Our story began 75 years ago and it is deeply rooted in ingenuity, audacity and vision. We are the world’s leading
manufacturer of both planes and trains, operating under four reportable segments: Business Aircraft, Commercial
Aircraft, Aerostructures and Engineering Services and Transportation. We are providing efficient, sustainable and
enjoyable transportation solutions. Our products, services, and most of all, our 69,500 dedicated and highly
skilled employees are what makes us a global leader in mobility and innovation. As at the date of this report, we
have 73 production and engineering sites in 28 countries and a worldwide network of service centers.
BUSINESS AIRCRAFT
Designs, develops, manufactures, markets
and provides aftermarket support for three
class-leading families of business jets -
Learjet, Challenger and Global.
COMMERCIAL AIRCRAFT
Designs and manufactures a broad portfolio
of commercial aircraft in the 60- to 150-seat
market segments, including the Q400
turboprop, the CRJ700, CRJ900 and
CRJ1000 regional jets as well as the
C Series single-aisle commercial jet- the
only aircraft optimized for the 100- to 150-
seat market segment. Commercial Aircraft
provides aftermarket services for these
aircraft as well as for the 20- to 59-seat
segment.
AEROSTRUCTURES AND
ENGINEERING SERVICES
Designs and manufactures complex metallic
and advanced composite aircraft structural
components for original equipment
manufacturers, including fuselages, wings
and engine nacelles. It also provides
aftermarket component repair and overhaul,
as well as other engineering services for
both internal and external clients.
TRANSPORTATION
Offers an end to end portfolio of high
performing and innovative solutions in the
rail industry. Covers the full spectrum of rail
solutions, ranging from global mobility
solutions to a variety of trains and sub-
systems, services, system integration and
signalling to suit the needs of the market.
Revenues(1)
$5.0 billion
Order backlog(2)
$14.0 billion
Employees(3)
10,200
Revenues(1)
$2.4 billion
Order backlog,
in units(2)
433
Employees(3)
5,125
Revenues(1)
$1.6 billion
External order
backlog(2)
$87 million
Employees(3)
10,025
Revenues(1)
$8.5 billion
Order backlog(2)
$34.4billion
Employees(3)
39,850
All amounts in this financial report are in US dollars unless otherwise indicated.
(1) For fiscal year 2017. (2) As at December 31, 2017. (3) As at December 31, 2017, including contractual and inactive employees. Some 4,300
Product Development Engineering, Corporate office and other employees are not allocated to a reportable segment.
EXECUTING ON PLAN, FOCUSED ON UNLEASHING VALUE
As Bombardier approaches the midpoint of its turnaround plan, we are focused on unlocking the
value of our past investments and restructuring actions to drive growth and create sustainable
value for our shareholders, customers and employees. We enter 2018 fully committed to
achieving the goals we established in 2015, and our strong performance last year clearly
demonstrates that we are on the right path.
Dear Shareholders,
Over the past year, we made great progress
executing our turnaround plan. Our operational
transformation is in full motion; our growth
programs and initiatives are on track; our
investment cycle is coming to an end; and the
proactive and strategic actions we have taken
demonstrate our ability to perform through
adversity and in challenging markets.
I am incredibly proud of what the Bombardier
team accomplished in 2017 and very excited
about the remarkable opportunities ahead of us.
As we near the midpoint of our turnaround plan,
we have established a very strong foundation for
future growth and have a clear path forward to
achieving our 2020 goals and fully unlocking the
value of the Bombardier portfolio.
From a financial performance perspective, we
delivered high quality results in 2017, exceeding
our commitments. Year-over-year earnings,
before special items(1), grew by 57%. We grew
margins to above 8% in our rail, Business
Aircraft and Aerostructures business units. And,
we surpassed our free cash flow(1) guidance by
more than $200 million. This solid performance
demonstrates the early benefits of our
transformation initiatives and positions us well to
achieve break-even free cash flow this year, a
key objective of our turnaround plan.
There were many other notable achievements
across Bombardier in 2017, including our
strategic partnership with Airbus on the C Series
aircraft program. Once finalized, this partnership
is expected to more than double the value of the
program. The global scale, strong customer
relationships and operational expertise Airbus
brings to the partnership are key ingredients for
unleashing the full value of the C Series
program and ensuring that our remarkable
aircraft realizes its full potential. Customer
response to the partnership has been
overwhelmingly positive. Integration planning is
going extremely well and we anticipate closing
later this year subject to regulatory approvals
and other closing conditions.(2)
Beyond the C Series partnership, we see
tremendous value creation opportunities across
our portfolio. We have strong franchises that are
well positioned in growth markets. Our global rail
business is poised for growth with a more
efficient and optimized footprint, a $34 billion
backlog and a world-class portfolio of rolling
stock, signalling and services solutions. In 2017,
Transportation grew the size and quality of its
backlog for the fourth consecutive year and is
just beginning a strong delivery cycle that should
drive additional revenue and margin growth well
into the future.(2)
We have one of the best business aircraft
franchises in the world, which will become even
stronger when the all-new, class-defining
Global 7000 aircraft enters service later this
year. Flight testing of the Global 7000 is
proceeding exceptionally well, with all five flight
test vehicles in operation surpassing 1,500 flight
hours. With a strong backlog and increasing
customer interest, the Global 7000 will be a
significant growth driver for Bombardier in the
years ahead. A renewed focus on aftermarket,
as well as improvements in cost and efficiency,
position our Business Aircraft segment for
additional growth and margin expansion as the
business jet market recovers.(2)
The benefits of our operational transformation
can also be seen in strong margin expansion at
our Aerostructures and Engineering business, as
it supported the ramp-up of the C Series and
Global 7000 programs. In addition to these
growth programs, our world-class research,
design and manufacturing capabilities position
(1) EBIT margin before special items and free cash flow are Non-GAAP measures. Refer to the Non-GAAP measures section for
definitions of these metrics.
(2) Refer to the Guidance and forward-looking statements section in Overview for the forward-looking disclaimer and to the
assumptions related to the forward-looking statements. Profitability guidance is based on EBIT margin before special items.
BOMBARDIER INC. / 2017 FINANCIAL REPORT 1
us to capture additional growth opportunities in a
strong commercial aerospace market, as
demonstrated by the Airbus nacelle component
award announced last year.(1)
In closing, 2017 was a year of great progress,
delivered with a complete commitment to the
highest ethical, environmental and safety
standards. Of course, this progress would not
have been possible without the dedication and
hard work of our 69,500 employees around the
world who have demonstrated exceptional talent
in making our vision possible. On behalf of all
our shareholders, I thank our employees for their
many contributions, for embracing change and
for making Bombardier a truly amazing
company.
I also want to thank our customers for the trust
and confidence they continue to place in
Bombardier. We clearly recognize that our
customers have choices and how we perform
determines whether they will continue to choose
us in the future. We will never take this for
granted and remain committed to finding better,
faster and more efficient ways to deliver value
and to support their success in 2018 and
beyond.
As we approach the midpoint of our five-year
plan, we reaffirm with increased confidence our
ability to accelerate shareholder value creation
and deliver on our 2020 goals. These goals
include growing revenues by $4 billion, to
greater than $20 billion; reaching EBIT margin
above 8%; and generating sustainable free cash
flow between $750 million and $1 billion a year
by 2020.(1)
While we take great pride in having successfully
executed the first half of our turnaround plan, we
recognize that there is still much more work
ahead of us to achieve our financial goals. We
fully understand that we need to continue to
reduce costs, fully engage our employees,
further leverage our scale, meet our program
milestones and seize all growth opportunities.
Simply put, we need to continue to execute our
turnaround plan and meet our customer
commitments.
Our strong performance over the past two years,
gives us confidence that we have the right team
and the right strategy to successfully complete
our turnaround. We are equally confident in our
ability to realize our long-term vision for
Bombardier: to build the most advanced planes
and trains in the world; to create unmatched
value for our customers; to be the market leader
in each of our business segments; and to deliver
superior value to our shareholders in any market
environment.
The entire Bombardier team remains very
excited about the opportunities ahead of us and
fully committed to the goals of our turnaround
plan and to unleashing the full value of the
Bombardier portfolio.
Alain Bellemare
President and Chief Executive Officer
(1) Refer to the Guidance and forward-looking statements section in Overview for the forward-looking statements disclaimer and to
the assumptions related to the forward-looking statements. Profitability guidance is based on EBIT margin before special items.
EBIT margin before special items and free cash flow are Non-GAAP measures. Refer to the Non-GAAP measures section for
definitions of these metrics.
2 BOMBARDIER INC. FINANCIAL REPORT - FISCAL YEAR ENDED DECEMBER 31, 2017
BOMBARDIER INC.
MANAGEMENT’S DISCUSSION
AND ANALYSIS
For the fiscal year ended
December 31, 2017
Table of Contents
OVERVIEW
BUSINESS
AIRCRAFT
COMMERCIAL
AIRCRAFT
AEROSTRUCTURES
AND ENGINEERING
SERVICES
TRANSPORTATION
OTHER
5
44
58
77
85
104
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” or “Bombardier”). 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 and financial statements for issuance to shareholders.
The data presented in this MD&A is structured by reportable segment: Business Aircraft, Commercial Aircraft, Aerostructures
and Engineering Services and Transportation.
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 each reportable segment's Analysis of results section).
Materiality for disclosures
We determine whether 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.
The Financial Report for fiscal year 2017 comprises the message from our President and Chief Executive Officer to
shareholders, this MD&A and our consolidated financial statements.
BOMBARDIER INC. / 2017 FINANCIAL REPORT 3
The following table shows the abbreviations used in the MD&A and the consolidated financial statements.
Description
Term
Description
Term
AFS
BPS
Available for sale
Basis points
BT
Holdco
Bombardier Transportation (Investment) UK
Limited
CAGR
Compound annual growth rate
CCTD
Cumulative currency translation difference
CDPQ
Caisse de dépôt et placement du Québec
CGU
Cash generating unit
CIS
Commonwealth of Independent States
CSALP
C Series Aircraft Limited Partnership
DB
DC
Defined benefit
Defined contribution
FVTP&L
Fair value through profit and loss
GAAP
Generally accepted accounting principles
GDP
HFT
IAS
IASB
IFRIC
IFRS
Libor
L&R
Gross domestic product
Held for trading
International Accounting Standard(s)
International Accounting Standards Board
International Financial Reporting Interpretation
Committee
International Financial Reporting Standard(s)
London Interbank Offered Rate
Loans and receivables
MD&A
Management’s discussion and analysis
DDHR
Derivative designated in a hedge relationship
DSU
Deferred share unit
EBIT
Earnings (loss) before financing expense, financing
income and income taxes
EBITDA
Earnings (loss) before financing expense, financing
income, income taxes, amortization and impairment
charges on PP&E and intangible assets
EBT
EIS
EPS
Earnings (loss) before income taxes
Entry-into-service
Earnings (loss) per share attributable to equity
holders of Bombardier Inc.
Euribor
Euro Interbank Offered Rate
FTV
Flight test vehicle
NCI
NMF
OCI
Non-controlling interests
Information not meaningful
Other comprehensive income (loss)
PP&E
Property, plant and equipment
PSG
PSU
R&D
RSU
RVG
Performance security guarantee
Performance share unit
Research and development
Restricted share unit
Residual value guarantee
SG&A
Selling, general and administrative
U.K.
U.S.
United Kingdom
United States of America
4 BOMBARDIER INC. FINANCIAL REPORT - FISCAL YEAR ENDED DECEMBER 31, 2017
OVERVIEW
Table of Contents
HIGHLIGHTS
OF THE YEAR
KEY
PERFORMANCE
MEASURES AND
METRICS
STRATEGIC
PRIORITIES
GUIDANCE AND
FORWARD-
LOOKING
STATEMENTS
CONSOLIDATED
RESULTS OF
OPERATIONS
CONSOLIDATED
FINANCIAL
POSITION
6
9
10
14
17
22
LIQUIDITY AND
CAPITAL
RESOURCES
CAPITAL
STRUCTURE
RETIREMENT
BENEFITS
RISK
MANAGEMENT
NON-GAAP
FINANCIAL
MEASURES
23
29
30
35
40
BOMBARDIER INC. / 2017 FINANCIAL REPORT / OVERVIEW 5
HIGHLIGHTS OF THE YEAR
EXECUTING ON PLAN, FOCUSED ON UNLEASHING VALUE
Original 2017
guidance
Latest 2017
guidance
What we did in
2017
What’s next for
2018(1)(2)
Revenues
Excluding currency
impacts, revenues in
2017 are expected to
be higher than in
2016, with percentage
growth in the low-
single digits.
~ $16.3 billion
$16.2 billion
EBITDA before special items
n/a
n/a
$1.0 billion
$17.0-$17.5
billion
$1.15-$1.25
billion
EBIT before special items
$530-$630 million
$672 million
$800-$900 million
Free cash flow
$750 million-$1.0
billion usage
~ $1.0 billion
usage
$786 million
usage
Breakeven
± $150 million
For the fiscal years ended December 31
2017
2016
Variance
RESULTS
Revenues
EBIT
EBIT margin
EBIT before special items(2)
EBIT margin before special items(2)
EBITDA before special items(2)
EBITDA margin before special items(2)
Net loss
Diluted EPS (in dollars)
Adjusted net income (loss)(2)
Adjusted EPS (in dollars)(2)
Net additions to PP&E and intangible assets
Cash flows from operating activities
Free cash flow usage(2)
$ 16,218
$ 16,339
$
$
$
$
$
$
$
246
1.5 %
672
4.1 %
993
6.1 %
(553)
(0.25)
63
0.03
$ 1,317
$
$
531
(786)
$
$
$
$
(58)
(0.4)%
427
2.6 %
798
4.9 %
(981)
$ (0.48)
$
(268)
$ (0.15)
$ 1,201
$
137
$ (1,064)
(1)%
nmf
190 bps
57 %
150 bps
24 %
120 bps
44 %
$
$
0.23
nmf
0.18
10 %
288 %
26 %
As at December 31
Available short-term capital resources(3)(4)
2017
2016
Variance
$ 4,225
$ 4,477
(6)%
(1) Refer to the forward-looking statements disclaimer in Overview as well as the assumptions on which the guidance is based. Also refer to
the forward-looking statements section in each reportable segment for details regarding the assumptions on which the guidance is
based. Guidance for 2018 reflects the adoption of IFRS 9, Financial instruments and IFRS 15, Revenue from contracts with customers.
The 2018 guidance assumes the continued consolidation of the C Series aircraft program for the entire 2018 fiscal year. Following the
anticipated closing of the C Series partnership with Airbus, we will no longer consolidate the C Series aircraft program. Should the closing
of the C Series partnership with Airbus occur before the end of 2018, the resulting de-consolidation of the C Series aircraft program will
have an impact on our results and guidance.
(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 and Liquidity and capital resources section for reconciliations to the most comparable IFRS measures.
(3) Defined as cash and cash equivalents plus the amount available under our revolving credit facilities.
(4) Following the anticipated closing of our C Series partnership with Airbus, the assets and liabilities of the C Series aircraft program are
presented under Assets held for sale. Refer to the strategic partnership section in Commercial Aircraft, Note 15 - Cash and cash
equivalent and Note 28 - Assets held for sale in the Consolidated financial statements for more details on the transaction as well as the
accounting treatment as at December 31, 2017.
6 BOMBARDIER INC. FINANCIAL REPORT - FISCAL YEAR ENDED DECEMBER 31, 2017
KEY HIGHLIGHTS AND EVENTS
• OUR 2017 FINANCIAL RESULTS EXHIBITED STRONG EARNINGS AND CASH FLOW MOMENTUM:(1)
– Revenues reached $16.2 billion while EBITDA before special items(1) reached close to $1.0 billion.
– EBIT before special items(1) improved materially for the second consecutive year and exceeded our
guidance, increasing 57% year over year, from $427 million to $672 million.
– EBIT margin before special items(1) exceeded 8% across our Transportation, Business Aircraft, and
Aerostructures and Engineering Services segments, above guidance in each case.
– Transportation’s strong results in 2017 outpaced the performance targets underlying CDPQ’s investment
in BT Holdco. Accordingly, for the 12-month period starting on February 12, 2018, Bombardier’s
percentage of ownership on conversion of CDPQ’s shares will increase by 2.5%, up from 70% to 72.5%.
Any dividends paid by BT Holdco to its shareholders during this period will be distributed on the basis of
each shareholder’s percentage of ownership on conversion, being 72.5% for Bombardier and 27.5% for
the CDPQ. These adjustments will become effective once the audited consolidated financial statements
of BT Holdco are duly approved by its Board of Directors.
– Free cash flow usage(1) for 2017 was $786 million, better than guidance by over $200 million, resulting in
a $3.1 billion cash position(2) at year end.
• WE POSITIONED THE COMPANY TO DELIVER GROWTH TOWARDS OUR 2020 PLAN:
– We continued to build Transportation’s backlog to support our $10 billion revenue objective in 2020. The
backlog increased 14% in 2017 to $34.4 billion, fueled by a book-to-bill(3) above 1.0 for the fourth
consecutive year.
– The Global 7000 aircraft is Business Aircraft and Bombardier’s largest growth driver towards the 2020
objectives. Its backlog supports deliveries through 2021.(4) The program is moving closer to certification
with all five FTV’s now in the test program, cumulating over 1,500 flight hours. The aircraft is on track for
EIS in the second half of 2018.
– In 2017, we made investments in our inventory to support major project ramp-ups in Transportation, to
launch the production of the Global 7000 aircraft, and to continue ramping up the C Series aircraft
production line. These investments position us to increase delivery of trains and planes in 2018 and
beyond.
• WE ENTERED INTO A HISTORIC PARTNERSHIP WITH AIRBUS TO DOUBLE THE VALUE OF THE
C SERIES PROGRAM:(4)
– We expect that our strategic alliance with Airbus will unlock the full potential of the already game-
changing C Series aircraft. This transformative partnership strengthens and de-risks the C Series aircraft
plan, and Bombardier as a whole. Airbus brings an extensive sales, marketing and procurement
organization and has a worldwide customer support presence.
– We are moving ahead and making progress obtaining regulatory approvals for the announced
partnership with Airbus for the C Series aircraft. We expect to obtain all approvals for the partnership in
2018, and in the meantime, we are conducting planning for the operation of the U.S. final assembly line
in Mobile, Alabama and working on other integration streams, consistent with antitrust law.
– On January 26,2018, the U.S. International Trade Commission rejected Boeing’s attempt to have tariffs
imposed on C Series aircraft, clearing the path for us to support Delta Air Lines, Inc. this year as we work
to close our partnership with Airbus.
(1) Earnings is based on EBITDA before special items, EBIT before special items and EBIT margin before special items. Cash flow is based
on free cash flow. These are Non-GAAP financial measures. Refer to the Non-GAAP financial measures, Consolidated results of
operations and Liquidity and capital resources sections for definitions of these metrics and reconciliations to the most comparable IFRS
measures.
(2) Defined as cash and cash equivalents. Following the anticipated closing of our C Series partnership with Airbus, the assets and liabilities
of the C Series aircraft program are presented under Assets held for sale. Refer to the strategic partnership section in Commercial
Aircraft, Note 15 - Cash and cash equivalent and Note 28 - Assets held for sale in the Consolidated financial statements for more details
on the transaction as well as the accounting treatment as at December 31, 2017.
(3) Ratio of new orders over revenues.
(4) Forward-looking statement. See the forward-looking statements assumptions on which the guidance is based and forward-looking
statements disclaimer in Overview.
BOMBARDIER INC. / 2017 FINANCIAL REPORT / OVERVIEW 7
• WE REMAIN FOCUSED ON OUR KEY PRIORITIES, DRIVING OUR TRANSFORMATION:
– We completed 2017 with our operational and structural transformation in full motion across all our
business segments. The actions taken, include significant progress in creating sales, engineering and
manufacturing centers of excellence across our Transportation segment. With two-thirds of the
transformation initiatives completed by year end at BT, we expect continued execution of the plan to lead
to further margin expansion.(1)
(1) Forward-looking statement. See the forward-looking statements assumptions on which the guidance is based and forward-looking
statements disclaimer in Overview.
8 BOMBARDIER INC. FINANCIAL REPORT - FISCAL YEAR ENDED DECEMBER 31, 2017
KEY PERFORMANCE MEASURES AND METRICS
The table below summarizes key performance measures and associated metrics evaluated only on a consolidated
basis. Our reportable segments use multiple other key performance measures to evaluate various key metrics.
Refer to each reportable segment’s Key performance measures and metrics section for further details.
KEY PERFORMANCE MEASURES AND ASSOCIATED METRICS
PROFITABILITY
• Diluted EPS and adjusted EPS(1), as measures of global performance.
LIQUIDITY
CAPITAL STRUCTURE
Available short-term capital resources(2), as a measure of liquidity adequacy.
•
Free cash flow(1), as a measure of liquidity generation.
•
Adjusted EBIT(1) to adjusted interest(1) ratio, as a measure of interest coverage.
•
Adjusted debt(1) to adjusted EBITDA(1) ratio, as a measure of financial leverage.
•
• Weighted-average long-term debt maturity, as a measure of debt term structure.
For the fiscal years ended and as at
December 31
Profitability
Revenues
EBIT
EBIT margin
EBIT before special items(1)(3)
EBIT margin before special items(1)(3)
EBITDA(1)
EBITDA before special items(1)(3)
Net income (loss)
Adjusted net income (loss)(1)
Diluted EPS (in dollars)
Adjusted EPS (in dollars)(1)
Liquidity
Net additions to PP&E and intangible
assets
Cash flows from operating activities
Free cash flow usage(1)
Available short-term capital resources(2)
Capital structure
Interest coverage ratio(4)
Financial leverage ratio(4)
Weighted-average long-term debt
maturity (in years)
FIVE-YEAR SUMMARY
2017
2016
2015
2014
2013
$
$ 16,218
246
$
1.5 %
672
4.1 %
611
993
(553)
63
(0.25)
0.03
$
$
$
$
$
$
$
$ 16,339
(58)
$
(0.4)%
427
2.6 %
323
798
(981)
(268)
(0.48)
(0.15)
$
$
$
$
$
$
$ 18,172
$ (4,838)
$
(26.6)%
554
3.0 %
(100)
$
$
992
$ (5,340)
326
$
(2.58)
$
0.14
$
$ 20,111
(566)
$
(2.8)%
923
4.6 %
$
$ 1,117
$ 1,340
$ (1,246)
648
$
(0.74)
$
0.35
$
$ 1,317
$
531
(786)
$
$ 4,225
$ 1,201
$
137
$ (1,064)
$ 4,477
$ 1,862
$
20
$ (1,842)
$ 4,014
$ 1,964
$
847
$ (1,117)
$ 3,846
1.2
8.3
5.3
0.8
9.7
5.8
1.5
7.3
6.3
3.1
4.7
6.4
$ 18,151
923
$
5.1%
893
4.9%
$
$
$
$
$
$
$
$
$
$
$
1,314
1,284
572
608
0.31
0.33
2,287
1,380
(907)
4,837
2.8
5.4
6.4
(1) Non-GAAP financial measures. Refer to the Non-GAAP financial measures, Consolidated results of operations and Liquidity and capital resources
sections for definitions of 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 Consolidated results of operations section for details of special items recorded in 2017 and 2016. In 2015, the special items related to
impairment and other charges of $3.2 billion following the completion of an in-depth review of the C Series aircraft program as well as discussions
with the Government of Québec, $1.2-billion impairment and other charges as a result of the cancellation of the Learjet 85 aircraft program, $353-
million increase in provisions for credit guarantees and RVGs related to regional aircraft following changes in assumptions due to difficult market
conditions, $243-million impairment on remaining CRJ1000 aircraft program development costs due to a lack of order intake, $194-million write-off of
deferred costs related to restructuring of customer commercial agreements, $133 million incurred in connection with the termination of third-party
sales representative and distribution agreements to increase the number of direct-to-market channels, $106 million of net write-downs of deferred
income tax assets mainly related to Transportation, $53-million impairment charge on the remaining Learjet family aerospace program tooling, $50
million related to tax litigation provision, $22-million loss on redemption of the $750-million Senior Notes due 2016 and $9-million restructuring
charges. In 2014, the special items related to impairment and other charges of $1.4 billion related to the decision to pause the Learjet 85 aircraft
program and $273 million of net write-downs of deferred tax assets following that decision, $142 million of restructuring charges, a $43-million loss on
repurchase of long-term debt, and a $18-million gain on resolution of a litigation in connection with Part IV of the Québec Income Tax Act of which
$8 million was recorded in financing income. In 2013, the special items related to a $43-million gain on resolution of a litigation in connection with
capital tax, of which $12 million was recorded in financing income, a $24-million inventory write-down and a $23-million gain on disposal of a
business.
(4) Refer to the Capital structure and Non-GAAP financial measures sections for computations of these ratios.
BOMBARDIER INC. / 2017 FINANCIAL REPORT / OVERVIEW 9
STRATEGIC PRIORITIES
Focused execution towards 2020 financial goals
As we closed out 2017, our transformation initiatives helped Bombardier establish a track record of improving
financial performance while management’s proactive and disciplined approach helped reach key program
milestones and position the Company for growth through 2020.(1)
As we begin 2018, the mid-point of our 5-year turnaround plan launched in 2015, we are confident that the
structural elements are now in place to deliver on our 2020 financial goals. These elements are the result of
initiatives focused on unleashing the value of the Company’s leading product and services portfolio. We enter 2018
with solid backlogs across our growing business segments and a clear plan to ramp-up Transportation projects and
Aerospace programs. Two of these initiatives include the anticipated entry into service of the Global 7000 aircraft
and the closing of our partnership agreement with Airbus on the C Series that unlocks the full potential of this
game-changing aircraft. Our priorities for the years ahead are clear and we are now focused on execution.(1)
Revenues: Growing by $4 billion through
2020
Revenue is expected to reach in excess of $20 billion
by 2020, growing at a ~7% CAGR from 2017. This
increase is mainly driven by the Global 7000
aircraft’s entry into service starting in 2018. Providing
visibility into this revenue growth is the aircraft’s
strong backlog, sold out through 2021, and a strong
and growing backlog at Transportation, currently
amounting to over $34 billion. In addition, our
aftermarket and services strategy, which leverages
recent investments to expand the footprint and better
serve Bombardier’s large in-service fleet of
approximately 7,000 aircraft and more than 100,000
train cars worldwide, will also fuel our revenue
growth.(1)
(1) See Forward-looking statements for details regarding the
assumptions on which the objectives are based. Also see
forward-looking statements disclaimer in the Guidance and
forward-looking statements section.
10 BOMBARDIER INC. FINANCIAL REPORT - FISCAL YEAR ENDED DECEMBER 31, 2017
where EBIT before special items realized in 2017
already exceeded 8% in each of our business
segments (excluding Commercial Aircraft as we
ramped up C Series aircraft production).
Free cash flow: Reaching the inflection point
and securing sustainable cash generation
As we near the end of the investment cycle, we
continue to see a clear path to a sustainable cash
generation target of $750 million to $1 billion
annually by 2020.(1)
Already in 2017, free cash flow(2) generation before
our growth investments in the C Series, Global 7000
and restructuring would exceed $600 million. Our
plan assumes the completion of these investments
over the next 24 months, supporting the 2020 cash
flow plan.(1)
To deliver positive free cash flow(2), our strategy is
threefold: 1) certify and introduce the Global 7000
aircraft to market in the second half of 2018, reducing
our annual capital investments to an estimated $800
million annually by 2020, approaching depreciation
levels; 2) reaching breakeven on the C Series aircraft
program as it matures, with conditions improving
under the announced Airbus partnership; and 3) by
completing our investments in restructuring that
continue to fuel the margin expansion and better
earnings conversion.(1)
The return to free cash flow generation will support
the final phase of our plan to de-leverage the
balance sheet, thereby driving strong shareholder
value.(1)(2)
(1) See Forward-looking statements hereafter for details regarding
the assumptions on which the objectives are based. Also see
forward-looking statements disclaimer in the Guidance and
forward-looking statements section.
(2) Profitability objectives are based on EBITDA and EBIT before
special items as well as EBITDA and EBIT margins before
special items. These as well as free cash flow are non-GAAP
measures. Refer to the Non-GAAP financial measures section
for definitions of these metrics.
BOMBARDIER INC. / 2017 FINANCIAL REPORT / OVERVIEW 11
Our 2020 revenue target reflects the de-
consolidation of the C Series following the
anticipated closing of the Airbus partnership, and a
prudent approach towards the business aircraft
market recovery.(1)
Profitability: More than doubling EBIT/
EBITDA by 2020(1)
We aim for our earnings to more than double, with
EBITDA before special items(2) targets increasing
from $1 billion to over $2.25 billion in this three year
span. Contributing to this trend are the projects and
programs above, as well as the continued execution
on transformation initiatives. These initiatives include
the restructuring efforts launched in 2016, now
working towards creating centers of excellence in our
Transportation segment, and a focus on reducing
supplier bill of materials and indirect costs.
The de-consolidation of the C Series aircraft losses
following the anticipated closing of the Airbus
partnership is also expected to contribute to
improving our profit metrics.(1)(2)
By reaching these targets, EBITDA and EBIT
margins before special items in 2020 would exceed
11% and 8%, respectively.(1)(2)This upward revision to
our EBIT target as we advance through our
turnaround plan reflects the progress made to date,
Line of sight to Business Units 2020
objectives
From a business unit perspective, we have
reaffirmed and, in some cases, improved our 2020
targets, but also adjusted for the de-consolidation of
the C Series aircraft and the timing of the business
jet market recovery.(1)
We continue to target a revenue of >$10 billion from
our Transportation segment in 2020, supported by
strong backlog and a book-to-bill ratio of >1 over the
past four years. We increased our expectation for
EBIT margin from >8% to >9% in light of recent
results and continued restructuring actions.(1)
Our Business Aircraft franchise continues to see
growth from the current $5 billion revenues to >$8.5
billion in 2020, fueled by the introduction of the
Global 7000 business jet and by aftermarket, while
continuing to trend to 8-10% margin.(1)
Our projected results from Commercial Aircraft and
Aerostructures and Engineering Services are
adjusted to reflect the de-consolidation of the
C Series aircraft and more prudent production of CRJ
Series and Q400 aircraft, while preserving the
profitability targets.(1)
(1) See Forward-looking statements hereafter for details regarding
the assumptions on which the objectives are based. Also see
forward-looking statements disclaimer in the Guidance and
forward-looking statements section. Profitability objectives are
based on EBITDA and EBIT before special items as well as
EBITDA and EBIT margins before special items. These as well
as free cash flow are non-GAAP measures. Refer to the Non-
GAAP financial measures section for definitions of these
metrics.
