECEMBER 31, 2013 – NOTES 147
Benefit Policy
DB plan benefits are based on salary and years of service. In Canada and the U.S., since September 1, 2013, all
new non-unionized employees join DC plans (i.e. they no longer have the option of joining DB or hybrid plans).
Employees who are members of a DB or hybrid plan closed to new members continue to accrue service in their
original plan.
In the U.K., seven out of nine DB plans are closed to new members. New employees join DC plans. Pension
entitlements are indexed to inflation according to pension legislation and plan rules.
Funding requirements
Actuarial valuations are conducted by independent firms hired by the Corporation or the administrators, as
required by pension legislation. The purpose of the valuations is to determine the plans’ financial position and the
annual contributions to be made by the Corporation to fund both benefits accruing in the year (normal cost) and
deficits accumulated over prior years. Minimum funding requirements are set out by applicable pension
legislations.
Pension plans in Canada are governed under the Supplemental Pension Plans Act in Quebec, the Pension
Benefits Act in Ontario, the Pension Benefits Standards Act of 1985 for plans under federal authority, and the
Income Tax Act. Actuarial valuations are required at least every three years. Depending on the jurisdiction and
the funded status of the plan, actuarial valuations may be required annually. Contributions are determined by the
appointed actuary and cover the going-concern normal costs and deficits (established under the assumption that
the plan will continue to be in force) or solvency deficits (established under the assumption that the plan stops its
operations and is being liquidated), as prescribed by laws and actuarial practices. Under the laws in effect,
minimum contributions are required to amortize the going-concern deficits over a period of fifteen years and
solvency deficits over a period of five years. Temporary solvency relief measures put in place to mitigate the
adverse effects of the 2008 financial crisis allow for the amortization of solvency deficits over a period of up to ten
years.
Pension plans in the U.S. are mainly governed under the Employee Retirement Income Security Act, the Internal
Revenue Code, the Pension Protection Act of 2006 and the Moving Ahead for Progress in the 21st Century Act.
Actuarial valuations are required annually. Contributions are determined by appointed actuaries and cover normal
cost and deficits as prescribed by law. Funding deficits are generally amortized over a period of seven years.
Pension plans in the U.K. are governed under the Pensions Act of 2004. Actuarial valuations are required at least
every three years. The funding deficit amortization period is determined jointly by the administrators and the
Corporation.
Investment Policy
The investment policies are established to achieve a long-term investment return so that, in conjunction with
contributions, the plans have sufficient assets to pay for the promised benefits while maintaining a level of risk
that is acceptable given the tolerance of plan stakeholders. See below for more information about the
Corporation’s risk management initiatives.
The target asset allocation is determined based on expected economic and market conditions, the maturity profile
of the plans’ liabilities, the funded status of the respective plans and the plan stakeholders’ tolerance to risk.
The plans’ investment strategy is to invest broadly in fixed income and equity securities and to have a smaller
portion of the funds’ assets invested in real return asset securities (global infrastructure and real estate listed
securities).
As at December 31, 2013, the average target asset allocation was as follows:
-
-
-
49%, 39% and 49% in fixed income securities, for Canadian, U.K. and U.S. plans, respectively;
42%, 46% and 46% in equity securities, for Canadian, U.K. and U.S. plans, respectively; and
9%, 15% and 5% in real return asset securities, for Canadian, U.K. and U.S. plans, respectively.
148 BOMBARDIER INC. FINANCIAL REPORT – FISCAL YEAR ENDED DECEMBER 31, 2013
In addition, to mitigate interest rate risk, interest rate hedging overlay portfolios (comprised of long-term interest
rate swaps and long-term Gilt forwards) averaging 7% and 10% of plan assets have been implemented in 2013
for the Canadian and U.K. plans, respectively.
The plan administrators have also established dynamic de-risking strategies. As a result, asset allocation will
likely become more conservative in the future and larger interest rate hedging overlay portfolios are likely to be
established as plan funding status and market conditions continue to improve. Bombardier Inc. Pension Asset
Management Services monitors the de-risking triggers on a daily basis to ensure timely and efficient
implementation of these strategies. The Corporation and administrators periodically undertake asset and liability
studies to determine the appropriateness of the investment policies and de-risking strategies.
Risk management initiatives
The Corporation’s pension plans are exposed to various risks, including equity, interest rate, inflation, foreign
exchange, liquidity and longevity risks. Several risk strategies and policies have been put in place to mitigate the
impact these risks could have on the funded status of DB plans and on the future level of contributions by the
Corporation. The following is a description of key risks together with the mitigation measures in place to address
them.
Equity risk
Equity risk is the risk that results from fluctuations in equity prices. This risk is managed by maintaining
diversification of portfolios across geographies, industry sectors and investment strategies.
Interest rate risk
Interest rate risk is the risk that results from fluctuations in the fair value of plan assets and liabilities due to
movements in interest rates. This risk is managed by reducing the mismatch between the duration of plan assets
and the duration of pension obligation. This is accomplished by having a portion of the portfolio invested in long-
term bonds and interest rate hedging overlay portfolios.
Inflation risk
Inflation risk is the risk that benefits indexed to inflation increase significantly as a result of changes in inflation
rates. To manage this risk, the Corporation has capped the benefit indexation in certain plans and invested a
portion of plan assets in real return asset securities and real return bonds.
Foreign exchange risk
Currency risk exposure arises from fluctuations in the fair value of plan assets denominated in a currency other
than the currency of the plan liabilities. Currency risk is managed with foreign currency hedging strategies as per
plan investment policies.
Liquidity risk
Liquidity risk is the risk stemming from holding assets which cannot be readily converted to cash when needed for
the payment of benefits or to rebalance the portfolios. Liquidity risk is managed through investment in government
bonds and equity futures and by having no investments in private placements or hedge funds.
Longevity risk
Longevity risk is the risk that increasing life expectancy results in longer-than-expected benefit payments. This
risk is mitigated by using the most recent mortality tables to set the level of contributions.
UNFUNDED DB PLANS
Unfunded plans are located in countries where the establishment of funds for segregated plan assets is generally
not permitted or not in line with local practice. Major unfunded DB plans are located in Germany. Nearly half of the
German unfunded DB plan liability relates to plans for which benefits no longer accrue. The Corporation
contributes annually to the Pensions Sicherungs Verein, Germany’s pension protection association, which
provides protection for pension benefits up to certain limits in the event that plan sponsors become insolvent.
BOMBARDIER INC. FINANCIAL REPORT – FISCAL YEAR ENDED DECEMBER 31, 2013 – NOTES 149
DC PLANS
A growing proportion of employees are participating in DC plans and, as a result, contributions to DC plans have
increased over the past several years. The largest DC plans are located in Canada and in the U.S. The plan
administrators and ICs oversee the management of DC plan assets.
OTHER PLANS
The Corporation also provides other unfunded defined benefit plans, consisting essentially of post-retirement
healthcare coverage, life insurance benefits and retirement allocations mainly in Canada for BA. The Corporation
provides post-retirement life insurance and post-retirement health care, with provisions that vary between groups
of employees in Canada. New non-unionized hires are generally no longer offered post-retirement health care
and receive, instead, lump sum retirement allocations.
The following table provides the components of the retirement benefit cost, for fiscal years:
Current service cost
Accretion expense
Past service cost
Curtailment
Settlement
Other
DB plans
DC plans
Total retirement benefit cost
Related to
Funded DB plans
Unfunded DB plans
DC plans
Recorded as follows
EBIT expense or capitalized cost
Financing expense
n/a : Not applicable
Pension
benefits
$
301
96
-
(15)
(3)
1
380
87
467
$
335
45
87
$
$
$
$
$
Other
benefits
12
$
17
-
-
-
-
2013
$
Total
313
113
-
(15)
(3)
1
$
Pension
benefits
300
123
9
-
(18)
-
$
Other
benefits
12
17
8
-
-
-
29
-
29
n/a
29
n/a
$
$
409
87
496
335
74
87
383
113
$
$
$
$
$
$
414
78
492
370
44
78
$
$
37
-
37
n/a
37
n/a
369
123
$
$
20
17
$
$
$
$
$
$
2012
Total
312
140
17
-
(18)
-
451
78
529
370
81
78
389
140
$
$
$
$
$
$
$
371
96
$
$
12
17
Changes in the cumulative amount of net actuarial losses recognized in OCI, and presented as a separate
component of deficit, were as follows, for fiscal years:
Gains (losses)
Balance as at January 1, 2012
Actuarial gains, net
Effect of exchange rate changes
Income taxes
Balance as at December 31, 2012
Impact of asset ceiling
Actuarial gains, net
Effect of exchange rate changes
Income taxes
Balance as at December 31, 2013
$
$
(3,073)
376
(58)
(39)
(2,794)
(30)
865
76
(87)
(1,970)
150 BOMBARDIER INC. FINANCIAL REPORT – FISCAL YEAR ENDED DECEMBER 31, 2013
The following tables present the changes in the defined benefit obligation and fair value of pension plan assets,
for fiscal years:
Change in benefit obligation
Obligation at beginning of year
Accretion
Current service cost
Plan participants' contributions
Past service cost
Actuarial losses (gains) - changes in
financial assumptions
Actuarial losses (gains) - changes in
experience adjustments
Actuarial losses (gains) - changes in
demographic assumptions
Benefits paid
Curtailment
Settlement
Other
Effect of exchange rate changes
Obligation at end of year
Obligation is attributable to
Active members
Deferred members
Retirees
Change in plan assets
Fair value at beginning of year
Employer contributions
Plan participants' contributions
Interest income on plan assets
Actuarial gains
Benefits paid
Settlement
Administration costs
Effect of exchange rate changes
Fair value at end of year
Pension
benefits
Other
benefits
2013
Total
Pension
benefits
Other
benefits
$ 9,979 $
416
301
41
-
416 $ 10,395 $ 9,248 $
365 $
17
12
-
-
433
313
41
-
418
300
40
9
17
12
-
8
2012
Total
9,613
435
312
40
17
(432)
(34)
(466)
125
(11)
114
65
(6)
59
(101)
30
(71)
104
(294)
(15)
(3)
(26)
(181)
$ 9,955 $
$ 5,485 $
1,298
3,172
$ 9,955 $
$ 7,434 $
467
41
320
528
(294)
-
(9)
(155)
(34)
(14)
-
-
-
(22)
335 $ 10,290 $ 9,979 $
70
(308)
(15)
(3)
(26)
(203)
45
(296)
-
(85)
-
276
207 $
-
128
335 $ 10,290 $ 9,979 $
5,692 $ 5,700 $
1,298
3,300
1,182
3,097
-
(15)
-
-
-
10
45
(311)
-
(85)
-
286
416 $ 10,395
252 $
-
164
5,952
1,182
3,261
416 $ 10,395
- $
7,434 $ 6,395 $
- $
14
-
-
-
(14)
-
-
-
481
41
320
528
(308)
-
(9)
(155)
404
40
295
464
(296)
(67)
(9)
208
15
-
-
-
(15)
-
-
-
6,395
419
40
295
464
(311)
(67)
(9)
208
$ 8,332 $
- $
8,332 $ 7,434 $
- $
7,434
BOMBARDIER INC. FINANCIAL REPORT – FISCAL YEAR ENDED DECEMBER 31, 2013 – NOTES 151
The following table presents the reconciliation of plan assets and obligations to the amount recognized in the
consolidated statements of financial position, as at:
Present value of defined benefit
obligation
Fair value of plan assets
Impact of asset ceiling test(1)
Net amount recognized
$
$
9,955
(8,332)
1,623
29
1,652
Amounts included in:
Retirement benefit
Liability
Asset(2)
Net liability
(1) Comprises the effect of exchange rate changes.
(2) Presented in Note 19 – Other assets.
$
$
1,826
(174)
1,652
December 31, 2013
Other
benefits
Pension
benefits
December 31, 2012
Other
benefits
Pension
benefits
January 1, 2012
Other
benefits
Pension
benefits
$
$
$
$
335
-
335
-
335
$
$
9,979
(7,434)
2,545
-
2,545
$
$
416
-
416
-
416
$
$
9,248
(6,395)
2,853
-
2,853
$
$
365
-
365
-
365
335
-
335
$
$
2,583
(38)
2,545
$
$
416
-
416
$
$
2,866
(13)
2,853
$
$
365
-
365
The following table presents the allocation of the net retirement benefit liability by major countries, as at:
Funded pension plans
Canada
U.S.
U.K.
Other
Unfunded pension plans
Germany
Canada
U.S.