12 BOMBARDIER INC. FINANCIAL REPORT - FISCAL YEAR ENDED DECEMBER 31, 2017
Forward-looking statements
Forward-looking statements(1) in this section of the MD&A are based on the following material assumptions:
All segments
• normal execution and delivery of current firm orders and projects in the backlog;
• our ability to execute and deliver business model enhancement initiatives;
•
the ability to understand customer needs and portfolio of products and services to drive increasing market demand and
secure key strategic orders;
• continued deployment and execution of growth strategies, including the aftermarket businesses;
• continued deployment and execution of leading initiatives according to plan to improve revenue conversion into higher
earnings and free cash flows(2), through improved procurement cost, controlled spending and labour efficiency;
• delivering on the transformation plan targets, through restructurings and other initiatives addressing the direct and
•
indirect cost structure, focusing on sustained cost reductions and operational improvements, while reducing working
capital consumption;
the ability to leverage the global manufacturing footprint and transfer best practices and technology across production
sites, and by leveraging lower cost geographies and emerging economies;
the ability of the supply base to support product development, planned production rates and the execution of projects;
the ability to identify and enter into further risk sharing partnerships and initiatives;
the effectiveness of disciplined capital deployment measures in new programs and products to drive revenue growth;
the ability to recruit and retain highly skilled resources to deploy the product development and project execution strategy;
•
•
•
•
• competitive global environment and global economic conditions to remain similar;
•
•
the stability of foreign exchange rates; and
the ability to have sufficient liquidity to execute the strategic plan, to meet financial covenants and to pay down long-term
debt or refinance bank facilities and maturities starting in 2020.
the alignment of production rates to market demand;
Aerospace segments
•
• similar level of aircraft deliveries;
•
the ability to ramp up production and deliveries of new programs, focusing on the C Series aircraft program including
learning curve improvements, and meet scheduled EIS date for the Global 7000 and Global 8000 aircraft program;
• our ability to strengthen our market position and product value proposition for the CRJ Series and Q400 aircraft
programs;
• continued ability to capture and win campaigns and projects based on market forecasts(3), leading to estimated future
•
•
•
order intake;
the reduction of investments and development spend to normalized levels, in line with depreciation by 2020;
the satisfaction of all conditions of closing and the successful completion of the transaction with Airbus within the
anticipated timeframe, including receipt of regulatory (including antitrust) and other approvals;(4)
the fulfillment and performance by each party of its obligations pursuant to the transaction agreement with Airbus and
future commercial agreements and absence of significant inefficiencies and other issues in connection therewith;
the realization of the anticipated benefits and synergies of the transaction with Airbus in the timeframe anticipated;
•
• our ability to continue with our current funding plan of CSALP and to fund, if required, any cash shortfalls and adequacy
of cash planning and management and project funding; and
the accuracy of our assessment of anticipated growth drivers and sector trends.
•
revenue conversion and phase out of our legacy contracts;
Transportation
•
• a sustained level of public sector spending;
•
the realization of upcoming tenders and our ability to capture them based on market forecasts(5), leading to estimated
future order intake; and
• successful deployment and execution of growth strategies, including the value chain approach and the creation of
ecosystems, site specialization and the creation of engineering centers of excellence, and the evolution of the revenue
mix towards more signalling and systems and operations and maintenance contracts.
For a discussion of the material risk factors associated with the forward-looking information, refer to the Risks and
uncertainties section in Other.
(1) Also refer to the Guidance and forward-looking statements section for the forward-looking statements disclaimer.
(2) Non-GAAP measure. Refer to the Non-GAAP measures for definition of this metric.
(3) For more details, refer to the market indicators in the Industry and economic environment sections of the aerospace segments.
(4) The 2018 guidance assumes the continued consolidation of the C Series program for the complete 2018 fiscal year. Following the
anticipated closing of its C Series partnership with Airbus, Bombardier will de-consolidate the C Series program. Should the closing of
the C Series program occur before the end of 2018, the resulting de-consolidation by Bombardier of the C Series program will have an
impact on our reported results and guidance.
(5) For more details, refer to the market indicators in the Industry and economic environment section of the Transportation segment.
BOMBARDIER INC. / 2017 FINANCIAL REPORT / OVERVIEW 13
GUIDANCE AND FORWARD-LOOKING STATEMENTS
We met or exceeded our latest 2017 guidance on all fronts
Original 2017
guidance
Latest 2017
guidance
What we did in
2017
What’s next for
2018(1)
CONSOLIDATED
Revenues
EBITDA before special
items
EBIT before special
items
Free cash flow
Excluding currency
impacts, revenues
in 2017 are
expected to be
higher than in
2016, with
percentage growth
in the low-single
digits.
~ $16.3 billion
$16.2 billion
$17.0-$17.5
billion
n/a
n/a
$1.0 billion
$1.15-$1.25
billion
$530-$630 million
$672 million
$800-$900 million
$750 million-$1.0
billion usage
~ $1.0 billion
usage
$786 million
usage
Breakeven
± $150 million
Revenues
~ $5.0 billion
No change
$5.0 billion
BUSINESS
AIRCRAFT
EBIT margin before
special items
Aircraft deliveries
(in units)
~ 7.5%
~ 8.0%
8.4%
~135
No change
140
~ 135
Revenues
~ $2.9 billion
~ $2.5 billion
$2.4 billion
~ $2.7 billion
COMMERCIAL
AIRCRAFT
EBIT before special
items
~ ($400 million)
No change
($377 million)
~ ($350 million)
Aircraft deliveries
(in units)
80 to 85
~ 70 to 75,
including ~ 20 to
22 C Series
73, including
17 C Series and
56 CRJ and
Q400
~ 75, including
~ 40 C Series and
~ 35 CRJ and
Q400
AEROSTRUCTURES
AND ENGINEERING
SERVICES
Revenues
~ $1.7 billion
No change
$1.6 billion
~ $2.0 billion
EBIT margin before
special items
> 8.5%
~ 8.0%
10.0%
> 8.5%
Revenues
~ $8.5 billion
No change
$8.5 billion
~ $9.0 billion
TRANSPORTATION
EBIT margin before
special items
~ 7.5%
~ 8.0%
8.4%
> 8.5%
(1) Refer to the forward-looking statements disclaimer in Overview as well as the assumptions on which the guidance is based.
Profitability guidance is based on EBITDA before special items, EBIT before special items or EBIT margin before special items. These as
well as free cash flow (usage) are non-GAAP measures. Free cash flow (usage) includes cash flows related to special items. Refer to the
Non-GAAP financial measures section for definitions of these metrics and the Consolidated results of operations and Liquidity and capital
resources sections, as well as each reportable segment’s Analysis of results section for reconciliations to the most comparable IFRS
measures in 2017.
Guidance for 2018 reflects the adoption of IFRS 9, Financial instruments and IFRS 15, Revenue from contracts with customers. The 2018
guidance assumes the continued consolidation of the C Series program for the entire 2018 fiscal year. Following the anticipated closing of
the C Series partnership with Airbus, we will no longer consolidate the C Series aircraft program. Should the closing of the C Series
partnership with Airbus occur before the end of 2018, the resulting de-consolidation of the C Series program will have an impact on our
results and guidance.
The negative EBIT margin before special items for Commercial Aircraft is mainly due to the dilutive impact of the initial years of production
of the C Series aircraft program. 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.
Revenues guidance for Aerostructures and Engineering Services are mainly from intersegment contracts with Business Aircraft and
Commercial Aircraft.
Transportation’s revenues guidance is based on the assumption that foreign exchange rates remain stable.
14 BOMBARDIER INC. FINANCIAL REPORT - FISCAL YEAR ENDED DECEMBER 31, 2017
2017 guidance
CONSOLIDATED(1)
During the second quarter of 2017, we narrowed our EBIT before special items(2) guidance to the upper end of the
range, to between $580 million and $630 million, from $530 million to $630 million.
During the third quarter of 2017, we revised our consolidated revenues and free cash flow usage(2) guidance for
the year to approximately $16.3 billion and $1.0 billion respectively, near the low end of our previous guidance
ranges, to align with fewer C Series aircraft deliveries resulting from engine delivery delays from Pratt & Whitney.
We also increased our consolidated EBIT before special items(2) guidance to $630 million or above, the upper end
of our previous guidance range to reflect stronger financial performance.
BUSINESS AIRCRAFT(1)
During the second quarter of 2017, we increased our Business Aircraft EBIT margin before special items(2)
guidance for the full year 2017 to approximately 8.0%, mainly due to the strong performance in the first half of the
year.
COMMERCIAL AIRCRAFT(1)
During the third quarter of 2017, we revised the revenue and delivery guidance for Commercial Aircraft given new
engine delivery delays from Pratt & Whitney for the C Series aircraft. Furthermore, certain engines originally
designated for production aircraft in the fourth quarter were redirected to support spare engine requirements of
current C Series customers. As a result, we adjusted revenue guidance to approximately $2.5 billion and between
approximately 70 to 75 deliveries, including approximately 20 to 22 C Series aircraft deliveries, with no adjustment
to Commercial Aircraft negative EBIT before special items(2) guidance.
AEROSTRUCTURES AND ENGINEERING SERVICES(1)
During the second quarter of 2017, we revised Aerostructures and Engineering Services EBIT margin before
special items(2) guidance for the full year 2017 to approximately 8.0%, mainly due to the performance in the first
half of the year.
TRANSPORTATION(1)
During the second quarter of 2017, we increased our EBIT margin before special items(2) guidance for the year to
approximately 8.0%, mainly due to the performance in the first half of the year, which was driven by strong project
execution.
Our strategy to achieve 2018 guidance(1)
After a period of intense product development investment, we anticipate revenue growth in all our reportable
business segments in 2018. On the aerospace side, revenue growth is expected from the ramp-up of C Series
aircraft deliveries and the anticipated entry into service of the Global 7000 aircraft as well as foreseen growth in
aftermarket activities. In Transportation, we have a solid backlog with certain key projects positioned for delivery
in 2018.
Improved margins are anticipated as a result of lower cost structure stemming from transformation initiatives
coupled with lower learning curve costs as production ramps up on the C Series aircraft. Free cash flow
generation is expected starting in the second half of 2018, as train project deliveries intensify, C Series aircraft
production ramps-up and Global 7000 aircraft enters into service.
(1) Refer to the forward-looking statements disclaimer in Overview as well as the assumptions on which the guidance is based.
(2) Profitability guidance is based on EBITDA before special items, EBIT before special items or EBIT margin before special items. These as
well as free cash flow (usage) are non-GAAP measures. Free cash flow (usage) includes cash flows related to special items. Refer to the
Non-GAAP financial measures section for definitions of these metrics and the Consolidated results of operations and Liquidity and capital
resources sections, as well as each reportable segment’s Analysis of results section for reconciliations to the most comparable IFRS
measures in 2017.
BOMBARDIER INC. / 2017 FINANCIAL REPORT / OVERVIEW 15
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, 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; competitive position; the
expected impact of the legislative and regulatory environment and legal proceedings on our business and operations; available liquidities and
ongoing review of strategic and financial alternatives; the completion, anticipated timing of the transaction with Airbus SE (Airbus) described
herein and the receipt of regulatory and other approvals required with respect to this transaction and the anticipated timing thereof; the
governance, funding and liquidity of C Series Aircraft Limited Partnership (CSALP); the impact and expected benefits of the transaction with
Airbus described herein, on our operations, infrastructure, capabilities, development, growth and other opportunities, geographic reach, scale,
footprint, financial condition, access to capital and overall strategy; and the impact of such transaction on our balance sheet and liquidity
position.
Forward-looking statements can generally be identified by the use of forward-looking terminology such as “may”, “will”, “shall”, “can”, “expect”,
“estimate”, “intend”, “anticipate”, “plan”, “foresee”, “believe”, “continue”, “maintain” or “align”, the negative of these terms, variations of them or
similar terminology. Forward-looking statements are presented for the purpose of assisting investors and others in understanding certain key
elements of our current objectives, strategic priorities, expectations and plans, and in obtaining a better understanding of our business and
anticipated operating environment. Readers are cautioned that such information may not be appropriate for other purposes.
By their nature, forward-looking statements require management 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 forecast results set forth in forward-looking
statements. While management considers these assumptions to be reasonable and appropriate based on information currently available,
there is risk that they may not be accurate. The assumptions underlying the forward-looking statements made in this report in relation to the
transaction with Airbus discussed herein include the following material assumptions: the satisfaction of all conditions of closing and the
successful completion of the transaction within the anticipated timeframe, including receipt of regulatory (including antitrust) and other
approvals; the fulfillment and performance by each party of its obligations pursuant to the transaction agreement and future commercial
agreements and absence of significant inefficiencies and other issues in connection therewith; the realization of the anticipated benefits and
synergies of the transaction in the timeframe anticipated; our ability to continue with our current funding plan of CSALP and to fund, if required,
any cash shortfalls; adequacy of cash planning and management and project funding; and the accuracy of our assessment of anticipated
growth drivers and sector trends. For additional information with respect to the assumptions underlying the forward-looking statements made
in this MD&A, refer to the Strategic Priorities and Guidance and forward-looking statements sections in each reportable segment.
With respect to the transaction with Airbus discussed herein specifically, certain factors that could cause actual results to differ materially from
those anticipated in the forward-looking statements include, but are not limited to, risks associated with the failure to receive or delay in
receiving regulatory (including antitrust) or other approvals or otherwise satisfy the conditions to the completion of the transaction or delay in
completing the transaction and uncertainty regarding the length of time required to complete the transaction; changes in the terms of the
transaction; the failure by either party to satisfy and perform its obligations pursuant to the transaction agreement and future commercial
agreements and/or significant inefficiencies and other issues arising in connection therewith; the impact of the announcement of the
transaction on our relationships with third parties, including commercial counterparties, employees and competitors, strategic relationships,
operating results and businesses generally; the failure to realize, in the timeframe anticipated or at all, the anticipated benefits and synergies
of the transaction; our ability to continue with our current funding plan of CSALP and to fund, if required, the cash shortfalls; inadequacy of
cash planning and management and project funding. Certain other factors that could cause actual results to differ materially from those
anticipated in the forward-looking statements include, but are not limited to, risks associated with general economic conditions, risks
associated with our business environment (such as risks associated with “Brexit”, the financial condition of the airline industry, business
aircraft customers, and the rail industry; trade policy (including potential changes to or the termination of the existing North American Free
Trade Agreement between Canada, the U.S. and Mexico currently in discussion); increased competition; political instability and force majeure
events or natural disasters), operational risks (such as risks related to developing new products and services; development of new business;
the certification and homologation of products and services; fixed-price and fixed-term commitments and production and project execution;
pressures on cash flows and capital expenditures based on project-cycle fluctuations and seasonality; our ability to successfully implement
and execute our strategy and transformation plan; doing business with partners; product performance warranty and casualty claim losses;
regulatory and legal proceedings; environmental, health and safety risks; dependence on certain customers and suppliers; human resources;
reliance on information systems; reliance on and protection of intellectual property rights; and adequacy of insurance coverage), financing
risks (such as risks related to liquidity and access to capital markets; retirement benefit plan risk; exposure to credit risk; substantial existing
debt and interest payment requirements; certain restrictive debt covenants and minimum cash levels; financing support provided for the
benefit of certain customers; and reliance on government support), market risks (such as risks related to foreign currency fluctuations;
changing interest rates; decreases in residual values; increases in commodity prices; and inflation rate fluctuations). 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. Other risks and uncertainties not presently known to us or that we presently
believe are not material could also cause actual results or events to differ materially from those expressed or implied in our forward-looking
statements. In addition, there can be no assurance that the proposed transaction with Airbus will occur or that the anticipated strategic benefits
and operational, competitive and cost synergies will be realized in their entirety, in part or at all. The forward-looking statements set forth
herein reflect management’s 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.
16 BOMBARDIER INC. FINANCIAL REPORT - FISCAL YEAR ENDED DECEMBER 31, 2017
CONSOLIDATED RESULTS OF OPERATIONS
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
EBIT
Financing expense
Financing income
EBT
Income taxes
Net loss
Attributable to
Equity holders of Bombardier Inc.
NCI
EPS (in dollars)
Basic and diluted
As a percentage of total revenues
EBIT before special items(1)
EBIT
Computation of diluted EPS
Net loss attributable to equity holders of Bombardier Inc.
Preferred share dividends, including taxes
Net loss attributable to common equity
holders of Bombardier Inc.
Weighted-average diluted number of common shares
(in thousands of shares)
Diluted EPS (in dollars)
Computation of adjusted EPS
Adjusted net income (loss)
Net (income) loss attributable to NCI
Preferred share dividends, including taxes
Dilutive impact of CDPQ conversion option
Adjusted net income (loss) attributable to equity
holders of Bombardier Inc.
Weighted-average adjusted diluted number of common
shares (in thousands of shares)
Adjusted EPS (in dollars)(1)
$
Fourth quarters
ended December 31
2017
4,715
4,084
631
331
81
(36)
40
215
66
149
273
(23)
(101)
8
(109)
2016
4,380
3,942
438
287
95
(65)
17
104
30
74
281
(49)
(158)
101
(259)
$
Fiscal years
ended December 31
2017
$ 16,218
14,276
1,942
1,194
240
(175)
11
672
426
246
778
(56)
(476)
77
(553)
2016
$ 16,339
14,622
1,717
1,133
287
(126)
(4)
427
485
(58)
819
(70)
(807)
174
(981)
$
$
(108)
(1)
(0.05)
4.6%
3.2%
$
$
$
(251)
(8)
(0.12)
2.4%
1.7%
Fourth quarters
ended December 31
2016
2017
(251)
(108)
(14)
(8)
$
(116)
$
(265)
$
$
$
$
$
(516)
(37)
$ (1,022)
41
$
(0.25)
$
(0.48)
4.1%
1.5%
2.6 %
(0.4)%
Fiscal years
ended December 31
2016
2017
(1,022)
(516)
(32)
(27)
$
(543)
$
(1,054)
$
$
$
$
$
$
$
2,194,868
(0.05)
$
2,194,304
(0.12)
$
2,195,379
(0.25)
$
2,212,547
(0.48)
$
Fourth quarters
ended December 31
2016
2017
(141)
51
8
1
(14)
(8)
—
(2)
$
$
Fiscal years
ended December 31
2016
2017
(268)
63
(41)
37
(32)
(27)
—
—
42
$
(147)
$
73
$
(341)
$
$
2,311,057
0.02
$
2,194,304
(0.07)
$
2,264,722
0.03
$
2,212,547
(0.15)
$
(1) Refer to the Non-GAAP financial measures section for definitions of these metrics and reconciliations to the most comparable IFRS
measures.
BOMBARDIER INC. / 2017 FINANCIAL REPORT / OVERVIEW 17
Non-GAAP financial measures(1)
EBITDA
EBITDA before special items
Adjusted net income (loss)
Fourth quarters
ended December 31
2016
2017
183
244
203
304
(141)
51
$
$
$
$
$
$
Fiscal years
ended December 31
2016
2017
323
611
798
993
(268)
63
$
$
$
$
$
$
(1) Refer to the Non-GAAP financial measures section for definitions of these metrics and reconciliations to the most comparable IFRS
measures.
Reconciliation of segment to consolidated results
Revenues
Business Aircraft
Commercial Aircraft
Aerostructures and Engineering Services
Transportation
Corporate and Elimination
EBIT before special items(1)
Business Aircraft
Commercial Aircraft
Aerostructures and Engineering Services
Transportation
Corporate and Elimination
Special Items
Business Aircraft
Commercial Aircraft
Aerostructures and Engineering Services
Transportation
Corporate and Elimination
EBIT
Business Aircraft
Commercial Aircraft
Aerostructures and Engineering Services
Transportation
Corporate and Elimination
Fourth quarters
ended December 31
Fiscal years
ended December 31
2017
2016
2017
2016
$
$
$
$
$
$
$
$
1,473
677
413
2,493
(341)
4,715
120
(142)
63
217
(43)
215
(9)
5
13
11
46
66
129
(147)
50
206
(89)
149
$
$
$
$
$
$
$
$
1,651
699
319
1,948
(237)
4,380
100
(141)
30
181
(66)
104
1
3
6
20
—
30
99
(144)
24
161
(66)
74
$
$
$
$
$
$
$
$
4,961
2,382
1,570
8,525
(1,220)
16,218
416
(377)
157
712
(236)
672
25
8
7
295
91
426
391
(385)
150
417
(327)
246
$
$
$
$
$
$
$
$
5,741
2,617
1,549
7,574
(1,142)
16,339
369
(417)
124
560
(209)
427
(108)
486
(4)
164
(53)
485
477
(903)
128
396
(156)
(58)
(1) Non-GAAP financial measure. Refer to the Non-GAAP financial measures section for a definition of this metric.
18 BOMBARDIER INC. FINANCIAL REPORT - FISCAL YEAR ENDED DECEMBER 31, 2017
Detailed analyses of revenues and EBIT are provided in each reportable segment’s Analysis of results section.
Analysis of consolidated results
Special items
Special items comprise items which do not reflect our core performance or where their separate presentation will assist
users in understanding our results for the period, such as the impact of restructuring charges and significant
impairment charges and reversals.
Special items were as follows:
Restructuring charges
Primove impairment and other costs
Impairment of non-core operations
Re-negotiation of a commercial agreement
Reversal of Learjet 85 aircraft program cancellation provisions
Loss on repurchase of long-term debt
Tax litigation
Onerous contracts provision - C Series aircraft program
Transaction costs
Pension obligation
Foreign exchange gains related to the sale
of a minority stake in Transportation
Tax impacts of special items
Of which is presented in
Special items in EBIT
Financing expense - loss on repurchase of long-term debt
Financing expense - interest related to tax litigation
Financing expense - transaction costs
Income taxes - effect of special items
Ref
1
2
3
4
5
6
7
8
9
10
11
6
7
9
$
$
$
$
$
Fourth quarters
ended December 31
2016
35
—
—
—
(5)
86
—
—
—
—
2017
37
46
—
—
(17)
23
—
—
—
—
—
(6)
83
66
23
—
—
(6)
83
$
$
$
—
(1)
115
30
86
—
—
(1)
115
$
$
$
$
$
Fiscal years
ended December 31
2016
215
—
—
—
(59)
86
40
492
8
(139)
2017
285
91
43
35
(28)
23
11
—
—
—
—
(15)
445
426
23
11
—
(15)
445
$
$
$
(38)
(20)
585
485
86
26
8
(20)
585
1. For fiscal year 2017, represents severance charges of $253 million, partially offset by curtailment gains of
$6 million, and impairment charges of PP&E of $38 million all related to previously-announced restructuring
actions. For fiscal year 2016, represents severance charges of $227 million, partially offset by curtailment gains of
$22 million, and impairment charges of PP&E of $10 million all related to previously-announced restructuring
actions.
2. For fiscal year 2017, following a reassessment of the value of the Primove e-mobility technology and the status of
existing contractual obligations, we recorded an inventory write-down of $22 million, impairment charges of PP&E
of $6 million, and a contract loss provision of $63 million, of which $46 million was recorded in the fourth quarter of
2017. Primove offers e-mobility solutions for several types of electronic rail and road vehicles.
3. An impairment charge related to non-core operations of $43 million recorded in fiscal year 2017 with respect to the
expected sale of legal entities, as part of the Transportation transformation plan.
4. A provision was taken, for fiscal year 2017, to reflect the anticipated outcome of a re-negotiation of a commercial
agreement with a third party.
5. Based on the ongoing activities with respect to the cancellation of the Learjet 85 aircraft program, we reduced the
related provisions by $28 million for fiscal year 2017, of which $17 million was recorded in the fourth quarter
($59 million for fiscal year 2016, including $5 million in the fourth quarter). The reduction in provisions is treated as
a special item since the original provisions were also recorded as special charges in 2014 and 2015.
BOMBARDIER INC. / 2017 FINANCIAL REPORT / OVERVIEW 19
6. For fiscal year 2017, represents the loss related to the redemption of the $600-million Senior Notes due 2019. For
fiscal year 2016, represents the loss related to the redemption of the $650-million and $750-million Senior Notes
due 2018.
7. Represents a change in the estimates used to determine the provision related to tax litigation.
8. Represents provision for onerous contracts in conjunction with the closing of C Series aircraft firm orders in the
second quarter of 2016.
9. Represents transaction costs attributable to the conversion option embedded in the CDPQ investment in
BT Holdco.
10. Bombardier had a constructive obligation for discretionary ad hoc indexation increases to certain pension plans.
Following a communication to plan members that we do not expect to grant such increases in the foreseeable
future in line with our current practice, the constructive obligation amounting to $139 million was reversed in the
second quarter of 2016.
11. Represents foreign exchange gains related to the reorganization of Transportation under one holding entity
necessary to facilitate the placement of a minority stake in Transportation.
Net financing expense
Net financing expense amounted to $250 million and $722 million, respectively, for the fourth quarter and fiscal year
ended December 31, 2017, compared to $232 million and $749 million for the corresponding periods last fiscal year.
The $18-million increase for the fourth quarter is mainly due to:
a higher net loss related to certain financial instruments classified as FVTP&L ($52 million);
higher net financing expense from changes in discount rates of provisions ($17 million); and
higher interest on long-term debt, after the effect of hedges ($13 million).
•
•
•
Partially offset by:
•
•
•
•
Partially offset by:
•
•
•
•
•
a lower loss on repurchase of long-term debt(1) ($63 million), recorded as special items.
The $27-million decrease for the fiscal year is mainly due to:
a lower loss on repurchase of long-term debt(1) ($63 million), recorded as special items;
higher borrowing costs capitalized to PP&E and intangible assets ($61 million); and
lower interest related to tax litigation provision ($15 million), recorded as special items.
higher interest on long-term debt, after the effect of hedges ($51 million);
a higher net loss related to certain financial instruments classified as FVTP&L ($22 million);
higher accretion on retirement benefit obligations ($12 million);
higher net financing expense from changes in discount rates of provisions ($10 million); and
higher accretion on provisions ($7 million).
(1) In the fourth quarter and fiscal year ended December 31, 2017, represents the loss related to the redemption of the $600-million Senior Notes due
2019. In the fourth quarter and fiscal year ended December 31, 2016, represents the loss related to the redemption of the $650-million and $750-
million Senior Notes due 2018.
20 BOMBARDIER INC. FINANCIAL REPORT - FISCAL YEAR ENDED DECEMBER 31, 2017
Income taxes
The effective income tax rates for the fourth quarter and fiscal year ended December 31, 2017 were (7.9)% and
(16.2)%, respectively, compared to the statutory income tax rate in Canada of 26.7%.
The negative effective income tax rates in the fourth quarter are mainly due to:
•
•
the effect of substantively enacted income tax rate changes mainly in the U.S.; and
permanent differences and other;
Partially offset by:
•
the positive impact of the net recognition of previously unrecognized tax losses and temporary differences.
The negative effective income tax rates for the fiscal year ended December 31, 2017 are mainly due to:
the net non-recognition of income tax benefits related to tax losses and temporary differences;
the effect of substantively enacted income tax rate changes mainly in the U.S.; and
permanent differences.
•
•
•
The effective income tax rates for the fourth quarter and fiscal year ended December 31, 2016 were (63.9)% and
(21.6)%, respectively, compared to the statutory income tax rate in Canada of 26.8%.
The negative effective income tax rates in the fourth quarter and fiscal year ended December 31, 2016 are mainly due
to:
•
•
the net non-recognition of income tax benefits related to tax losses and temporary differences; and
the write-down of deferred income tax assets.
BOMBARDIER INC. / 2017 FINANCIAL REPORT / OVERVIEW 21
CONSOLIDATED FINANCIAL POSITION
The total assets increased by $2.2 billion in the fiscal
year(1), including a positive currency impact of $668
million related to foreign exchange. The $1.5-billion
increase excluding currency impacts is mainly
explained by:
•
a $1.1-billion increase in gross inventories
mainly in Transportation, Commercial Aircraft
and Aerostructures and Engineering services,
partially offset by a decrease in Business
Aircraft; and
a $1.0-billion increase in aerospace program
tooling mainly related to the Global 7000 and
Global 8000 aircraft program.
Partially offset by:
•
a $361-million decrease in cash and cash
equivalents. See the Free cash flow usage and
the Variation in cash and cash equivalents
tables for details; and
a $293-million increase in advances and
progress billings related to Transportation.
•
•
The total liabilities and equity increased by $2.2
billion in the fiscal year(1), including a currency impact
of $668 million. The $1.5-billion increase excluding
currency impacts is mainly explained by:
•
a $1.0-billion increase in trade and other
payables mainly in Transportation and Business
Aircraft;
a $337-million increase in long-term debt; and
a $338-million increase in advances and
progress billings in excess of long-term contract
inventories related to Transportation.
•
•
Partially offset by:
•
a $312-million decrease in advances on
aerospace programs mainly in Business Aircraft.
* The total assets and the total liabilities in the above graphs as at
December 31, 2017 include $4.2 billion and $2.5 billion,
respectively, related to the C Series aircraft program, which are
presented under Assets held for sale. Refer to the Strategic
Partnership section in Commercial Aircraft and to the Note 28 -
Assets held for sale in the Consolidated financial statements for
more details on the transaction as well as the accounting
treatment as at December 31,2017.
** Includes a deficit of $3.7 billion as at December 31, 2017 and
$3.5 billion as at December 31, 2016.
(1) For the purpose of the Consolidated financial position explanations included in this section, assets and liabilities comprise assets and
liabilities reclassified as Assets held for sale. See Note 28 - Assets held for sale for more details on the CSALP assets and liabilities
reclassification.
22 BOMBARDIER INC. FINANCIAL REPORT - FISCAL YEAR ENDED DECEMBER 31, 2017
LIQUIDITY AND CAPITAL RESOURCES
Free cash flow
Free cash flow (usage)(1)(2)
Net loss
Non-cash items
Amortization
Impairment charges on PP&E and intangible assets
Deferred income taxes
Share of income of joint ventures and associates
Loss on repurchase of long-term debt
Other
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 (usage)(1)
Net interest and income taxes paid
Free cash flow (usage) before net interest
and income taxes paid(1)
Fourth quarters
ended December 31
2016
2017
(259)
(109)
$
Fiscal years
ended December 31
2016
2017
(981)
(553)
$
$
$
89
6
(6)
(36)
23
5
25
1,240
1,237
(365)
872
(187)
99
10
121
(65)
86
—
31
800
823
(327)
496
(139)
314
51
34
(175)
23
7
55
775
531
(1,317)
(786)
(619)
371
10
31
(126)
86
3
141
602
137
(1,201)
(1,064)
(651)
$
1,059
$
635
$
(167)
$
(413)
The $376-million improvement of free cash flow(1) for the fourth quarter is mainly due to:
•
a positive period-over-period variation in net change in non-cash balances ($440 million) (see explanations
below).
Partially offset by:
•
higher net additions to PP&E and intangible assets ($38 million).
The $278-million improvement of free cash flow usage(1) for the fiscal year is mainly due to:
•
•
lower net loss before non-cash items ($307 million) mainly explained by higher EBITDA before special
items(3) and lower special items(3); and
a positive period-over-period variation in net change in non-cash balances ($173 million) (see explanations
below).
Partially offset by:
•
•
higher net additions to PP&E and intangible assets ($116 million); and
lower dividends received from joint ventures and associates ($86 million).
(1) Non-GAAP financial measures. Refer to the Non-GAAP financial measures section for definitions of these metrics.
(2) For the purpose of the Free cash flow explanations included in this section, assets and liabilities comprise assets and liabilities reclassified as
Assets held for sale. See Note 28 - Assets held for sale for more details on the CSALP assets and liabilities reclassification.
(3) Special items presented in EBIT, except impairment charges on PP&E and intangible assets. Refer to the Consolidated results of operations
for details regarding special items. Also refer to the Reconciliation of EBITDA before special items and EBITDA to EBIT table in the Non-
GAAP financial measures section.
BOMBARDIER INC. / 2017 FINANCIAL REPORT / OVERVIEW 23
Net change in non-cash balances
For the fourth quarter ended December 31, 2017, the $1.2-billion inflow is mainly due to:
•
•
•
•
•
an increase in trade and other payables mainly related to Transportation and Business Aircraft;
an increase in Transportation’s advances and progress billings on new orders and existing contracts;
a decrease in Transportation’s gross inventories following deliveries, partially offset by ramp-up in
production;
a decrease in aerospace programs inventories mainly in Business Aircraft, partially offset by an increase in
Aerostructures and Engineering Services mainly due to the ramp-up in production for the Global 7000
aircraft and in Commercial Aircraft mainly due to the ramp-up in production for the C Series aircraft,
partially offset by a decrease in turboprops and regional jets; and
an increase in other liabilities in Transportation mainly related to sales taxes.
Partially offset by:
•
a decrease in Business Aircraft’s advances on aerospace programs.
For the fourth quarter ended December 31, 2016, the $800-million inflow was mainly due to:
•
a decrease in inventories, mainly related to Business Aircraft’s aerospace program inventories for the
medium and large aircraft categories and a decrease in Transportation’s inventories following deliveries,
partly offset by ramp-up in production.
Partially offset by:
•
a decrease in Business Aircraft’s advances on aerospace programs, mainly in the medium and large
aircraft categories, partially offset by an increase in Commercial Aircraft’s advances on aerospace
programs in all aircraft categories.
For the fiscal year ended December 31, 2017, the $775-million inflow is mainly due to:
•
•
•
•
an increase in trade and other payables mainly related to Transportation and Business Aircraft;
an increase in Transportation’s advances and progress billings on new orders and existing contracts;
a decrease in Transportation’s trade and other receivables; and
an increase in other liabilities in Transportation mainly related to sales taxes.
Partially offset by:
•
•
•
an increase in Transportation’s gross inventories following ramp-up in production ahead of deliveries;
a decrease in Business Aircraft’s advances on aerospace programs; and
an increase in aerospace programs inventories mainly in Commercial Aircraft mainly due to the ramp-up in
production for the C Series aircraft program and in Aerostructures and Engineering Services due to the
ramp-up in production for the Global 7000 and the C Series aircraft, partially offset by a decrease in
Business Aircraft’s inventories.
For the fiscal year ended December 31, 2016, the $602-million inflow was mainly due to:
•
•
•
•
•
a decrease in Business Aircraft’s inventories mainly in the large and medium aircraft categories as well as
in pre-owned aircraft;
an increase in Transportation’s advances and progress billings on new orders and existing contracts;
an increase in Commercial Aircraft’s advances on aerospace programs mainly for the C Series aircraft
program;
an increase in provisions, mainly due to the C Series aircraft program onerous contracts provision
recorded as a special item in the second quarter; and
a decrease in trade and other receivables, mainly in Transportation.
Partially offset by:
•
•
•
•
a decrease in Business Aircraft’s advances on aerospace programs;
a decrease in trade and other payables, mainly in Business Aircraft and Transportation;
a change in retirement benefit liability, excluding the impact of the remeasurement of defined benefit plans
included in OCI, mainly related to employer contributions and the reversal of a constructive obligation for
discretionary ad hoc indexation increases to certain pensions, recorded as a special item in the second
quarter, following a communication to plan members that we do not expect to grant such increases in the
foreseeable future in line with our current practice; and
an increase in Commercial Aircraft’s inventories, mainly due to the C Series aircraft program, due to the
ramp-up in production and including the impacts of write-downs on early production units(1), partially offset
by a decrease in regional aircraft.
(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.
24 BOMBARDIER INC. FINANCIAL REPORT - FISCAL YEAR ENDED DECEMBER 31, 2017
Available short-term capital resources
We continuously monitor our level of liquidity, including available short-term capital resources and cash flows from
operations, to meet expected requirements, including the support of product development initiatives and to ensure
financial flexibility. In evaluating our liquidity requirements, we take into consideration historic volatility and
seasonal needs, the maturity profile of long-term debt, the funding of 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 cash flow projections.
Variation in cash and cash equivalents
Balance at the beginning of period/fiscal year
$
Net proceeds from issuance of long-term debt
Free cash flow (usage)(1)
Repayments of long-term debt
Dividends paid to NCI
Effect of exchange rate changes on cash and
cash equivalents
Dividends paid on preferred shares
Net proceeds from the sale of minority stakes in
subsidiaries
Purchase of Class B shares held in trust
under the PSU and RSU plans
Net change in short-term borrowings
Other
Balance at the end of period/fiscal year
Reclassified as assets held for sale(2)
Balance at the end of period/fiscal year
$
$
$
Fourth quarters
ended December 31
2016
2017
3,392
1,835
1,366
988
496
872
(1,510)
(627)
(33)
(36)
(13)
(3)
—
—
(167)
208
3,057
69
2,988
(153)
(4)
(1)
—
(84)
(85)
3,384
—
3,384
$
$
$
Fiscal years
ended December 31
2016
2017
2,720
3,384
1,367
988
(1,064)
(786)
(1,566)
(651)
(77)
(89)
34
(18)
—
—
—
195
3,057
69
2,988
(252)
(17)
2,418
(43)
—
(102)
3,384
—
3,384
$
$
$
$
$
(1) Non-GAAP financial measure. Refer to the Non-GAAP financial measures section for a definition of this metric and the Free cash flow
(usage) table herein for reconciliations to the most comparable IFRS measure.
(2) Following the anticipated closing of our C Series partnership with Airbus, the assets and liabilities of the C Series aircraft program are
presented under Assets held for sale. Refer to the strategic partnership section in Commercial Aircraft, Note 15 - Cash and cash equivalent
and Note 28 - Assets held for sale in the Consolidated financial statements for more details on the transaction as well as the accounting
treatment as at December 31, 2017.
Available short-term capital resources
Cash and cash equivalents(1)
Available revolving credit facilities
Available short-term capital resources
December 31, 2017
3,057
$
1,168
4,225
$
As at
December 31, 2016
3,384
$
1,093
4,477
$
(1) Following the anticipated closing of our C Series partnership with Airbus, the assets and liabilities of the C Series aircraft program are
presented under Assets held for sale. Refer to the strategic partnership section in Commercial Aircraft, Note 15 - Cash and cash equivalent
and Note 28 - Assets held for sale in the Consolidated financial statements for more details on the transaction as well as the accounting
treatment as at December 31, 2017.
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, the same financial covenants must be met as for our letter of credit
facilities. Refer to the Financial covenants section for details.
BOMBARDIER INC. / 2017 FINANCIAL REPORT / OVERVIEW 25
In March 2017, we extended the maturity dates of
Transportation’s €658-million and the $400-million (1)
unsecured revolving credit facilities to May 2020 and
June 2020, respectively. In addition, Transportation’s
€658-million unsecured revolving credit facility was
decreased to € 640 million ($768 million). These
facilities were unused as of December 31, 2017.
We have entered into an agreement with Pratt &
Whitney to support excess inventory generated by
engine delays whereby they have provided us an
advance in the fourth quarter of 2017. This advance
was not included in our free cash flow(2) but benefited
overall liquidity and cash on hand.
(1) Available for other than Transportation’s usage.
(2) Non-GAAP financial measure. Refer to the Non-GAAP financial
measures and Liquidity and capital resources sections for
definitions of this metric and reconciliation to the most
comparable IFRS measure.
Some totals do not agree due to rounding.
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 than credit facilities that are
available for cash drawings. Letters of credit are generally issued in support of performance obligations and
advance payments received from customers.
December 31, 2017
Transportation facility
Corporation excluding Transportation facility
December 31, 2016
Transportation facility
Corporation excluding Transportation facility
Amount
committed
Letters of
credit issued
Amount
available
Maturity
$
$
$
$
4,270
400
4,670
3,489
400
3,889
$
$
$
$
4,013 $
169
4,182 $
3,311 $
136
3,447 $
257
231
488
178
264
442
2021
2020
2020
2019
In 2017, the committed amount under Transportation’s facility was increased to €3.56 billion ($4.3 billion) from
€3.31 billion ($3.5 billion) as at December 31, 2016.
In addition to the outstanding letters of credit mentioned above, letters of credit of $3.0 billion were outstanding
under various bilateral agreements and $377 million under the PSG facility as at December 31, 2017 ($1.9 billion
and $206 million, respectively, as at December 31, 2016).
We also use numerous bilateral bonding facilities with insurance companies to support Transportation’s operations.
An amount of $3.4 billion was outstanding under such facilities as at December 31, 2017 ($2.9 billion as at
December 31, 2016).
See Note 32 – Credit facilities, to the consolidated financial statements, for additional information.
26 BOMBARDIER INC. FINANCIAL REPORT - FISCAL YEAR ENDED DECEMBER 31, 2017
Financial covenants
Under our letter of credit facilities and our two unsecured revolving credit facilities available for cash drawings, we
must maintain various financial covenants on a quarterly basis.
The $400-million(1) letter of credit facility and the $400 million unsecured revolving facility include financial
covenants requiring a minimum EBITDA to fixed charges ratio, a maximum gross debt threshold, a minimum
EBITDA threshold and a minimum liquidity level between $750 million and $850 million depending on the level of
the EBITDA to fixed charges ratio, calculated based on an adjusted consolidated basis (i.e excluding
Transportation).
Transportation’s € 3.56-billion ($4.3-billion) letter of credit facility and € 640-million ($768-million) unsecured
revolving facility financial covenants require a minimum liquidity level of €600 million ( $720 million), a minimum
equity level and a maximum debt to EBITDA ratio at the end of each quarter, all calculated on a Transportation
stand-alone basis.
These terms and ratios are defined in the respective agreements and do not correspond to our global metrics or to
any specific terms used in the MD&A. Minimum liquidity is not defined as comprising only cash and cash
equivalents as presented in the consolidated statement of financial position. A breach of any of these agreements
or the inability to comply with these covenants could result in a default under these facilities, which would permit
our banks to request immediate defeasance or cash cover of all outstanding letters of credit, and bond holders and
other lenders to declare amounts owed to them to be immediately payable.
The financial covenants under these credit facilities were all met on a quarterly basis throughout 2017 and 2016.
(1) Available for other than Transportation’s usage.
Future liquidity requirements
Our aerospace segments require capital to develop industry-leading products and to seize strategic opportunities
to increase competitiveness 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.
On an on-going basis, we manage our liabilities by taking into consideration expected free cash flows(1), debt
repayments and other material cash outlays expected to occur in the future. We have a financing plan to position
ourselves with a flexible and strong financial profile whereby we access capital markets, depending on market
conditions, for the issuance of equity and new long-term debt capital.
In line with this financing plan, in November 2017, we issued unsecured Senior Notes of $1.0 billion, bearing a
coupon rate of 7.50% and due on December 1, 2024. The proceeds from the Senior Notes were used to finance
the optional early redemption of the $600-million Senior Notes bearing interest at 4.75% due in 2019, which was
completed in December 2017, and the remainder of the net proceeds is intended to be used for general corporate
purposes. The weighted average long-term debt maturity was 5.3 years as at December 31, 2017. There is no
significant debt maturing before 2020.
We routinely review our debt profile with a view to managing or extending maturities (including, for example, as noted
under the heading “Letter of credit facilities”) and/or negotiating more favourable terms and conditions with respect
to our bank facilities. We also routinely review the terms and conditions of our bank facilities and seek annual
extensions of the availability periods thereunder. In this respect, we are currently in negotiations for the annual
extensions of each of our principal bank facilities as well as for certain other amendments, including amendments
to our financial covenants and other technical amendments. These amendments are subject to prevailing market
and other conditions that are beyond our control and there can be no assurance that we will be able to successfully
negotiate such amendments on commercially reasonable terms, or at all. However, failure to successfully negotiate
such amendments is not currently expected to have a material adverse effect on our business, financial condition,
cash flows and results of operations.
(1) Non-GAAP financial measure. Refer to the Non-GAAP financial measures section for a definition of this metric.
BOMBARDIER INC. / 2017 FINANCIAL REPORT / OVERVIEW 27
Expected timing of future liquidity requirements
December 31, 2017
Long-term debt(1)
Interest payments
Operating lease obligations
Purchase obligations(2)
Trade and other payables
Other financial liabilities
Derivative financial liabilities
Total
9,089
4,103
954
14,345
4,194
1,272
230
34,187
$
$
Less than
1 year
18
643
124
8,844
4,184
113
224
14,150
$
$
1 to 3 years
893
$
1,283
213
4,816
4
164
6
7,379
$
3 to 5 years
4,041
$
1,151
144
651
—
197
—
6,184
$
Thereafter
4,137
1,026
473
34
6
798
—
6,474
$
$
(1) Includes principal repayments only.
(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 of the
amount and timing of payments arising from their contingent nature. In addition, required pension contributions
have not been reflected in this table as such contributions depend on periodic actuarial valuations for funding
purposes. For 2018, contributions to retirement benefit plans are estimated at approximately $336 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.
Our available short-term capital resources of $4.2 billion give us sufficient liquidity to execute our plan. We
consider that these resources will enable the development of new products to enhance our competitiveness and
support our growth; will enable us to meet all other expected financial requirements in the foreseeable future; and
will allow the payment of dividends, if and when declared by the Board of Directors.
28 BOMBARDIER INC. FINANCIAL REPORT - FISCAL YEAR ENDED DECEMBER 31, 2017
Creditworthiness
We assess and manage creditworthiness using the global metrics as described in the Capital structure section.
We continuously monitor our capital structure to ensure sufficient liquidity to fund product development programs.
Our goal is to strengthen our global metrics and credit ratings. Our objective also includes improving our leverage
metrics by gradually 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.
In October 2017, Moody’s Investors Service, Inc. changed their rating from B2 to B3, while Fitch Ratings Ltd. and
Standard & Poor’s Rating Services did not change their ratings.
Credit Ratings
Fitch Ratings Ltd.
Moody’s Investors Service, Inc.
Standard & Poor’s Rating Services
Investment-grade rating
Bombardier Inc.’s rating
BBB-
Baa3
BBB-
February 14, 2018
B
B3
B-
December 31, 2016
B
B2
B-
Over the long term, we believe that we will be in a good position to improve our credit ratings as we progress
towards profitability targets and return to a more normalized level of investment in product development.
CAPITAL STRUCTURE
We analyze our capital structure using global metrics, which are based on a broad economic view of the
Corporation, in order to assess the creditworthiness of the Corporation. These global metrics are managed and
monitored in order to achieve an investment-grade profile.
Reconciliations of these measures to the most comparable IFRS financial measures are in the Non-GAAP
financial measures section. 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 do not
consider to be representative of our core performance.
Our objectives with regard to the global metrics are as follows:
•
•
adjusted EBIT to adjusted interest ratio greater than 5.0; and
adjusted debt to adjusted EBITDA ratio lower than 2.5.
Interest coverage ratio
Adjusted EBIT(1)
Adjusted interest(1)
Adjusted EBIT to adjusted interest ratio
Fiscal year ended December 31
$
$
2017
770
631
1.2
$
$
2016
498
618
0.8
(1) Non-GAAP financial measures. Refer to the Non-GAAP financial measures section for definitions of these metrics and reconciliations to the
most comparable IFRS measures.
The interest coverage ratio improved mainly as a result of higher EBITDA before special items mainly in
Transportation.
BOMBARDIER INC. / 2017 FINANCIAL REPORT / OVERVIEW 29
Financial leverage ratio
Adjusted debt(1)
Adjusted EBITDA(1)
Adjusted debt to adjusted EBITDA ratio
As at and for the fiscal year ended December 31
$
$
2017
9,631
1,162
8.3
$
$
2016
9,184
943
9.7
(1) Non-GAAP financial measures. Refer to the Non-GAAP financial measures section for definitions of these metrics and reconciliations to the
most comparable IFRS measures.
The financial leverage ratio improved mainly as a result of higher adjusted EBITDA before special items in
Transportation, partially offset by higher adjusted debt mainly as a result of the November 2017 issuance of
unsecured Senior Notes of $1.0 billion, the net proceeds of which were partly used to finance the optional early
redemption of the $600-million Senior Notes due in 2019. The remaining net proceeds are expected to be used
for general corporate purposes.
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 bank covenants to ensure they are all met.
In addition to the above global metrics, we separately monitor our net retirement benefit liability which amounted
to $2.4 billion as at December 31, 2017 ($2.5 billion as at December 31, 2016). The measurement of this liability
is dependent on numerous key long-term assumptions such as 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. We closely monitor the
impact of the net retirement benefit liability on our future cash flows and we have introduced significant risk
mitigation initiatives in recent years to gradually reduce key risks associated with the retirement benefit plans. See
the Retirement benefits section for further details.
RETIREMENT BENEFITS
Overview of retirement benefit plans
Bombardier sponsors 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 Defined benefit (DB)
or Defined contribution (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.
30 BOMBARDIER INC. FINANCIAL REPORT - FISCAL YEAR ENDED DECEMBER 31, 2017
F: Forecast
DB plan contributions have remained stable at $269 million in 2017, compared to $273 million the previous year,
and are expected to be lower in 2018.
Net retirement benefit liability
* Includes liability arising from minimum funding requirement and
impact of asset ceiling test, if any.
** The balance includes net retirement benefit liability related to the
C Series aircraft program in the amount of $99 million reclassified
as Liabilities directly associated with assets held for sale.
BOMBARDIER INC. / 2017 FINANCIAL REPORT / OVERVIEW 31
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 OCI. 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 2017, as the actual gain on plan assets ($896 million) was above expected return,
an actuarial gain of $615 million was recognized.
DB plan contributions are estimated at $247 million for 2018. The future level of contributions will be impacted by
the evolution of market interest rates and the actual return on plan assets.
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., all 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 2017, DC pension contributions
totaled $86 million. These contributions are estimated
at $89 million for 2018.
* Mainly comprised of changes in discount rates.
** Other is mainly comprised of changes in other actuarial
assumptions, experience adjustments and impact of asset ceiling.
*** The balance includes net retirement benefit liability related to the
C Series aircraft program in the amount of $99 million reclassified
as Liabilities directly associated with assets held for sale.
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 regarding 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).
As at December 31, 2017, the average target asset allocation was as follows:
• 53%, 57% and 51% in fixed income securities, for Canadian, U.K. and U.S. plans, respectively;
• 37%, 30% and 49% in equity securities, for Canadian, U.K. and U.S. plans, respectively; and
• 10% and 13% in real return asset securities, for Canadian and U.K. plans, respectively.
32 BOMBARDIER INC. FINANCIAL REPORT - FISCAL YEAR ENDED DECEMBER 31, 2017
In addition, to mitigate interest rate risk, interest rate hedging overlay portfolios (comprised of long-term interest
rate swaps and/or long-term bond forwards) were implemented in November 2016 for a small plan and will be
implemented for other plans when the market will be favourable and the plans’ triggers will be reached.
The plan administrators have also established dynamic de-risking strategies. As a result, asset allocation will
likely become more conservative in the future and interest rate hedging overlay portfolios are likely to be
established as plan funding status and market conditions continue to improve. We monitor 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
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 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 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 fixed
income securities 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 benefit indexation has been capped in certain plans and a portion of plan assets
has been invested in real return fixed income securities and real return asset securities.
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 stems 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 investments in treasury bills,
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 and mortality improvement tables to set the level of
contributions.
BOMBARDIER INC. / 2017 FINANCIAL REPORT / OVERVIEW 33
Retirement benefit cost
Pension
benefits
320
$
86
406
$
$
$
$
$
$
282
38
86
339
67
Other
benefits
18
$
—
18
$
n/a
18
n/a
7
11
$
$
$
2017
Total
338
86
424
282
56
86
346
78
$
$
$
$
$
$
$
Pension
benefits
154
$
84
238
$
$
$
$
$
$
114
40
84
183
55
Other
benefits
17
$
—
17
$
n/a
17
n/a
6
11
$
$
$
2016
Total(1)
171
84
255
114
57
84
189
66
$
$
$
$
$
$
$
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
(1) Bombardier had a constructive obligation for discretionary ad hoc indexation increases to certain pension plans. Following a communication
to plan members that we do not expect to grant such increases in the foreseeable future in line with our current practice, the constructive
obligation amounting to $139 million was reversed, and recorded as a special item in 2016.
n/a: Not applicable
The retirement benefit cost for fiscal year 2018 for DB plans is estimated at $347 million, of which $278 million
relates to EBIT expense or capitalized cost and $69 million relates to net financing expense.
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 2018
(Forecast)
(28)
5
7
$
$
$
Net retirement benefit liability
as at December 31, 2017
$
$
$
(499)
125
88
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 2018
(Forecast)
7
5
2
$
$
$
Net retirement benefit liability as
at December 31, 2017
$
$
$
115
118
32
Details regarding assumptions used are provided in Note 22 – Retirement benefits, to the consolidated financial
statements.
34 BOMBARDIER INC. FINANCIAL REPORT - FISCAL YEAR ENDED DECEMBER 31, 2017
RISK MANAGEMENT
Active risk management has been one of our priorities for many years and is a key component of our corporate
strategy framework. To achieve our risk management objectives, we have embedded risk management activities
in the operational responsibilities of management and made these activities an integral part of the overall
governance, planning, decision making, organizational and accountability structure.
For each risk or category of risks, the risk management process includes activities performed in a continuous
cycle. Risk assessment, including risk identification, analysis and evaluation, ensures that each risk is analyzed to
identify the consequence and likelihood of the risk occurring and the adequacy of existing controls. Each
reportable segment is responsible for implementing the appropriate structures, processes and tools to allow
proper identification of risks. Once the risks have been identified, analyzed and evaluated, risk mitigation identifies
the actions to be implemented by management. Each reportable segment has implemented risk management
processes that are embedded in governance and activities to achieve the objectives of our Corporate Risk
Management Policy.
In addition, every year, the Corporate Audit Services and Risk Assessment (CASRA) team assesses our major
risks. Senior management reviews this risk assessment and develops action plans to address the identified risks.
The Board of Directors(1) is ultimately responsible for
reviewing the overall risks faced by the Corporation.
The Board exercises its duty through the Finance
and Risk Management Committee, consisting of
independent directors, which reviews material
business risks 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 the annual
CASRA review of major risks, each reportable
segment, in coordination with CASRA, has
implemented an annual review process that results
in standardized heat maps.
A primary area of focus is product development,
where our biggest opportunities to create value
reside, and also our most significant risks.
Recognizing the long-term nature of product
development activities and the significant human
and financial resources required, we follow a
rigorous gated product development process,
ensuring early identification and efficient mitigation
of potential risks. At the heart of this process is our
Bombardier Engineering System, followed for all
programs throughout the product development
cycle. This process is constantly refined to integrate
the lessons learned from our own programs and
from the industry. 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
leading experts to demonstrate technical feasibility,
customer acceptance and financial return.
(1) Refer to the Investor information section following the Notes to
the consolidated financial statements for more information on
Board members and Board Committees.
Source: International Organization for Standardization
(ISO) 31000:2009
BOMBARDIER INC. / 2017 FINANCIAL REPORT / OVERVIEW 35
The development of aerospace products falls under the leadership of the Vice President, Product Development
and Chief Engineer who has launched a comprehensive product management transformation initiative, which
involves all product development and product management stakeholders. We continuously apply what we learn
on one program to the other programs, by sharing ideas and learning in our various functional committees and
through regular peer reviews, bringing together the expertise across all platforms to drive alignment and common
approaches, establish best practices and leverage the knowledge and experience of our people. 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.
We have also 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
public filings is recorded, processed, summarized and reported within the time periods specified in securities
legislation. Refer to the Controls and procedures section in Other for more details.
Key exposures to financing and market risks
and related 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 strategies in place to mitigate them. Market risks associated with
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 the Foreign Exchange Risk
Management Policy in order to mitigate the impact of foreign exchange rate 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 hedging transactions in accordance with 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.
36 BOMBARDIER INC. FINANCIAL REPORT - FISCAL YEAR ENDED DECEMBER 31, 2017
Foreign exchange management
Owner
Hedged exposures
Hedging policy(1)
Risk-mitigation strategies
AEROSPACE
REPORTABLE
SEGMENTS
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.
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.
TRANSPORTATION
Forecast cash inflows and outflows
denominated in a currency other
than the functional currency of the
entity incurring the cash flows.
Hedge 100% of the identified
exposures at the time of order
intake.
Use of forward foreign exchange
contracts, mainly to sell U.S.
dollars and buy Canadian dollars
and pounds sterling.
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.
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.
Hedge 85% of the identified
exposures for the first 18 months
and up to 75% for the following six
months.
Use of forward foreign exchange
contracts mainly to sell U.S. dollars
and buy Canadian dollars.
CORPORATE
OFFICE
Interest cash outflows in currencies
other than the U.S. dollar, i.e. the
euro and the Canadian dollar.
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.
Balance sheet exposures,
including long-term debt and net
investments in foreign operations
with non-U.S. dollar functional
currencies.
Hedge 100% of the identified
exposures affecting the
Corporation’s net income.
Use of 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.
Aerospace reportable segments
As at December 31, 2017, the hedged portion of our aerospace reportable segments’ significant foreign currency
denominated costs for the fiscal years ending December 31, 2018 and 2019 was as follows:
For fiscal years
Business Aircraft expected costs denominated in
foreign currency
Commercial Aircraft expected costs denominated
in foreign currency
Aerostructures and Engineering Services expected
costs denominated in foreign currency
Hedged portion of expected costs denominated in
foreign currency
Weighted-average hedge rates – foreign currency/USD
Canadian dollars
Pounds sterling
2018
2019
2018
2019
$1,261
$1,655
$895
$158
$826
$195
—
—
—
—
£251
£307
80%
58%
89%
31%
0.7610
0.7865
1.2992
1.3391
BOMBARDIER INC. / 2017 FINANCIAL REPORT / OVERVIEW 37
Sensitivity analysis
A U.S. one-cent change in the value of the Canadian
dollar compared to the U.S. dollar would impact
Business Aircraft, Commercial Aircraft and
Aerostructures and Engineering Services’ expected
costs for the year ending December 31, 2018 by
approximately $13 million, $9 million and $2 million,
respectively, before giving effect to forward foreign
exchange contracts ($2 million, $2 million and less
than $1 million impacts, respectively, 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
Aerostructures and Engineering Services’ expected
costs for the fiscal year ending December 31, 2018
by approximately $3 million, before giving effect to
forward foreign exchange contracts (less than $1
million impact after giving effect to such contracts).
Transportation and Corporate office
Transportation’s foreign currency exposure, arising from its long-term contracts, spreads 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, Transportation enters into new
hedges in a rollover strategy for periods up to the maturity of the cash flow exposure. As such, Transportation’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. On a cumulative basis, however, 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.
The identified cash flow exposures at our Corporate office are not significant and mainly arise from expenses
denominated in Canadian dollars. Balance sheet exposure at Corporate office 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 investments in foreign operations exposed to foreign currency movements, a 1% fluctuation of the relevant
currencies as at December 31, 2017 would have impacted equity, before the effect of income taxes, by
$14 million.
38 BOMBARDIER INC. FINANCIAL REPORT - FISCAL YEAR ENDED DECEMBER 31, 2017
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 normal treasury
activities, we are exposed
to credit risk through
derivative financial
instruments and investing
instruments.
Credit risks arising from treasury activities are managed by a central treasury
function in accordance with the Corporate Foreign Exchange Risk Management
Policy and the Corporate Investment Management Policy. The objective of these
policies is to minimize exposure to credit risk from 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.
ALL
REPORTABLE
SEGMENTS
We are exposed to credit
risk through trade
receivables arising from
normal commercial
activities and lending
activities, related primarily
to aircraft loans, lease
receivables, and
investments in financing
structures provided to
customers in connection
with the sale of commercial
aircraft.
Credit risks arising from normal commercial activities and lending activities are
managed and controlled by each reportable segment, 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
exposure to losses. Specific governance is in place to ensure that credit risk arising
from large transactions is analyzed and approved by the appropriate level of
management before financing or credit support is offered to the customer.
COMMERCIAL
AIRCRAFT
In connection with the sale
of certain 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.
This 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
exposure under these guarantees. In addition, 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 cash flows and liquidity position, as well
as long-term operating and strategic plans. 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
development and other financial commitments. We engage in certain working capital financing initiatives such as
the sale of receivables, aircraft and flight simulators sale and leaseback transactions and the negotiation of
extended payment terms with certain suppliers. We continually 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 indexed to variable interest rates, including fixed-rate long-term debt synthetically converted to variable
interest rates. 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 the overall risk management policy.
BOMBARDIER INC. / 2017 FINANCIAL REPORT / OVERVIEW 39
We are also exposed to gains and losses on certain assets and liabilities as a result of changes in interest rates,
principally financial instruments carried at fair value and 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
A 100-basis point increase in interest rates impacting the measurement of financial instruments carried at fair
value and credit and residual value guarantees, excluding net retirement benefit liabilities, would have negatively
impacted EBT for fiscal year 2017 by $1 million.
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 (loss) 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
EBIT before special items, amortization and impairment charges on PP&E and intangible
assets.
Adjusted net income (loss)
Net income (loss) 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 (usage)
Cash flows from operating activities less net additions to PP&E and intangible assets.
Free cash flow (usage)
before net interest and
income taxes paid or
received
Adjusted debt
Adjusted EBIT
Adjusted EBITDA
Adjusted interest
Free cash flow (usage) excluding cash paid and received for interest and income taxes, as per
the consolidated statements of cash flows.
Long-term debt as presented in the consolidated statements of financial position adjusted for
the fair value of derivatives (or settled derivatives) designated in related hedge relationships
plus short-term borrowings, 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 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 financial measures in addition to IFRS measures provides users of
our Financial Report with enhanced understanding of our results and related trends and increases the
transparency and clarity of the core results of our business. For these reasons, a significant number of users of
the MD&A analyze our results based on these financial measures. EBIT before special items, EBITDA before
special items, adjusted net income and adjusted EPS exclude items that do not reflect our core performance or
where their exclusion will assist users in understanding our results for the period. We believe these measures
help users of our MD&A to better analyze results, enabling better comparability of our results from one period to
another and with peers.
We analyze our capital structure using global metrics, based on adjusted EBIT, adjusted EBITDA, adjusted
interest and adjusted debt. Refer to the Capital structure section for more detail.
40 BOMBARDIER INC. FINANCIAL REPORT - FISCAL YEAR ENDED DECEMBER 31, 2017
Non-GAAP financial 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
compare the performance of those entities to ours based on these similarly-named non-GAAP measures.
Reconciliations of non-GAAP financial measures to the most comparable IFRS financial measures are provided in
the tables hereafter, except for the following reconciliations:
• EBIT before special items to EBIT – see the Results of operations tables in the reportable segments and
•
the Consolidated results of operations section; and
free cash flow usage before net interest and income taxes received or paid and free cash flow usage to
cash flows from operating activities – see the Free cash flow usage table in the Liquidity and capital
resources section.
Reconciliation of EBITDA before special items and EBITDA to EBIT
EBIT
Amortization
Impairment charges on PP&E and intangible assets(1)
EBITDA
Special items excluding impairment charges on PP&E and
intangible assets(1)
EBITDA before special items
$
$
Fourth quarters
ended December 31
2016
74
99
10
183
2017
149
89
6
244
$
60
304
20
203
$
$
$
Fiscal years
ended December 31
2016
(58)
371
10
323
2017
246
314
51
611
$
382
993
475
798
$
Reconciliation of adjusted net income (loss) to net loss and computation of adjusted EPS
Net loss
Adjustments to EBIT related to special items(1)
Adjustments to net financing expense related to:
Fourth quarters ended December 31
2016
(per share)
2017
(per share)
$
(109)
66
$
0.03
$
(259)
30
$
0.01
Loss on repurchase of long-term debt(1)
Accretion on net retirement benefit obligations
Net change in provisions arising from changes in interest rates
and net loss on certain financial instruments
Tax impact of special(1) and other adjusting items
Adjusted net income (loss)
Net loss attributable to NCI
Preferred share dividends, including taxes
Dilutive impact of CDPQ conversion option
Adjusted net income (loss) attributable to equity holders of
Bombardier Inc.