Other
Net liability
December 31, 2013
Other
benefits
Pension
benefits
December 31, 2012
Other
benefits
Pension
benefits
January 1, 2012
Other
benefits
Pension
benefits
$
$
$
502
186
125
114
927
515
29
26
155
725
1,652
$
$
-
-
-
-
-
-
301
25
9
335
335
$
1,138
333
170
167
1,808
517
33
27
160
737
2,545
$
$
$
-
-
-
-
-
-
373
28
15
416
416
$
1,535
291
345
106
2,277
387
33
25
131
576
2,853
$
$
-
-
-
-
-
-
324
27
14
365
365
The following table presents the allocation of benefit obligation and plan assets by major countries, as at:
Funded pension plans
Canada
U.K.
U.S.
Other
Unfunded pension plans
December 31, 2013
Plan
assets
Benefit
obligation
December 31, 2012
Plan
assets
Benefit
obligation
January 1, 2012
Plan
assets
Benefit
obligation
$
$
4,479
3,570
750
431
9,230
1,060
10,290
$
$
4,006
3,445
564
317
8,332
-
8,332
$
$
4,823
3,121
846
452
9,242
1,153
10,395
$
$
3,685
2,951
513
285
7,434
-
7,434
$
$
4,660
2,841
812
359
8,672
941
9,613
$
$
3,125
2,496
521
253
6,395
-
6,395
152 BOMBARDIER INC. FINANCIAL REPORT – FISCAL YEAR ENDED DECEMBER 31, 2013
The fair value of plan assets by level of hierarchy, was as follows, as at:
Cash and cash equivalents
Equity securities
U.S.
U.K.
Canada
Other
Fixed-income securities
Corporate
Government
Other
Real return asset securities
Other
Cash and cash equivalents
Equity securities
U.S.
U.K.
Canada
Other
Fixed-income securities
Corporate
Government
Other
Real return asset securities
Other
Cash and cash equivalents
Equity securities
U.S.
U.K.
Canada
Other
Fixed-income securities
Corporate
Government
Other
Real return asset securities
Other
$
Total
503
$
Level 1
398
$
December 31, 2013
Level 3
-
Level 2
105
$
1,022
509
409
1,290
3,230
855
2,483
23
3,361
876
362
8,332
$
1,018
489
409
1,288
3,204
-
-
-
-
876
-
4,478
$
-
20
-
-
20
855
2,483
23
3,361
-
289
3,775
$
4
-
-
2
6
-
-
-
-
-
73
79
$
$
Total
215
$
Level 1
90
$
December 31, 2012
Level 3
-
Level 2
125
$
1,009
465
446
1,260
3,180
970
2,089
22
3,081
653
305
7,434
$
1,006
445
446
1,258
3,155
-
-
-
-
653
-
3,898
$
-
20
-
-
20
970
2,089
22
3,081
-
238
3,464
$
3
-
-
2
5
-
-
-
-
-
67
72
$
$
Total
269
$
Level 1
203
$
January 1, 2012
Level 3
-
$
Level 2
66
874
336
348
1,007
2,565
715
1,910
20
2,645
626
290
6,395
$
871
314
348
1,006
2,539
-
-
-
-
626
-
3,368
$
-
22
-
-
22
715
1,910
20
2,645
-
216
2,949
$
3
-
-
1
4
-
-
-
-
-
74
78
$
Plan assets did not include any of the Corporation’s shares, nor any property occupied by the Corporation or
other assets used by the Corporation as at December 31, 2013, 2012 and January 1, 2012.
BOMBARDIER INC. FINANCIAL REPORT – FISCAL YEAR ENDED DECEMBER 31, 2013 – NOTES 153
The following table presents the contributions made for fiscal year 2013 and 2012 as well as the estimated
contributions for fiscal year 2014:
Contribution to
Funded pension plans
Unfunded pension plans
Other benefits
Total defined benefits plans
DC pension plans
Total contributions
2014
Estimated
2013
2012
$
$
383
27
14
424
94
$
440
27
14
481
87
$
518
$
568
$
362
42
15
419
78
497
The following table presents information about the maturity profile of the defined benefit obligation expected to be
paid, as at:
Benefits expected to be paid
Within 1 year
Between 1 and 5 years
Between 5 and 10 years
Between 10 and 15 years
Between 15 and 20 years
December 31, 2013
$
297
1,017
2,141
2,742
3,240
$
9,437
The following table provides the weighted average duration of the defined benefit obligations related to pension
plans, as at:
Duration in years as at
Funded pension plans
Canada
U.S.
U.K.
Other
Unfunded pension plans
Germany
Canada
U.S.
Other
December 31, 2013
17.5
16.6
20.8
14.2
16.8
13.4
14.7
15.7
154 BOMBARDIER INC. FINANCIAL REPORT – FISCAL YEAR ENDED DECEMBER 31, 2013
The following table provides the expected payments to be made under the unfunded plans, as at December 31,
2013:
Benefits expected to be paid
Within 1 year
Between 1 and 5 years
Between 5 and 10 years
Between 10 and 15 years
Between 15 and 20 years
Germany
Other
$
$
20
65
125
146
170
526
$
$
24
80
154
187
201
646
$
$
Total
44
145
279
333
371
1,172
The significant actuarial assumptions reflect the economic situation of each country. The weighted-average
assumptions used to determine the benefit cost and obligation were as follows, as at:
(in percentage)
Benefit cost
Discount rate
Rate of compensation increase
Inflation rate
Ultimate health care cost trend rate
Benefit obligation
Discount rate
Rate of compensation increase
Inflation rate
Initial health care cost trend rate
Ultimate health care cost trend rate
n/a: Not applicable
December 31, 2013
December 31, 2012
January 1, 2012
Pension
benefits
Other
benefits
Pension
benefits
Other
benefits
Pension
benefits
Other
benefits
4.25%
3.35%
2.19%
n/a
4.59%
3.36%
2.34%
n/a
n/a
4.38%
3.25%
2.00%
5.00%
4.97%
3.25%
2.40%
6.55%
4.98%
4.44%
3.71%
2.24%
n/a
4.25%
3.35%
2.19%
n/a
n/a
4.25%
3.50%
3.15%
5.00%
4.38%
3.25%
3.00%
7.00%
5.00%
5.40%
3.72%
2.61%
n/a
4.44%
3.71%
2.24%
n/a
n/a
5.40%
3.50%
3.15%
5.00%
4.25%
3.50%
3.15%
7.50%
5.00%
The mortality tables and the average life expectancy in years of a member at age 45 or 65 is as follows, as at
December 31:
(in years)
Country
Canada
U.K.
U.S.
Germany
Life expectancy over 65 for a male member currently
Aged 65 on December
Aged 45 on December
Mortality tables
RPP2014Priv using draft improvement
scale A1-2014 (CPM-A1D2014)
(1)
S1NA_L CMI 2010 G
PPA mandated mortality table per IRC
Dr. K Heubeck 2005
2013
21.3
21.8
19.1
20.0
2012
19.8
21.8
19.1
20.0
2013
22.9
23.9
19.1
22.6
2012
21.3
23.9
19.1
22.6
Country
Canada
Mortality tables
RPP2014Priv using draft improvement
scale A1-2014 (CPM-A1D2014)
(1)
U.K.
U.S.
Germany
(1) UP94 Generational as at December 31, 2012.
S1NA_L CMI 2010 G
PPA mandated mortality table per IRC
Dr. K Heubeck 2005
Life expectancy over 65 for a female member currently
Aged 65 on December
Aged 45 on December
2013
23.5
24.0
21.0
23.7
2012
22.1
23.9
21.0
23.7
2013
24.5
26.1
21.0
26.2
2012
22.9
26.1
21.0
26.2
BOMBARDIER INC. FINANCIAL REPORT – FISCAL YEAR ENDED DECEMBER 31, 2013 – NOTES 155
A 0.25 percentage point increase in one of the following actuarial assumptions would have the following effects,
all other actuarial assumptions remaining unchanged:
Assumption
Discount rate
Rate of compensation increase
Inflation rate
Retirement benefit cost
for fiscal year
2013
(33)
10
8
$
$
$
Net retirement benefit
liability as at
December 31, 2013
(418)
61
131
$
$
$
A one year additional life expectancy as at December 31, 2013 for all DB plans would increase the net retirement
benefit liability by $262 million and the retirement benefit cost for fiscal year 2013 by $20 million, all other actuarial
assumptions remaining unchanged.
As at December 31, 2013, the health care cost trend rate for retirement benefits other than pension, which is a
weighted-average annual rate of increase in the per capita cost of covered health and dental care benefits, is
assumed to be 6.55% and to decrease progressively to 4.98% by calendar year 2024 and then remain at that
level for all participants. A one percentage point change in assumed health care cost trend rates would have the
following effects, as at December 31, 2013 and for fiscal year 2013:
Effect on the net retirement benefit liability
Effect on the retirement benefit cost
23.
TRADE AND OTHER PAYABLES
Trade and other payables were as follows, as at:
One percentage point
increase
35
4
$
$
One percentage point
decrease
(30)
(3)
$
$
$
January 1, 2012
2,018
555
59
400
3,032
$
Trade payables
Accrued liabilities
Interest
Other
$
December 31, 2013 December 31, 2012
2,398
519
66
327
3,310
2,959
623
116
391
4,089
$
$
$
156 BOMBARDIER INC. FINANCIAL REPORT – FISCAL YEAR ENDED DECEMBER 31, 2013
24. PROVISIONS
Changes in provisions were as follows, for fiscal years 2013 and 2012:
Balance as at December 31, 2012
Additions
Utilization
Reversals
Accretion expense
Effect of changes in discount rates
Effect of foreign currency
exchange rate changes
Balance as at December 31, 2013
Of which current
Of which non-current
Balance as at January 1, 2012
Additions
Utilization
Reversals
Accretion expense
Effect of changes in discount rates
Effect of foreign currency
exchange rate changes
Balance as at December 31, 2012
Of which current
Of which non-current
Credit and
residual
value
guarantees
Restructuring,
severance
and other
termination
benefits
$
$
$
$
483
77
(64)
(19)
3
(17)
-
463
65
398
463
$
127
$
9
(43)
(15)
-
-
3
81
77
4
81
$
$
$
$
$
$
Other (1)
91 $
14
(24)
(25)
-
-
2
58 $
24 $
34
58 $
Total
1,608
469
(487)
(130)
4
(18)
19
1,465
881
584
1,465
Credit and
residual
value
guarantees
Restructuring,
severance
and other
termination
benefits
Other (1)
$
$
$
$
588
7
(2)
(117)
4
3
-
483
70
413
483
$
$
$
$
38
120 (2)
(24)
(10)
-
-
3
127
122
5
127
$
$
$
$
105 $
27
(12)
(29)
-
-
-
91 $
49 $
42
91 $
Total
1,745
446
(396)
(213)
5
3
18
1,608
1,000
608
1,608
Product
warranties
$
$
$
$
907
369
(356)
(71)
1
(1)
14
863
715
148
863
Product
warranties
$
$
$
$
1,014
292
(358)
(57)
1
-
15
907
759
148
907
(1) Includes litigations and claims, as well as environmental liabilities.
(2) See Note 9 – Special items for more details on the addition related to BT restructuring charges.
BOMBARDIER INC. FINANCIAL REPORT – FISCAL YEAR ENDED DECEMBER 31, 2013 – NOTES 157
25. OTHER FINANCIAL LIABILITIES
Other financial liabilities were as follows, as at:
Government refundable advances
Derivative financial instruments(1)
Current portion of long-term debt(2)
Lease subsidies(3)
Sale and leaseback obligations
Vendor non-recurring costs
Other
Of which current
Of which non-current
$
$
December 31, 2013 December 31, 2012
398
141
45
158
168
53
93
1,056
455
601
1,056
481
411
215
142
138
38
301
1,726
1,009
717
1,726
$
$
$
$
$
$
$
January 1, 2012
317
344
193
140
163
13
64
1,234
732
502
1,234
$
$
$
(1) See Note 14 – Financial instruments.
(2) See Note 27 – Long-term debt
(3) The amount contractually required to be paid is $172 million as at December 31, 2013 ($203 million as at December 31, 2012 and
$158 million as at January 1, 2012).
Sale and leaseback obligations
The Corporation has set up sale and leaseback facilities, which may be used to sell pre-owned business aircraft.
For accounting purposes, amounts outstanding under these arrangements are considered financial obligations
secured by the pre-owned business aircraft. The arrangements are generally for a term no longer than 24 months.
The Corporation may settle the obligation at any time during the arrangement.