$
Weighted-average adjusted diluted number of common shares
(in thousands)
Adjusted EPS
23
19
57
(5)
51
1
(8)
(2)
42
0.04
0.01
(0.01)
0.00
0.01
0.01
0.02
0.00
86
16
(12)
(2)
(141)
8
(14)
—
$
(147)
2,311,057
0.02
$
2,194,304
(0.07)
$
Reconciliation of adjusted EPS to diluted EPS (in dollars)
Diluted EPS
Impact of special(1) and other adjusting items
Adjusted EPS
$
$
(1) Refer to the Consolidated results of operations section for details regarding special items.
Fourth quarters ended December 31
2016
(0.12)
0.05
(0.07)
2017
(0.05)
0.07
0.02
$
$
BOMBARDIER INC. / 2017 FINANCIAL REPORT / OVERVIEW 41
Reconciliation of adjusted net income (loss) to net loss and computation of adjusted EPS
Net loss
Adjustments to EBIT related to special items(1)
Adjustments to net financing expense related to:
Loss on repurchase of long-term debt(1)
Accretion on net retirement benefit obligations
Net change in provisions arising from changes in interest
rates and net loss (gain) on certain financial instruments(1)
Interest portion of gains related to special items(1)
Transaction costs related to the conversion option embedded
in the CDPQ investment(1)
Tax impact of special(1) and other adjusting items
Adjusted net income (loss)
Net (income) loss attributable to NCI
Preferred share dividends, including taxes
Fiscal years ended December 31
2016
2017
(per share)
(per share)
$
(553)
426
$
0.19
$
(981)
485
$
0.22
0.01
0.04
0.04
0.01
—
(0.01)
23
78
95
11
—
(17)
63
37
(27)
86
66
63
26
8
(21)
(268)
(41)
(32)
0.04
0.03
0.03
0.01
0.01
(0.01)
Adjusted net income (loss) attributable to equity holders of
Bombardier Inc.
$
73
$
(341)
Weighted-average adjusted diluted number of common shares
(in thousands)
Adjusted EPS
2,264,722
0.03
$
2,212,547
(0.15)
$
Reconciliation of adjusted EPS to diluted EPS (in dollars)
Diluted EPS
Impact of special(1) and other adjusting items
Adjusted EPS
$
$
Reconciliation of adjusted debt to long-term debt
Long-term debt
Adjustment for the fair value of derivatives designated (or settled derivatives)
in related hedge relationships
Long-term debt, net
Sale and leaseback obligations
Operating lease obligations(2)
Adjusted debt
Fiscal years ended December 31
2016
2017
(0.48)
(0.25)
0.33
0.28
(0.15)
0.03
$
$
As at December 31
2016
2017
8,769
9,218
$
(222)
8,996
—
635
9,631
(278)
8,491
25
668
9,184
$
$
$
(1) Refer to the Consolidated results of operations section for details regarding special items.
(2) Discounted using the average five-year U.S. Treasury Notes plus the average credit spread, given our credit rating, for the corresponding
period.
42 BOMBARDIER INC. FINANCIAL REPORT - FISCAL YEAR ENDED DECEMBER 31, 2017
Reconciliation of adjusted EBITDA and adjusted EBIT to EBIT
EBIT
Special items(1)
Interest received
Interest adjustment for operating leases(2)
Adjusted EBIT
Amortization
Impairment charges on PP&E and intangible assets(3)
Amortization adjustment for operating leases(4)
Adjusted EBITDA
Reconciliation of adjusted interest to interest paid
Interest paid
Accretion expense on sale and leaseback obligations
Interest adjustment for operating leases(2)
Adjusted interest
$
$
Fiscal years ended December 31
2016
2017
(58)
246
485
426
20
61
51
37
498
770
371
314
—
7
74
71
943
1,162
$
$
$
Fiscal years ended December 31
2016
2017
565
594
2
—
51
37
618
631
$
$
$
(1) Refer to the Consolidated results of operations section for details regarding special items.
(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) Excluding amounts recognized as special items.
(4) Represents a straight-line amortization of the amount included in adjusted debt for operating leases, based on a nine-year amortization
period.
BOMBARDIER INC. / 2017 FINANCIAL REPORT / OVERVIEW 43
BUSINESS AIRCRAFT
The data presented in 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 section in
Overview for further detail.
Table of Contents
KEY
PERFORMANCE
MEASURES AND
METRICS
AT A
GLANCE
PROFILE
INDUSTRY AND
ECONOMIC
ENVIRONMENT
ANALYSIS OF
RESULTS
GUIDANCE AND
FORWARD-
LOOKING
STATEMENTS
44
45
46
49
52
56
KEY PERFORMANCE MEASURES AND METRICS
The table below summarizes our most relevant key performance measures and related metrics.
KEY PERFORMANCE MEASURES AND ASSOCIATED METRICS
GROWTH AND
COMPETITIVE
POSITIONING
• Order backlog, as a measure of future revenues.
Book-to-bill ratio(1), as an indicator of future revenues.
•
• Revenues and delivery units, as measures of growth.
• Market share (in terms of revenues and units delivered), as measures of our competitive positioning.
PROFITABILITY
LIQUIDITY
•
•
EBIT, EBIT margin, EBIT before special items(2) and EBIT margin before special items(2), as
measures of performance.
Free cash flow(2), as a measure of liquidity generation.
CUSTOMER
SATISFACTION
• On-time aircraft deliveries, as a measure of meeting our commitment to customers.
•
• Regional availability of parts and material to support customer requests, as a measure of meeting
Fleet dispatch reliability, as a measure of our products’ reliability.
customer needs for the entire life of the aircraft.
EXECUTION
•
Achievement of program development milestones, as a measure of flawless execution.
(1) Defined as the ratio of 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.
44 BOMBARDIER INC. FINANCIAL REPORT - FISCAL YEAR ENDED DECEMBER 31, 2017
AT A GLANCE
Well positioned with a strong product and services portfolio
Original 2017
Guidance
Latest 2017
Guidance
What we did in
2017
Guidance for
2018(1)(2)
Revenues
~ $5.0 billion
No change
$5.0 billion
EBIT margin before special items
~ 7.5%
~ 8.0%
Aircraft deliveries (in units)
~135
No change
8.4%
140
~ 135
RESULTS
For the fiscal years ended December 31
Revenues
Aircraft deliveries (in units)
EBIT
EBIT margin
EBIT before special items(2)
EBIT margin before special items(2)
EBITDA before special items(2)
.
EBITDA margin before special items(2)
Net additions to PP&E and intangible assets
As at December 31
Order backlog (in billions of dollars)
2017
4,961
140
391
7.9%
416
8.4%
513
10.3%
1,075
2017
14.0
$
$
$
$
$
$
2016
5,741
163
477
8.3%
369
6.4%
528
9.2%
721
2016
15.4
$
$
$
$
$
$
Variance
(14)%
(23)
(18)%
(40) bps
13 %
200 bps
(3)%
110 bps
49 %
Variance
(9)%
(1) Refer to the Business Aircraft guidance and forward-looking statements section hereafter for further details on guidance for 2018. Guidance
for 2018 reflects the adoption of IFRS 9, Financial instruments and IFRS 15, Revenue from contracts with customers.
(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.
KEY HIGHLIGHTS AND EVENTS
• Business Aircraft’s 2017 financial performance met or exceeded guidance delivering 140 aircraft. Revenues
were $5.0 billion with EBIT margins before special items(1) of 8.4%.
• For the fourth quarter, deliveries reached 44 units, including a strong mix of Challenger and Global family
aircraft, representing 29 and 13 deliveries respectively. These families of aircraft continued to lead their
respective market segments during the quarter.
• The 200 bps improvement in EBIT margin before special items(1) reflects our continued operating discipline,
and stronger contribution from the aftermarket business, benefiting from recent investments to increase
service capacity and portfolio of offerings. In line with the aftermarket growth strategy, revenues from these
activities grew by more than 10% in 2017.
• Demonstrating continued focus on driving financial performance in any market, EBIT before special items(1)
grew 35% over the past two years, from $308 million to $416 million, even as we managed lower revenues
by approximately 30%. As such, the segment is poised to benefit from its increased production efficiency and
leaner cost structure when the Global 7000 enters-into-service and the business aircraft market recovers.
• The fourth quarter of 2017 was the strongest in terms of order intake compared to the previous three quarters
of 2017, and higher than the fourth quarters of 2016 and 2015 respectively.
(1) 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.
BOMBARDIER INC. / 2017 FINANCIAL REPORT / BUSINESS AIRCRAFT 45
• The Global 7000 aircraft continues to perform extremely well and to exhibit a high level of reliability. The
availability of four FTVs for the entire fourth quarter has accelerated flight testing and the fifth and final FTV
has joined the test program on January 30, 2018. The program has cumulated over 1,500 flight test hours to
date and with multiple aircraft in final assembly, the Global 7000 aircraft is on track for EIS in the second half
of 2018.(1)
.
(1) See the Global 7000 and Global 8000 aircraft program disclaimer at the end of this MD&A.
PROFILE
World-class products
We skillfully design, develop, manufacture, market and provide aftermarket support for three class-leading
families of business jets - Learjet, Challenger and Global. Our business jet portfolio spans from the light to the
large categories.
With approximately 4,700 aircraft in service worldwide, Business Aircraft has developed a service and support
network of service facilities including wholly-owned service centers in the U.S., Europe and Asia, regional support
office (RSO) locations, mobile repair trucks and world-class aircraft parts availability sustained by parts facilities,
including depots, hubs and repair facilities worldwide.
MARKET SEGMENT: BUSINESS AIRCRAFT
LIGHT BUSINESS JETS
Models: Learjet 70, Learjet 75
Market category: Light business jets
Key features(1): As part of the well-established Learjet
family, of which 3,000 aircraft have been delivered to date,
the class-defining Learjet aircraft continue to set the
standard by bringing large jet features to a light jet
platform. Learjet aircraft feature a flat floor throughout the
cabin, offering a smooth ride and the ultimate in comfort.
The Learjet 75 further distinguishes itself as the only
business jet in its class to feature an eight-seat double-
club configuration and forward pocket door.
(1) Under certain operating conditions, when compared to aircraft currently in service.
Learjet 75 aircraft
46 BOMBARDIER INC. FINANCIAL REPORT - FISCAL YEAR ENDED DECEMBER 31, 2017
MID-SIZE BUSINESS JETS
Models: Challenger 350 and Challenger 650
Market category: Medium business jets
Key features(1): A masterful expression of high-end
craftsmanship and functionality, the Challenger family of
aircraft features productivity-enhancing business tools,
with the most comfortable cabins in its category. Each
aircraft offers low operating costs, high reliability, and the
ultimate in-flight experience with industry-leading
connectivity, immersive sound system and cabin
management system that effortlessly bring it all together.
The Challenger 350 aircraft has been the most delivered
medium business jet for the last 10 years.
During 2017, the Challenger 650 aircraft has out delivered
direct competition 2 to1.
LARGE BUSINESS JETS
Models: Global 5000, Global 6000, Global 7000(2) and
Global 8000(2)
Market category: Large business jets
Key features(1): Skillfully designed to leave a lasting
impression, the flagship Global aircraft family covers the
large jet category with four aircraft models that feature a
smooth ride and intelligently crafted interiors with the new
Premier cabin that balances luxury with productivity and
feature the industry’s fastest worldwide inflight internet
connectivity combined with comprehensive cabin
management systems to keep passengers entertained
and connected at all times.
The Global 5000 and Global 6000 aircraft are the most
delivered large category aircraft.
The segment-defining Global 7000 aircraft extends the
family with a true four-zone cabin, full crew-rest area and
even longer range to link virtually any key city pair
worldwide, non-stop. The Global 7000 aircraft is expected
to enter into service in the second half of 2018.
Challenger 650 aircraft
Global 7000 aircraft
(1) Under certain operating conditions, when compared to aircraft currently in service.
(2) Currently under development. See the Global 7000 and Global 8000 aircraft program disclaimer at the end of this MD&A.
BOMBARDIER INC. / 2017 FINANCIAL REPORT / BUSINESS AIRCRAFT 47
MARKET SEGMENT: CUSTOMER SERVICES
MAINTENANCE: ADDING VALUE THROUGHOUT THE LIFECYCLE
Services portfolio: Extensive, worldwide capabilities to maximize scheduled maintenance as well as value added packages,
including refurbishment and modification of business aircraft, and component repair and overhaul services. Through original
equipment manufacturer expertise, a wide variety of services can be performed in house, as well as through dispatching
mobile repair teams to customers’ aircraft.
Key features: Offering worldwide service and support through wholly-owned service centers, authorized service facilities
including line maintenance facilities, one wholly-owned line maintenance station, Bombardier mobile response vehicles and
one aircraft.
OFFERING PEACE OF MIND THROUGH PARTS AND SMART SERVICES
Services portfolio: Providing manufacturer approved parts backed by industry leading 2-year warranty, as well as repairs to
customer owned parts, and a growing portfolio of innovative cost-per-flight-hour parts and maintenance plans available for
Learjet, Challenger and Global aircraft. Options include the newest Smart Services offering, which can be tailored to include
landing gear overhaul and unscheduled maintenance coverage.
Key features: Supporting 24/7 parts support with parts facilities worldwide anchored by three major hubs in Chicago,
Frankfurt and Singapore, as well as seven regional depots. A sophisticated inventory management system ensures worldwide
parts availability throughout the depot and hub network as well as the wholly-owned service centers. Repair facilities in North
America and Europe provide repair services on customer-owned parts. Unlimited access to Parts Express to shuttle parts in
support of aircraft-on-ground requirements. From coverage on exchanges and repairs of airframe components, including flight
deck avionics, Smart Services provides budget predictability and worldwide parts availability.
24/7 CUSTOMER SUPPORT
Services portfolio: Comprehensive portfolio of business aircraft customer support including 24-hour customer response
centers, customer services engineering, a network of field service personnel, customer response team trucks, regional support
offices, technical publications, and EIS support.
Key features: Providing operators with a single point of contact, 24 hours a day, 365 days a year, for all critical and aircraft-
on-the-ground requests and supporting all customer requirements from EIS throughout ownership of the aircraft by leveraging
a global support network of strategically located teams.
TRAINING: WE KNOW THE AIRCRAFT
Services portfolio: Providing a complete range of flight crew and technical training services on business aircraft at two
facilities and through a network of strategic partnerships worldwide. We also provide technical training services on site at
customer locations.
Key features: A leading business jet manufacturer that provides training on its own aircraft programs. Training is provided
through custom state-of-the art classroom technology systems, and a suite of high fidelity training devices and certified Level
D Full Flight Simulators.
48 BOMBARDIER INC. FINANCIAL REPORT - FISCAL YEAR ENDED DECEMBER 31, 2017
INDUSTRY AND ECONOMIC ENVIRONMENT
The market continued to show signs of improvement in 2017
In 2017, the market has shown signs of improvement as indicators such as the industry confidence index, U.S.
corporate profits and pre-owned business jet inventory levels were trending in the right direction compared to the
previous year. Furthermore, the industry improved its book-to-bill ratio compared to the prior year.
World GDP growth in 2017 was at 3.0% compared to 2.4% in 2016.(1) The increase is due to modest growth in
developed markets combined with some recovery in emerging markets such as Brazil and Russia. Based on the
latest UBS Business Jet Market Index published in October 2017, the measure of industry confidence increased
to 53 points and was above the threshold of market stability.(2) Forecast U.S. Corporate profits for 2017 is also
expected to increase to $2.2 trillion.(3) As well, the inventory of pre-owned aircraft expressed as a percentage of
the overall fleet has been decreasing and remains healthy at 10.1%. The continued improvement of these
indicators should help create better conditions for future demand.
The following key indicators are used to monitor the health of the business aviation market in the short term:
INDICATOR
INDUSTRY
CONFIDENCE
CURRENT SITUATION
STATUS
Based on the latest UBS Business Jet Market Index published in October 2017, the measure
of industry confidence came in at 53 points,(2) and was above the threshold of market stability.
The worldwide index was 2 points higher than the fourth quarter of 2016, mainly due to an
improved level of pre-owned business jets inventories, increased willingness to increase
inventory levels and an improved view of pricing.
CORPORATE
PROFITS
Forecast U.S. corporate profits are expected to increase year-over-year by 5.4% to $2.2
trillion for 2017.(3)
PRE-OWNED
BUSINESS JETS
INVENTORY
LEVELS
AIRCRAFT
UTILIZATION
RATES
AIRCRAFT
SHIPMENTS
AND BILLINGS
The total number of pre-owned aircraft available for sale as a percentage of the total
worldwide fleet has decreased over the past year to 10.1%, the lowest level in over a decade.
We consider this level of pre-owned inventory to be at the lower end of the historical range
and is a healthy level.
The pre-owned inventory levels of the light, medium and large category aircraft have all
experienced a decrease over the past year.
Business jet utilization in the U.S. slightly increased by 1.4% in 2017 compared to 2016.
Business jet utilization in Europe increased by 6.4% in 2017 compared to 2016.
In the business aircraft market categories in which we compete, we estimate that business
aircraft deliveries and total billings declined in 2017 compared to 2016.(4)
Identifies a favourable, neutral or negative status, respectively, in the market categories in which we compete, based on the current
environment.
(1) According to “Oxford Economics Global Data Report” dated January 19, 2018.
(2) According to the UBS Business Jet Survey dated October 5, 2017.
(3) According to the U.S. Bureau of Economic Analysis News Release dated December 21, 2017.
(4) Based on our estimates and public disclosure records of certain competitors.
BOMBARDIER INC. / 2017 FINANCIAL REPORT / BUSINESS AIRCRAFT 49
Source: UBS
* The UBS Business Jet Market Index is a measure of market
confidence of industry professionals, gathered through bi-monthly
surveys of brokers, dealers, manufacturers, fractional providers,
financiers and others.
Sources: JETNET and Ascend online
* As a percentage of total business jet fleet, excluding very light jets.
Shaded area indicates what we consider to be the normal range
of total pre-owned business jet inventory available for sale, i.e.
between 11% and 14%.
Source: U.S. Federal Aviation Administration (FAA) website
Source: Eurocontrol
Short-term outlook
We project the continued stabilization of the business jet market due to a better economic outlook combined with
the introduction of new aircraft models and technologies.
GDP growth for North America and Europe is estimated to be 2.7% and 2.3%, respectively for 2018. Emerging
markets such as Brazil and Russia are forecast to gradually come out from their respective economic slowdowns.
GDP growth for Brazil and Russia is estimated to be 2.5% and 1.8%, respectively for 2018.(1)
(1) According to “Oxford Economics Global Data Report” dated January 19, 2018.
50 BOMBARDIER INC. FINANCIAL REPORT - FISCAL YEAR ENDED DECEMBER 31, 2017
Long-term outlook
In the longer term, all demand drivers are well-oriented. Wealth creation, internationalization of trade, and the
continued emergence of developing countries will grow our customer base.The retirement of older models
combined with the introduction of new models will help meet the needs of new customers. The introduction of new
ownership models, such as fractional and charter businesses will make business aviation even more accessible.
Business aviation is poised for growth and with the industry’s most comprehensive product portfolio, we are well
positioned.
Customer services
Business Aircraft’s worldwide customer services network includes wholly owned service centers, parts hubs, parts
depots, line maintenance facilities, regional support offices, customer response centers, mobile customer
response teams, training centers as well authorized service facilities and authorized training providers.
The demand for service and support is driven by the size of the fleet of Bombardier Business Aircraft, by the
number of hours flown by said fleet and the average age of the fleet. Based on Business Aircraft’s large installed
base, we will continue to focus on these high margin activities.
Market indicators
INDICATOR
INSTALLED BASE
AVERAGE ANNUAL
FLIGHTS HOURS
AVERAGE AGE OF
FLEET
CURRENT SITUATION
STATUS
The installed base for Bombardier Business Aircraft increased by approximately 3% to
4,729 aircraft in 2017 compared to 4,595 in 2016.(1)
Based on our estimates, Bombardier Business Aircraft average annual flight hours
increased by 2.9% in 2017 compared to last year.
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. The average age of the Bombardier Business Aircraft fleet has decreased by
5% in 2017 when compared to 2016.(1)
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 Ascend fleet database by Flightglobal.
Short-term outlook
Based on the market indicators above, the demand for parts and service programs is expected to grow. We
continue to actively seek out strategic locations for expansion in order to move closer to customers, further
improve response times and build stronger relationships around the globe.
Historically, the U.S. represented the largest share of the fleet for business aircraft, however, wealth creation and
economic development in non-traditional markets is driving a shift in the proportion of the business aircraft fleet
outside of the U.S. This trend in demand impacts the geographical layout of our support network. In non-
traditional markets, the strategy is to increase our local customer-support presence and leverage third parties to
deploy the full span of services.
Long-term outlook
The continued growth of the installed base is expected to stimulate demand for customer services. While
traditional markets such as North America and Europe should dominate in terms of market size, the fleet growth in
non-traditional markets should create new opportunities for aftermarket services.
BOMBARDIER INC. / 2017 FINANCIAL REPORT / BUSINESS AIRCRAFT 51
ANALYSIS OF RESULTS
Performing in any market
Results of operations
Revenues
EBITDA before special items(1)
Amortization
EBIT before special items(1)
Special items
EBIT
EBIT margin before special items(1)
EBIT margin
$
$
$
$
$
Fourth quarters
ended December 31
2016
2017
1,651
1,473
150
151
50
31
100
120
1
(9)
99
129
6.1%
8.1%
6.0%
8.8%
$
$
$
$
$
$
Fiscal years
ended December 31
2016
2017
5,741
4,961
528
513
159
97
369
416
(108)
25
477
391
6.4%
8.4%
8.3%
7.9%
$
(1) Non-GAAP financial measures. Refer to the Non-GAAP financial measures section in Overview for definitions of these metrics.
Revenues
Lower aircraft revenues, mainly due to planned
lower deliveries, and lower revenues from sales of
pre-owned aircraft, reflecting a lower level of pre-
owned aircraft inventory, partially offset by higher
revenues from aftermarket activities are the main
drivers of the $178-million and $780-million
decreases for the fourth quarter and the fiscal year,
respectively.
Special items
Special items comprise items which do not reflect our core performance or where their separate presentation will
assist users in understanding our results for the period, such as the impact of restructuring charges and
significant impairment charges and reversals.
Special items in EBIT were as follows:
Re-negotiation of a commercial agreement
Restructuring charges
Pension obligation
Reversal of Learjet 85 aircraft program cancellation
provisions
EBIT margin impact
Ref
1
2
3
4
$
$
Fourth quarters
ended December 31
2016
2017
—
—
6
8
—
—
$
(17)
(9)
0.7%
$
(5)
1
(0.1)%
Fiscal years
ended December 31
2016
2017
—
35
14
18
(63)
—
$
(28)
25
(0.5)%
$
(59)
(108)
1.9%
$
$
52 BOMBARDIER INC. FINANCIAL REPORT - FISCAL YEAR ENDED DECEMBER 31, 2017
1. A provision was taken during the second quarter of 2017 to reflect the anticipated outcome of a re-negotiation
of a commercial agreement with a third party.
2. Represent restructuring charges related to previously-announced restructuring actions.
3. Bombardier had a constructive obligation for discretionary ad hoc indexation increases to certain pension
plans. Following a communication to plan members, in the second quarter of 2016, that we do not expect to
grant such increases in the foreseeable future in line with our current practice, the constructive obligation
amounting to $63 million was reversed.
4. Based on the ongoing activities with respect to the cancellation of the Learjet 85 aircraft program, we reduced
the related provisions by $28 million and $59 million in 2017 and 2016, respectively. The reduction in
provisions is treated as a special item since the original provisions were also recorded as special charges in
2014 and 2015.
EBIT margin
The EBIT margin before special items for the three-month period increased by 2.0 percentage points, mainly as a
result of:
•
•
lower aerospace program tooling amortization included in R&D expense; and
stronger contribution from aftermarket activities.
Including the impact of special items (see explanation of special items above), the EBIT margin for the three-
month period increased by 2.8 percentage points compared to the same period last year.
The EBIT margin before special items for the fiscal year increased by 2.0 percentage points, mainly as a result of:
lower aerospace program tooling amortization included in R&D expense; and
stronger contribution from aftermarket activities.
•
•
Partially offset by:
•
lower absorption of SG&A expenses due to lower revenues as planned..
Including the impact of special items (see explanation of special items above), the EBIT margin for the fiscal year
decreased by 0.4 percentage point compared to the last fiscal year.
The Global 7000 aircraft on target
for EIS in second half of 2018
Investment in product development
Program tooling(1)
R&D expense(2)
As a percentage of revenues
$
$
Fourth quarters
ended December 31
2016
2017
220
238
2
1
222
239
13.4%
16.2%
$
$
$
$
Fiscal years
ended December 31
2016
2017
710
1,004
6
10
716
1,014
12.5%
20.4%
$
$
(1) Net amount capitalized in aerospace program tooling.
(2) Excluding amortization of aerospace program tooling of $21 million and $51 million, respectively, for the fourth quarter and fiscal year ended
December 31, 2017 ($38 million and $120 million, respectively, for the fourth quarter and fiscal year ended December 31, 2016), as the
related investments are already included in aerospace program tooling.
The carrying amount of business aircraft program tooling(1) as at December 31, 2017 was $3.6 billion, compared
to $2.6 billion as at December 31, 2016. The increase in the net carrying value of business aircraft program
tooling as at December 31, 2017 is mainly due to tooling additions for the Global 7000 and Global 8000 aircraft
program.
(1) Capitalized borrowing costs included in the business aircraft aerospace program tooling balance amounted to $441 million as at December
31, 2017 ($266 million as at December 31, 2016).
BOMBARDIER INC. / 2017 FINANCIAL REPORT / BUSINESS AIRCRAFT 53
Reconciliation of the carrying amount of aerospace program tooling
Balance as at December 31, 2016
Investment in product development
Amortization of aerospace program tooling
Balance as at December 31, 2017
$
$
2,631
1,004
(51)
3,584
Recognizing the long-term nature of product development activities, as well as the significant human and financial
resources required, a gated product development process is followed focusing on early identification and
mitigation of potential risks. All programs follow the Bombardier Engineering System throughout the product
development cycle. The product development process is constantly refined to integrate the lessons learned from
our 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 the Design for Environment approach,
health and safety considerations are also embedded in product design.
PRODUCT DEVELOPMENT PROCESS
Stage
Description
JTAP
JCDP
Conceptual definition
Launch preparation
Preliminary definition
JDP
Detail definition
DDP
Product definition release
Product certification
Program completion
Joint Technical Assessment Phase - Preliminary review with potential partners and
suppliers to analyze technologies desired to build or modify an aircraft.
Joint Conceptual Definition Phase - Cooperative effort with 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 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.
The Global 7000 and Global 8000 aircraft program
On January 30, 2018, the fifth and final Global 7000 flight test vehicle joined the Global 7000 and Global 8000
flight test program, which has accomplished more than 1,500 flight hours. FTV5 will validate all flight and ground
tests completed to date, including extensive ground vibration and static rig testing. In October 2017, Bombardier
publicly debuted the aircraft at the National Business Aviation Association (NBAA) Conference and Exhibition in
Las Vegas. The final assembly line activities are ramping up as multiple customer aircraft are now in production.
In addition, ground testing progresses successfully with several test rigs and we have now met the full airframe
fatigue test milestone as required by authorities for EIS. We will continue to advance the test program to ensure
all systems operate with the highest level of reliability and to ensure the aircraft meets or exceeds the highest
level of safety.
The Global 7000 and Global 8000 aircraft program manufacturing process makes use of the highest caliber
technology, including a state-of-the-art automated positioning system using laser-guided measuring to join the
wing structure to the fuselage with a very high level of precision.
54 BOMBARDIER INC. FINANCIAL REPORT - FISCAL YEAR ENDED DECEMBER 31, 2017
The category-defining Global 7000 aircraft is expected to enter into service in the second half of 2018. It is
expected to set the standard for a new category of large business jets, as the first and only clean-sheet business
jet with four living spaces.
Aircraft deliveries exceeded guidance
Business aircraft deliveries(1)
(in units)
Light
Learjet 70/75
Medium
Challenger 350
Challenger 605/650
Challenger 850
Large
Global 5000/Global 6000
Fourth quarters
ended December 31
2016
2017
Fiscal years
ended December 31
2016
2017
2
22
7
—
13
44
11
19
11
—
13
54
14
56
23
2
45
140
24
62
26
—
51
163
(1) Deliveries in the third and fourth quarters of 2017 and in the fourth quarter of 2016 each included the sale of one aircraft to Commercial
Aircraft. In our consolidated financial statements, the revenue and margin associated with these aircraft have been reversed and will be
recognized once the specialized aircraft solutions to suit the needs of an external customer for mission requirements will have been
completed on the aircraft.
Industry-leading backlog
Order backlog
(in billions of dollars)
As at
December 31, 2017 December 31, 2016
15.4
14.0
$
$
For the three-year period ended December 31, 2017, we captured a 34% market share in the overall market in
which we compete, based on revenue, and 30% of the market share based on units delivered. We were the
market leader in terms of units delivered and second in terms of revenues. This compares with a market share of
36% and 32% based on revenues and units delivered respectively for the three-year period ended
December 31, 2016 during which we were also the market leader in terms of units delivered and second in terms
of revenues.(1)
(1) Based on our estimates, competitors’ public disclosure, the General Aviation Manufacturers Association (GAMA) shipment reports, Ascend
Flight Global and B&CA Magazine list prices.
Workforce
Total number of employees
Permanent(1)
Contractual(2)
December 31, 2017
9,700
500
10,200
As at
December 31, 2016
9,000
400
9,400
Percentage of permanent employees covered by collective agreements
45%
41%
(1) Including inactive employees.
(2) Including non-employees and sub-contractors personnel.
BOMBARDIER INC. / 2017 FINANCIAL REPORT / BUSINESS AIRCRAFT 55
The workforce as at December 31, 2017 increased by 800 employees, or 9%, when compared to last year.
This increase is mainly related to strategic hiring to support the production ramp-up for the Global 7000 and
Global 8000 aircraft program and our growth strategy in aftermarket business, partially offset by reductions
including impacts of previously-announced restructuring actions.
Our incentive-based compensation plan for non-unionized employees across our sites rewards the collective
efforts of our employees in achieving our objectives using performance indicator targets. A total of approximately
5,800 employees worldwide, or 60% of permanent employees, participate in the program. In 2017, as part of this
program, incentive-based compensation was linked to the achievement of targeted results, based on EBIT before
special items and free cash flow before net interest and income taxes.
GUIDANCE AND FORWARD-LOOKING STATEMENTS
Original 2017
guidance
Latest 2017
guidance
What we did
in 2017
What’s next for
2018(1)(2)(3)
Revenues
~ $5.0 billion
No change
EBIT margin before special items
~ 7.5%
~ 8.0%
Aircraft deliveries (in units)
~135
No change
2017 guidance
$5.0 billion
8.4%
140
~ 135
During the second quarter of 2017, we increased our Business Aircraft EBIT margin before special items(2)
guidance for the full year 2017 to approximately 8.0%, mainly due to the strong performance in the first half of the
year.
The additional deliveries relative to guidance stem from capturing market opportunities, particularly in the fourth
quarter. The combination of higher deliveries with a higher proportion of medium and large aircraft as well as
growth in aftermarket activities and progress made on transformation initiatives explains the stronger EBIT margin
before special items(2) performance compared to our guidance.
Our strategy to achieve 2018 guidance
We continue to manage our business with prudence and discipline and as such, we anticipate a similar level of
revenues and deliveries in 2018 compared to 2017. We continue to focus on growth from aftermarket activities as
well as progress on transformation initiatives as we prepare for the EIS of the Global 7000 aircraft.
(1) See Forward-looking statements in boxed text below for details regarding the assumptions on which the guidance is based. Also see forward-
looking statements disclaimer in Overview.
(2) Profitability guidance is based on EBIT margin before special items. Refer to the Non-GAAP financial measures section in Overview for a
definition of this metric and to the Analysis of results section for a reconciliation to the most comparable IFRS measures.
(3) Guidance for 2018 reflects the adoption of IFRS 9, Financial instruments and IFRS 15, Revenue from contracts with customers.
56 BOMBARDIER INC. FINANCIAL REPORT - FISCAL YEAR ENDED DECEMBER 31, 2017
Forward-looking statements
Forward-looking statements(1) in this section of the MD&A are based on:
• deliveries based on current firm order backlog and estimated future order intake;(2)
• a similar level of aircraft deliveries in fiscal year 2018 compared to fiscal year 2017 as well as growth from customer
services;
•
•
the alignment of production rates to market demand;
the continued deployment and execution of key transformation initiatives, especially those impacting direct and indirect
procurement costs, labour efficiency and working capital improvement;
• our ability to execute and deliver business model enhancement initiatives;
• our ability to meet scheduled EIS dates and planned costs for the Global 7000 and Global 8000 aircraft program;
• our ability to recruit and retain highly skilled resources to deploy our product development strategy;
•
• competitive global environment and global economic conditions to remain similar; and
• stability of foreign exchange rates.
the ability of our supply base to support planned production rates;
(1) Also refer to the Guidance and forward-looking statements section in Overview.
(2) Demand forecast is based on the analysis of main market indicators, including real GDP growth, industry confidence, corporate
profitability within our customer base, pre-owned business jet inventory levels, aircraft utilization, aircraft shipments and billings, installed
base and average age of the fleet. For more details, refer to the market indicators in the Industry and economic environment section.
BOMBARDIER INC. / 2017 FINANCIAL REPORT / BUSINESS AIRCRAFT 57
COMMERCIAL AIRCRAFT
The data presented in 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 section in Overview
for further detail.
Table of Contents
KEY
PERFORMANCE
MEASURES
AND METRICS
AT A
GLANCE
PROFILE
INDUSTRY AND
ECONOMIC
ENVIRONMENT
ANALYSIS OF
RESULTS
STRATEGIC
PARTNERSHIP
GUIDANCE
AND
FORWARD-
LOOKING
STATEMENTS
58
59
60
63
68
74
75
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
• Order backlog, as a measure of future revenues.
• Book-to-bill ratio(1), as an indicator of future revenues.
• Revenues and delivery units, as measures of growth.
• Market share (in terms of revenues and units delivered), as measures of our competitive positioning.
• EBIT, EBIT margin, EBIT before special items(2) and EBIT margin before special items(2), as
measures of performance.
LIQUIDITY
• Free cash flow(2), as a measure of liquidity generation.
CUSTOMER
SATISFACTION
• On-time aircraft deliveries, as a measure of meeting our commitment to customers.
• Fleet dispatch reliability, as a measure of our products’ reliability.
• Regional availability of parts and material to support customer requests, as a measure of meeting
customer need for the entire life of the aircraft.
• Schedule completion rate, as a measure of the percentage of our airline customers’ scheduled
revenue departures that do not incur a cancellation.
(1) Defined as the ratio of 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.
58 BOMBARDIER INC. FINANCIAL REPORT - FISCAL YEAR ENDED DECEMBER 31, 2017
AT A GLANCE
Unleashing the full value of the C Series aircraft
Original 2017
Guidance
Latest 2017
Guidance
What we did in
2017
Guidance for
2018(1)(2)
Revenues
~ $2.9 billion
~ $2.5 billion
$2.4 billion
~ $2.7 billion
EBIT before special items
~ ($400 million)
no change
($377 million)
~ ($350 million)
Aircraft deliveries (in units)
80 to 85
~ 70 to 75, including
~ 20 to 22 C Series
73, including
17 C Series and
56 CRJ and Q400
~ 75, including
~ 40 C Series and
~ 35 CRJ and Q400
RESULTS
For the fiscal years ended December 31
Revenues
Aircraft deliveries (in units)
Net orders (in units)
Book-to-bill ratio(3)
EBIT
EBIT margin
EBIT before special items(2)
EBIT margin before special items(2)
EBITDA before special items(2)
EBITDA margin before special items(2)
Net additions to PP&E and intangible assets
As at December 31
Order backlog (in units)
$
2017
$ 2,382
73
70
1.0
(385)
(16.2)%
(377)
(15.8)%
(305)
(12.8)%
107
$
$
$
$
2016
$ 2,617
86
161
1.9
(903)
(34.5)%
(417)
(15.9)%
(353)
(13.5)%
392
$
$
$
2017
433
2016
436
Variance
(9)%
(13)
(91)
(0.9)
57 %
1830 bps
10 %
10 bps
14 %
70 bps
(73)%
Variance
(3)
(1) Refer to the Commercial Aircraft guidance and forward-looking statements section hereafter for further details on guidance for 2018.
Guidance for 2018 reflects the adoption of IFRS 9, Financial instruments and IFRS 15, Revenue from contracts with customers. The 2018
guidance assumes the continued consolidation of the C Series program for the entire 2018 fiscal year. Following the anticipated closing of
the C Series partnership with Airbus, we will no longer consolidate the C Series program. Should the closing of the C Series partnership
with Airbus occur before the end of 2018, the resulting de-consolidation of the C Series program will have an impact on our results and
guidance.
(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.
(3) Ratio of net orders received over aircraft deliveries, in units.
KEY HIGHLIGHTS AND EVENTS
• We are moving ahead and making progress obtaining regulatory approvals for the announced partnership
with Airbus for the C Series aircraft. We expect to obtain all approvals for the partnership in 2018, and in the
meantime, we are conducting site visits and planning for the operation of the U.S. final assembly line in
Mobile, Alabama, and working on other integration streams, consistent with antitrust law. On
January 26,2018, the U.S. International Trade Commission rejected Boeing’s attempt to have tariffs imposed
on C Series aircraft, clearing the path for us to support Delta Air Lines, Inc. this year as we work to close our
partnership with Airbus.
• We delivered 73 aircraft during the year, within the overall guidance range, including 30 Q400, 26 CRJ, and
17 C Series aircraft. This includes 22 aircraft in the fourth quarter, in line with the previous year.
BOMBARDIER INC. / 2017 FINANCIAL REPORT / COMMERCIAL AIRCRAFT 59
We delivered the first two CS300 aircraft to Korean Air Lines, the program’s Asian launch
customer, in the final week of December 2017, and supported their preparation for commercial
service, which began in January 2018.
• The year was marked by a book-to-bill ratio(1) of 1.0 for Commercial Aircraft. During the fourth quarter, we
received orders across all three aircraft families. These orders included the following:
On December 29, 2017, we executed a firm agreement for the sale of 12 CS300 aircraft with
EgyptAir, along with purchase rights for an additional 12 CS300 aircraft. Based on the list price of
the CS300 airliner, the firm-order contract would be valued at approximately $1.1 billion.
On the same day, we signed an agreement for six CRJ900 aircraft with options for six additional
CRJ900 regional jets with an unidentified customer. Based on list price, the firm orders would be
valued at approximately $290 million.
We also signed two Q400 orders, for two aircraft each, with Qazaq Air and Cemair, valued at
approximately $133 million based on list prices.
• Commercial Aircraft’s financial performance for 2017 was marked by the continued production ramp-up of the
C Series aircraft program. As announced in our third quarter financial results, engine delivery delays from
Pratt & Whitney impacted our C Series aircraft deliveries, particularly in the fourth quarter. While revenues
reached $2.4 billion, in line with our guidance, the EBIT loss before special items(2) at $377 million compared
favorably relative to expectations.
(1) Ratio of net orders received over aircraft deliveries, in units.
(2) Non-GAAP financial measure. Refer to the Non-GAAP financial measures section in Overview for definitions of this metric.
PROFILE
A leading portfolio of aircraft in the 60- to 150-seat segments
We design and manufacture a broad portfolio of commercial aircraft in the 60- to 150-seat segments, including,
the CRJ700, CRJ900 and CRJ1000 regional jets as well as the clean-sheet C Series mainline jets and the Q400
turboprop. We provide aftermarket services for these aircraft as well as for the 20- to 59-seat segment. There are
approximately 2,300 active Bombardier aircraft currently in service.
MARKET SEGMENT: COMMERCIAL AIRCRAFT
SINGLE AISLE COMMERCIAL JETS
Models: CS100 and CS300
Market category: Small single-aisle commercial jets
Key features(1): Comprised of the CS100 and the larger
CS300 airliner, the C Series family of aircraft represents
the fusion of performance and technology. The result is
aircraft that deliver unmatched performance and
economics in the small single-aisle segment. Setting a
new standard in single-aisle cabin design and flexibility,
the C Series aircraft offer an unrivaled passenger
experience with larger seats, overhead bins and windows.
The aircraft’s groundbreaking geared turbofan engine,
combined with the aircraft’s advanced aerodynamics,
delivers reduced noise and over 20% fuel burn advantage
compared to in-production aircraft in its class, which
translates directly into a 20% reduction in CO2 emissions.
The C Series aircraft offers up to 18% lower per-
passenger costs than larger, re-engined aircraft and
provides more than 25% cost advantage on direct
maintenance costs, due to its optimized maintenance
program, higher maintenance interval, advanced systems
integration and high technology engine design.
CS100 aircraft
60 BOMBARDIER INC. FINANCIAL REPORT - FISCAL YEAR ENDED DECEMBER 31, 2017
(1) Under certain operating conditions, when compared to aircraft currently in service for short-haul flights up to 500 nautical miles.
REGIONAL JETS
Models: CRJ700, CRJ900 and CRJ1000
Market category: Large regional jets
Key features(1): Designed for hub expansion and point-to-
point services, the CRJ Series aircraft family is optimized
for medium to long distance regional routes. The most
successful regional aircraft program, the CRJ Series
family, offering up to a 10% cash operating cost
advantage, up to 13% lower fuel burn and the lowest CO2
emissions compared to in-production aircraft in its class.
The CRJ Series aircraft’s optimized maintenance plan and
simplified tasks, along with the latest escalation of its
maintenance intervals, create significant savings in direct
maintenance costs. The CRJ Series aircraft family
includes an improved cabin with a more open entrance
area and greater on-board storage capacity, delivering an
enhanced passenger experience.
TURBOPROPS
Model: Q400
Market category: Large turboprop
Key features(1): With its jet-like speed and an extended
range, industry-leading passenger experience and
reduced environmental footprint, the Q400 aircraft is
versatile and can be adapted to meet varied operational
requirements. It is the best performing turboprop in terms
of range and cruise speed and it is the only in-production
turboprop that can be configured to accommodate up to
90 passengers and to enter the 90-seat market segment.
The cargo-passenger combi Q400 aircraft is available in
various configurations and offers cargo capacity while
accommodating passengers.
CRJ900 aircraft
Q400 aircraft
(1) Under certain operating conditions, when compared to aircraft currently in service for short-haul flights up to 500 nautical miles.
BOMBARDIER INC. / 2017 FINANCIAL REPORT / COMMERCIAL AIRCRAFT 61
MARKET SEGMENT: CUSTOMER SERVICES
MAINTENANCE SERVICES: MAXIMIZING THE LIFE OF THE AIRCRAFT
Services portfolio: Extensive capabilities to accommodate aircraft maintenance, refurbishment and modification for
commercial aircraft, as well as mobile repair teams.
Key features: Offering worldwide service and support through Bombardier wholly-owned service centers, authorized service
facilities (ASF) and Bombardier mobile response party teams.
MATERIAL SERVICES: PREDICTABILITY AND DEPENDABILITY
Services portfolio: Providing new parts, initial provisioning services, repairs for customer-owned parts, as well as a growing
portfolio of innovative cost per-flight-hour plans.
Key features: Supporting customers for all their parts needs, with several parts depots worldwide, aircraft-on-the-ground
(AOG) support, best-in-class off-the shelf performance, budget predictability and cost protection.
SUPPORT SERVICES: GLOBAL EXPERTISE 24/7
Services portfolio: Comprehensive portfolio of customer services including 24-hour customer response centers, customer
services engineering, a network of field service personnel, regional support offices, technical publications, and entry-into-
service support.
Key features: Providing operators with a single point of contact, 24 hours a day, 365 days a year, for all critical and AOG
requests. Support all customer requirements from entry-into-service throughout ownership of the aircraft utilizing a global
support network of strategically located teams.
TRAINING SERVICES: GET THE MOST OUT OF OUR AIRCRAFT
Services portfolio: Provides a complete range of flight crew and technical training services on commercial aircraft at wholly-
owned facilities and through a network of strategic partnerships worldwide.
Key features: High-quality learning experience. As an original equipment manufacturer, Bombardier quickly modifies
courseware and training devices to reflect ongoing aircraft enhancements.
62 BOMBARDIER INC. FINANCIAL REPORT - FISCAL YEAR ENDED DECEMBER 31, 2017
INDUSTRY AND ECONOMIC ENVIRONMENT
Positive long-term outlook for the 60- to 150-seat
commercial aircraft market segments
The commercial aircraft market continues its strong performance as passenger traffic levels and airline financial
performance maintained impressive levels in 2017. The following key indicators are used to monitor the health of
the commercial airline industry in the short term:
INDICATOR
CURRENT SITUATION
STATUS
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 7.0%
and 7.9% higher, respectively, for the year-to-date period ended December 2017 compared to the
same period last year.(1)
For domestic commercial air travel specifically, increases in China, the U.S. and India account for
most of the 7.0% increase in RPK compared to the same period last year. On the international
commercial air travel side, increases in Europe, Asia-Pacific, and the Middle East account for most
of the 7.9% increase in RPK compared to the same period last year.(1)
Airlines achieved both domestic and international average passenger load factors of 83.0% and
80.6%, respectively, for the year-to-date period ended December 2017 compared to 82.2% and
79.6%, respectively, for the same period last year.
Air passenger growth for 2017 was robust and strengthened towards the end of 2017, supported
by the upturn in global economic conditions, although the stimulation from lower airfares has
decreased.(1)
During 2017, regional passenger traffic measured by RPK for the four leading U.S. network
carriers and their affiliates,(2) which represent a major portion of the regional airline passenger
traffic in the U.S., our largest market, slightly decreased by 1% compared to 2016.
These airlines achieved an average passenger load factor of 79.6% in 2017, down from the 80.3%
experienced in 2016.
FUEL PRICES
The price of fuel, one of the largest components of the airlines’ operating costs, remains volatile.
The average annual price of Brent crude oil increased from $44 per barrel in 2016 to $54 in 2017.(3)
At the end of 2017, the price rose at $67 per barrel reflecting the net impact of anticipated lower
supply from traditional producers and increasing supply from U.S. oil producers.(3)
AIRLINE
PROFITABILITY
Volatility in crude oil prices should result in continued demand for more fuel efficient aircraft.
Airline financial performance continued to remain positive in 2017. Airline profits are estimated to
be $34.5 billion in 2017, the eighth consecutive year of positive net profits for the industry,
compared to $35.3 billion earned in 2016. North American airlines are expected to generate the
highest profit in terms of dollars and profit margins due to a combination of consolidation, helping
to sustain load factors, and ancillaries, which limits the impact of higher fuel costs, followed by
airlines in Europe and Asia-Pacific. Airline financial performance is forecast to remain strong in
2018 with total profits of $38.4 billion.(4) With recent and expected profitability levels, airlines should
be more inclined to reinvest in their fleets.
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 2017 “Air Passenger Market Analysis and Airlines Financial Monitor” reports.
(2) American Airlines, Delta Air Lines, United Airlines and Alaska Air.
(3) According to the U.S. Energy Information Administration’s (EIA) website.
(4) Per IATA’s forecast in the “Economic Performance of the Airline Industry” December 2017 year-end report.
BOMBARDIER INC. / 2017 FINANCIAL REPORT / COMMERCIAL AIRCRAFT 63
INDICATOR
CURRENT SITUATION
STATUS
ENVIRONMENTAL
REGULATIONS
AIRCRAFT
SHIPMENTS
Environmental issues and new environmental regulations should increasingly shape the
world’s airline industry. These issues can be broadly categorized as: local air quality, aircraft
emissions and community noise. The aviation industry has consistently improved its
environmental performance throughout its history and is expected to continue to do so. The
aviation industry has committed to carbon-neutral growth by 2020 and a 50% reduction in
carbon emissions from 2005 levels by 2050. The application of new technology in aircraft
designs is expected to be important in meeting these commitments and should speed up
retirement of older aircraft worldwide.(1)
Moreover, the recent ICAO Assembly Resolution decided to implement a global market-
based measure in the form of the Carbon Offsetting and Reduction Scheme for International
Aviation (CORSIA).
In the 60- to 100-seat segment, also referred to as the large regional aircraft segment, the
delivery trend has declined by approximately 10% compared to last year.(2) Airlines are
deferring their purchases to upgrade their fleet to larger more fuel efficient regional aircraft
due to lower oil prices.
In the 100- to 150-seat segment, also referred to as the small single-aisle segment, we
anticipate a further increase in deliveries as manufacturers ramp up production levels of
newer generation aircraft. We believe our clean-sheet designed C Series aircraft sets the
new standard in the single-aisle segment.
REPLACEMENT
DEMAND
We estimate that most commercial aircraft have life cycles ranging between 15 to 30 years.
As at December 31, 2017, approximately 1,765 aircraft representing an estimated 25% of
the world’s active fleet in the 60- to 150-seat aircraft segments is over 15 years old
compared to 21% at the end of 2016.(1)
Identifies a favourable, neutral or negative status, respectively, in the market categories in which we compete, based on the current
environment.
(1) According to our “Commercial Aircraft Market Forecast”, published in September 2017 and available at ir.bombardier.com.
(2) Based on data obtained from Ascend fleet database by Flightglobal.
Source: U.S. EIA
Sources: IATA’s forecast in the “Economic Performance of the Airline
Industry” December 2017 year-end report.
E: Estimate; F: Forecast
According to IATA, the world’s airlines are set to post a eighth consecutive year of positive net profits in 2017.
Airline financial performance marginally decreased during the year for North America and Middle East, which is
countered by marginal increases for Europe and Asia-Pacific. The overall decrease, particularly in the U.S., has
been limited as a result of airline mergers and ancillaries.(1)
(1) Per IATA’s forecast in the “Economic Performance of the Airline Industry” December 2017 year-end report.
64 BOMBARDIER INC. FINANCIAL REPORT - FISCAL YEAR ENDED DECEMBER 31, 2017
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 3.0% in 2017, which is higher than the 2.4% increase in 2016.(1)
(1) According to “Oxford Economics Global Data Report” dated January 19, 2018.
Short-term outlook
The current overall positive trend in market indicators as well as the future anticipated growth in GDP rates are
expected to further increase the demand for air travel and the demand for new aircraft is expected to follow. The
world economy is projected to grow by 3.2% in 2018 and 2.9% in 2019 and 2.7% in 2020.(1)
We believe that the market for larger regional aircraft and smaller mainline aircraft should grow in North America
as airlines continue to focus on fleet optimization, fuel-efficiency and reducing environmental impacts. The GDP in
North America, the largest market for commercial aircraft, is expected to grow at 2.7% in 2018, compared to 2.3%
in 2017.(1)
In Europe, the GDP is expected to grow at 2.3% in 2018, followed by consistent growth of approximately 1.9% in
2019 and 1.7% in 2020.(1) In this context, we do not expect much growth in demand for regional aircraft in Europe.
European airlines are likely to continue to focus on consolidation and operational restructuring.
In regions with high growth potential for commercial aviation such as in Greater China and India, growth in 2018 is
expected to be at 6.4% and 7.5%, respectively, compared to 6.8% and 6.2% in 2017, respectively. In recovering
economies like the CIS and Latin America, the expected growth in 2018 is 2.2% and 2.4% respectively.(1)
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 is expected to be met by a combination of pre-
owned and new aircraft.
(1) According to “Oxford Economics Global Data Report” dated January 19, 2018.
Long-term outlook
We remain confident that continuing economic growth
should increase demand for air travel over the next 20
years. The financial outlook for the world’s airlines is
improving as economic growth returns to most regions.
In September 2017, we released our global market
forecast for the 20-year period from 2017 to 2036.(1)
The “Commercial Aircraft Market Forecast” predicts
12,550 aircraft deliveries for 60- to 150-seat commercial
aircraft in the next 20 years compared to our previous
forecast of 12,700 aircraft deliveries in 2015 to 2034.
The 20-year deliveries are valued at $820 billion(2),
driven by deliveries in the small single-aisle segment.
(1) Available at ir.bombardier.com.
(2) Revenue estimates are based on 2017 list prices.
* As stated in our “Commercial Aircraft Market Forecast”,
published in September 2017 and available at ir.bombardier.com
**Revenue estimates are based on 2017 list prices.
BOMBARDIER INC. / 2017 FINANCIAL REPORT / COMMERCIAL AIRCRAFT 65
The forecast deliveries are expected to arise from replacement demand in established markets, such as North
America and Europe, and fleet growth potential in emerging markets. North America is expected to account for
the greatest number of 60- to 150-seat commercial aircraft deliveries, followed by Greater China, Europe and
Latin America.
COMMERCIAL AIRCRAFT FLEET EVOLUTION BY
SEGMENT 2017-2036*
* In units. As stated in our “Commercial Aircraft Market Forecast”, published in September 2017 and available at ir.bombardier.com.
Most new 60- to 150-seat aircraft deliveries to mature aviation markets such as North America, Europe, Oceania
and Northeast Asia (Japan and South Korea) are expected to replace retiring aircraft fleets.
In emerging markets, demand for air travel is growing with economic stimulation and an expanding middle class.
The airline industries in the emerging regions of Other Asia-Pacific, Greater China, India, Latin America and the
CIS are at different stages of maturity, but all are expected to require aircraft with different seat capacities and
operating economics to meet passenger demand.
In the long-term, the worldwide 60- to 150-seat fleet is forecast to grow to 14,250 units by 2036. Approximately
55% of the forecast deliveries are in the small single-aisle segment, for a value of approximately $580 billion.(1)(2)
Airlines in this segment, who have been constrained to the currently available technology on these aircraft, are
anticipated to witness a major fleet transformation. The aircraft in service today in this market segment are older
than larger single-aisle aircraft. There had been little activity to renew the fleet in this segment and as of today, the
C Series is the only clean-sheet design for this market and has entered into service in 2016. While there are other
redesigned aircraft expected to enter the market, the C Series offers superior economics and passenger comfort.
We anticipate to capture a leading share of the 6,800 deliveries in the small single-aisle segment over the next 20
years.(1) Environmental regulations and the requirement to upsize from regional aircraft should provide positive
growth for this segment of the market.
The large regional aircraft segment should see substantial growth over the forecast period with demand for 5,750
aircraft worth $240 billion.(1)(2) Overall, demand for regional aircraft in this segment is expected to be approximately
equally split between turboprops and jets in terms of units.
(1) According to our “Commercial Aircraft Market Forecast”, published in September 2017 and available at ir.bombardier.com.
(2) Revenues are based on estimated segment 2017 list prices.
66 BOMBARDIER INC. FINANCIAL REPORT - FISCAL YEAR ENDED DECEMBER 31, 2017
Customer services
Our worldwide customer services network includes parts hubs, parts depots, authorized service facilities, service
centers, regional support offices, customer response centers, mobile repair team, as well as training centers and
authorized training providers. Supplemental information regarding our support locations can be found in the
Profile section.
The demand for customer services is driven by the size of the fleet of Bombardier Commercial Aircraft, the
number of hours flown by said fleet and the average age of the fleet.
Market indicators
INDICATOR
CURRENT SITUATION
STATUS
INSTALLED
BASE
The installed base for active in-service Bombardier Commercial Aircraft has remained
steady in 2017, compared to 2016, at approximately 2,300 aircraft.(1)
AVERAGE DAILY
FLIGHT HOURS
Based on our estimates, Bombardier aircraft average daily flight hours decreased by
approximately 2.4% for Commercial Aircraft for the 12-month period ended October 31,
2017 compared to the same period 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 is expected to impact the size of the
maintenance market. There has been a slight increase in the average age of the
Bombardier Commercial Aircraft fleet in 2017 compared to 2016.(1)
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 Ascend fleet database by Flightglobal.
Short-term outlook
The installed base for our performance is expected to remain stable. The introduction of the C Series aircraft is
expected to provide an overall increase to the installed base, which in turn is expected to spur new demand for
aftermarket services.
Long-term outlook
The growth from the CSeries aircraft is expected to supersede an expected long-term reduction in the installed
base for our existing programs resulting in an overall increase in the commercial aircraft installed base. While
traditional markets such as North America and Europe should dominate in terms of market size, the fleet growth in
non-traditional markets such as Africa, Middle East, South Asia and China is accelerating and creating new
opportunities for customer services.
In the next 10 years, commercial aircraft industry deliveries should see the highest growth rates in emerging
economies such as South Asia and China. This growing demand, along with our customer services offerings, is
expected to drive growth outside of traditional markets.(1)
Airline financial performance has been improving in the past years to achieve record high levels,(2) but margins are
still driven by major cost drivers such as labour, maintenance, and fuel. Operators are increasingly relentless in
managing costs, including focusing significant attention on managing maintenance expenses.
The global commercial air transport fleet stands at over 26,000 aircraft and is expected to grow at a CAGR of
3.7% to reach approximately 38,000 aircraft by 2028. Over the next 10 years, North America’s share of the fleet is
expected to decline by 6%, as its net growth is constrained by significant re-fleeting efforts of the large operators.
The Asian markets are expected to see the highest growth rates, making it the largest world region over this
forecast period and thus the center of development for the maintenance, repair and overhaul (MRO) industry. The
commercial aircraft global MRO demand is expected to grow from $77 billion to approximately $115 billion by
2028 at a CAGR of 4.0%. (3)
(1) As stated in our “Commercial Aircraft Market Forecast”, published in September 2017 and available at ir.bombardier.com.
(2) Per IATA’s forecast in the “Economic Performance of the Airline Industry” December 2017 year-end report.
(3) According to the “Global Fleet & MRO Market Forecast Commentary 2018-2028” report dated January 2018 prepared by Oliver Wyman.
BOMBARDIER INC. / 2017 FINANCIAL REPORT / COMMERCIAL AIRCRAFT 67
ANALYSIS OF RESULTS
Results reflect production ramp-up of C Series aircraft
Results of operations
Revenues
EBITDA before special items(1)
Amortization
Impairment charges on PP&E and intangible assets
EBIT before special items(1)
Special items
EBIT
EBIT margin before special items(1)
EBIT margin
$
$
$
$
$
Fourth quarters
ended December 31
2016
2017
699
677
(127)
(124)
14
18
—
—
(141)
(142)
3
5
(144)
(147)
(20.2)%
(21.0)%
(20.6)%
(21.7)%
$
Fiscal years
ended December 31
2016
2017
$ 2,617
$ 2,382
(353)
$
(305)
$
64
67
—
5
(417)
(377)
486
8
(903)
(385)
(15.9)%
(15.8)%
(34.5)%
(16.2)%
$
$
(1) Non-GAAP financial measures. Refer to the Non-GAAP financial measures section in Overview for definitions of these metrics.
Revenues
The $22-million decrease for the three-month period
is mainly due to lower revenues from pre-owned
aircraft.
The $235-million decrease for the fiscal year is
mainly due to fewer deliveries of regional jets,
following the previously-announced production rate
adjustment, as well as fewer deliveries of turboprops
and lower revenues from pre-owned aircraft, partially
offset by higher C Series aircraft deliveries.
* Commercial Aircraft deliveries also included 3, 2, and 3
Amphibious aircraft deliveries in 2013, 2014 and 2015,
respectively.
68 BOMBARDIER INC. FINANCIAL REPORT - FISCAL YEAR ENDED DECEMBER 31, 2017
Special items
Special items comprise items which do not reflect our core performance or where their separate presentation will
assist users in understanding our results for the period, such as the impact of restructuring charges and
significant impairment charges and reversals.
The special items were as follows:
Restructuring charge
Onerous contracts provision - C Series aircraft
program
Pension obligation
EBIT margin impact
Ref
1
$
2
3
$
Fourth quarters ended
December 31
2016
3
2017
5
$
—
—
5
(0.7)%
—
—
3
(0.4)%
$
$
$
Fiscal years ended
December 31
2016
3
2017
8
$
—
—
8
(0.4)%
516
(33)
486
(18.6)%
$
1. Represents restructuring charges related to previously-announced restructuring actions.
2.
In conjunction with the closing of C Series aircraft firm orders in the second quarter of 2016, on a consolidated
basis, we recorded an onerous contracts provision of $492 million, net of $24 million included in Corporate
and Elimination.
3. Bombardier had a constructive obligation for discretionary ad hoc indexation increases to certain pension
plans. Following a communication to plan members, in the second quarter of 2016, that we do not expect to
grant such increases in the foreseeable future in line with our current practice, the constructive obligation
amounting to $33 million was reversed.
EBIT margin
The EBIT margin before special items for the three-month period decreased by 0.8 percentage point, mainly as a
result of:
•
•
•
a negative variance of provisions for credit and residual value guarantees recorded in other expenses;
lower absorption of higher SG&A expenses; and
lower aircraft margins, mainly due to the C Series aircraft program production ramp-up.
Partially offset by:
•
•
a positive variance of financial instruments carried at fair value recorded in other expenses; and
improved margins related to pre-owned aircraft activities.
Including the impact of special items (see explanation of special items above), the EBIT margin for the three-
month period decreased by 1.1 percentage point compared to the same period last fiscal year.
•
The EBIT margin before special items for the fiscal year increased by 0.1 percentage points, mainly as a result of:
a positive variance of financial instruments carried at fair value and a gain on disposal of PP&E recorded
in other expenses;
improved margins related to pre-owned aircraft activities; and
stronger contribution from aftermarket activities due to a favourable mix between aftermarket activities
and aircraft deliveries and higher margins this year.
•
•
Partially offset by:
•
lower aircraft margins, mainly due to the C Series aircraft program production ramp-up, partially offset by
a favourable Canadian dollar exchange rate, after giving effect to hedges;
a negative variance of provisions for credit and residual value guarantees recorded in other expenses;and
lower absorption of higher SG&A expenses.
•
•
Including the impact of special items (see explanation of special items above), the EBIT margin for the fiscal year
increased by 18.3 percentage points compared to the same period last fiscal year.
BOMBARDIER INC. / 2017 FINANCIAL REPORT / COMMERCIAL AIRCRAFT 69
Product development
Investment in product development
Program tooling(1)
R&D expense(2)
As a percentage of revenues
$
$
Fourth quarters
ended December 31
2017
29
3
32
4.7%
2016
113
2
115
16.5%
$
$
Fiscal years
ended December 31
2017
122
6
128
5.4%
2016
365
4
369
14.1%
$
$
$
$
Program tooling additions relate to the development of the C Series aircraft program. For the fourth quarter and
fiscal year ended December 31, 2017, program tooling additions declined compared to the same periods last year
as the C Series aircraft program has been certified in 2016.
The carrying amount of commercial aircraft program tooling as at December 31, 2017 was $2.6 billion, at a similar
level compared to $2.6 billion as at December 31, 2016. The carrying amount as at December 31, 2017 is
essentially related to the C Series aircraft program tooling, which is presented under assets held for sale as at
December 31, 2017 along with other CSALP assets and liabilities, following the strategic partnership with Airbus
announced in the fourth quarter of 2017.(3)
(1) Net amount capitalized in aerospace program tooling, as well as the amount that was paid to suppliers upon delivery of the aircraft for
acquired development costs carried out by them.