26. OTHER LIABILITIES
Other liabilities were as follows, as at:
Employee benefits(1)
Accruals for long-term contract costs
Supplier contributions to aerospace programs
Deferred revenues
Income and other taxes payable
Deferred income taxes(2)
Flexjet fractional ownership deferred revenues(3)
Other
Of which current
Of which non-current
$
$
December 31, 2013 December 31, 2012
645
677
364
499
252
46
241
445
3,169
2,212
957
3,169
750
630
529
460
368
-
-
480
3,217
2,227
990
3,217
$
$
$
$
$
$
$
January 1, 2012
663
773
348
424
214
67
212
409
3,110
2,208
902
3,110
$
$
$
(1) Comprises all employee benefits excluding those related to retirement benefits, which are reported in the line items Retirement benefits and
in Other assets (see Note 22 – Retirement benefits).
(2) See Note 12 – Income taxes
(3) See Note 28 – Disposal of a business
158 BOMBARDIER INC. FINANCIAL REPORT – FISCAL YEAR ENDED DECEMBER 31, 2013
27.
LONG-TERM DEBT
Long-term debt was as follows, as at:
Amount in
currency of
origin Currency
Contractual (1)
785
750
650
850
780
500
1,250
151
162
EUR
USD
USD
USD
EUR
USD
USD
USD
USD
7.25%
4.25%
7.50%
7.75%
6.13%
5.75%
6.13%
6.75%
6.30%
250
150
Various(3)
USD
CAD
Various
7.45%
7.35%
Various (3)
Senior notes
Notes
Debentures
Other(2)
Of which current(4)
Of which non-current
Interest rate
After effect
of fair value
hedges
3-month
Libor + 4.83
n/a
3-month
Libor + 4.19
3-month
Libor + 4.14
3-month Euribor +
2.87
3-month
Libor + 3.37
3-month
Libor + 3.50
3-month
Libor + 2.26
3-month
Libor + 1.59
December 31 December 31
2012
2013
January 1
2012
Maturity
Amount
Amount
Amount
Nov. 2016 $
1,171 $
1,162 $
1,146
Jan. 2016
Mar. 2018
742
695
Mar. 2020
915
-
724
978
-
714
962
May 2021
1,187
1,183
1,082
Mar. 2022
478
492
Jan. 2023
1,200
n/a
-
-
-
May 2014
164
171
n/a May 2034
n/a Dec. 2026
n/a 2014-2026
$
$
$
248
140
263
7,203 $
215 $
6,988
7,203 $
247
150
298
5,405 $
45 $
5,360
5,405 $
-
-
153
176
247
146
315
4,941
193
4,748
4,941
(1) Interests on long-term debt as at December 31, 2013 are payable semi-annually, except for the other debts for which the timing of interest
payments is variable.
Includes obligations under finance leases.
(2)
(3) The notional amount of other long-term debt is $263 million as at December 31, 2013 ($298 million as at December 31, 2012 and $315
million as at January 1, 2012). The contractual interest rate, which represents a weighted average rate, is 4.62% as at December 31, 2013
(4.65% as at December 31, 2012 and 4.50% as at January 1, 2012).
(4) See Note 25 – Other financial liabilities
n/a: Not applicable
All Senior notes and Notes rank pari-passu and are unsecured.
The carrying value of long-term debt includes principal repayments, transaction costs, unamortized discounts and
the basis adjustments related to derivatives designated in fair value hedge relationships. The following table
presents the contractual principal repayments of the long-term debt, as at:
Within 1 year
Between 1 and 5 years
More than 5 years
December 31, 2013 December 31, 2012
213
45
2,630
1,358
4,130
3,522
$
$
January 1, 2012
$
189
1,360
3,001
$
6,973
$
4,925
$
4,550
BOMBARDIER INC. FINANCIAL REPORT – FISCAL YEAR ENDED DECEMBER 31, 2013 – NOTES 159
28. DISPOSAL OF A BUSINESS
On December 4, 2013, the Corporation completed the sale of the main assets and related liabilities of the
Corporation’s Flexjet activities, to a newly created company owned by a group led by Directional Aviation Capital.
These non-core assets were reported in the BA reportable segment.
After taking into accounts purchase price adjustments and closing adjustments, the final purchase price is $180
million, including the assumption of $71 million of customer advances by the acquirer. The proceeds received as
at December 31, 2013 is $83 million. The balance of sale price of $26 million is expected to be received in 2014.
A gain of $23 million was recognised in special items for fiscal year 2013 in connection with this sale.
29.
SHARE CAPITAL
Preferred shares
The preferred shares authorized were as follows, as at December 31, 2013, and 2012 and January 1, 2012:
Series 2 Cumulative Redeemable Preferred Shares
Series 3 Cumulative Redeemable Preferred Shares
Series 4 Cumulative Redeemable Preferred Shares
The preferred shares issued and fully paid were as follows, as at:
Authorized for the
specific series
12,000,000
12,000,000
9,400,000
January 1, 2012
9,464,920
Series 2 Cumulative Redeemable Preferred Shares
2,535,080
Series 3 Cumulative Redeemable Preferred Shares
9,400,000
Series 4 Cumulative Redeemable Preferred Shares
(1) During fiscal year 2012, 539,691 Series 3 Cumulative Redeemable Preferred Shares were converted into Series 2 Cumulative Redeemable
Preferred Shares and 312,090 Series 2 Cumulative Redeemable Preferred Shares were converted into Series 3 Cumulative Redeemable
Preferred Shares.
9,692,521 (1)
2,307,479 (1)
9,400,000
9,692,521
2,307,479
9,400,000
December 31, 2012
December 31, 2013
Series 2 Cumulative Redeemable Preferred Shares
Redemption: Redeemable, at the Corporation’s option, at $25.50 Cdn per share.
Conversion: Convertible on a one-for-one basis, at the option of the holder, on August 1, 2017 and on August 1 of every
fifth year thereafter into Series 3 Cumulative Redeemable Preferred Shares. Fourteen days before the
conversion date, if the Corporation determines, after having taken into account all shares tendered for
conversion by holders, that there would be less than 1,000,000 outstanding Series 2 Cumulative Redeemable
Preferred Shares, such remaining number shall automatically be converted into an equal number of Series 3
Cumulative Redeemable Preferred Shares. Likewise, if the Corporation determines fourteen days before the
conversion date that, at such time, there would be less than 1,000,000 outstanding Series 3 Cumulative
Redeemable Preferred Shares, then no Series 2 Cumulative Redeemable Preferred Shares may be
converted.
Since August 1, 2002, the variable cumulative preferential cash dividends are payable monthly on the
15th day of each month, if declared, with the annual variable dividend rate being set between 50% to 100% of
the Canadian prime rate, and adjusted as follows. The dividend rate will vary in relation to changes in the
prime rate and will be adjusted upwards or downwards on a monthly basis to a monthly maximum of 4% if the
trading price of Series 2 Cumulative Redeemable Preferred Shares is less than $24.90 Cdn per share or
more than $25.10 Cdn per share.
Dividend:
160 BOMBARDIER INC. FINANCIAL REPORT – FISCAL YEAR ENDED DECEMBER 31, 2013
Series 3 Cumulative Redeemable Preferred Shares
Redemption: Redeemable, at the Corporation’s option, at $25.00 Cdn per share on August 1, 2017 and on August 1 of
every fifth year thereafter.
Conversion: Convertible on a one-for-one basis, at the option of the holder, on August 1, 2017 and on August 1 of every
fifth year thereafter into Series 2 Cumulative Redeemable Preferred Shares. Fourteen days before the
conversion date, if the Corporation determines, after having taken into account all shares tendered for
conversion by holders, that there would be less than 1,000,000 outstanding Series 3 Cumulative Redeemable
Preferred Shares, such remaining number shall automatically be converted into an equal number of Series 2
Cumulative Redeemable Preferred Shares. Likewise, if the Corporation determines fourteen days before the
conversion date that, at such time, there would be less than 1,000,000 outstanding Series 2 Cumulative
Redeemable Preferred Shares, then no Series 3 Cumulative Redeemable Preferred Shares may be
converted.
For the five-year period from August 1, 2012 and including July 31, 2017, the Series 3 Cumulative
Redeemable Preferred Shares carry fixed cumulative preferential cash dividends at a rate of 3.134% or
$0.7835 Cdn per share per annum, payable quarterly on the last day of January, April, July and October of
each year at a rate of $0.195875 Cdn, if declared. For each succeeding five-year period, the applicable fixed
annual rate of the cumulative preferential cash dividends calculated by the Corporation shall not be less than
80% of the Government of Canada bond yield, as defined in the Articles of Amalgamation.
Dividend:
Conversion:
Series 4 Cumulative Redeemable Preferred Shares
Redemption: The Corporation may, subject to certain provisions, on not less than 30 nor more than 60 days’ notice,
redeem for cash the Series 4 Cumulative Redeemable Preferred Shares at $25.00 Cdn.
The Corporation may, subject to the approval of the Toronto Stock Exchange and such other stock
exchanges on which the Series 4 Cumulative Redeemable Preferred Shares are then listed, at any time
convert all or any of the outstanding Series 4 Cumulative Redeemable Preferred Shares into fully paid and
non-assessable Class B Shares (Subordinate Voting) of the Corporation. The number of Class B Shares
(Subordinate Voting) into which each Series 4 Cumulative Redeemable Preferred Shares may be so
converted will be determined by dividing the then applicable redemption price together with all accrued and
unpaid dividends to, but excluding the date of conversion, by the greater of $2.00 Cdn and 95% of the
weighted-average trading price of such Class B Shares (Subordinate Voting) on the Toronto Stock Exchange
for the period of 20 consecutive trading days, which ends on the fourth day prior to the date specified for
conversion or, if that fourth day is not a trading day, on the trading day immediately preceding such fourth
day. The Corporation may, at its option, at any time, create one or more further series of Preferred Shares of
the Corporation, into which the holders of Series 4 Cumulative Redeemable Preferred Shares could have the
right, but not the obligation, to convert their shares on a share-for-share basis.
The holders of Series 4 Cumulative Redeemable Preferred Shares are entitled to fixed cumulative
preferential cash dividends, if declared, at a rate of 6.25% or $1.5625 Cdn per share per annum, payable
quarterly on the last day of January, April, July and October of each year at a rate of $0.390625 Cdn per
share.
Dividend:
Common shares
All common shares are without nominal or par value.
Class A Shares (Multiple Voting)
Voting rights:
Conversion:
Dividend:
Ten votes each.
Convertible, at any time, at the option of the holder, into one Class B Share (Subordinate Voting).
After payment of the priority dividend on the Class B Shares (Subordinate Voting) mentioned below,
the Class A Shares (Multiple Voting) shall share equally, share for share, with respect to any
additional dividends which may be declared in respect of the Class A Shares (Multiple Voting) and
Class B Shares (Subordinate Voting). These dividends, if declared, shall be payable quarterly on the
last day of March, June, September and December of each year.
BOMBARDIER INC. FINANCIAL REPORT – FISCAL YEAR ENDED DECEMBER 31, 2013 – NOTES 161
Class B Shares (Subordinate Voting)
Voting rights:
Conversion:
Dividend:
One vote each.
Convertible, at the option of the holder, into one Class A Share (Multiple Voting): (i) if an offer made
to Class A (Multiple Voting) shareholders is accepted by the present controlling shareholder (the
Bombardier family); or (ii) if such controlling shareholder ceases to hold more than 50% of all
outstanding Class A Shares (Multiple Voting) of the Corporation.
The holders of Class B Shares (Subordinate Voting) are entitled, in priority to the holders of Class A
Shares (Multiple Voting) to non-cumulative dividends of $0.0015625 Cdn per share, payable quarterly
on the last day of March, June, September and December of each year at a rate of $0.000390625 Cdn
per share, if declared. After payment of said priority dividend, the Class B Shares (Subordinate Voting)
shall share equally, share for share, with respect to any additional dividends which may be declared in
respect of the Class A Shares (Multiple Voting) and the Class B Shares (Subordinate Voting). These
dividends, if declared, shall be payable quarterly on the last day of March, June, September and
December of each year.