(2) Excluding amortization of aerospace program tooling of $10 million and $36 million, respectively, for the fourth quarter and fiscal year ended
December 31, 2017 ($10 million and $24 million, respectively, for the fourth quarter and fiscal year ended December 31, 2016), as the
related investments are already included in aerospace program tooling.
(3) Refer to the strategic partnership section in Commercial Aircraft and to the Note 28 - Assets held for sale in the Consolidated financial
statements for more details on the transaction as well as the accounting treatment as at December 31, 2017.
Reconciliation of the carrying amount of aerospace program tooling
Balance as at December 31, 2016
Net investment in product development related to the C Series aircraft
program
Amortization and impairment of aerospace program tooling
Balance as at December 31, 2017
$
$
2,586
90
(41)
2,635
(1)
(1) Following the anticipated closing of our C Series partnership with Airbus, we will de-consolidate the C Series program.The carrying amount
of commercial aircraft program tooling as at December 31, 2017 includes $2,583 million related to the C Series aircraft program, which is
presented under assets held for sale. Refer to the Strategic Partnership section in Commercial Aircraft and to the Note 28 - Assets held for
sale in the Consolidated financial statements for more details on the transaction as well as the accounting treatment as at
December 31, 2017. Capitalized borrowing costs included in the C Series aircraft program tooling balance amounted to $296 million as at
December 31, 2017 ($299 million as at December 31, 2016).
70 BOMBARDIER INC. FINANCIAL REPORT - FISCAL YEAR ENDED DECEMBER 31, 2017
Aircraft deliveries, orders, book-to-bill ratio and order backlog
Aircraft deliveries
(in units)
Commercial jets
CS100
CS300
Regional jets
CRJ700
CRJ900
CRJ1000
Turboprops
Q400
Net orders
(in units)
Commercial jets
CS100
CS300
Regional jets
CRJ900
Turboprops
Q400
Book-to-bill ratio(1)
(1) Ratio of net orders received over aircraft deliveries, in units.
Fourth quarters
ended December 31
2016
2017
Fiscal years
ended December 31
2016
2017
—
5
—
4
3
10
22
3
2
—
5
3
10
23
3
14
1
18
7
30
73
5
2
1
37
8
33
86
Fourth quarters
ended December 31
2016
2017
Fiscal years
ended December 31
2016
2017
—
12
6
4
22
1.0
—
2
—
7
9
0.4
—
12
16
42
70
1.0
75
42
19
25
161
1.9
BOMBARDIER INC. / 2017 FINANCIAL REPORT / COMMERCIAL AIRCRAFT 71
The following significant orders were received during the fiscal year ended December 31, 2017:
Customer
Firm order
Value(1)
Options(2)
Fourth quarter
EgyptAir Holding Company (Egypt)(3)
Undisclosed customer
Third quarter
SpiceJet Limited (India)(4)
Second quarter
Philippine Airlines, Inc. (Philippines)
Ethiopian Airlines Enterprise (Ethiopia)
First quarter
CityJet (Ireland)
12 CS300
6 CRJ900
25 Q400
7 Q400
5 Q400
10 CRJ900
$ 1,100
290
$
—
6 CRJ900
$
$
$
$
850
235
162
467
—
—
—
—
(1) Value of firm order based on list prices.
(2) Not included in the order backlog.
(3) The purchase agreement also includes purchase rights on an additional 12 CS300 aircraft, which are not included in the order backlog as at
December 31, 2017. Based on list price, the order, including the purchase rights, is valued at up to $2.2 billion.
(4) The purchase agreement also includes purchase rights on an additional 25 Q400 aircraft, which are not included in the order backlog as at
December 31, 2017. Based on list price, the order, including the purchase rights, is valued at up to $1.7 billion.
Commercial aircraft order backlog and options
(in units)
Commercial jets
CS100
CS300
Regional jets
CRJ700
CRJ900
CRJ1000
Turboprops
Q400
Firm orders
2017
Options
As at December 31
2016
Options
Firm orders
(1)
(1)
115
233
8
24
10
43
433
94
128
—
6
—
—
228
(1)
(1)
118
235
9
26
17
31
436
99
133
—
18
—
12
262
(1) The total of 348 orders includes 122 firm orders with conversion rights to the other C Series aircraft model as at December 31, 2017 (total of
353 orders includes 137 firm orders with conversion rights to the other C Series aircraft model as at December 31, 2016).
Consistent with our previously-disclosed production rate adjustments, deliveries of regional jets in fiscal year 2017
are lower compared to the same period last year, partially offset by the ramp-up in CS300 aircraft deliveries.
For the three-year period ended December 31, 2017, we captured 27% of the market in the 60- to 100-seat
category based on units delivered. This compares to a market share of 29% for the three-year period ended
December 31, 2016.(1)
The decrease in orders in the year ended December 31, 2017 compared to last year is mainly due to significant
orders for the C Series family of aircraft in the second quarter of 2016 mainly from Delta Air Lines, Inc. as well as
Air Canada, partly offset by the largest ever Q400 turboprops order received in the third quarter of 2017 from
SpiceJet, the launch customer of the extra-capacity 90-seat Q400 aircraft.
The lower level of cancellations during the fiscal year 2017 compared last fiscal year is mainly due to the August
2016 restructuring of the purchase agreement signed in 2013 with Moscow-based leasing company Ilyushin
Finance Co. (IFC). The firm order was modified from 32 CS300 aircraft with options for an additional 10 CS300
aircraft to 20 CS300 aircraft and one Q400 turboprop with options for five additional Q400 aircraft.
(1) Our estimates based on delivery data available from Ascend fleet database by Flightglobal.
72 BOMBARDIER INC. FINANCIAL REPORT - FISCAL YEAR ENDED DECEMBER 31, 2017
During the fourth quarter, we signed a Letter of Intent (LOI) with a European customer for up to 61 C Series
aircraft, including a firm order for 31 aircraft with options for an additional 30 aircraft. Based on list price of the
aircraft, the firm order would be valued at approximately $2.4 billion and would increase to nearly $4.8 billion
should all the options be exercised. This LOI is not included in the order backlog as at December 31, 2017 and
remains subject to the execution of a purchase agreement.
Subsequent to the end of the fiscal year, we announced that we signed a purchase agreement with Conair Group
Inc. for six Q400 aircraft for conversion into Q400 multirole airtankers. Based on list price, the firm order is valued
at approximately $206 million. From this purchase agreement, four aircraft were not included in the order backlog
as at December 31, 2017.
Workforce
Total number of employees
Permanent(1)
Contractual(2)
December 31, 2017
4,700
425
5,125
As at
December 31, 2016
4,800
550
5,350
Percentage of permanent employees covered by collective agreements
42%
42%
(1) Including inactive employees.
(2) Including non-employees and sub-contractors personnel.
The workforce as at December 31, 2017 decreased by 225 employees, or 4%, when compared to previous year.
This decrease is mainly related to reductions including impacts of previously-announced restructuring actions,
partially offset by strategic hiring to support the production ramp-up for the C Series aircraft.
Our incentive-based compensation plan for non-unionized employees across Commercial Aircraft sites rewards
the collective efforts of our employees in achieving our objectives using performance indicator targets. A total of
approximately 2,950 employees worldwide, or 63% of permanent employees, participate in the program. In 2017,
as part of this program, incentive-based compensation was linked to the achievement of targeted results, based
on EBIT before special items and free cash flow before net interest and income taxes.
BOMBARDIER INC. / 2017 FINANCIAL REPORT / COMMERCIAL AIRCRAFT 73
STRATEGIC PARTNERSHIP
Airbus entered into an agreement to acquire a majority stake in the
C Series Aircraft Limited Partnership
On October 16, 2017, we entered into an agreement with Airbus SE (Airbus) whereby Airbus will provide
procurement, sales and marketing, and customer support expertise to the CSALP, the entity that manufactures
and sells the C Series aircraft. At closing, Airbus will acquire a 50.01% interest in CSALP. Bombardier and
Investissement Québec (IQ) will own approximately 31% and 19% respectively.
CSALP’s headquarters and primary assembly line and related functions will remain in Québec, with the support of
Airbus’ global reach and scale. Airbus’ global industrial footprint will expand with the final assembly line in Canada
and additional C Series aircraft production at Airbus’ manufacturing site in Alabama, U.S.
Ownership Structure and Agreement Highlights
The C Series aircraft program is operated by CSALP in respect of which Bombardier and IQ hold approximately a
63% and a 37% interest respectively as at December 31, 2017. The Investment Agreement contemplates Airbus
acquiring a 50.01% interest in CSALP. Airbus will enter into commercial agreements relating to (i) sales and
marketing support services for the C Series aircraft program, (ii) management of procurement, which will include
leading negotiations to improve CSALP level supplier agreements, and (iii) customer support. At closing, there will
be no cash contribution by any of the partners, nor will CSALP assume any financial debt. It also contemplates
that Bombardier will continue with its current funding plan of CSALP and will fund, if required, the cash shortfalls
of CSALP during the first year following the closing up to a maximum amount of $350 million, and during the
second and third years following the closing up to a maximum aggregate amount of $350 million over both years,
in consideration for non-voting participating units of CSALP with cumulative annual dividends of 2%, with any
excess shortfall during such periods to be shared proportionately amongst the Corporation, Airbus and IQ, but in
the latter case, at its discretion.
Airbus will benefit from call rights in respect of all of Bombardier’s interest in CSALP at fair market value, with the
amount for non-voting participating units capped at the invested amount plus accrued but unpaid dividends,
including a call right exercisable no earlier than 7.5 years following the closing, except in the event of certain
circumstances such as changes in the control of Bombardier, in which case the right is accelerated. Bombardier
will benefit from a corresponding put right whereby it could require that Airbus acquire its interest at fair market
value after the expiry of the same period. IQ’s interest is redeemable at fair market value by CSALP, under certain
conditions, starting in 2023. IQ will benefit from a corresponding put right whereby it could require that CSALP,
under certain conditions, acquire its interest at fair market value starting in 2023. IQ will also benefit from tag
along rights in connection with a sale by Bombardier of its interest in the partnership.
The Board of Directors of CSALP will initially consist of seven directors, four of whom will be proposed by Airbus,
two of whom will be proposed by Bombardier, and one of whom will be proposed by IQ. Airbus will be entitled to
name the Chairman of CSALP.
The transaction also provides for the issuance to Airbus, upon closing, of warrants exercisable to acquire up to
100,000,000 Class B Shares (subordinate voting) of Bombardier, at an exercise price per share equal to the US$
equivalent of $2.29 Canadian dollars. The warrants will have a five-year term from the date of issue, will not be
listed and will provide for market standard adjustment provisions, including in the event of corporate changes,
stock splits, non-cash dividends, distributions of rights, options or warrants to all or substantially all shareholders
or consolidations. The Toronto Stock Exchange (TSX) has determined to accept notice of the private placement of
such warrants and has conditionally approved the listing of the Class B Shares issuable pursuant to the terms of
the warrants on the TSX. Listing will be subject to Bombardier fulfilling all the listing requirements of the TSX.
The transaction has been approved by the Boards of Directors of both Airbus and Bombardier, as well as the
Cabinet of the Government of Québec. The transaction remains subject to regulatory approvals, as well as other
conditions usual in this type of transaction. There are no guarantees that the transaction will be completed and
that the conditions to which it is subject would be met. Completion of the transaction is expected in 2018.(1)
(1) See the forward-looking statements disclaimer.
74 BOMBARDIER INC. FINANCIAL REPORT - FISCAL YEAR ENDED DECEMBER 31, 2017
GUIDANCE AND FORWARD-LOOKING STATEMENTS
Original 2017
guidance
Latest 2017
guidance
What we did in
2017
What’s next for
2018(1)(2)(3)(4)
Revenues
~ $2.9 billion
~ $2.5 billion
$2.4 billion
~ $2.7 billion
EBIT before special items
~ ($400 million)
no change
($377 million)
~ ($350 million)
Aircraft deliveries (in units)
80 to 85
~ 70 to 75,
including ~ 20 to
22 C Series
73, including
17 C Series and
56 CRJ and Q400
~ 75, including
~ 40 C Series and
~ 35 CRJ and
Q400
2017 guidance
During the third quarter of 2017, we revised the revenue and delivery guidance for Commercial Aircraft given new
engine delivery delays from Pratt & Whitney for the C Series aircraft. Furthermore, certain engines originally
designated for production aircraft in the fourth quarter were redirected to support spare engine requirements of
current C Series customers. As a result, we adjusted revenue guidance to approximately $2.5 billion and between
approximately 70 to 75 deliveries, including approximately 20 to 22 C Series aircraft deliveries, with no adjustment
to Commercial Aircraft negative EBIT before special items(2) guidance.(1)
Overall deliveries for 2017 were in line with guidance, while deliveries of the C Series aircraft were lower than
anticipated due to short-term delays near the end of the year.
Our strategy to achieve 2018 guidance
During 2018, the production ramp-up of the C Series aircraft family is expected to double compared to 2017, to
approximately 40 planned deliveries. Our production approach for the CRJ Series family and Q400 aircraft will
consist of rate adjustments to approximately 35 deliveries in 2018, reflecting our order backlog.
The profitability guidance for 2018 of negative EBIT before special items(2) of approximately $350 million is an
improvement compared to that of 2017 despite the production which is expected to double in 2018. As production
of the C Series aircraft program ramps up, we expect that the dilutive impact of the initial years of production of
the aircraft program will be partially offset by the expected savings as we mature the production learning curve
and leverage stronger operational performance driven by transformation initiatives.(1)(2)(3)(4)
(1) See Forward-looking statements in boxed text below for details regarding the assumptions on which the guidance is based. Also see
forward-looking statements disclaimer in Overview.
(2) Profitability guidance is based on EBIT before special items. Refer to the Non-GAAP financial measures section in Overview for a definition
of this metric and to the Analysis of results section for a reconciliation to the most comparable IFRS measures.
(3) Guidance for 2018 reflects the adoption of IFRS 9, Financial instruments and IFRS 15, Revenue from contracts with customers. The 2018
guidance assumes the continued consolidation of the C Series program for the entire 2018 fiscal year. Following the anticipated closing of
the C Series partnership with Airbus, we will no longer consolidate the C Series program. Should the closing of the C Series partnership
with Airbus occur before the end of 2018, the resulting de-consolidation of the C Series program will have an impact on our results and
guidance.
(4) The negative EBIT margin before special items is mainly due to the dilutive impact of the initial years of production of the C Series aircraft
program. 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.
BOMBARDIER INC. / 2017 FINANCIAL REPORT / COMMERCIAL AIRCRAFT 75
Forward-looking statements:
Forward-looking statements(1) in this section of the MD&A are based on:
• deliveries based on current firm order backlog and estimated future order intake;(2)
• ability to ramp-up production and deliveries and meet planned costs of the C Series aircraft program, including learning
curve improvements;
• our ability to strengthen our market position and product value proposition for the CRJ Series and Q400 aircraft
•
•
programs;
the alignment of production rates to market demand;
the continued deployment and execution of key transformation initiatives, especially those impacting direct and indirect
procurement costs, labour efficiency and working capital improvement;
• our ability to recruit and retain highly skilled resources;
•
the ability of our supply base to support planned production rates;
• competitive global environment and global economic conditions to remain similar;
• stability of foreign exchange rates; and
•
the 2018 guidance assumes the continued consolidation of the C Series program for the complete 2018 fiscal year.
Following the anticipated closing of its C Series partnership with Airbus, Bombardier will de-consolidate the C Series
program. Should the closing of the C Series program occur before the end of 2018, the resulting de-consolidation by
Bombardier of the C Series program will have an impact on our reported results and guidance.
(1) Also see the Guidance and forward-looking statements section in Overview.
(2) Demand forecast is based on the analysis of main market indicators, including real GDP growth, passenger traffic levels, fuel prices,
airline profitability, environmental regulations, aircraft shipments, replacement demand, installed base, aircraft utilization rates and
average age of fleet. For more details, refer to the market indicators in the Industry and economic environment section.
76 BOMBARDIER INC. FINANCIAL REPORT - FISCAL YEAR ENDED DECEMBER 31, 2017
AEROSTRUCTURES AND ENGINEERING SERVICES
The data presented in 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 section in
Overview for further detail.
Table of Contents
KEY
PERFORMANCE
MEASURES AND
METRICS
AT A
GLANCE
PROFILE
INDUSTRY AND
ECONOMIC
ENVIRONMENT
ANALYSIS OF
RESULTS
GUIDANCE AND
FORWARD-
LOOKING
STATEMENTS
77
78
79
80
81
84
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
• Revenue, as a measure of growth.
• Market share in terms of revenues, as a measure of our competitive positioning.
• EBIT, EBIT margin, EBIT before special items(1) and EBIT margin before special items(1), as
measures of performance.
LIQUIDITY
• Free cash flow(1), as a measure of liquidity generation.
CUSTOMER
SATISFACTION
• On-time delivery of aerostructures, as a measure of meeting our commitment to customers.
EXECUTION
• Achievement of program development milestones, as a measure of flawless execution.
(1) Non-GAAP financial measures. Refer to the Non-GAAP financial measures section in Overview for definitions of these metrics.
BOMBARDIER INC. / 2017 FINANCIAL REPORT / AEROSTRUCTURES AND ENGINEERING SERVICES 77
AT A GLANCE
Contributing to Bombardier’s improving operating performance
Original 2017
Guidance
Latest 2017
Guidance
What we did in
2017
Guidance for
2018(1)(2)
Revenues
~ $1.7 billion
No change
$1.6 billion
~ $2.0 billion
EBIT margin before special items
> 8.5%
~ 8.0%
10.0%
> 8.5%
RESULTS
For the fiscal years ended December 31
Revenues
External order intake
External book-to-bill ratio(3)
EBIT
EBIT margin
EBIT before special items(2)
EBIT margin before special items(2)
EBITDA before special items(2)
EBITDA margin before special items(2)
Net additions to PP&E and intangible assets
As at December 31
External order backlog
2017
1,570
443
1.1
150
9.6%
157
10.0%
207
13.2%
22
2017
87
$
$
$
$
$
$
2016
1,549
392
0.9
128
8.3%
124
8.0%
175
11.3%
20
2016
42
$
$
$
$
$
$
Variance
1%
13%
0.2
17%
130 bps
27%
200 bps
18%
190 bps
10%
Variance
107%
KEY HIGHLIGHTS AND EVENTS
• Financial performance in 2017 for the Aerostructures and Engineering Services segment was in line with our
expectations. Revenues for the year totalled $1.6 billion, while EBIT margin before special items(1) was
10.0%. The significant increase in EBIT margin before special items(1) in the fourth quarter at 15.3%, relative
to guidance and the prior year, demonstrates the positive evolution of anticipated cost reductions on
components manufactured by us for the C Series aircraft, as accounted for under long-term contract
accounting.
• During the quarter, Aerostructures and Engineering Services announced that it has been selected by Airbus
as a supplier on a new engine nacelle program for the Pratt & Whitney powered A320neo family of aircraft.
This contract reinforces our long-term strategy to grow our capabilities in the nacelles market and to focus on
delivering innovative, higher value products and services.
(1) Refer to the Aerostructures and Engineering guidance and forward-looking statements section hereafter for further details on guidance for
2018. Guidance for 2018 reflects the adoption of IFRS 9, Financial instruments and IFRS 15, Revenue from contracts with customers.
(2) Non-GAAP financial measures. Refer to the Non-GAAP financial measures section in Overview for definitions of these metrics and the
Analysis of results section for reconciliations to the most comparable IFRS measures.
(3) Ratio of new external orders over external revenues.
78 BOMBARDIER INC. FINANCIAL REPORT - FISCAL YEAR ENDED DECEMBER 31, 2017
PROFILE
World class capabilities
Specialized in aerostructures manufacturing and engineering services, Aerostructures and Engineering Services
designs and builds aerostructures for Bombardier and other aircraft and aerostructure manufacturers.
Aerostructures and Engineering Services is the largest aerostructures supplier for Bombardier’s sustaining
programs as well as for the C Series and the Global 7000 and Global 8000 programs, providing structures such as
cockpits, all-composite wings for the C Series aircraft program and the rear fuselage for the Global 7000 and Global
8000 aircraft program. Our key focus over the short to medium term remains to develop new technologies, deliver
on-time and achieve cost savings to drive competitiveness of our current sustaining programs and programs under
development.
We have manufacturing and engineering sites in Montréal, Canada; Belfast, Northern Ireland; Querétaro, Mexico;
and Casablanca, Morocco. In addition, there are service centers in Dallas, U.S. and in Belfast, Northern Ireland,
which provide maintenance services for structures, including major modifications and repairs.
Our people, capabilities and state-of-the-art technologies provide customers with products and services in the
following areas:
Complex composite and metallic aerostructures
cockpit and fuselage components;
horizontal stabilizers, vertical stabilizers and
tailcones;
complete composite wings, including wing sub-
assemblies and components;
engine nacelles; and
doors.
Associated aircraft systems
electrical harnesses;
tubing components; and
high pressure ducting.
Engineering solutions
aircraft structures design and stress analysis; and
ground test services.
BOMBARDIER INC. / 2017 FINANCIAL REPORT / AEROSTRUCTURES AND ENGINEERING SERVICES 79
INDUSTRY AND ECONOMIC ENVIRONMENT
Key drivers of the aerostructures market are strongly linked to factors such as economic growth (GDP per capita),
political stability, air passenger traffic and aircraft retirement rates. More specifically, this market is driven by the
number of new products in development or upgrades to existing platforms as well as growth in production rates
and backlogs in various aircraft sectors.
The following key indicators are used to monitor the health of the aerostructures and engineering services
industry in the short term:
INDICATOR
CURRENT SITUATION
STATUS
Number of new products in
development or upgrades to
existing platforms by original
equipment manufacturers
Original equipment
manufacturer production rates /
units delivered
Global fleet growth rate
Development of new single-aisle products could be launched in the next decade
while other new programs are expected to enter the market from China and
Russia.(1) In the business aircraft market, several new programs are expected to
enter into service by 2020.(2)
The order backlogs of commercial aircraft original equipment manufacturers in
the industry remain at strong levels. Bombardier is ramping-up its C Series
aircraft program. Despite the fact that certain original equipment manufacturers
decreased production rates on business aircraft programs, the market is
expected to continue its stabilization.(3)
The global fleet is expected to grow at an average of 3.7% per year from
2018-2028 from 26,307 aircraft to 37,978 aircraft. An increase in global fleet is
expected to have a positive impact on our aftermarket component repair and
overhaul business.(4)
Maintenance, repair and
overhaul (MRO) growth
The commercial air global MRO demand is expected to grow to approximately
$115 billion by 2028 at a CAGR of 4.0%.(4)
Identifies a favourable, neutral or negative status, respectively, in the market categories in which we compete, based on the current
environment.
(1) Based on “Counterpoint Market Intelligence Limited (CPMIL) 2017 - The thirteenth review of the Aerostructures Market” from Counterpoint.
(2) Based on our “Business Aircraft Market Forecast”, published in May 2016 and available on Bombardier’s dedicated investor relations
website at ir.bombardier.com.
(3) Refer to the Industry and economic environment section in Business Aircraft for details.
(4) According to the “Global Fleet & MRO Market Forecast Commentary 2018-2028” report dated January 2018 prepared by Oliver Wyman.
Given that the industry’s revenues are generated from original equipment manufacturers in the aerospace market,
it is subject to the same industry and economic drivers described in Business Aircraft and Commercial Aircraft.
Refer to the Industry and economic environment sections of Business Aircraft and Commercial Aircraft for further
discussion of the overall aerospace market which influences the aerostructures business.
The current status of some market drivers are expected to have a positive impact over the short-term for the
aerostructures industry. The commercial aircraft market continues its strong performance as passenger traffic
levels and airline financial performance maintained impressive levels in 2017. Meanwhile, we project the
continued stabilization of the business jet market due to a better economic outlook combined with the introduction
of new aircraft models and technologies, as supported by the industry confidence to above the threshold of
market stability,(1) increased U.S. corporate profits and a lower level of pre-owned aircraft inventory. Overall, we
remain confident in the long-term potential for significant growth in the aircraft industry.
The long-term outlook for Aerostructures and Engineering Services remains strong. Our relevant and accessible
market for aerostructures and related aftermarket (including components repair and overhaul, spare parts and
other engineering services) is currently estimated to be a $77-billion market worldwide, and is expected to grow to
approximately $115 billion by 2028 at a CAGR of 4.0%.(2) The market is predominantly composed of the
manufacture of wings, nacelles and fuselages, mostly for large commercial aircraft.
(1) As measured by the UBS Business Jet Market index. See Industry and economic environment section in Business Aircraft for details.
(2) According to the “Global Fleet & MRO Market Forecast Commentary 2018-2028” report dated January 2018 prepared by Oliver Wyman.
80 BOMBARDIER INC. FINANCIAL REPORT - FISCAL YEAR ENDED DECEMBER 31, 2017
ANALYSIS OF RESULTS
Stronger operational performance
Results of operations
Revenues
Intersegment revenues
External revenues
EBITDA before special items(1)
Amortization
EBIT before special items(1)
Special items
EBIT
EBIT margin before special items(1)
EBIT margin
Fourth quarters
ended December 31
2016
2017
Fiscal years
ended December 31
2016
2017
$
$
$
$
$
$
$
$
319
94
413
77
14
63
13
50
15.3%
12.1%
215
104
319
42
12
30
6
24
9.4%
7.5%
$
$
$
$
1,172
398
1,570
207
50
157
7
150
10.0%
9.6%
$
$
$
$
1,119
430
1,549
175
51
124
(4)
128
8.0%
8.3%
(1) Non-GAAP financial measures. Refer to the Non-GAAP financial measures section in Overview for definitions of these metrics.
Revenues
The $94-million increase for the three-month period is due to:
•
higher intersegment revenues ($104 million), mainly due to higher volume for business aircraft and
C Series aircraft program related to the production ramp-up.
Partially offset by:
•
lower external revenues ($10 million), mainly due to lower volume.
The $21-million increase for the fiscal year is due to:
•
higher intersegment revenues ($53 million), mainly due to higher volume for business aircraft and
C Series aircraft program related to the production ramp-up, partially offset by lower volume for
commercial regional aircraft following the previously-announced production rate adjustment.
Partially offset by:
•
lower external revenues ($32 million), mainly due to lower volume, partially offset by an increase in
aftermarket sales.
Special items
Special items comprise items which do not reflect our core performance or where their separate presentation will
assist users in understanding our results for the period, such as the impact of restructuring charges and
significant impairment charges and reversals.
The special items for fiscal year 2017 represented restructuring charges related to previously-announced
restructuring actions.
The special items for fiscal year 2016 represented:
•
•
a $43-million decrease in the pension obligation. Bombardier had a constructive obligation for
discretionary ad hoc indexation increases to certain pension plans. Following a communication to plan
members that we do not expect to grant such increases in the foreseeable future in line with our current
practice, the constructive obligation was reversed; and
restructuring charges of $39 million related to the restructuring actions announced in February and
October 2016, of which $6 million was recognized in the fourth quarter.
BOMBARDIER INC. / 2017 FINANCIAL REPORT / AEROSTRUCTURES AND ENGINEERING SERVICES 81
EBIT margin
The EBIT margin before special items (see explanation of special items above) for the fourth quarter increased
by 5.9 percentage points, mainly as a result of:
•
•
higher margins on intersegment aircraft contracts, mainly due to lower than expected losses on the
C Series aircraft program under long-term contract accounting, as a result of anticipated cost reductions
as well as favorable Canadian dollar and pound sterling exchange rates, after giving effect to hedges; and
lower SG&A expenses including savings from transformation initiatives.
Partially offset by:
•
lower margin on external contracts.
Including the impact of special items (see explanation of special items above), the EBIT margin for the three-
month period increased by 4.6 percentage points compared to the same period last year.
The EBIT margin before special items for the fiscal year increased by 2.0 percentage points, mainly as a result of:
•
higher margins on intersegment aircraft contracts, including lower than expected losses on the C Series
aircraft program under long-term contract accounting, as a result of anticipated cost reductions, as well as
favorable Canadian dollar and pound sterling exchange rates, after giving effect to hedges.
Partially offset by:
•
lower margin on external contracts.
Including the impact of special items (see explanation of special items above), the EBIT margin for the fiscal year
increased by 1.3 percentage points compared to last fiscal year.
Order backlog and book-to-bill ratio
External order backlog
December 31, 2017
87
$
As at
December 31, 2016
42
$
External order intake and book-to-bill ratio
External order intake
External book-to-bill ratio(1)
$
(1) Ratio of new external orders over external revenues.
Fourth quarters ended
December 31
2016
84
0.8
2017
93
1.0
$
Fiscal years
ended December 31
2016
2017
392
443
0.9
1.1
$
$
82 BOMBARDIER INC. FINANCIAL REPORT - FISCAL YEAR ENDED DECEMBER 31, 2017
Workforce
Total number of employees
Permanent(1)
Contractual(2)
December 31, 2017
8,800
1,225
10,025
As at
December 31, 2016
8,950
1,050
10,000
Percentage of permanent employees covered by collective agreements
71%
70%
(1) Including inactive employees.
(2) Including non-employees and sub-contractors personnel.
The workforce as at December 31, 2017 is at a similar level when compared to previous year.
The current level of employees reflects strategic hiring to support key growth programs, including the C Series
and the Global 7000 and Global 8000 aircraft as well as reductions including the impacts of previously-announced
restructuring actions.
Our incentive-based compensation plan for non-unionized employees across our sites rewards the collective
efforts of our employees in achieving our objectives using performance indicator targets. A total of approximately
3,750 employees worldwide, or 43% of permanent employees, participate in the program. In 2017, as part of this
program, incentive-based compensation was linked to the achievement of targeted results, based on EBIT before
special items and free cash flow before net interest and income taxes.
BOMBARDIER INC. / 2017 FINANCIAL REPORT / AEROSTRUCTURES AND ENGINEERING SERVICES 83
GUIDANCE AND FORWARD-LOOKING STATEMENTS
Original 2017
guidance
Latest 2017
guidance
What we did in
2017
What’s next for
2018(1)(2)(3)(4)
Revenues
~ $1.7 billion
No change
$1.6 billion
~ $2.0 billion
EBIT margin before special items
> 8.5%
~ 8.0%
10.0%
> 8.5%
2017 guidance
During the second quarter of 2017, we revised Aerostructures and Engineering Services EBIT margin before
special items(2) guidance for the full year 2017 to approximately 8.0%, mainly due to the performance in the first
half of the year. We exceed our revised EBIT margin guidance due to improving performance on the C Series
aircraft program under long-term contract accounting, as a result of anticipated cost reductions, recorded during
the fourth quarter of 2017.
Our strategy to achieve 2018 guidance
We expect 2018 revenues to increase to approximately $2.0 billion driven by the production ramp-up of
components for the C Series and Global 7000 aircraft to support the planned increase in deliveries. In addition,
we are diversifying the revenue stream to grow the aftermarket activities.
We expect to see margin expansion to EBIT margin before special items(2) above 8.5% with focus on
transformation initiatives. This includes reducing the bill of material costs as well as improving labour efficiencies
as we ramp up production for the C Series and Global 7000 aircraft.(1)
(1) See Forward-looking statements in boxed text below for details regarding the assumptions on which the guidance is based. Also see
forward-looking statements disclaimer in Overview.
(2) Profitability guidance is based on EBIT margin before special items. Refer to the Non-GAAP financial measures section in Overview for a
definition of this metric and to the Analysis of results section for a reconciliation to the most comparable IFRS measures.
(3) Guidance for 2018 reflects the adoption of IFRS 9, Financial instruments and IFRS 15, Revenue from contracts with customers.
(4) Revenues guidance for Aerostructures and Engineering Services are mainly from intersegment contracts with Business Aircraft and
Commercial Aircraft.
Forward-looking statements:
Forward-looking statements(1) in this section of the MD&A are based on:
• a higher level of production in fiscal year 2018 compared to fiscal year 2017;(2)
• ability to ramp-up production and deliveries and meet planned costs of the C Series and Global 7000 aircraft program,
including learning curve improvements;
•
the continued deployment and execution of key transformation initiatives, especially those impacting direct and indirect
procurement costs, labour efficiency and working capital improvement;
•
the ability of our global manufacturing footprint to leverage lower cost geographies and emerging economies;
• our ability to meet scheduled EIS dates and planned costs for the Global 7000 aircraft;
• our ability to recruit and retain highly skilled resources;
•
the ability of our supply base to support our planned production rates;
• competitive global environment and global economic conditions to remain similar; and
• stability of foreign exchange rates.
(1) Also see the Guidance and forward-looking statements section in Overview.
(2) Demand forecast is based on the main market indicators including number of new products in development or upgrades to existing
platforms by original equipment manufacturers and production rates. For details refer to the market indicators in the Industry and
economic environment section.
84 BOMBARDIER INC. FINANCIAL REPORT - FISCAL YEAR ENDED DECEMBER 31, 2017
TRANSPORTATION
The data presented in 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 section in
Overview for further detail.
Table of Contents
KEY
PERFORMANCE
MEASURES AND
METRICS
AT A
GLANCE
PROFILE
INDUSTRY AND
ECONOMIC
ENVIRONMENT
ANALYSIS OF
RESULTS
GUIDANCE AND
FORWARD-
LOOKING
STATEMENTS
85
86
87
92
95
102
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
• Order backlog, as a measure of future revenues.
• Book-to-bill ratio(1), as an indicator of future revenues.
• Revenues by product segments and the geographic diversification of revenues, as measures of
growth and sustainability of competitive positioning.
• Market position, as a measure of our competitive positioning.
• EBIT, EBIT margin, EBIT before special items(2) and EBIT margin before special items(2), as
measures of performance.
LIQUIDITY
• Free cash flow(2), as a measure of liquidity generation.
CUSTOMER
SATISFACTION
• Various customer satisfaction metrics, focusing on the four main dimensions: sales and prices,
customer orientation, project execution and product offering.
EXECUTION
• Achievement of product development and delivery milestones, as a measure of flawless execution.
(1) Defined as new orders over revenues.
(2) Non-GAAP financial measure. 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.
BOMBARDIER INC. / 2017 FINANCIAL REPORT / TRANSPORTATION 85
AT A GLANCE
Poised for continued revenue and margin growth
on the foundation of a strong order backlog
Original 2017
Guidance
Latest 2017
Guidance
What we did in
2017
Guidance for
2018(1)(2)
Revenues
~ $8.5 billion
No change
$8.5 billion
~ $9.0 billion
EBIT margin before special items
~ 7.5%
~ 8.0%
8.4%
> 8.5%
RESULTS
For the fiscal years ended December 31
Revenues
Order intake (in billions of dollars)
Book-to-bill ratio(3)
EBIT
EBIT margin
EBIT before special items(2)
EBIT margin before special items(2)
EBITDA before special items(2)
EBITDA margin before special items(2)
Net additions to PP&E and intangible assets
As at December 31
Order backlog (in billions of dollars)
2017
8,525
10.2
1.2
417
4.9%
712
8.4%
810
9.5%
123
2017
34.4
$
$
$
$
$
$
$
2016
7,574
8.5
1.1
396
5.2%
560
7.4%
657
8.7%
116
2016
30.1
$
$
$
$
$
$
$
Variance
13%
20%
0.1
5%
(30) bps
27%
100 bps
23%
80 bps
6%
Variance
14%
(1) Refer to the Transportation guidance and forward-looking statements section hereafter for further details on guidance for 2018. Guidance
for 2018 reflects the adoption of IFRS 9, Financial instruments and IFRS 15, Revenue from contracts with customers.
(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.
(3) Defined as new orders over revenues.
KEY HIGHLIGHTS AND EVENTS
• We delivered superior financial performance in 2017, while also positioning our segment for further growth in
both revenues and profitability.
Revenues grew 13% year over year to $8.5 billion, in line with guidance.
EBIT margin before special items(1) grew 100 bps, to 8.4% in 2017, representing the fifth consecutive
quarter with margins at or above 8%. With two-thirds of the transformation initiatives completed at year-
end, continued execution of the plan is expected to lead to further margin expansion.
Backlog reached $34.4 billion as of December 31, 2017, fuelled by a 20% increase in order intake across
all product segments primarily in Europe and Asia-Pacific. This order activity led to a book-to-bill(2) of 1.2
for the full year, the fourth consecutive year with a ratio above 1.0.
• Our products have achieved key milestones, setting the stage for increased future deliveries and revenues
including:
The test train for the New York City subway passed its in-service test in December 2017, allowing the
remaining cars to be delivered and to be placed in service;
(1) Non-GAAP financial measure. Refer to the Non-GAAP financial measures section in Overview for definition of this metric and to the
Analysis of results section for reconciliations to the most comparable IFRS measures.
(2) Defined as new orders over revenues.
86 BOMBARDIER INC. FINANCIAL REPORT - FISCAL YEAR ENDED DECEMBER 31, 2017
The first Queensland New Generation Rollingstock trains entered passenger service along the South-
East Queensland rail network in Australia in December 2017;
In September 2017, the TWINDEXX Vario double deck trains for Deutsche Bahn (DB) have received
single traction homologation from the German Federal Railway Authority (EBA) and started operational
service; and
In January 2018, we announced that the first rail cars for the San Francisco Bay Area Rapid Transit
District (BART) are entering passenger service after successfully completing comprehensive testing and
receiving certification from the California Public Utilities Commission.
• Transportation’s strong results in 2017 outpaced the performance targets underlying CDPQ’s investment in
BT Holdco. Accordingly, for the 12-month period starting on February 12, 2018, Bombardier’s percentage of
ownership on conversion of CDPQ’s shares will increase by 2.5%, up from 70% to 72.5%. Any dividends paid
by BT Holdco to its shareholders during this period will be distributed on the basis of each shareholder’s
percentage of ownership on conversion, being 72.5% for Bombardier and 27.5% for the CDPQ. These
adjustments will become effective once the audited consolidated financial statements of BT Holdco are duly
approved by its Board of Directors.
PROFILE
Innovative and broad portfolio in the industry serving customers worldwide
Transportation offers an end to end portfolio of high performing and innovative solutions in the rail industry. We
cover the full spectrum of rail solutions, ranging from global mobility solutions to a variety of trains and sub-
systems, services, system integration and signalling to suit the needs of the market. We have won orders across
all product segments and major geographies, underlining the competitiveness of our products and services
worldwide.
We have production, engineering and service centers around the world. The global headquarters is located in
Berlin, Germany.
MARKET SEGMENT: ROLLING STOCK
HIGH SPEED AND VERY HIGH SPEED TRAINS
Application: Equipment for medium and long-distance
operations.
Major products: ZEFIRO family
Key features: Solutions offering very high operating
flexibility, high comfort and safety standards for
passengers in combination with high efficiency. Portfolio
covers the full spectrum of speed requirements: high
speed (200-250 km/h) and very high speed
(250-380 km/h).
ZEFIRO very high speed train
BOMBARDIER INC. / 2017 FINANCIAL REPORT / TRANSPORTATION 87
COMMUTER, REGIONAL AND INTERCITY
TRAINS
Application: Suburban and regional rail transit for urban
centers and surrounding regions and medium speed
connections between cities.
Major products: AVENTRA, TALENT 3, OMNEO,
SPACIUM, TALENT 2, TWINDEXX Vario, BiLevel
Key features: Broad product line featuring electric, diesel
and dual mode multiple unit trains/vehicles, along with
locomotive-hauled coaches in both single and double-deck
configurations. Our modular train platforms offer very high
flexibility to transit authorities and operators, as well as
high levels of comfort and capacity.
LIGHT RAIL VEHICLES
Application: Efficient surface transit in urban centers and
surrounding suburban conurbations.
Major products: FLEXITY family, including Street Trams
(FLEXITY 2, Elf, Freedom), City Trams (High / Low Floor)
and Tram-Trains
Key features: Our broad portfolio of FLEXITY vehicles
feature high technical capabilities and performance
coupled with low lifecycle costs. Based on adaptable
modular platforms, our vehicle range offers a full spectrum
of smart innovative light rail solutions to enhance the
connectivity and identity of cities worldwide. In 2017, we
were awarded the Innovation Leader in Rail Transport
Award by the European Railway Clusters Initiative (ERCI)
for our Obstacle Detection Assistance System for trams
and light rail vehicles (LRV).
SPACIUM commuter train
FLEXITY tram
METROS
Application: Broad range of high capacity mobility solutions for every urban environment
Major products: MOVIA and INNOVIA platforms (metros, monorails and people movers)
Key features: Wide variety of urban mobility solutions developed from proven and innovative technology. Maximum system
value for every capacity, in any type of environment. Safety, lifecycle cost, passenger comfort and smart city integration, to
name a few, all drive the designs and innovations of our portfolio, covering a wide range of system needs. This includes quick-
to-build and minimally intrusive technology such as the INNOVIA Monorail 300. Bombardier products have a long history of
automation and are serving numerous cities around the world with driverless systems. In 2017, we won a GOOD DESIGNTM
award for the design of our Swedish MOVIA Metro C30 project for the city of Stockholm.
ELECTRIC AND DIESEL LOCOMOTIVES
Application: Locomotives for intercity, regional and freight
rail service.
Major products: TRAXX platform, ALP electric and dual-
power locomotives
Key features: Versatile product platform offering electric,
diesel-electric, dual-power and multi-system propulsion,
last-mile diesel or battery drive features. Innovative
solutions increase power and reliability in combination with
high energy efficiency and low lifecycle costs.
Homologated in several countries in Europe, enabling
cross-border service. In May 2017, we introduced the new
TRAXX MS3 (multi system) and DC3 (direct current)
locomotives.
ALP electric locomotive
88 BOMBARDIER INC. FINANCIAL REPORT - FISCAL YEAR ENDED DECEMBER 31, 2017
PROPULSION AND CONTROLS
Application: Complete propulsion and control product portfolio for all Bombardier and third-party rail vehicles and e-mobility
applications, delivering electric power with strong reliability, power efficiency and high safety.
Major products: The MITRAC platform, which includes traction and auxiliary converters for underframe, rooftop and machine
room mounting; drives (motors and gears), train control management systems (TCMS), high voltage equipment and complete
system solutions. Innovative train to wayside communication solutions round off the portfolio.
Key features: A leader in reliability, modular design, energy safety (SIL 2 compliance), energy efficiency, integration of new
technologies and ease of maintenance, which keep initial investments and lifecycle costs low.
BOGIES
Application: Complete spectrum of bogies which match
the entire range of Bombardier vehicles as well as third-
party rail vehicles around the globe.
Major products: FLEXX bogies portfolio including latest
technologies: FLEXX Eco, FLEXX Urban, FLEXX Speed,
FLEXX Power and the award-winning WAKO Technology
Key features: Advanced product technology and
complete aftermarket services covering the full spectrum
of rolling stock applications. Our track-friendly bogies are
designed to ensure safe and smooth operation and reduce
wheel and rail wear, minimizing operational costs and
noise.
MARKET SEGMENT: SYSTEMS AND SIGNALLING
MASS TRANSIT AND AIRPORT SYSTEMS
Application: Fully Automated People Mover (APM),
metro, monorail and light rail systems.
Major products: INNOVIA APM 300 system, INNOVIA
Monorail 300 system, INNOVIA Metro 300 system,
FLEXITY 2 tram system
Key features: Broad rolling stock portfolio for urban and
airport applications that can be customized to provide a
complete turnkey system solution. Strong track record for
reliability and availability across 60 complete systems
around the world. In 2017, we were awarded the Middle
East Economic Digest’s (MEED) Innovation and Transport
Project of the year Award, recognizing our APM’s excellent
reliability.
INNOVIA Monorail 300 system
MAINLINE SYSTEMS
Application: System solutions for intercity and high-speed applications covering medium- to long-distance operations.
Key features: Turnkey system approach to provide reliable rail systems for mainline applications featuring very high
passenger comfort and safety standards. Highly experienced in systems integration and engineering.
BOMBARDIER INC. / 2017 FINANCIAL REPORT / TRANSPORTATION 89
MASS TRANSIT SIGNALLING
Application: Rail control and signalling solutions for mass
transit systems such as metros, light rail or APMs.
Major products: CITYFLO solution
Key features: Complete portfolio of solutions ranging from
manual applications (GoA 0) to fully automated
Communication-Based Train Control (GoA 4), which helps
to increase infrastructure capacity and can be installed
without interruption to service.
MAINLINE SIGNALLING
Application: Rail control and signalling solutions for
mainline railways ranging from freight traffic to regional
and commuter, intercity and high speed lines.
Major products: INTERFLO and EBI Cab Automatic Train
Control onboard equipment
CITYFLO solution
Key features: Complete portfolio of conventional signalling systems which uses the European Rail Traffic Management
System technology and is already functioning in several countries inside and outside of Europe.
INDUSTRIAL SIGNALLING
Application: Rail control and signalling solutions for the industrial sector, major application in the surface and sub-surface
mining and industrial freight industries.
Major products: INTERFLO 150 solution
Key features: Innovative signalling system technologies used to increase transport capacity in a secure and cost effective
manner. Our technology covers the whole process, enhancing not only the underground operation, but also the transfer of ore
from the excavation site to the transportation hub.
OPTIFLO - SERVICE SOLUTIONS FOR SIGNALLING
Application: Comprehensive portfolio of services for mass transit, mainline and industrial sector rail infrastructure and
signalling solutions.
Key features: Infrastructure management, technical support, cyber security assessment and other service solutions tailored
to ensure the highest levels of availability and reliability as well as cost effective maintenance of rail control signalling
solutions.
MARKET SEGMENT: SERVICES
MATERIAL SOLUTIONS
Application: Supply chain, spare parts inventory management, obsolescence management and technical support services for
rail operators.
Key features: Advanced material supply solutions together with global engineering and purchasing power through global
network of parts and components suppliers. Logistics capability to source and deliver what is needed, when needed, where
needed.
FLEET MANAGEMENT
Application: Comprehensive portfolio of fleet and operations management services.
Key features: Robust and effective ‘back office’ solutions support rail operators in delivering their ‘front line’ service every day.
Engineering expertise, whole life maintenance techniques and tools (ORBITA, AVIS, EMS, etc.) optimize availability, reliability,
punctuality, safety and cost over the whole life cycle of the fleet. Broad experience in operations and maintenance of
commuter and regional trains.
90 BOMBARDIER INC. FINANCIAL REPORT - FISCAL YEAR ENDED DECEMBER 31, 2017
ASSET LIFE MANAGEMENT, COMPONENT RE-ENGINEERING AND OVERHAUL
Application: Upgrade, life extension and overhaul of rail vehicles and components.
Key features: Broad portfolio of system and component upgrades executed at our specialized facilities and customer sites.
We leverage our engineering and supply chain strength to bring operational performance and whole life cost advantages.
OPERATIONS AND MAINTENANCE OF SYSTEMS
Application: Complete operations and maintenance (O&M) services for fully automated transit and mass transit systems.
Key features: Strong O&M experience in automated, driverless technologies, including APM, metro and monorail systems as
well as fleet management solutions for urban and intercity transportation systems.
BOMBARDIER INC. / 2017 FINANCIAL REPORT / TRANSPORTATION 91
INDUSTRY AND ECONOMIC ENVIRONMENT
Positive outlook for the railway industry
The future outlook for the rail market remains positive supported by favourable long-term trends in the rail industry.
Urbanization, population growth, and government policies aimed at reducing greenhouse gas emissions are
expected to continue to positively impact demand for public transportation.
The following key indicators are used to monitor the health of the rail market:
INDICATOR
POPULATION
GROWTH AND
MASS
URBANIZATION
CURRENT SITUATION
STATUS
The worldwide population is expected to increase from approximately 7.6 to 9.8 billion by
2050, together with the share of people living in urban areas growing from 54.5% to 60% by
2030.(1) Population growth and urbanization create an increasing demand for high capacity
public transport solutions especially in congested cities and areas.
ENVIRONMENTAL
AWARENESS
Governments increasingly commit to long-term climate and energy goals. Measures to reach
these goals include investments in eco-friendly transport solutions such as rail transport. Rail
is responsible for 4.2% of the transport energy-related CO2 emissions compared to 72.6% for
road transportation.(2)
PUBLIC FUNDING
Most of the rolling stock business is conducted with rail operators backed by the public
sector. Rail infrastructure investments are expected to grow, as governments and multilateral
institutions continue to fund projects in the rail industry to support and foster economic
development. However public indebtedness and austerity measures may impede public
tender processes for some new rail projects.
LIBERALIZATION
Liberalization attracts more private operators to enter the market and invest in new rail
equipment and services. The European Commission supports the liberalization of domestic
passenger rail services within the European Union.
DIGITALIZATION
The digital industry revolution will fundamentally impact the way we live and interconnect with
one another. Today’s rail passengers want to stay online throughout the entire train journey,
from departure to arrival. To ensure that, original equipment manufacturers need to monitor
closely the ‘ecosystems’ they serve to align with passengers’ future’s needs. Digitalization of
our manufacturing tools and processes will change our way of working, reducing complexity,
development costs and ensuring faster time-to-market.
Identifies a favourable, neutral or negative status, respectively, in the market categories in which we compete, based on the current
environment.
(1) According to the United Nations: “World Population Prospects: The 2017 Revision” and “The World’s Cities in 2016”.
(2) According to the International Union of Railways: “Railway Handbook 2017. Energy Consumption & CO2 Emissions”.
In September 2016, The Association of the European Rail Industry (UNIFE) confirmed its positive outlook for the
global rail industry in its World Rail Market Study published every two years. The study expects the overall
accessible rail market(1) to grow with a CAGR of 3.2%(2),compared to a CAGR of 2.7% in the previous survey from
2014. Transportation’s relevant and accessible market(1) is expected to grow even faster with a CAGR of 3.4%,
compared to a CAGR of 2.5% in the previous survey.(2)
The positive future market outlook is mainly based on mature rail markets such as Western Europe and North
America, which are consistently investing in the modernization and replacement of their rolling stock fleets.
Furthermore, investments to upgrade and modernize signalling systems will further drive established rail markets
such as Western Europe.
(1) The overall accessible rail market is the world rail market, excluding the share of markets associated with contracts that are awarded to local
players without open-bid competition. Transportation’s relevant and accessible market also excludes the infrastructure, freight wagon and
shunter segments.
(2) Based on data from UNIFE World Rail Market Study “Forecast 2016 to 2021” published in September 2016, based on 60 countries
representing more than 95% of the world rail market. As large rail projects may significantly impact yearly volume, single year market
volumes can be subject to a high degree of volatility. UNIFE therefore focuses on three-year average annual market volumes in order to
facilitate comparison between different periods. UNIFE data is updated every two years and is published in euro. An exchange rate of
1€ = $1.1 149, the average cumulative exchange rate over the 2015-17 period, was used to convert all figures. Figures for 2015-17 were
extrapolated based on UNIFE data for 2014-16 and 2017-18.
92 BOMBARDIER INC. FINANCIAL REPORT - FISCAL YEAR ENDED DECEMBER 31, 2017
The accessible rail control market is also expected to pursue high relative growth in Eastern Europe, Asia-Pacific
and the CIS. Supported by a growing rolling stock installed base and gradual liberalization, the services market is
expected to grow. Particularly in mature markets, smaller private rail operators emerge and often outsource their
maintenance requirements while larger incumbents tend to further outsource their services needs which, to date,
were mostly performed in-house.
Similarly, other initiatives, such as the Fourth Railway Package of the European Union Commission and other
regulations regarding the implementation of Positive Train Control in the U.S. will further support the rail industry to
continue to improve the degree of liberalization and safety of rail transportation.
Source: UNIFE World Rail Market Study “Forecast 2016 to 2021” and extrapolated figures.
*Transportation’s relevant and accessible rail market is the world rail market, excluding the share of markets associated with contracts that are
awarded to local players without open-bid competition, and excluding the infrastructure, freight wagon and shunter segments.
BOMBARDIER INC. / 2017 FINANCIAL REPORT / TRANSPORTATION 93
Source: UNIFE World Rail Market Study “Forecast 2016 to 2021” and extrapolated figures.
*Transportation’s relevant and accessible rail market is the world rail market, excluding the share of markets associated with contracts that are
awarded to local players without open-bid competition, and excluding the infrastructure, freight wagon and shunter segment.
Due to the cyclical nature of the market and in line with common industry practice, our relevant and accessible
market is stated as the average of a three-year period, in line with the methodology used by UNIFE for the global
rail market. In certain years, large orders can be awarded particularly in rolling stock based on the availability of
public funding. Our overall relevant and accessible market contracted in 2017 when compared to the prior year due
to significant orders awarded in 2016. The outlook for the coming years remains positive across all geographies.
Year over year comparison by geographical area
Europe
The overall order volume in Europe during 2017 decreased compared to 2016. The most significant rolling stock
orders awarded in Western Europe were for commuter and regional trains as well as for very high-speed trains primarily
in the U.K., France and Germany. Sizable signalling and service agreements were granted in Italy, the U.K. and
France. In Eastern Europe, orders were awarded predominantly for urban transit. In Poland, a major order was secured
for commuter and regional trains along with a services contract. Order volume in the signalling segment was mainly
driven by investments in Poland and Turkey.
The outlook for Europe in the coming years remains positive. Significant orders are anticipated for high-speed trains
in Switzerland, the U.K. and France, and for commuter and regional trains in Germany and the U.K. In the upcoming
years, significant tenders are projected in the signalling segment in Spain and Norway and in the services segment
in the U.K. and Germany. The Eastern European market is expected to be driven by rail opportunities for high-speed,
commuter and regional trains as well as in urban transit. Investments in the signalling segment are expected in both
urban and mainline infrastructure with opportunities foreseen in Europe particularly in Turkey, Poland and Bulgaria.
North America
The order volume declined compared to last year, mainly due to large orders awarded in 2016 for high-speed trains
and a long-term light rail vehicle (LRV) services agreement. In 2017, the market was driven by orders across various
segments in the U.S. and Canada. Most significant orders were secured in locomotives, LRVs and high-speed trains
as well as contracts in the signalling and services segments.
Strong order volume is anticipated in North America in the upcoming years. In the U.S., several large tenders are
expected to be issued, such as a commuter and regional train order for the city of New York. Additionally,
noteworthy orders are foreseen for commuter and regional trains and metros. In Canada, opportunities in the
94 BOMBARDIER INC. FINANCIAL REPORT - FISCAL YEAR ENDED DECEMBER 31, 2017
commuter and regional trains are anticipated along with a long-term services agreement and potential tenders in
metros and LRVs. In Mexico, opportunities are expected in urban transit including monorail. Many small and
medium signalling and services opportunities are forecast in North America.
Asia-Pacific
The order volume decreased in 2017 compared to last year, mainly due to several large commuter and regional train
contracts along with long-term services contracts awarded in 2016, particularly in Australia. In 2017, major projects
were signed largely for metros and LRVs in China, Malaysia, Bangladesh and the Philippines. In Thailand, a noteworthy
monorail contract was awarded. Significant signalling orders were secured in Australia and Thailand as well as many
mid-size services agreements in Australia and Malaysia.
The highly anticipated large commuter and regional train tender for India is expected to be awarded in the upcoming
years. Further investments in India in the rolling stock segment are expected, particularly for locomotives as well as
metros. Additionally, opportunities are anticipated for metros in China, South Korea and Singapore as well as for
commuter and regional trains in China and Australia. Investment in the signalling and services segments will be
primarily driven by opportunities in Australia, India and Thailand.
Rest of World(1)
The overall order volume decreased in the Rest of World, mainly due to a large metro order awarded in 2016 in Iran.
During 2017, significant orders for regional trains, metros and locomotives were awarded in Iran, Russia and Egypt.
In addition, a significant signalling project was awarded in Egypt in the last quarter of 2017. As well, a services
agreement was signed in Russia at the beginning of the year for the maintenance of metro cars.
Urban transit solutions are expected to remain the strongest in the region due to the needs of tackling megatrends
such as urbanization and city congestion. The most significant orders are expected in Russia where a potential
large tender is expected for the expansion of the metro in Moscow as well as an opportunity in Peru for the
extension of the metro in Lima. In Argentina, significant investments in commuter and regional trains are expected.
In the signalling segment, large orders are forecast in Argentina and Chile. The city of Riyadh in Saudi Arabia is
anticipated to list an operation and maintenance tender for the newly built metro.
(1) The Rest of world region includes South America, Central America, Africa, the Middle East and the CIS.
ANALYSIS OF RESULTS
Significant improvement in revenues and profitability
Results of operations
Revenues
EBITDA before special items(1)
Amortization
Impairment charge on PP&E
EBIT before special items(1)
Special items
EBIT
EBIT margin before special items(1)
EBIT margin
$
$
$
$
$
Fourth quarters
ended December 31
2016
2017
1,948
2,493
205
241
24
25
—
(1)
181
217
20
11
161
206
9.3%
8.7%
8.3%
8.3%
$
$
$
$
$
$
Fiscal years
ended December 31
2016
2017
7,574
8,525
657
810
97
98
—
—
560
712
164
295
396
417
7.4%
8.4%
5.2%
4.9%
$
(1) Non-GAAP financial measures. Refer to Non-GAAP financial measures sections in Overview for definitions of these metrics.
BOMBARDIER INC. / 2017 FINANCIAL REPORT / TRANSPORTATION 95
Revenues by geographic region
Europe(1)
North America
Asia-Pacific(1)
Rest of world(1)(2)
Fourth quarters ended December 31
2016
67% $ 5,064
15%
1,846
12%
1,058
6%
557
100% $ 8,525
2017
60% $ 1,299
303
21%
233
12%
113
7%
100% $ 1,948
$ 1,507
512
299
175
$ 2,493
Fiscal years ended December 31
2016
65%
16%
13%
6%
100%
2017
59% $ 4,948
1,233
22%
936
12%
457
7%
100% $ 7,574
(1) The increase in Europe in the fourth quarter ended December 31, 2017 reflects a positive currency impact of $100 million, while the
increases in Asia-Pacific and the Rest of world region in the fiscal year reflect positive currency impacts of $26 million and $27 million,
respectively.
(2) The Rest of world region includes South America, Central America, Africa, the Middle East and the CIS.
Revenues
Total revenues for the fourth quarter and fiscal year ended December 31, 2017, have increased by $545 million
and $951 million, respectively, compared to the same periods last fiscal year. Excluding positive currency impacts
of $112 million for the fourth quarter and $52 million for the fiscal year, revenues have increased by $433 million,
or 22%, and $899 million, or 12%, respectively, compared to the same periods last fiscal year.
The $433-million increase excluding currency impact for the fourth quarter is mainly explained by:
•
•
higher activities in rolling stock in all regions, mainly due to ramp-up in production related to commuter
and regional train contracts in all regions, some light rail vehicle and metro contracts in North America,
and some high-speed train contracts in Europe, partly offset by some locomotive contracts in Europe
nearing completion ($296 million); and
higher activities in systems in the Rest of world region, and in signalling in Asia-Pacific and Europe
($91 million).
The $899-million increase excluding currency impact for the fiscal year is mainly explained by:
•
•
•
higher activities in rolling stock in North America, Asia-Pacific and Europe, mostly due to ramp-up in
production related to some light rail vehicle and metro contracts in North America, some commuter and
regional train contracts in these regions, and some intercity and high-speed train contracts in Europe,
partly offset by some locomotive and very high-speed train contracts in Europe nearing completion
($653 million);
higher activities in systems in North America, the Rest of world region and Europe, and in signalling in
Asia-Pacific and North America ($198 million); and
higher activities in services in North American and Europe ($97 million).
Special items
Special items comprise items which do not reflect our core performance or where their separate presentation will
assist users in understanding our results for the period, such as the impact of restructuring charges and
significant impairment charges and reversals.
The special items for the fourth quarter and the fiscal year ended December 31, 2017 represented:
•
•
severance costs of $5 million and $214 million, respectively, mainly related to our transformation in
Europe. In line with these initiatives, asset write-downs of $6 million and $38 million, respectively, were
also recorded as restructuring charges as we implement the site specialization strategy; and
an impairment charge related to non-core operations of $43 million recorded in the third quarter with
respect to the expected sale of legal entities as part of our transformation plan.
The special items for the fourth quarter and the fiscal year ended December 31, 2016 represented:
•
•
restructuring charges of $159 million related to previously-announced restructuring actions, of which
$20 million were recorded in the fourth quarter representing severance provisions of $10 million and
impairment of PP&E of $10 million; and
a foreign exchange loss of $5 million related to the reorganization of Transportation under one holding
entity necessary to facilitate the placement of a minority stake in Transportation, recorded in the first
quarter.
96 BOMBARDIER INC. FINANCIAL REPORT - FISCAL YEAR ENDED DECEMBER 31, 2017
•
Partially offset by:
•
•
•
•
•
Partially offset by:
•
EBIT margin
The EBIT margin before special items for the fourth quarter decreased by 0.6 percentage point, mainly as a
result of:
•
a lower share of income from joint ventures and associates, mainly due to lower positive adjustments on
certain contracts compared to last year; and
lower margin in signalling, mainly due to adjustments on certain contracts.
higher margin in rolling stock, mainly due to a favourable contract mix; and
higher margin in systems and services, mainly due to better performance.
Including the impact of special items (see explanation of special items above), the EBIT margin for the fourth
quarter remained stable compared to the same period last year.
The EBIT margin before special items for the fiscal year increased by 1.0 percentage point, mainly as a result of:
higher margin in systems, mainly due to better performance;
higher absorption of SG&A expenses; and
a higher share of income from joint ventures and associates, mainly due to better performance.
lower margin in rolling stock and signalling, mainly due to adjustments on certain contracts.
Including the impact of special items (see explanation of special items above), the EBIT margin for the fiscal year
decreased by 0.3 percentage point, compared to the same period last year.
Significant orders in all segments resulting in book-to-bill of 1.2
Order backlog
(in billions of dollars)
December 31, 2017
34.4
$
As at
December 31, 2016
30.1
$
The $4.3-billion increase in order backlog is due to higher order intake than revenues ($1.7 billion), and the
strengthening of some foreign currencies, mainly the euro, pound sterling, Australian dollar and Swedish krona,
versus the U.S. dollar as at December 31, 2017, compared to December 31, 2016 ($2.6 billion).
Order intake and book-to-bill ratio
Order intake (in billions of dollars)
Book-to-bill ratio(1)
(1) Ratio of new orders over revenues.
Fourth quarters
ended December 31
2016
2017
2.3
3.5
1.2
1.4
$
$
Fiscal years
ended December 31
2016
2017
8.5
10.2
1.1
1.2
$
$
BOMBARDIER INC. / 2017 FINANCIAL REPORT / TRANSPORTATION 97
ORDER INTAKE BY REGION
(for fiscal years; in billions of dollars)
ORDER INTAKE AND BOOK-TO-BILL RATIO
(for fiscal years)
A leading position(1) was reinforced in our relevant and accessible rail market(2) with a cumulative order intake of
$27.5 billion over the past three years. Although the overall order volume in the market has decreased in 2017
compared to 2016, we have obtained several significant orders during the year, resulting in an increase in our
order intake and in our order backlog. The $1.7 billion increase in order intake in the fiscal year ended December
31, 2017, reflects several orders across various product segments and regions, with focus in Europe and Asia-
Pacific. The variances include a positive currency impact of $154 million in the fourth quarter, and a negative
currency impact of $24 million in the fiscal year.