The change in the number of common shares issued and fully paid and in the number of common shares
authorized was as follows as at:
Class A Shares (multiple voting)
Issued and fully paid
Balance at beginning of year
Converted to Class B
Balance at end of year
Authorized
Class B Shares (subordinate voting)
Issued and fully paid
Balance at beginning of year
Issuance of shares
Converted from Class A
Held in trust under the PSU plan
Balance at beginning of year
Distributed
Balance at end of year
Balance at end of year
Authorized
Dividends
Dividends declared were as follows:
December 31, 2013
December 31, 2012
314,537,162
(6,700)
314,530,462
1,892,000,000
314,537,237
(75)
314,537,162
1,892,000,000
December 31, 2013
December 31, 2012
1,440,364,381
3,125,337
6,700
1,443,496,418
(24,542,027)
5,805,119
(18,736,908)
1,424,759,510
1,892,000,000
1,438,677,056
1,687,250
75
1,440,364,381
(29,325,303)
4,783,276
(24,542,027)
1,415,822,354
1,892,000,000
December 31, 2013
Dividend declared for fiscal years
December 31, 2012
Total
Total
Dividend declared after
December 31, 2013
Total
Class A common shares
Class B common shares
Series 2 Preferred Shares
Series 3 Preferred Shares
Series 4 Preferred Shares
Per share
(Cdn$)
0.10
0.10
0.75
0.78
1.56
Per share
(Cdn$)
0.10
0.10
0.75
1.05
1.56
$
(in millions
of U.S.$)
31
142
173
7
2
14
23
196
$
162 BOMBARDIER INC. FINANCIAL REPORT – FISCAL YEAR ENDED DECEMBER 31, 2013
$
(in millions
of U.S.$)
31
146
177
7
3
15
25
202
$
Per share
(Cdn$)
0.03
0.03
0.13
0.20
0.39
$
(in millions
of U.S.$)
7
35
42
1
-
4
5
47
$
30. SHARE-BASED PLANS
PSU and DSU plans
The Board of Directors of the Corporation approved a PSU plan under which PSUs may be granted to executives
and other designated employees. The PSUs give recipients the right, upon vesting, to receive a certain number of
the Corporation’s Class B Shares (Subordinate Voting). The Board of Directors of the Corporation has also
approved a DSU plan under which DSUs may be granted to senior officers. The DSU plan is similar to the PSU
plan, except that their exercise can only occur upon retirement or termination of employment. During fiscal year
2013, a combined value of $52 million of DSUs and PSUs were authorized for issuance ($50 million during fiscal
year 2012).
The number of PSUs and DSUs has varied as follows, for fiscal years:
Balance at beginning of year
Granted
Performance adjustment
Exercised
Cancelled
PSU
24,179,840
7,884,242
(1,543,133)
(5,805,119)
(1,119,149)
Balance at end of year
(1) Of which 2,448,572 DSUs are vested as at December 31, 2013 (1,175,984 as at December 31, 2012).
23,596,681
2013
DSU
PSU
6,673,447
2,229,555
(333,900)
(109,240)
(290,012)
8,169,850 (1)
19,149,004
10,248,069
47,359
(4,783,276)
(481,316)
24,179,840
2012
DSU
4,367,000
2,638,352
10,960
(43,865)
(299,000)
6,673,447 (1)
PSUs and DSUs granted will vest if a financial performance threshold is met. The conversion ratio for vested
PSUs and DSUs ranges from 70% to 150%. PSUs and DSUs generally vest three years following the grant date if
the financial performance thresholds are met. For grants issued between January 1, 2011 and December 31,
2013, the vesting dates range from June 6, 2014 to August 9, 2016.
The weighted-average grant date fair value of PSUs and DSUs granted during fiscal year 2013 was $4.63 ($3.68
during fiscal year 2012). The fair value of each PSU and DSU granted was measured based on the closing price
of a Class B Share (Subordinate Voting) of the Corporation on the Toronto Stock Exchange.
From time to time, the Corporation provides instructions to a trustee under the terms of a Trust Agreement to
purchase Class B Shares (Subordinate Voting) of the Corporation in the open market (see Note 29 – Share
capital) in connection with the PSU plan. These shares are held in trust for the benefit of the beneficiaries until the
PSUs become vested or are cancelled. The cost of these purchases has been deducted from share capital.
A compensation expense of $4 million was recorded during fiscal year 2013 with respect to the PSU and DSU
plans (a compensation expense of nil during fiscal year 2012).
Share option plan
Under share option plan, options are granted to key employees to purchase Class B Shares (Subordinate Voting).
Of the 135,782,688 Class B Shares (Subordinate Voting) reserved for issuance, 63,269,250 were available for
issuance under this share option plan, as at December 31, 2013.
Current share option plan – Effective June 1, 2009, the Corporation amended the share option plan for key
employees for options granted after this date. The most significant terms and conditions of the amended plan are
as follows:
(cid:120) The exercise price is equal to the weighted-average trading prices on the stock exchange during the five
trading days preceding the date on which the options were granted.
(cid:120) The options vest at the expiration of the third year following the grant date.
(cid:120) The options terminate no later than seven years after the grant date.
BOMBARDIER INC. FINANCIAL REPORT – FISCAL YEAR ENDED DECEMBER 31, 2013 – NOTES 163
The summarized information on the current share option plan is as follows as at December 31, 2013:
Exercise price range
(Cdn$)
2 to 4
4 to 6
6 to 8
Number of
options
8,371,631
9,019,787
3,263,001
20,654,419
Issued and outstanding
Weighted-
average
exercise
price
(Cdn$)
3.58
4.80
7.01
Weighted-
average
remaining
life
(years)
4.84
5.38
4.62
Exercisable
Weighted-
average
exercise
price
(Cdn$)
3.45
4.72
-
Number of
options
2,186,569
3,596,528
-
5,783,097
The weighted-average share price of options exercised during fiscal year 2013 was $4.68.
The number of options issued and outstanding under the current share option plan has varied as follows, for fiscal
years:
Balance at beginning of year
Granted
Exercised
Cancelled
Balance at end of year
Options exercisable at end of year
2013
Weighted-
average
exercise
price
(Cdn$)
4.57
4.86
3.45
4.65
4.66
4.24
2012
Weighted-
average
exercise
price
(Cdn$)
5.22
3.64
-
5.27
4.57
3.45
Number of
options
9,724,983
6,512,071
-
(345,453)
15,891,601
2,393,552
Number of
options
15,891,601
5,478,566
(174,414)
(541,334)
20,654,419
5,783,097
Performance share option plan – For options issued to key employees after May 27, 2003, and before
June 1, 2009, the exercise price is equal to the weighted-average trading prices on the stock exchange during the
five trading days preceding the date on which the options were granted. These options vest at 25% per year
during a period beginning one year following the grant date. However, predetermined target market price
thresholds must be achieved in order for the options to be exercised. Such options may be exercised if within the
12-month period preceding the date on which such options vest, the weighted-average trading price on the stock
exchange (during a period of 21 consecutive trading days) is greater than or equal to the target price threshold
established at the time the options were granted. If within such 12-month period, the weighted-average trading
price has not been reached, the target price threshold applicable to the next vesting tranche becomes effective.
The options terminate no later than seven years after the grant date. As at December 31, 2013, target prices
ranged between $4.50 Cdn and $8 Cdn.
The summarized information on the performance share option plan is as follows, as at December 31, 2013:
Exercise price range
(Cdn$)
2 to 4
4 to 6
8 to 10
Weighted-
average
target price
(Cdn$)
5.08
6.02
8.00
Number of
options
60,000
4,057,938
4,583,400
8,701,338
Weighted-
average
remaining
life
(years)
0.50
0.66
1.63
Issued and outstanding
Weighted-
average
exercise
Number of
price
options
(Cdn$)
3.81
50,000
5.50 3,977,938
-
8.53
4,027,938
Exercisable
Weighted-
average
exercise
price
(Cdn$)
3.87
5.50
-
The weighted-average share price of options exercised during fiscal year 2013 was $4.45 ($3.83 during fiscal
year 2012).
164 BOMBARDIER INC. FINANCIAL REPORT – FISCAL YEAR ENDED DECEMBER 31, 2013
The number of options has varied as follows, for fiscal years:
Balance at beginning of year
Exercised
Cancelled
Expired
Balance at end of year
Options exercisable at end of year
2013
Weighted-
average
exercise
price
(Cdn$)
6.05
3.22
7.00
3.55
7.08
5.48
Number of
options
15,797,863
(1,687,250)
(989,125)
(523,000)
12,598,488
7,652,288
2012
Weighted-
average
exercise
price
(Cdn$)
5.60
2.55
6.50
2.93
6.05
4.48
Number of
options
12,598,488
(2,898,350)
(474,050)
(524,750)
8,701,338
4,027,938
Share-based compensation expense for options
The weighted-average grant date fair value of stock options granted during fiscal year 2013 was $1.51 per option
($1.21 per option for fiscal year 2012). The fair value of each option granted was determined using a
Black-Scholes option pricing model, which incorporates the share price at the grant date, and the following
weighted-average assumptions, for fiscal years:
Risk-free interest rate
Expected life
Expected volatility in market price of shares
Expected dividend yield
2013
1.73%
5 years
43.18%
2.50%
2012
1.51%
5 years
44.95%
2.46%
A compensation expense of $7 million was recorded during fiscal year 2013 with respect to share option plans
($7 million during fiscal year 2012).
Employee share purchase plan
Under the employee share purchase plan, employees of the Corporation are eligible to purchase Class B Shares
(Subordinate Voting) of the Corporation up to a maximum of 20% of their base salary to a yearly maximum of
$30,000 Cdn per employee. The Corporation contributes to the plan an amount equal to 20% of the employees’
contributions. The contributions are used to purchase the Corporation’s Class B Shares (Subordinate Voting) in
the open market on monthly investment dates or as otherwise determined by the Corporation, but not less
frequently than monthly. The Corporation’s contribution to the plan amounted to $8 million for fiscal year 2013
($8 million for fiscal year 2012). Shares purchased by the Corporation are subject to a mandatory 12-month
holding period that must be completed at the anniversary date of January 1.
BOMBARDIER INC. FINANCIAL REPORT – FISCAL YEAR ENDED DECEMBER 31, 2013 – NOTES 165
31. NET CHANGE IN NON-CASH BALANCES
Net change in non-cash balances was as follows, for fiscal years:
Trade and other receivables
Inventories
Other financial assets and liabilities, net
Other assets
Trade and other payables
Provisions
Advances and progress billings in excess of long-term contract inventories
Advances on aerospace programs
Retirement benefits liability
Other liabilities
32. CREDIT FACILITIES
Letter of credit facilities
The letter of credit facilities and their maturities were as follows, as at:
2013
(134)
(631)
(15)
(437)
749
(161)
301
334
(8)
361
359
$
$
2012
69
(111)
41
(221)
284
(158)
102
599
58
31
694
$
$
Amount
committed
Letters of
credit issued
Amount
available
Maturity
December 31, 2013
BT facility
BA facility
PSG facility
December 31, 2012
BT facility
BA facility
PSG facility
January 1, 2012
BT facility
BA facility
PSG facility
$
$
$
$
$
$
$
$
$
$
4,827
(1)
600
600
6,027
4,486
(1)
600
900
5,986
(1)
4,399
600
900
$
$
$
$
$
4,132
403
393
4,928
3,291
430
339
4,060
3,805
264
318
695
197
207
1,099
1,195
170
561
1,926
594
336
582
2018
2016
2014
(2)
(3)
(4)
2017
2015
(4)
2013
2016
2014
(4)
2012
$
5,899
(1) €3,500 million as at December 31, 2013 (€3,400 million as at December 31, 2012 and January 1, 2012).
(2) The facility has an initial three year availability period, when new letters of credit can be issued up to the maximum commitment amount of
the facility, plus a two year amortization period during which new letters of credit cannot be issued. The final maturity date of the facility is
2018.
4,387
1,512
(3) The facility has an initial three year availability period, when new letters of credit can be issued up to the maximum commitment of the
$
$
facility. The facility can be extended annually on the anniversary date for an additional year subject to approval by a majority of the bank
syndicate members.
(4) The PSG facility is renewed and extended annually if mutually agreed. In June 2013, the facility was extended until June 2014 and is
intended to be renewed in annual increments thereafter. If the facility is not extended, the letters of credit issued under this facility will
amortize over their maturity.
In addition to the outstanding letters of credit shown in the above table, letters of credit of $1,018 million were
outstanding under various bilateral agreements as at December 31, 2013 ($875 million as at December 31, 2012
and $648 million as at January 1, 2012).
166 BOMBARDIER INC. FINANCIAL REPORT – FISCAL YEAR ENDED DECEMBER 31, 2013
The Corporation also uses numerous bilateral bonding facilities with insurance companies to support BT’s
operations. An amount of $2.3 billion was outstanding under such facilities as at December 31, 2013 ($2.3 billion
as at December 31, 2012 and $2.1 billion as at January 1, 2012).
Revolving credit facilities
The Corporation has a $750-million unsecured revolving credit facility (“revolving credit facility”) that matures in
June 2016 and bears interest at the applicable base rate (Libor, in the case of a U.S. dollar cash drawing) plus a
margin based on the Corporation’s credit ratings. This facility is available for cash drawings for the general
working capital needs of the Corporation. In addition, the Corporation has a three-year unsecured revolving credit
facility (“BT revolving credit facility”) amounting to €500 million ($690 million), available to BT for cash drawings.
The facility matures in March 2015 and bears interest at EURIBOR plus a margin.
Financial covenants
The Corporation is subject to various financial covenants under the BA and BT letter of credit facilities and the two
unsecured revolving credit facilities, which must be met on a quarterly basis. The BA letter of credit and revolving
credit facility include financial covenants requiring a minimum EBITDA to fixed charges ratio, as well as a
maximum net debt to EBITDA ratio, all calculated based on an adjusted consolidated basis i.e. excluding BT. The
BT letter of credit and BT revolving credit facility include financial covenants requiring minimum equity as well as a
maximum debt to EBITDA ratio, all calculated based on BT stand-alone financial data. These terms and ratios are
defined in the respective agreements and do not correspond to the Corporation’s global metrics as described in
Note 33 – Capital management or to the specific terms used in the MD&A. In addition, the Corporation must
maintain a minimum BT liquidity of €600 million ($827 million) and a minimum BA liquidity of $500 million at the
end of each quarter. These conditions were all met as at December 31, 2013 and 2012 and January 1, 2012.
The Corporation regularly monitors these ratios to ensure it meets all financial covenants, and has controls in
place to ensure that contractual covenants are met.
33. CAPITAL MANAGEMENT
The Corporation’s capital management strategy is designed to maintain strong liquidity and to optimize its capital
structure in order to reduce costs and improve its ability to seize strategic opportunities. The Corporation analyzes
its capital structure using global metrics, which are based on a broad economic view of the Corporation. The
Corporation manages and monitors its global metrics such that it can achieve an investment-grade profile over
the medium to long-term.
The Corporation’s objectives with regard to its global metrics are as follows:
(cid:120) adjusted EBIT to adjusted interest ratio greater than 5.0; and
(cid:120) adjusted debt to adjusted EBITDA ratio lower than 2.5.
Global metrics – The following global metrics do not represent the ratios required for bank covenants. A
reconciliation of the global metrics to the most comparable IFRS financial measures are provided in the Non-
GAAP financial measures section of the MD&A for fiscal year 2013.
Adjusted EBIT(1)
Adjusted interest(2)
Adjusted EBIT to adjusted interest ratio
Adjusted debt(3)
Adjusted EBITDA(4)
Adjusted debt to adjusted EBITDA ratio
(1) Represents EBIT before special items plus interest adjustment for operating leases, and interest received as per the supplemental
$
$
$
$
$
$
$
$
2013
967
346
2.8
7,912
1,454
5.4
2012
916
288
3.2
5,669
1,340
4.2
information provided in the consolidated statements of cash flows, adjusted, if needed, for the settlement of fair value hedge derivatives
before their contractual maturity dates.
(2) Represents interest paid as per the supplemental information provided in the consolidated statements of cash flows, plus accretion
expense on sale and leaseback obligations and interest adjustment for operating leases.
(3) Represents long-term debt adjusted for the fair value of derivatives (or settled derivatives) designated in related hedge relationships plus
sale and leaseback obligations and the net present value of operating lease obligations.
(4) Represents adjusted EBIT plus amortization and impairment charges of PP&E and intangible assets and amortization adjustment for
operating leases.
BOMBARDIER INC. FINANCIAL REPORT – FISCAL YEAR ENDED DECEMBER 31, 2013 – NOTES 167
In addition to the above global level metrics, the Corporation separately monitors its net retirement benefit liability
which amounted to $2.0 billion as at December 31, 2013 ($3.0 billion as at December 31, 2012). The
measurement of this liability is dependent on numerous key long-term assumptions such as current discount
rates, future compensation increases, inflation rates and mortality rates. In recent years, this liability has been
particularly volatile due to changes in discount rates. Such volatility is exacerbated by the long-term nature of the
obligation. The Corporation closely monitors the impact of the net retirement benefit liability on its future cash
flows and has introduced significant risk mitigation initiatives in recent years in this respect.
In order to adjust its capital structure, the Corporation may issue or reduce long-term debt, make discretionary
contributions to pension funds, repurchase or issue share capital, or vary the amount of dividends paid to
shareholders.
See Note 32 – Credit facilities for a description of bank covenants.
34.
FINANCIAL RISK MANAGEMENT
The Corporation is primarily exposed to credit risk, liquidity risk and market risk as a result of holding financial
instruments.
Credit risk
Liquidity risk
Market risk
Risk that one party to a financial instrument will cause a financial loss for the other party by failing to
discharge an obligation.
Risk that an entity will encounter difficulty in meeting its obligations associated with financial liabilities.
Risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in
market prices, whether those changes are caused by factors specific to the individual financial instrument
or its issuer, or factors affecting all similar financial instruments traded in the market. The Corporation is
primarily exposed to foreign exchange risk and interest rate risk.
Credit risk
The Corporation is exposed to credit risk through its normal treasury activities on its derivative financial
instruments and other investing activities. The Corporation is also exposed to credit risk through its trade
receivables arising from its normal commercial activities. Credit exposures arising from lending activities relate
primarily to aircraft loans and lease receivables provided to BA customers in connection with the sale of
commercial aircraft.
The effective monitoring and controlling of credit risks is a key component of the Corporation’s risk management
activities. Credit risks arising from the treasury activities are managed by a central treasury function in accordance
with the Corporate Foreign Exchange Risk Management Policy and Corporate Investment Management Policy
(the “Policy”). The objective of the policy is to minimize the Corporation’s exposure to credit risk from its treasury
activities by ensuring that the Corporation transacts strictly with investment-grade financial institutions and money
market funds based on pre-established consolidated counterparty risk limits per financial institution and fund.
Credit risks arising from the Corporation’s normal commercial activities, lending activities and under indirect
financing support are managed and controlled by the two reportable segments, BA and BT. The main credit
exposure managed by the segments arises from customer credit risk. Customer credit ratings and credit limits are
analyzed and established by internal credit specialists, based on inputs from external rating agencies, recognized
rating methods and the Corporation’s experience with the customers. The credit risks and credit limits are
dynamically reviewed based on fluctuations in the customer’s financial results and payment behaviour.
These customer credit risk assessments and credit limits are critical inputs in determining the conditions under
which credit or financing will be offered to customers, including obtaining collateral to reduce the Corporation’s
exposure to losses. Specific governance is in place to ensure that financial risks arising from large transactions
are analyzed and approved by the appropriate management level before financing or credit support is offered to
the customer.
Credit risk is monitored on an ongoing basis using different systems and methodologies depending on the
underlying exposure. Various accounting and reporting systems are used to monitor trade receivables, lease
receivables and other direct financings.
168 BOMBARDIER INC. FINANCIAL REPORT – FISCAL YEAR ENDED DECEMBER 31, 2013
Maximum exposure to credit risk – The maximum exposures to credit risk for financial instruments is usually
equivalent to their carrying value, as presented in Note 14 – Financial instruments, except for the financial
instruments in the table below, for which the maximum exposures were as follows, as at:
Aircraft loans and lease receivables
Derivative financial instruments
Investments in securities
Investments in financing structures
December 31, 2013 December 31, 2012
392
656
197
304
371
690
287
305
$
$
$
$
$
$
$
$
January 1, 2012
427
523
342
295
$
$
$
$
Credit quality – The credit quality, using external and internal credit rating system, of financial assets that are
neither past due nor impaired is usually investment grade, except for BA receivables, aircraft loans and lease
receivables and certain investments in financing structures. BA receivables are usually not externally or internally
quoted, however the credit quality of customers are dynamically reviewed and is based on the Corporation’s
experience with the customers and payment behaviour. The Corporation usually holds underlying assets or
security deposits as collateral or letters of credit for the receivables. The Corporation’s customers for aircraft loans
and lease receivables are mainly regional airlines with a credit rating below investment grade. The credit quality of
the Corporation’s aircraft loans and lease receivables portfolio is strongly correlated to the credit quality of the
regional airline industry. The financed aircraft is used as collateral to reduce the Corporation’s exposure to credit
risk.
Refer to Note 39 – Commitment and Contingencies for the Corporation’s off-balance sheet credit risk, including
credit risk related to support provided for sale of aircraft.
Liquidity risk
The Corporation manages liquidity risk by maintaining detailed cash forecasts, as well as long-term operating and
strategic plans. The management of consolidated liquidity requires a constant monitoring of expected cash inflows
and outflows, which is achieved through a detailed forecast of the Corporation’s liquidity position, as well as long-
term operating and strategic plans, to ensure adequacy and efficient use of cash resources. Liquidity adequacy is
continually monitored, taking into consideration historical volatility and seasonal needs, the maturity profile of
indebtedness, access to capital markets, the level of customer advances, working capital requirements, the
funding of product developments and other financial commitments. The Corporation also monitors any financing
opportunities to optimize its capital structure and maintain appropriate financial flexibility.
Maturity analysis –The maturity analysis of financial assets and financial liabilities, excluding derivative financial
instruments, was as follows, as at December 31, 2013:
Carrying
amount
Undiscounted cash flows
(before giving effect to the related hedging instruments)
Cash and cash equivalents
Trade and other receivables
Other financial assets(1)
Assets
Trade and other payables
Other financial liabilities(1)
Long-term debt
Less
than
1 year
3,397 $
1,334
117
4,848
4,070
491
1 to
3 years
3 to
5 years
5 to
10 years
Over
10 years
- $
- $
69
165
234
10
104
21
172
193
1
213
- $
3
535
538
2
426
- $
1
784
785
-
324
$
$
$
$
$
3,397 $
1,492
1,413
4,089
1,100
With no
specific
maturity
Total
- $ 3,397
1,492
1,830
6,719
4,089
1,558
64
57
121
6
-
Principal
6,973
Interest
3,008
Liabilities
15,628
Net amount
(8,909)
(1) The carrying amount of other financial assets excludes the carrying amount of derivative financial instruments and the carrying amount of
213
442
5,216
(368) $ (2,688) $
678
617
1,509
(1,316) $
3,721
858
5,007
(4,469) $
409
235
968
(183) $
-
-
6
115 $
1,952
856
2,922
7,203
$
$
other financial liabilities excludes the carrying amount of derivative financial instruments and the current portion of long-term debt.
BOMBARDIER INC. FINANCIAL REPORT – FISCAL YEAR ENDED DECEMBER 31, 2013 – NOTES 169
Other financial liabilities include government refundable advances. Under the respective agreements, the
Corporation is required to pay amounts to governments at the time of the delivery of aircraft. Due to uncertainty
about the number of aircraft to be delivered and the timing of delivery of aircraft, the amounts shown in the table
above may vary.
The maturity analysis of derivative financial instruments, excluding embedded derivatives, was as follows, as at
December 31, 2013:
Derivative financial assets
Forward foreign exchange contracts
Interest-rate derivatives
Derivative financial liabilities
Forward foreign exchange contracts
Interest-rate derivatives
Nominal
value (USD
equivalent)
Less than
1 year
1 year
2 to
3 years
3 to
5 years
Over
5 years
Total
Undiscounted cash flows (1)
$ 11,840 $
3,820
316 $
101
41 $
93
- $
- $
85
16
$ 15,660 $
417 $
134 $
85 $
16 $
- $
1
1 $
357
296
653
$ 11,768 $
1,766
(294) $
38
$ 13,534 $
(256) $
(48) $
35
(13) $
- $
- $
- $
24
(41)
(122)
24 $
(41) $
(122) $
(342)
(66)
(408)
Net amount
121 $
(1) Amounts denominated in foreign currency are translated at the period end exchange rate.
161 $
$
109 $
(25) $
(121) $
245
Market risk
Foreign exchange risk
The Corporation is exposed to significant foreign exchange risks in the ordinary course of business through its
international operations, in particular to the Canadian dollar, pound sterling, Swiss franc and Euro. The
Corporation employs various strategies, including the use of derivative financial instruments and by matching
asset and liability positions, to mitigate these exposures.
The Corporation’s main exposures to foreign currencies are managed by the segments and covered by a central
treasury function. Foreign currency exposures are managed in accordance with the Corporation’s Foreign
Exchange Risk Management Policy (the “FX Policy”). The objective of the FX Policy is to mitigate the impact of
foreign exchange movements on the Corporation’s consolidated financial statements. Under the FX Policy,
potential losses from adverse movements in foreign exchange rates should not exceed pre-set limits. Potential
loss is defined as the maximum expected loss that could occur if an unhedged foreign currency exposure was
exposed to an adverse change of foreign exchange rates over a one-quarter period. The FX Policy also strictly
prohibits any speculative foreign exchange transactions that would result in the creation of an exposure in excess
of the maximum potential loss approved by the Board of Directors of the Corporation.
Under the FX Policy, it is the responsibility of the segments’ management to identify all actual and potential
foreign exchange exposures arising from their operations. This information is communicated to the central
treasury group, which has the responsibility to execute the hedge transactions in accordance with the FX Policy.
In order to properly manage their exposures, each segment maintains long-term cash flow forecasts in each
currency. BA has adopted a progressive hedging strategy while BT hedges all its identified foreign currency
exposures to limit the effect of currency movements on their results. The segments also mitigate foreign currency
risks by maximizing transactions in their functional currency for their operations such as material procurement,
sale contracts and financing activities.
In addition, the central treasury function manages balance sheet exposures to foreign currency movements by
matching asset and liability positions. This program consists mainly in matching the long-term debt in foreign
currency with long-term assets denominated in the same currency.
170 BOMBARDIER INC. FINANCIAL REPORT – FISCAL YEAR ENDED DECEMBER 31, 2013
The Corporation mainly uses forward foreign exchange contracts to manage the Corporation’s exposure from
transactions in foreign currencies and to synthetically modify the currency of exposure of certain balance sheet
items. The Corporation applies hedge accounting for a significant portion of anticipated transactions and firm
commitments denominated in foreign currencies, designated as cash flow hedges. Notably, the Corporation
enters into forward foreign exchange contracts to reduce the risk of variability of future cash flows resulting from
forecasted sales and purchases and firm commitments.
The Corporation’s foreign currency hedging programs are typically unaffected by changes in market conditions,
as related derivative financial instruments are generally held to maturity, consistent with the objective to lock in
currency rates on the hedged item.
Sensitivity analysis
Foreign exchange risk arises on financial instruments that are denominated in foreign currencies. The foreign
exchange rate sensitivity is calculated by aggregation of the net foreign exchange rate exposure of the
Corporation’s financial instruments recorded in its statement of financial position. The following impact on EBT for
fiscal year 2013 is before giving effect to cash flow hedge relationships.
Gain (loss)
Variation
+10%
CAD/USD
12
$
GBP/USD
(2)
$
EUR/USD
5
$
Effect on EBT
Other
1
$
EUR/CHF
-
$
The following impact on OCI for fiscal year 2013 is for derivatives designated in a cash flow hedge relationship.
For these derivatives, any change in fair value is mostly offset by the re-measurement of the underlying exposure.
Gain (loss)
Variation
+10%
CAD/USD
299
$
GBP/USD
61
$
Effect on OCI before income taxes
Other
EUR/CHF
(24)
105
$
EUR/USD
72
$
$
Interest rate risk
The Corporation is exposed to fluctuations in its future cash flows arising from changes in interest rates through
its variable-rate financial assets and liabilities including long-term debt synthetically converted to variable interest
rate (see Note 27 – Long-term debt). The Corporation is exposed from time to time to changes in interest rates for
certain financing commitments, when a financing rate has been guaranteed to a customer in the future. For these
items, cash flows could be impacted by a change in benchmark rates such as Libor, Euribor or Banker’s
Acceptance. These exposures are predominantly managed by a central treasury function as part of an overall risk
management policy, including the use of financial instruments, such as interest-rate swap agreements. Derivative
financial instruments used to synthetically convert interest-rate exposures consist mainly of interest-rate swap
agreements and cross currency interest-rate swap agreements.
In addition, the Corporation is exposed to gains and losses arising from changes in interest rates, which includes
marketability risk, through its financial instruments carried at fair value. These financial instruments include certain
aircraft loans and lease receivables, certain investments in financing structures, investments in securities, lease
subsidies and certain derivative financial instruments.
The Corporation’s interest rate hedging programs are typically unaffected by changes in market conditions, as
related derivative financial instruments are generally held to maturity to ensure proper assets/liabilities
management matching, consistent with the objective to reduce risks arising from interest rates movements.
Sensitivity analysis
The interest rate risk primarily relates to financial instruments carried at fair value. Assuming a 100-basis point
increase in interest rates impacting the measurement of these financial instruments, excluding derivative financial
instruments in a hedge relationship, as of December 31, 2013 and 2012, the impact on EBT would have been a
negative adjustment of $68 million as at December 31, 2013 ($76 million as at December 31, 2012).
BOMBARDIER INC. FINANCIAL REPORT – FISCAL YEAR ENDED DECEMBER 31, 2013 – NOTES 171
35.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Fair value amounts disclosed in these consolidated financial statements represent the Corporation’s estimate of
the price at which a financial instrument could be exchanged in a market in an arm's length transaction between
knowledgeable, willing parties who are under no compulsion to act. They are point-in-time estimates that may
change in subsequent reporting periods due to market conditions or other factors. Fair value is determined by
reference to quoted prices in the principal market for that instrument to which the Corporation has immediate
access. However, there is no active market for most of the Corporation’s financial instruments. In the absence of
an active market, the Corporation determines fair value based on internal or external valuation models, such as
stochastic models, option-pricing models and discounted cash flow models. Fair value determined using valuation
models requires the use of assumptions concerning the amount and timing of estimated future cash flows,
discount rates, the creditworthiness of the borrower, the aircraft’s expected future value, default probability,
generic industrial bond spreads and marketability risk. In determining these assumptions, the Corporation uses
primarily external, readily observable market inputs, including factors such as interest rates, credit ratings, credit
spreads, default probabilities, currency rates, and price and rate volatilities, as applicable. Assumptions or inputs
that are not based on observable market data are used when external data are unavailable. These calculations
represent management’s best estimates. Since they are based on estimates, the fair values may not be realized
in an actual sale or immediate settlement of the instruments.
Methods and assumptions
The methods and assumptions used to measure fair value for items recorded at FVTP&L and AFS are as follows:
Aircraft loans and lease receivables and investments in financing structures – The Corporation uses an
internal valuation model based on stochastic simulations and discounted cash flow analysis to estimate fair value.
Fair value is calculated using market data for interest rates, published credit ratings when available, yield curves
and default probabilities. The Corporation uses market data to determine the marketability adjustments and also
uses internal assumptions to take into account factors that market participants would consider when pricing these
financial assets. The Corporation also uses internal assumptions to determine the credit risk of customers without
published credit rating. In addition, the Corporation uses aircraft residual value curves reflecting specific factors of
the current aircraft market and a balanced market in the medium and long term.
Investments in securities – The Corporation uses discounted cash flow models to estimate the fair value of
unquoted investments in fixed-income securities, using market data such as interest-rate.
Lease subsidies – The Corporation uses an internal valuation model based on stochastic simulations to estimate
fair value of lease subsidies incurred in connection with the sale of commercial aircraft. Fair value is calculated
using market data for interest rates, published credit ratings when available, default probabilities from rating
agencies and the Corporation’s credit spread. The Corporation also uses internal assumptions to determine the
credit risk of customers without published credit rating.
Derivative financial instruments – Fair value of derivative financial instruments generally reflects the estimated
amounts that the Corporation would receive to sell favourable contracts i.e. taking into consideration the
counterparty credit risk, or pays to transfer unfavourable contracts i.e. taking into consideration the Corporation’s
credit risk, at the reporting dates. The Corporation uses discounted cash flow analyses and market data such as
interest rates, credit spreads and foreign exchange spot rate to estimate the fair value of forward agreements and
interest-rate derivatives.
The Corporation uses an option-adjusted spread model and a discounted cash flow model to estimate the fair
value of call features on long-term debt, using market data such as interest-rate swap curves and external
quotations.
The methods and assumptions used to measure fair value for items recorded at amortized cost are as follows:
Financial instruments whose carrying value approximates fair value – The fair values of trade and other
receivables, certain aircraft loans and lease receivables, certain investments in securities, restricted cash, trade
and other payables, and sales and leaseback obligations measured at amortized cost, approximate their carrying
value due to the short-term maturities of these instruments, because they bear variable interest-rate or because
the terms and conditions are comparable to current market terms and conditions for similar items.
172 BOMBARDIER INC. FINANCIAL REPORT – FISCAL YEAR ENDED DECEMBER 31, 2013
Long-term debt – The fair value of long-term debt is estimated using public quotations, when available, or
discounted cash flow analyses, based on the current corresponding borrowing rate for similar types of borrowing
arrangements.
Government refundable advances and vendor non-recurring costs – The Corporation uses discounted cash
flow analyses to estimate the fair value using market data for interest rates and credit spreads.
Fair value hierarchy
The following tables present financial assets and financial liabilities measured at fair value on a recurring basis
categorized using the fair value hierarchy as follows:
· quoted prices (unadjusted) in active markets for identical assets or liabilities (Level 1);
·
inputs from observable markets other than quoted prices included in Level 1, including indirectly observable
data (Level 2); and
inputs for the asset or liability that are not based on observable market data (Level 3).
·
Assessing the significance of a particular input to the fair value measurement in its entirety requires judgment.
The fair value of financial assets and liabilities by level of hierarchy was as follows, as at December 31, 2013:
Total
Level 1
Level 2
Level 3
Financial assets
Aircraft loans and lease receivables
Derivative financial instruments(1)
Investments in securities
Investments in financing structures
Financial liabilities
Lease subsidies
Derivative financial instruments(1)
$
$
$
$
$
$
388
792
300 (2)
285
1,765
(142)
(411)
(553)
-
-
33
-
33
-
-
-
$
$
$
-
792
267
150
1,209
-
(411)
(411)
$
$
$
388
-
-
135
523
(142)
-
(142)
$
(1) Derivative financial instruments consist of forward foreign exchange contracts, interest-rate swap agreements, and cross-currency interest-
$
$
$
rate swap agreements and embedded derivatives.
(2) Excludes $15 million of AFS investments carried at cost.
Changes in fair value of Level 3 financial instruments were as follows, for fiscal years 2013 and 2012:
Balance as at January 1, 2012
Net gains (losses) and interests included in net income
Issuances
Settlements
Balance as at December 31, 2012
Net gains (losses) and interests included in net income(1)
Issuances
Settlements
Balance as at December 31, 2013
(1) Of which an amount of $5 million represents realized gains for fiscal year 2013.
Aircraft
loans and
lease
receivables
$
436
12
3
(39)
412
3
8
(35)
388
$
Investments
in financing
structures
129
$
6
1
(1)
135
2
-
(2)
135
$
$
Lease
subsidies
(140)
(26)
(38)
46
(158)
(18)
1
33
(142)
$
BOMBARDIER INC. FINANCIAL REPORT – FISCAL YEAR ENDED DECEMBER 31, 2013 – NOTES 173
Main assumptions developed internally for Level 3 hierarchy
When measuring Level 3 financial instruments at fair value, some assumptions are not derived from an
observable market. The main assumptions developed internally relate to credit risks of customers without
published credit rating and marketability adjustments to discount rates specific to our financial assets.
These main assumptions are as follows as at December 31, 2013:
Main assumptions
(weighted average)
Aircraft loans and
lease receivables
Investments
in financing
structures
Lease subsidies
Internally assigned credit rating
Between BB- to CCC (B+) Between BB- to CCC (B) Between BBB- to C (B)
Discount rate adjustments
for marketability
Between 2.89%
and 4.82% (4.40%)
Between 1.45%
and 6.75% (4.89%)
n/a
Also, aircraft residual value curves are important inputs in assessing the fair value of certain financial instruments.
These curves are prepared by management based on information obtained from external appraisals and reflect
specific factors of the current aircraft market and a balanced market in the medium and long term.
Sensitivity to selected changes of assumptions for Level 3 hierarchy
These assumptions, not derived from an observable market, are established by management using estimates and
judgments that can have a significant effect on revenues, expenses, assets and liabilities. Changing one or more
of these assumptions to other reasonably possible alternative assumptions, for which the impact on their fair
value would be significant, would change their fair value as follows, as at December 31, 2013:
Impact on EBT
Gain (loss)
Aircraft loans and
lease receivables
Investment in
financing structures
Lease subsidies
n/a: Not applicable
Change in fair value recognized
in EBT for fiscal year 2013
Change of assumptions
Decrease in
aircraft
residual value
curves
by 5%
Downgrade the
internally
assigned credit
rating of unrated
customers by 1
notch
Increase the
marketability
adjustments
by 100 bps
$
$
$
(29)
$
$
(8)
(13)
(5)
$
(9)
n/a
$
$
(13)
$
$
(9)
3
(20)
(10)
n/a
Fair value hierarchy for items recorded at amortized cost
The following tables present financial assets and financial liabilities measured at amortized cost on a non-
recurring basis categorized using the fair value hierarchy as follows:
(cid:120) quoted prices (unadjusted) in active markets for identical assets or liabilities (Level 1);
(cid:120)
inputs from observable markets other than quoted prices included in Level 1, including indirectly observable
data (Level 2); and
inputs for the asset or liability that are not based on observable market data (Level 3).
(cid:120)
174 BOMBARDIER INC. FINANCIAL REPORT – FISCAL YEAR ENDED DECEMBER 31, 2013
The fair value of financial assets and liabilities by level of hierarchy was as follows, as at December 31, 2013:
Financial assets
Trade and other receivables
Other financial assets
Investments in financing structures
Other
Financial liabilities
Trade and other payables
Long-term debt
Other financial liabilities
Government refundable advances
Other
Total
Level 1
Level 2
Level 3
$
1,492
$
44
379
$
1,915
$
(4,089)
(7,346)
(628)
(475)
$ (12,538)
$
$
$
-
-
-
-
-
-
-
-
-
$
$
-
-
-
-
$
1,492
44
379
1,915
$
$
-
(7,346)
$ (4,089)
-
-
-
$ (7,346)
(628)
(475)
$ (5,192)
36.
INVESTMENTS IN JOINT VENTURES AND ASSOCIATES
In the normal course of business, the Corporation carries out a portion of its businesses through joint ventures
and associates, mainly in BT, none of which are individually material.
The Corporation’s aggregate pro rata shares of net income of joint ventures and associates, were as follows, for
fiscal years:
Joint ventures
Associates
Net income
2013
91
28
119
$
$
2012
108
45
153
$
$
The carrying values of investments in joint ventures and associates, were as follows, as at:
Joint ventures
Associates
December 31, 2013
$
302
16
318
$
December 31, 2012
249
$
62
311
$
$
January 1, 2012
242
33
275
$
The Corporation has pledged shares in associates, with a carrying value of $12 million as at December 31, 2013
($60 million as at December 31, 2012 and $30 million as at January 1, 2012).
BOMBARDIER INC. FINANCIAL REPORT – FISCAL YEAR ENDED DECEMBER 31, 2013 – NOTES 175
37.
TRANSACTIONS WITH RELATED PARTIES
The Corporation’s related parties are its joint ventures, associates and key management personnel.
Joint ventures and associates
The Corporation buys and sells products and services on arm’s length terms with some of its joint ventures and
associates in the ordinary course of business. The following table presents the portion of these transactions that
is attributable to the interests of the other venturers, and transaction with associates, for fiscal years:
Sales of products and services, and
other income
Purchase of products and services, and
other expenses
Joint ventures Associates
2013
2012
Joint ventures Associates
$
$
161 $
41 $
33
49
$
$
161 $
13 $
36
41
The following table presents the Corporation’s outstanding balances with joint ventures and associates, as at:
Receivables
Payables
December 31, 2013
Joint ventures Associates
$
$
62 $
14 $
1
10
December 31, 2012
Joint ventures Associates
26
28
147 $
8 $
$
$
January 1, 2012
Joint ventures Associates
27
2
122 $
2 $
$
$
Compensation paid to key management personnel
The annual remuneration and related compensation costs of the executive and non-executive board members
and key Corporate management, defined as the President and Chief Executive Officer of Bombardier Inc., the
Presidents and Chief Operating Officers of BA and BT, and the Senior Vice Presidents of Bombardier Inc., were
as follows, for fiscal years:
Share-based benefits
Salaries, bonuses and other short-term benefits
Retirement benefits
Other long-term benefits
2013
13
13
5
2
33
$
$
$
2012
12
9
4
1
$
26
176 BOMBARDIER INC. FINANCIAL REPORT – FISCAL YEAR ENDED DECEMBER 31, 2013
38. UNCONSOLIDATED STRUCTURED ENTITIES
The following table presents the assets and liabilities of unconsolidated structured entities in which the
Corporation had a significant exposure, as at:
December 31, 2013
December 31, 2012
Assets
Liabilities
Assets
Liabilities
January 1, 2012
Liabilities
Assets
Financing structures related to
the sale of commercial aircraft
$
7,965
$
5,452
$
8,881
$
6,294
$
9,626
$
6,974
The Corporation has provided credit and/or residual value guarantees to certain structured entities created solely
to provide financing related to the sale of commercial aircraft.
Typically, these structured entities are financed by third-party long-term debt and by third-party equity investors
who benefit from tax incentives. The aircraft serve as collateral for the structured entities long-term debt. The
Corporation retains certain interests in the form of credit and residual value guarantees, subordinated debt and
residual interests. Residual value guarantees typically cover a percentage of the first loss from a guaranteed
value upon the sale of the underlying aircraft. The Corporation also provides administrative services to certain of
these structured entities in return for a market fee.
The Corporation’s maximum potential exposure was $1.8 billion, of which $291 million was recorded as provisions
and related liabilities as at December 31, 2013 ($1.9 billion and $352 million, respectively, as at December 31,
2012 and $1.9 billion and $383 million, respectively, as at January 1, 2012). The Corporation’s maximum
exposure under these guarantees is included in Note 39 – Commitments and contingencies.
The Corporation concluded that it did not control these structured entities.
BOMBARDIER INC. FINANCIAL REPORT – FISCAL YEAR ENDED DECEMBER 31, 2013 – NOTES 177
2,108
1,389
(771)
2,726
1,619
457
1,828
1,297
(639)
2,486
3,416
472
1,812
1,218
(594)
2,436
3,098
489
39. COMMITMENTS AND CONTINGENCIES
The Corporation enters into various sale support arrangements, including credit and residual value guarantees
and financing rate commitments, mostly provided in connection with sales of commercial aircraft and related
financing commitments. The Corporation is also subject to other off-balance sheet risks described in the following
table. These off-balance sheet risks are in addition to the commitments and contingencies described elsewhere in
these consolidated financial statements. Some of these off-balance sheet risks are also included in Note 38 –
Unconsolidated structured entities. The maximum potential exposure does not reflect payments expected to be
made by the Corporation.
The table below presents the maximum potential exposure for each major group of exposure, as at:
December 31, 2013 December 31, 2012
January 1, 2012
Aircraft sales
Residual value (a)
$
$
$
Credit (a)
Mutually exclusive exposure(1)
Total credit and residual value exposure
Trade-in commitments (b)
Conditional repurchase obligations (c)
Other(2)
Credit and residual value (d)
Performance guarantees (e)
(1) Some of the residual value guarantees can only be exercised once the credit guarantees have expired without exercise. Therefore, the
47
41
48
43
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
156
36
guarantees must not be added together to calculate the combined maximum exposure for the Corporation.
(2) The Corporation has also provided other guarantees (see section f) below).
The Corporation’s maximum exposure in connection with credit and residual value guarantees related to the sale
of aircraft represents the face value of the guarantees before giving effect to the net benefit expected from the
estimated value of the aircraft and other assets available to mitigate the Corporation’s exposure under these
guarantees. Provisions for anticipated losses amounting to $463 million as at December 31, 2013 ($483 million as
at December 31, 2012 and $588 million as at January 1, 2012) have been established to cover the risks from
these guarantees after considering the effect of the estimated resale value of the aircraft, which is based on
information obtained from external appraisals and reflect specific factors of the current aircraft market and a
balance market in the medium and long-term, and the anticipated proceeds from other assets covering such
exposures. In addition, lease subsidies, which would be extinguished in the event of credit default by certain
customers, amounted to $142 million as at December 31, 2013 ($158 million as at December 31, 2012 and
$140 million as at January 1, 2012). The provisions for anticipated losses are expected to cover the Corporation’s
total credit and residual value exposure, after taking into account the anticipated proceeds from the sales of
underlying aircraft and the extinguishment of certain lease subsidies obligations.
Aircraft sales
a) Credit and residual value guarantees – The Corporation has provided credit guarantees in the form of lease
and loan payment guarantees, as well as services related to the remarketing of aircraft. These guarantees, which
are mainly issued for the benefit of providers of financing to customers, mature in different periods up to 2025.
Substantially all financial support involving potential credit risk lies with regional airline customers. The credit risk
relating to three regional airline customers accounted for 70% of the total maximum credit risk as at December 31,
2013 (67% as at December 31, 2012 and 66% as at January 1, 2012).
In addition, the Corporation may provide a guarantee for the residual value of aircraft at an agreed-upon date,
generally at the expiry date of related financing and lease arrangements. The arrangements generally include
operating restrictions such as maximum usage and minimum maintenance requirements. The guarantee provides
for a contractually limited payment to the guaranteed party, which is typically a percentage of the first loss from a
guaranteed value. In most circumstances, a claim under such guarantees may be made only upon resale of the
underlying aircraft to a third party.
178 BOMBARDIER INC. FINANCIAL REPORT – FISCAL YEAR ENDED DECEMBER 31, 2013
The following table summarizes the outstanding residual value guarantees, at the earliest exercisable date, and
the period in which they can be exercised, as at:
Less than 1 year
From 1 to 5 years
From 5 to 10 years
From 10 to 15 years
$
December 31, 2013 December 31, 2012
64
41
860
850
872
855
32
66
$
January 1, 2012
$
59
840
1,094
115
$
1,828
$
1,812
$
2,108
b) Trade-in commitments – In connection with the signing of firm orders for the sale of new aircraft, the
Corporation enters into specified-price trade-in commitments with certain customers. These commitments give
customers the right to trade-in their pre-owned aircraft as partial payment for the new aircraft purchased.
The Corporation’s trade-in commitments were as follows, as at:
Less than 1 year
From 1 to 3 years
Thereafter
December 31, 2013 December 31, 2012
865
869
1,364
1,452
355
1,609
$
$
January 1, 2012
$
694
330
595
$
3,416
$
3,098
$
1,619
c) Conditional repurchase obligations – In connection with the sale of new aircraft, the Corporation enters into
conditional repurchase obligations with certain customers. Under these obligations, the Corporation agrees to
repurchase the initial aircraft at predetermined prices, during predetermined periods or at predetermined dates,
conditional upon mutually acceptable agreement for the sale of a new aircraft. At the time the Corporation enters
into an agreement for the sale of a subsequent aircraft and the customer exercises its right to partially pay for the
subsequent aircraft by trading-in the initial aircraft to the Corporation, a conditional repurchase obligation is
accounted for as a trade-in commitment.
The Corporation’s conditional repurchase obligations, as at the earliest exercise date, were as follows, as at:
Less than 1 year
From 1 to 3 years
Thereafter
Other guarantees
December 31, 2013 December 31, 2012
378
248
94
232
-
9
$
$
$
472
$
489
January 1, 2012
$
$
348
35
74
457
d) Credit and residual value guarantees – In connection with the sale of certain transportation rail equipment,
the Corporation has provided a credit guarantee of lease payments amounting to $48 million as at December 31,
2013 ($47 million as at December 31, 2012 and as at January 1, 2012). This guarantee matures in 2025. In
addition, the Corporation has provided residual value guarantees at the expiry date of certain financing and other
agreements for BT, amounting to $109 million as at January 1, 2012. These guarantees expired in 2012.
e) Performance guarantees – In certain projects carried out through consortia or other partnership vehicles in
BT, partners may be jointly and severally liable to the customer for a default by the other partners. In such cases
partners would normally provide counter indemnities to each other. These obligations and guarantees typically
extend until final product acceptance by the customer and in some cases to the warranty period.
BOMBARDIER INC. FINANCIAL REPORT – FISCAL YEAR ENDED DECEMBER 31, 2013 – NOTES 179
The Corporation’s maximum net exposure to projects for which the exposure of the Corporation is capped,
amounted to $43 million as at December 31, 2013 ($41 million as at December 31, 2012 and $36 million as at
January 1, 2012), assuming all counter indemnities are fully honoured. For projects where the Corporation’s
exposure is not capped, such exposure has been determined in relation to the Corporation’s partners’ share of
the total contract value. Under this methodology, the Corporation’s net exposure is not significant, assuming all
counter indemnities are fully honoured. Such joint and several obligations and guarantees have been rarely called
upon in the past.
f) Other – In the normal course of its business, the Corporation has entered into agreements that include
indemnities in favour of third parties, mostly tax indemnities. These agreements generally do not contain specified
limits on the Corporation’s liability and therefore, it is not possible to estimate the Corporation’s maximum liability
under these indemnities.
Operating leases
The Corporation leases buildings and equipment and assumes aircraft operating lease obligations in connection
with the sale of new aircraft. Future minimum lease payments, mostly related to buildings and equipment, under
non-cancellable operating leases are due as follows, as at:
Within 1 year
Between 1 and 5 years
More than 5 years
$
December 31, 2013 December 31, 2012
130
247
266
643
161
413
504
1,078
$
$
$
$
January 1, 2012
100
214
269
583
$
Rent expense was $174 million for fiscal year 2013 ($141 million for fiscal year 2012).
Other commitments
The Corporation also has purchase obligations, under various agreements, made in the normal course of
business. The purchase obligations are as follows, as at:
Within 1 year
Between 1 and 5 years
More than 5 years
December 31, 2013 December 31, 2012
7,062
3,943
361
8,026
3,667
207
$
$
January 1, 2012
$
5,669
3,912
464
$ 11,900
$ 11,366
$ 10,045
The purchase obligations of the Corporation include capital commitments for the purchase of PP&E and intangible
assets amounting to $331 million and $435 million, respectively, as at December 31, 2013 ($292 million and
$356 million as at December 31, 2012 and $195 million and $50 million as at January 1, 2012).
Litigation
In the normal course of operations, the Corporation is a defendant in certain legal proceedings currently pending
before various courts in relation to product liability and contract disputes with customers and other third parties.
The Corporation intends to vigorously defend its position in these matters.
While the Corporation cannot predict the final outcome of legal proceedings pending as at December 31, 2013,
based on information currently available, management believes that the resolution of these legal proceedings will
not have a material adverse effect on its financial position.
180 BOMBARDIER INC. FINANCIAL REPORT – FISCAL YEAR ENDED DECEMBER 31, 2013
S-Bahn claim
On March 4, 2013, S-Bahn Berlin GMBH (“SB”) filed a claim against Bombardier Transportation GmbH, a wholly
owned subsidiary of the Corporation, in the Berlin District Court (“Landgericht Berlin”), concerning the trains of the
481 Series delivered to SB between 1996 and 2004.
This lawsuit alleges damages of an aggregate value of €348 million ($480 million) related to allegedly defective
wheels and braking systems. The claim is for payment of €241 million ($332 million) and also for a declaratory
judgment obliging the Corporation to compensate SB for further damages. SB currently alleges such further
damages to be €107 million ($148 million).
It is the Corporation’s position that this claim i) is filed in absence of any defect, ii) is not founded on any
enforceable warranty, iii) is filed after the expiry of any statute of limitations and iv) is based on inapplicable
standards. The lawsuit contains allegations against the Corporation which the Corporation rejects as unfounded
and defamatory.
The Corporation intends to vigorously defend its position and will undertake all actions necessary to protect its
reputation. While the Corporation cannot predict the final outcome of this claim pending as at December 31, 2013,
based on information currently available, management believes the resolution of this claim will not have a material
adverse effect on its financial position.
Investigation in Brazil
Government authorities in Brazil, including the Administrative Council for Economic Protection (“CADE”), and the
São Paulo Public Prosecutor's office, are investigating allegations of cartel activity relating to the public
procurement of railway equipment and the construction and maintenance of railway lines in São Paulo and other
areas.
On July 4, 2013, the General Superintendents of CADE conducted inspections at the headquarters of 13
companies located in Brasilia and São Paulo, including Bombardier Transportation Brasil Ltda, a wholly owned
subsidiary of the Corporation. The investigation is still at a preliminary stage. Companies found to have engaged
in unlawful cartel conduct are subject to administrative fines, state actions for repayment of overcharges and
potentially disbarment for a certain period. The Corporation is cooperating with these investigations and intends to
defend itself vigorously.
40. RECLASSIFICATION
Certain comparative figures have been reclassified to conform to the presentation adopted in the current period,
mainly a reclassification from other assets to investments in joint ventures and associates and from provisions to
other financial assets. See Note 3 – Changes in accounting policies and methods for more details.
BOMBARDIER INC. FINANCIAL REPORT – FISCAL YEAR ENDED DECEMBER 31, 2013 – NOTES 181
INVESTOR INFORMATION
Our performance at a glance
REVENUES AND EBIT MARGIN(1)(2)
(for fiscal years ended; in billions of dollars)
ORDER BACKLOG(2)(3)
(as at; in billions of dollars)
Revenues
EBIT margin
Transportation
Aerospace
Canadian GAAP
IFRS
7.2%
6.8%
6.5%
5.2%
5.7%
4.9% 4.9%
3.9%
3.0%
1.5%
Canadian GAAP
IFRS
53.6
22.7
48.2
43.8
23.5
16.7
51.9
53.9
20.4
23.9
40.7
13.2
69.7
64.9
32.9
37.3
27.5
30.9
24.7
27.1
31.5
30.1
32.0
32.4
31.5
31.6
10.2
10.7
21.3
20.9
15.6
14.8
14.9
17.5
19.7
19.4
17.5
17.9
16.4
18.2
Jan. 31
2005
Jan. 31
2006
Jan. 31
2007
Jan. 31
2008
Jan. 31
2009
Jan. 31
2010
Jan. 31
2011
Dec. 31
2011*
Dec. 31
2012
Dec. 31
2013
Jan. 31
2005
Jan. 31
2006
Jan. 31
2007
Jan. 31
2008
Jan. 31
2009
Jan. 31
2010
Jan. 31
2011
Dec. 31
2011
Dec. 31
2012
Dec. 31
2013
(1) EBIT margins before special items. Refer to Non-GAAP financial measures section in the MD&A for a definition of this measure.
(2) Comparative figures have been restated for changes in accounting policies and methods for January 31, 2011, December 31, 2011 and
December 31, 2012.
(3) Some totals do not agree due to rounding.
*
The fiscal year ended December 31, 2011 comprises 11 months of BA’s results and 12 months of BT’s results.
GEOGRAPHIC SEGMENTATION OF REVENUES
(for fiscal year 2013)
GEOGRAPHIC SEGMENTATION OF EMPLOYEES
(as at December 31, 2013, including contractual and inactive
employees)
Asia-Pacific
11%
7%
Canada
31%
United States
Other
7%
Canada
35%
United States
11%
Other
7%
$18.2 billion
76,400 employees
44%
Europe
4%
Asia-Pacific
43%
Europe
STOCK EXCHANGE LISTINGS
Class A and Class B shares
Preferred shares, Series 2,
Series 3 and Series 4
Stock listing ticker
Toronto (Canada)
Toronto (Canada)
BBD (Toronto)
FISCAL YEAR 2014 FINANCIAL RESULTS
First quarterly report
Second quarterly report
Third quarterly report
Financial report, 2014 year-end
May 1, 2014
July 31, 2014
October 30, 2014
February 12, 2015
182 BOMBARDIER INC. FINANCIAL REPORT – FISCAL YEAR ENDED DECEMBER 31, 2013
DIVIDENDS PER SHARE DECLARED IN 2013 ON AN ANNUAL BASIS
Dividends declared in 2013
(in Canadian dollars)
Yields(1)
Class A
Class B
Series 2
Series 3
Series 4
Preferred Shares
$
0.10
2.2%
$
0.10
2.2%
$
0.75
5.4%
$
0.78
5.8%
$
1.56
7.0%
(1) Based on dividends declared in 2013 and share prices as at December 31, 2013.
COMMON DIVIDEND PAYMENT DATES
Payment subject to approval by the Board of Directors
Class A
Record date
2014-03-14
2014-06-13
2014-09-12
2014-12-12
Payment date
2014-03-31
2014-06-30
2014-09-30
2014-12-31
Class B
Record date
2014-03-14
2014-06-13
2014-09-12
2014-12-12
Payment date
2014-03-31
2014-06-30
2014-09-30
2014-12-31
PREFERRED DIVIDEND PAYMENT DATES
Payment subject to approval by the Board of Directors
Series 2
Record date
2013-12-31
2014-01-31
2014-02-28
2014-03-31
2014-04-30
2014-05-30
Payment date
2014-01-15
2014-02-15
2014-03-15
2014-04-15
2014-05-15
2014-06-15
Record date
2014-06-30
2014-07-31
2014-08-29
2014-09-30
2014-10-31
2014-11-28
Payment date
2014-07-15
2014-08-15
2014-09-15
2014-10-15
2014-11-15
2014-12-15
PREFERRED DIVIDEND PAYMENT DATES
Payment subject to approval by the Board of Directors
Series 3
Record date
2014-01-17
2014-04-11
2014-07-11
2014-10-17
Payment date
2014-01-31
2014-04-30
2014-07-31
2014-10-31
Series 4
Record date
2014-01-17
2014-04-11
2014-07-11
2014-10-17
Payment date
2014-01-31
2014-04-30
2014-07-31
2014-10-31
Please note that unless stated otherwise, all dividends paid by Bombardier since January 2006 on all of its
common and preferred shares are considered “eligible dividends” as per the Canadian Income Tax Act and any
corresponding provincial or territorial legislation. The same designation applies under the Quebec Taxation Act for
dividends declared after March 23, 2006.
BOMBARDIER INC. FINANCIAL REPORT – FISCAL YEAR ENDED DECEMBER 31, 2013 – INVESTOR INFORMATION 183
TRANSFER AGENT AND REGISTRAR
Shareholders with inquiries
concerning their shares should
contact:
Computershare Investor Services Inc.
100 University Avenue, 8th Floor
Toronto, Ontario
Canada M5J 2Y1
or
1500 University Street, Suite 700
Montréal, Québec
Canada H3A 3S8
Tel.: +1 514 982 7555 or +1 800 564 6253
(toll-free, North America only)
Fax: +1 416 263 9394 or +1 888 453 0330
(toll-free, North America only)
Email: service@computershare.com
AUDITORS
Ernst & Young LLP
800 René-Lévesque Blvd. West
Montréal, Québec
Canada H3B 1X9
ANNUAL MEETING
The annual meeting of shareholders will be held on
Thursday, May 1, 2014, at 9:30 a.m. at the
following address:
Montréal Science Centre
Perspective 235° Room
2, de la Commune Street West
Montréal, Québec, Canada H2Y 4B2
SHAREHOLDERS
If you wish to obtain a copy of this Financial Report,
or other corporate documents, we encourage you
to download them from our website at
www.bombardier.com, which provides practical,
timely and environmentally friendly access. You
can, however, order paper copies from our website
or by contacting:
Bombardier Inc. Public Affairs
800 René-Lévesque Blvd. West
Montréal, Québec
Canada H3B 1Y8
Tel.: +1 514 861 9481, extension 13390
Fax: +1 514 861 2420
INVESTORS
Bombardier Inc., Investor Relations
800 René-Lévesque Blvd. West
Montréal, Québec
Canada H3B 1Y8
Tel.: +1 514 861 9481, extension 13273
Fax: +1 514 861 2420
Email: investors@bombardier.com
INCORPORATION
The Corporation was incorporated on June 19,
1902, by letters patent and prorogated June 23,
1978, under the Canadian Business Corporations
Act.
DUPLICATION
Although Bombardier strives to ensure that
registered shareholders receive only one copy of
corporate documents, duplication is unavoidable if
securities are registered under different names and
addresses. If this is the case, please call
Computershare Investor Services at one of the
following numbers: +1 514 982 7555 or +1 800 564
6253 (toll-free, North America only) or send an
email to service@computershare.com.
ONLINE INFORMATION
Investor Relations
Financial Report, Quarterly reports, and
Management proxy circular
Profile, Strategy and Market
Corporate Social Responsibility
Dividends and other share information
ir.bombardier.com
ir.bombardier.com/en/financial-reports
ir.bombardier.com/en/profile
csr.bombardier.com
ir.bombardier.com/en/share-information
184 BOMBARDIER INC. FINANCIAL REPORT – FISCAL YEAR ENDED DECEMBER 31, 2013
The CSeries family of aircraft, Learjet 85 aircraft and Global 7000 and Global 8000 aircraft programs are currently in
development, and as such are subject to changes in family strategy, branding, capacity, performance, design and/or
systems. All specifications and data are approximate, may change without notice and are subject to certain operating
rules, assumptions and other conditions. This document does not constitute an offer, commitment, representation,
guarantee or warranty of any kind.
Bombardier, Challenger, Challenger 300, Challenger 350, Challenger 605, Challenger 800, CRJ, CRJ700, CRJ900,
CRJ1000, CSeries, CS100, CS300, ELECTROSTAR, FLEXITY, Global, Global 5000, Global 6000, Global 7000, Global 8000,
Global Express, INNOVIA, INTERFLO, Learjet, Learjet 40, Learjet 45, Learjet 60, Learjet 70, Learjet 75, Learjet 85, MOVIA,
NextGen, Q400, Q-Series, Smart Parts, Smart Parts Preferred, Smart Services, TALENT, The Evolution of Mobility, TRAXX,
TWINDEXX, XR and ZEFIRO are trademarks of Bombardier Inc. or its subsidiaries.
Reproduced with permission of Yahoo! Inc. © 2014 Yahoo! Inc. The Flickr logo is a registered trademark of Yahoo! Inc.
The printed version of this annual report uses paper containing 30% post-consumer fibres, certified EcoLogo and processed
chlorine free. Using this paper, instead of virgin paper, saves:
67
mature trees,
equivalent to the area
of 4 tennis courts
3,009 kg
of waste, or the
contents of
61 garbage cans
27,559 kg
of CO2, equivalent to
245,477 litres
of water, equal to one
the annual emissions
person’s consumption
of 9 cars
of water in 701 days
Data issued by the paper manufacturer.
FSC® is not responsible for calculating
resources saved when using this paper.
Printed in Canada
ISBN: 978-2-923797-25-0
Legal deposit, Bibliothèque et
Archives nationales du Québec
All rights reserved.
© 2014 Bombardier Inc. or its subsidiaries.