(1) Based on a rolling 36-month order intake with latest data published by companies publishing order intake for at least 36 months.
(2) Our relevant and accessible rail market is the world rail market, excluding the share of markets associated with contracts that are awarded to
local players without open-bid competition, and excluding the infrastructure, freight wagon and shunter segments.
98 BOMBARDIER INC. FINANCIAL REPORT - FISCAL YEAR ENDED DECEMBER 31, 2017
The significant orders obtained during the fiscal year ended December 31, 2017 were as follows:
Customer
Country
Product or service
Number
of cars
Market
segment
Value
Fourth quarter
Corelink Rail Infrastructure and
West Midlands Trains
U.K.
AVENTRA Electrical Multiple
Units (EMUs), maintenance and
support services
333
Rolling stock
and Services
$ 724
Société Nationale des Chemins de
fer Français (SNCF) Mobilités on
behalf of the Centre-Val de Loire
Region
France
OMNEO / Premium double-
deck EMUs
256 Rolling stock
$ 444
(1)
TX Logistik (TXL)
Mercitalia Rail
Italy
Italy
Victorian State Government
Australia
TRAXX locomotives and fleet
maintenance services
TRAXX locomotives and fleet
maintenance services
Signalling, CITYFLO 650 rail
control solution and systems
integration
40
40
Rolling stock
and Services
Rolling stock
and Services
$ 297
$ 249
n/a Signalling
$ 238
(2)
New Jersey Transit Corporation
(NJ TRANSIT)
Duisburger Verkehrsgesellschaft
AG (DVG)
City and County of Denver,
Colorado
Porterbrook and c2c
Israel Railways (ISR)
U.S.
U.K.
Israel
U.S.
ALP-45 locomotives
17 Rolling stock
$ 160
Germany
FLEXITY trams
47 Rolling stock
$ 156
Operations and maintenance
services for INNOVIA
automated people mover (APM)
system
n/a Services
$ 150
AVENTRA EMUs, maintenance
and support services
60
Rolling stock
and Services
$ 140
TWINDEXX Vario double-deck
coaches
54 Rolling stock
$ 126
27 Rolling stock
$ 112
Transport for Victoria (TfV) and the
Victorian State Government
Australia
VLocity Diesel multiple units
(DMU)
Third quarter
Northern Bangkok Monorail Co.
Ltd. (NBM) and Eastern Bangkok
Monorail Co. Ltd. (EBM)
Thailand
London Underground Ltd. (LUL)
U.K.
INNOVIA Monorail 300 system
and CITYFLO 650 automatic
train control technology
MITRAC traction systems and
traction control equipment
288
System and
signalling
(3)
n/a
n/a Rolling stock
$ 144
Second quarter
FirstGroup and MTR
U.K.
AVENTRA EMUs and Technical
Services and Spares Supply
Agreement (TSSSA)
750
Rolling stock
and Services
$ 1,100
Société Nationale des Chemins de
fer Français (SNCF) on behalf of
Syndicat des Transports d’Île-de-
France (STIF)
First quarter
France
OMNEO / Regio 2N double-
deck EMUs
664 Rolling stock
$ 968
Société Nationale des Chemins de
fer Français (SNCF)
France
Design and build of
intermediate cars, design of air
conditioning and passenger
access systems
299 Rolling stock
$ 395
Zurich Public Transport (VBZ)
Switzerland FLEXITY trams
70 Rolling stock
$ 296
Prasarana Malaysia Berhad
Malaysia
INNOVIA metro 300 cars
108 Rolling stock
$ 266
Deutsche Bahn AG (DB)
Germany
TRAXX locomotives
TWINDEXX Vario double-deck
intercity cars
25
124 Rolling stock
n/a
(1)
(4)
(5)
(3)
(1) Contract value includes price escalation based on estimates.
(2) Contract signed as part of the Rail Systems Alliance (RSA) which comprises Bombardier Transportation, CPB Contractors, Melbourne Metro
Rail Authority and Metro Trains Melbourne. The order is valued at $862 million, and only our share is stated above.
(3) Contract value not disclosed.
(4) Contract signed as part of a consortium with Alstom. The order is valued at $1.22 billion, and only our share is stated above.
(5) Contract signed together with local partner HARTASUMA SDN BHD. The order is valued at $388 million, and only our share is stated above.
n/a: Not applicable
BOMBARDIER INC. / 2017 FINANCIAL REPORT / TRANSPORTATION 99
In December 2017, we have agreed to amend the contract terms with Metrolinx, Canada, to produce world-class
light rail vehicles for the Eglinton Crosstrown light rail transit system. This clearly resets the relationship with
Metrolinx under its new leadership and provides a clear path forward to ensure certainty on the technical and
financial obligations of both parties. Furthermore, it settles the arbitration with Metrolinx, benefiting all parties. The
agreement is for us to now manufacture 76 light rail vehicles for the Eglinton Crosstown project, 106 vehicles less
than the original contract for 182 vehicles. In addition, the GO Transit Operations and Maintenance contract with
Metrolinx was extended by 18 months. This extension solidifies our prominent role as a provider of Operations and
Maintenance in the Greater Toronto and Hamilton Area and is a recognition of our solid performance on the GO
Transit contract. Overall, the revised contracts do not change materially the size of our relationship with Metrolinx.
During the fiscal year ended December 31, 2017, the following significant orders were awarded to our joint
ventures and are not included in our backlog:
•
•
•
In March 2017, our Chinese joint venture, Bombardier Sifang (Qingdao) Transportation Ltd. (BST), of
which we own 50% of the shares, was awarded a contract with China Railway Corp. (CRC) to supply 144
CRH1A-A new generation high-speed train cars for China’s evolving high-speed rail network. The contract
for 18 eight-car trainsets is valued at $284 million.
In May 2017, our Chinese joint venture, Shentong Bombardier (Shanghai) Rail Transit Vehicle
Maintenance Co. Ltd. (SHBRT), of which we own 50% of the shares, was awarded two contracts with
Shanghai Shentong Metro Group Co. Ltd. to provide 10-years of overhaul services for 498 metro cars
operating on Shanghai Metro’s lines 7 and 9. Together, the two contracts are valued at $158 million.
In December 2017, our Chinese joint venture, CRRC Puzhen Bombardier Transportation Systems Limited
(PBTS), of which we own 50% of the shares, was awarded a contract to provide the INNOVIA Monorail
300 platform along with a total of 240 cars to Wuhu City in Anhui Province. The contract is valued at
$270 million.
100 BOMBARDIER INC. FINANCIAL REPORT - FISCAL YEAR ENDED DECEMBER 31, 2017
December 31, 2017
December 31, 2016
As at
33,850
6,000
39,850
65%
33,050
4,100
37,150
65%
WORKFORCE BY GEOGRAPHIC REGION
(as at)
Workforce
Total number of employees
Permanent(1)
Contractual
Percentage of permanent employees covered by collective agreements
(1) Including inactive employees.
As part of our transformation plan, we are taking
specific actions to streamline our administrative and
non-production functions across the organization
and leverage our worldwide footprint to create
centers of excellence for design, engineering and
manufacturing activities. During the year, we
reached key milestones with Supervisory Boards
and unions in Switzerland and Belgium, and with the
General Works Council of Bombardier
Transportation GmbH in Germany, allowing us to
pave the way forward in our transformation
initiatives, which are expected to be largely
completed in the next 24 months. These actions
support our efforts to build our earnings growth
potential and highlight our focus on improving
productivity, reducing costs and optimizing our
worldwide footprint to deliver increased value to
customers and shareholders.
In 2017, the overall number of employees has increased by 7%, or 2,700 employees, worldwide, as a result of
strategic hiring to support major rail contract wins as well as our growth strategy in aftermarket business, partially
offset by restructuring actions. In order to respond to project and operational requirements, we have increased
our contractual workforce in Europe, while our permanent workforce has increased in North America and in
Asia-Pacific.
Our global incentive-based employee compensation rewards the collective and personal efforts of our employees
in achieving our objectives, using performance indicator targets. At the end of 2017, a total of 2,550 employees
worldwide, or 7.5% of permanent employees, were eligible to participate in the program. In 2017, as part of this
program, incentive-based compensation was linked to the achievement of targeted results, based on EBIT before
special items and free cash flow before net interest and income taxes.
BOMBARDIER INC. / 2017 FINANCIAL REPORT / TRANSPORTATION 101
GUIDANCE AND FORWARD-LOOKING STATEMENTS
Original 2017
guidance
Latest 2017
guidance
What we did in
2017
What’s next for
2018(1)(2)(3)
Revenues
~ $8.5 billion
No change
$8.5 billion
~ $9.0 billion
EBIT margin before special items
~ 7.5%
~ 8.0%
8.4%
> 8.5%
2017 guidance
During the second quarter of 2017, we increased our EBIT margin before special items(2) guidance for the year to
approximately 8.0%, mainly due to the performance in the first half of the year, which was driven by strong project
execution.
2017 EBIT margin before special items(2) of 8.4% has exceeded the revised guidance mainly driven by good
progress on transformation initiatives, improved project management and better performance in our Chinese joint
ventures.
Our strategy to achieve 2018 guidance
2018 planned revenues of approximately $9.0 billion is attributed to production ramp-up and deliveries in key
rolling stock contracts, stemming from a strong order backlog of $34.4 billion.
EBIT margin before special items(2) of above 8.5% planned in 2018 is driven by the benefits of revenue conversion
as well as transformation initiatives, as we continue to create engineering and manufacturing centers of
excellence and leverage our standardized product and services platforms.
(1) See Forward-looking statements in boxed text below for details regarding the assumptions on which the guidance is based. Also see
forward-looking statements disclaimer in Overview.
(2) Profitability guidance is based on EBIT margin before special items. Refer to the Non-GAAP financial measures section in Overview for a
definition of this metric and to the Analysis of results section for a reconciliation to the most comparable IFRS measures.
(3) Guidance for 2018 reflects the adoption of IFRS 9, Financial instruments and IFRS 15, Revenue from contracts with customers.
Transportation’s revenues guidance for 2018 is based on the assumption that foreign exchange rates would remain stable in 2018
compared to 2017.
102 BOMBARDIER INC. FINANCIAL REPORT - FISCAL YEAR ENDED DECEMBER 31, 2017
Forward-looking statements
Forward-looking statements(1) in this section of the MD&A are based on:
•
normal contract execution of current order backlog and the continued deployment and execution of key transformation
initiatives, especially those impacting direct and indirect procurement costs, labour efficiency and working capital
improvement;
•
•
•
•
•
the realization of upcoming tenders and our ability to capture them;
our ability to transfer best practices and technology across production;
our ability to execute and deliver business model enhancement initiatives;
our ability to recruit and retain highly skilled resources to deploy our product development and project execution strategy;
revenue conversion and phase out of our legacy contracts;
• successful deployment and execution of growth strategies, including the value chain approach and the creation of
ecosystems, site specialization and the creation of engineering centers of excellence, and the evolution of the revenue
mix towards more signalling and systems and operations and maintenance contracts;
a sustained level of public sector spending;
the ability of our supply base to support the execution of projects;
competitive global environment and global economic conditions to remain similar; and
•
•
•
stability of foreign exchange rates.
•
(1) Also see the Guidance and forward-looking statements section in Overview.
BOMBARDIER INC. / 2017 FINANCIAL REPORT / TRANSPORTATION 103
OTHER
Table of Contents
OFF-BALANCE
SHEET
ARRANGEMENTS
RISKS AND
UNCERTAINTIES
ACCOUNTING
AND REPORTING
DEVELOPMENTS
FINANCIAL
INSTRUMENTS
RELATED
PARTY
TRANSACTIONS
CRITICAL
JUDGMENTS
AND
ACCOUNTING
ESTIMATES
104
105
121
123
124
125
CONTROLS AND
PROCEDURES
FOREIGN
EXCHANGE
RATES
SHAREHOLDER
INFORMATION
SELECTED
FINANCIAL
INFORMATION
QUARTERLY
DATA
(UNAUDITED)
HISTORICAL
FINANCIAL
SUMMARY
131
132
133
134
135
136
OFF-BALANCE SHEET ARRANGEMENTS
Factoring facilities
In the normal course of its business, Transportation has factoring facilities mainly in Europe, to 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 10 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.
104 BOMBARDIER INC. FINANCIAL REPORT - FISCAL YEAR ENDED DECEMBER 31, 2017
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 10 years). The value of the underlying asset may be adversely affected by a number of factors. To mitigate
the 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, 2017, 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, we have 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. Commercial Aircraft 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.
RISKS AND UNCERTAINTIES
We operate in industry segments which present a variety of risk factors and uncertainties. The risks and
uncertainties described below are those that we currently believe could materially affect our business activities,
financial condition, cash flows and results of operations, but are not necessarily the only risks and uncertainties
that we face. If any of these risks, or any additional risks and uncertainties presently unknown to us or that we
currently consider as being not material, actually occur or become material risks, our business activities, financial
condition, cash flows and results of operations could be materially adversely affected.
BOMBARDIER INC. / 2017 FINANCIAL REPORT / OTHER 105
GENERAL
ECONOMIC RISK
General economic risk is the risk of potential loss due to unfavourable economic conditions. These
factors include, but are not limited to, government budget compression, reduced levels of public and
private capital expenditures, declining business confidence, political and economic pressures,
including those arising from increasing government deficits and sovereign debt overruns, and crises in
the credit markets.
BUSINESS
ENVIRONMENT
RISK
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 (including scope clauses in pilot union agreements
restricting the operation of smaller jetliners by major airlines or by their regional affiliates) and business
aircraft customers, the financial condition of the rail industry, trade policy, as well as increased
competition from other businesses including new entrants in market segments in which we compete. In
addition, political instability and force majeure events such as acts of terrorism, natural disasters,
global health risks, 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
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 and the
complexity of obtaining certification and homologation of products and services. In addition, the large
and complex projects that are characteristic of our businesses are often structured as fixed-price
contracts and thus exposed to production and project execution risks. Furthermore, our cash flows are
subject to pressures based on project-cycle fluctuations and seasonality and our businesses are
capital intensive, which require that we regularly incur significant capital expenditures and investment
over multi-year periods prior to realizing cash flows under a project. Other sources of operational risk
include our ability to successfully implement our strategy and transformation plan, actions of business
partners, product performance warranty and casualty claim losses, the use of estimates and judgments
in accounting, regulatory and legal conditions, environmental, health and safety issues, as well as
dependence on customers, suppliers (including supply chain management) and human resources. We
are also subject to risks related to problems with reliance on information systems, reliance on and
protection of intellectual property rights and adequacy of insurance coverage.
FINANCING RISK
Financing risk is the risk of potential loss due 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
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, increases in
commodity prices and inflation rate fluctuations.
General economic risk
The markets in which we operate may from time to time be affected by a number of local, regional and global
factors. Since our sales and operations are undertaken around the world, including through manufacturing and
production capacity in Europe and in North America, and partnerships and joint ventures in regions such as Asia
and Africa, we may be directly or indirectly affected by an unfavourable political or economic slowdown occurring
within these geographic zones and our business may be exposed to a number of related risks, such as
fluctuations in exchange rates and restrictions on the transfer of capital.
Should the current uncertain global economic situation persist over time or deteriorate, should the economic
headwinds in certain countries, regions or key markets intensify or spread to other countries, or should the global
economic environment deteriorate, this could, in particular, 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, paused or discontinued production of certain products, termination of employees or adverse
impacts on suppliers.
Brexit
On June 23, 2016, a referendum took place whereby British citizens voted to exit the European Union, commonly
known as “Brexit”. Bombardier could be impacted by Brexit in both our aerospace and rail businesses. In 2017,
46% of our revenues were generated in Europe, of which 20% was generated in the U.K.
106 BOMBARDIER INC. FINANCIAL REPORT - FISCAL YEAR ENDED DECEMBER 31, 2017
Brexit could result in increased geopolitical and economic risks and could cause disruptions to and create
uncertainty surrounding our businesses, including affecting our relationships with existing and future customers,
suppliers and employees, which could in turn have an adverse effect on our financial results and operations.
There could also be greater restrictions on imports and exports between the U.K. and European Union countries
and could also result in increased regulatory complexities.
The announcement of Brexit caused significant currency exchange fluctuations. The U.S. dollar strengthened
against other currencies, particularly the pound sterling and the euro. Our revenues are denominated mainly in
U.S. dollars for aircraft sales and mainly in euro and other currencies for our rail business. The strengthening of
the U.S. dollar relative to these other currencies could adversely affect our results of operations, particularly in the
rail business, where a potential devaluation of the local currency or of the euro relative to the U.S. dollar coupled
with potential increased inflation risk, may expose us to losses and could impair our customers’ purchasing power.
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 our 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 our aerospace 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.
The purchase of aerospace 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 aerospace 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 further 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 impact our financial results.
Financial condition of the rail industry
The rail industry has historically been resilient during economic downturns. Challenging economic and financial
conditions in specific areas, however, may have a negative impact on some rail operators. As customers deal with
budget pressures and discipline and even austerity measures, it may result in projects being reduced in size,
postponed or even cancelled. Such actions by public or private rail operators may negatively impact our order
intake and revenues and put significant pressure on our cost structure and prices. These conditions may be
exacerbated in times of declining investment activity.
A significant proportion of our rail business in any given period relies on government agencies and other public
institutions, which have historically represented the vast majority of the value of the orders that we book annually.
The amount public institutions are able to invest and spend depends on complex political and economic factors
and could vary from one fiscal year to the next. Economic slowdown and public budgetary restrictions can cause
a decrease in infrastructure investments, delays in placing orders and delays in executing contracts or payments,
as well as a decrease in fiscal and other incentive-based measures to promote research and development. In
periods of over-indebtedness (or of a sovereign debt crisis), the implementation of austerity or public spending
reduction programs can lead to a negative impact on the volume of orders placed for transportation infrastructure
projects.
BOMBARDIER INC. / 2017 FINANCIAL REPORT / OTHER 107
In addition, intense competition in the rail industry and demands by customers in the current economic
environment have resulted in certain adverse impacts, including the lower level and later receipt of advance
payments. This evolution of contract terms may adversely impact our cash flows and may require us to obtain and
deploy increased amounts of capital from other sources, including factoring facilities, which may adversely affect
our return on equity, financial condition and results of operations. In addition, there can be no assurance that if
such customer payment and advances terms continue to evolve in a manner adverse to the manufacturers we will
be able to access sufficient replacement working capital to finance the execution of projects on acceptable terms
or at all.
Trade policy
As a globally operating organization, our businesses are subject to government policies related to import and
export restrictions and business acquisitions, support for export sales, and world trade policies including specific
regional trade practices. As a result, we are exposed to risks associated with changing priorities by government
and supranational agencies.
In addition, protectionist trade policies and changes in the political and regulatory environment in the markets in
which we operate, such as foreign exchange import and export controls, tariffs and other trade barriers, price or
exchange controls, as well as potential changes to or the termination of the existing North American Free Trade
Agreement “NAFTA” between Canada, the U.S. and Mexico currently in discussion, could affect our business in
several national markets, impact our sales and profitability and make the repatriation of profits difficult, and may
expose us to penalties, sanctions and reputational damage.
Increased competition from other businesses including new entrants in market segments in
which we compete
In the aerospace market segments in which we compete, competitors are developing numerous aircraft programs,
with entries-into-service expected throughout the next decade. We face the risk that market share may be eroded
if potential customers opt for 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.
In the rail market, we face intense competition in the markets and geographies in which we operate. We face
competition from strong competitors, some of which are larger and may have greater resources in a given
business or region, as well as competitors from emerging markets and new entrants, which may have a better
cost structure. Some rail transportation market segments in which we operate, and some of the significant market
participants in our businesses, are undergoing consolidation. Such consolidation may increase pressure on prices
and profit margins, as well as on payment terms and conditions, manufacturing timeframes and the technologies
proposed and services provided to clients, which could weaken our position in certain markets. Furthermore,
certain competitors might be more effective and faster in capturing available market opportunities, which in turn
may negatively impact our results, revenues and market share.
Political instability
Political instability, which may result from various factors, including social or economic factors, in certain regions
of the world may be prolonged and unpredictable. Any prolonged political instability in markets in which we
participate could lead to delays or cancellation of orders, deliveries or projects in which we have invested
significant resources, particularly when the customers are state-owned or state-controlled entities.
Geopolitical and economic risks, international sanctions and the price of oil affecting many energy-exporting
nations have raised new concerns in international economies. Beyond any immediate impact, these
developments may also negatively affect the evolution of the global economy.
In addition, geopolitical events in the geographic areas in which we operate can increase difficulties relative to the
conditions under which the contracts we have signed are executed, extend execution periods or trigger
unexpected legislative or regulatory changes that could significantly increase the costs of execution initially
108 BOMBARDIER INC. FINANCIAL REPORT - FISCAL YEAR ENDED DECEMBER 31, 2017
projected for these contracts and which could have a material adverse effect on our business, financial condition,
cash flows and results of operations.
Global climate change
Global climate change could exacerbate certain of the threats facing our business, including the frequency and
severity of weather-related events, which can disrupt our operations, damage our infrastructure or properties,
create financial risk to our business or otherwise have a material adverse effect on our results of operations,
financial position or liquidity. These may result in substantial costs to respond during the event, to recover from
the event and possibly to modify existing or future infrastructure requirements to prevent recurrence. Climate
changes could also disrupt our operations by impacting the availability and cost of materials needed for
manufacturing and could increase insurance and other operating costs.
The potential physical impacts of climate change on our operations are highly uncertain, and could be particular to
the geographic circumstances in areas in which we operate and may include changes in rainfall and storm
patterns and intensities, water shortages, rising water levels and changing temperatures. These factors may
impact our decisions to construct new facilities or maintain existing facilities in areas most prone to physical
climate risks. We could also face indirect financial risks passed through the supply chain and process disruptions
due to physical climate changes could result in price modifications for our products and the resources needed to
produce them. These impacts may adversely impact the cost, production, and financial performance of our
operations. In addition, concerns about the environmental impacts of air travel and tendencies towards “green”
travel initiatives could have the effect of reducing demand for air travel and could materially adversely impact our
Aerospace business.
Global climate change also results in regulatory risks which vary according to the national and local requirements
implemented by each jurisdiction where we are present. Our products as well as our manufacturing and services
activities are subject to environmental regulations by federal, provincial and local authorities in Canada as well as
local regulatory authorities with jurisdiction over our operations outside of Canada. There continues to be a lack of
consistent climate legislation, which creates economic and regulatory uncertainty. Most countries where we carry
out manufacturing activities are at various stages of developing binding emission allocations and trading
schemes. During 2017, our regulatory risks associated with climate change mainly fell under our obligations to the
European Union Emission Trading Scheme, the United Kingdom Climate Change Agreement, the United
Kingdom's Carbon Reduction Commitment energy efficiency scheme (launched in April 2010) and the Québec
carbon market trading scheme. At the end of 2016, the province of Ontario decided to integrate the same carbon
market trading scheme as Québec's, effective 2018. Increased public awareness and concern regarding global
climate change may result in more legislative and/or regulatory requirements to reduce or mitigate the effects of
greenhouse gas emissions. The impact to us and our industry from legislation and increased regulation regarding
climate change is likely to be adverse and could be significant, particularly if regulators were to conclude that
emissions from aircraft cause significant harm to the upper atmosphere or have a greater impact on climate
change than other industries. We may be directly exposed to such measures, which could result in significant
costs on us, on our customers and on our suppliers, including costs related to increased energy requirements,
capital equipment, environmental monitoring and reporting, and other costs necessary to comply with such
regulations that could adversely affect our business, financial condition, operating performance, and ability to
compete.
Developing new products and services
Operational risk
Changes resulting from global trends such as climate change, volatile fuel prices, the growth of developing
markets, urbanization, population growth and demographic factors influence customer demands in our main
aerospace and rail transportation markets. To remain competitive and meet customers’ needs, we are required to
anticipate these changes and 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.
BOMBARDIER INC. / 2017 FINANCIAL REPORT / OTHER 109
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 if we fail to design
or obtain homologation or accreditation for new products or technologies), are not brought to market in a timely
manner, in particular, as compared to our competitors, or if our products become obsolete. We may incur cost
overruns in developing new products and there is the risk that our products will not meet performance
specifications to which we have committed to customers.
Our 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 anticipate and adapt to changes in markets and to reduce the costs of
producing high-quality, new and existing products, to continue to develop our product mix and to align our global
presence with worldwide market opportunities.
In a highly competitive environment, we are and will remain exposed to the risk that more innovative or more
competitive products, services or technologies are developed by competitors or introduced on the market more
quickly or that the products we develop are not accepted by the market.
Business development
Our businesses are dependent on obtaining new orders and customers, thus continuously replenishing our order
backlog. Our results may be negatively impacted if we are unable to effectively execute strategies to gain access
to new markets, capture growth or successfully establish roots in new markets. Our book-to-bill ratio, which we
define as new orders over revenues or units delivered, is an indicator that we use to track potential future
revenues. However, the realization of revenues from new orders is based on certain assumptions, including the
assumption that our relevant contracts will be performed in full in accordance with their terms. The termination or
modification of any one or more major contracts may have a material and adverse effect on future revenues. We
cannot guarantee that we will realize all of the revenues initially anticipated in our new orders, and any such
shortfall may be significant.
Although we have developed and continue to develop our presence in many geographic markets, access to
certain markets can prove to be difficult to secure, particularly if there is a local competitor benefiting from a
stronghold in its home market. These types of situations could put us in an unfavourable position relative to some
of our competitors and present challenges to our strategy and competitive strength in those zones.
Certification and homologation process
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. or other regulatory authorities could result in service interruption of our products, fewer sales
or slower deliveries, an unplanned build-up of inventories, reduction in inventory values or impairment of assets.
The marketing and EIS of our rail products require compliance with rail transportation security standards that differ
widely at the global level and are governed by various relevant regulatory authorities. This creates a complex
process for securing the homologation of trains. The process for securing the homologation of trains is highly
involved and may take longer and be more costly than initially anticipated due to the extent of testing and other
supporting technical elements required by the relevant authorities, which elements may change over time. Our
contracts increasingly include language that requires us to bear the risks and obligations associated with the
homologation process, including risks relating to changes in law or regulation or the interpretation or application of
regulations in respect of homologation.
Delays caused by the homologation process, or increased engineering or production costs relating to
homologation, may lead to delays in our ability to deliver our products and complete our contracts, as well as
contract cost overruns relative to our estimates and models and the payment of significant penalties or damages,
service interruptions affecting the products, or even the risk of cancellation of all or a portion of the contract in
110 BOMBARDIER INC. FINANCIAL REPORT - FISCAL YEAR ENDED DECEMBER 31, 2017
extreme cases of prolonged delays. There can be no assurance regarding the time frame required for obtaining
certification or homologation.
Fixed-price and fixed-term commitments and production and project execution
We have historically offered, and expect to continue to offer, a significant portion of our products through
pre-agreed fixed-price contracts with a stipulated delivery schedule, 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 these fixed-price contracts, including unexpected technological
problems, difficulties with partners, subcontractors and suppliers, 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 sufficiently quickly 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. Our estimates of the costs for completing a project are subject to a number of
assumptions, including future economic conditions, cost and availability of labour and raw materials, labour
productivity, employment levels and salaries, facility utilization rates, inflation rates, foreign exchange rates and
construction and technical standards to be applied to the project, and are influenced by the nature and complexity
of the work to be performed. Due to the complexity and the length of many of the projects in which we participate,
the actual investment, costs and productivity may differ materially from what we had initially modelled or
anticipated. In addition, many of our contracts contain requirements to comply with mandatory performance levels
for the equipment we deliver or a fixed delivery schedule. If we are unable to comply with these obligations, our
clients could request the payment of contractual penalties, or terminate the contract in question, or even claim
compensation.
The revenue, cash flow and profitability of large, complex, long-term projects vary significantly in accordance with
the progress of the project and depend on a variety of factors, some of which are beyond our control, such as
specification modifications and change orders demanded by the customer, increasing regulatory requirements in
relation to homologation, unexpected technological problems, logistical difficulties and other execution issues that
could lead to engineering cost and time overruns, production cost overruns, late delivery penalties and liquidated
damages payments and postponement or delays in contract execution. In the context of large, complex, long-term
contracts, such overruns and issues can be material in terms of cost and time, may lead to withholding of
payment by customers or risk of cancellation of all or a portion of contract by the customer, and may have a
material adverse impact on our business, results, cash flows, financial position and reputation. In addition, we
may incur late delivery penalties in the event of an inability to increase production rates quickly enough to meet
commitments under such large contracts. The profit margins generated by some of these contracts can, as a
result, prove to be lower than those initially projected, or even be zero-margin or loss contracts.
In addition, many of our long-term contracts are signed with customers that are governmental or quasi-public
entities. These types of customers require that we comply with project bidding and open market specifications,
which may limit our ability to negotiate certain contractual terms and conditions and can force us to accept less
favourable conditions. For example, customers may require manufacturers to bear an increasing proportion of the
homologation regulatory risk, may insist on payment schedules that reduce or eliminate advance payments or that
lead to negative cash-flow during the execution of a project, and may require mandatory technical performance
levels and requirements associated with the issuance of parent company guarantees and bonds. For the most
part, our rail transportation business is subject to public procurement protocols, which often take the form of
adherence contracts that cannot be amended in any meaningful sense, causing bidders to risk disqualification if
they attempt to reflect contingencies or special considerations in their offers. Moreover, public procurement
protocols often feature specifications that are subject to numerous change orders, which may result in disputes
regarding allocation of costs in respect of such change orders or specification modifications. These particularities
could potentially expose our business to significant additional risks or costs that could adversely affect the
profitability of our projects.
Additionally, for certain projects, contracts in our rail transportation business impose manufacturing or purchasing
requirements in the countries in which the project is being executed. Such contracts may require us to build local
production capacities, partner with local entities, and/or secure third-party purchases from local suppliers. Such
terms and conditions can lead to pressures on costs, target volumes and execution.
BOMBARDIER INC. / 2017 FINANCIAL REPORT / OTHER 111
Cash flows and capital expenditures
Our businesses are cyclical and highly capital intensive due to their nature. In the ordinary course of our business,
the structure and duration of many of our complex, long-term projects and product development programs require
us to invest significantly in engineering, development and production for many years before deliveries are made
and the product begins to generate cash flow. In addition, we are regularly required to incur capital expenditures
in order to, among other matters, maintain equipment, increase operating efficiency, develop and design new
products, improve existing products and services, invest in and develop new technologies and maintain a
significant level of highly skilled employees. Our ability to negotiate and collect customer advances and progress
payments is therefore an important element of our cash flow and working capital management. However, intense
competition in the markets in which we operate and demands by customers in the current economic environment
have resulted in fewer and lower advance payments, which could place significant financial pressures on our
operations. Discrepancies between our disbursements and amounts received on orders placed, or even any
reduction in the overall volume of orders placed or a deterioration of the payment terms on these orders has an
automatic adverse impact on the evolution in working capital requirements and results of operations.
Seasonality
In addition, our cash flows are, to a certain degree, subject to seasonal fluctuations and we expect a
disproportionate amount of our cash flows from operations to be received or paid by us during our fourth quarter.
We expect this trend to continue. While the payment terms with certain of our vendors extend beyond the amount
of time necessary to collect proceeds from our customers, no assurance can be given that we will be able to
maintain such terms. As a result of fourth quarter cash receipts, at December 31 of each year, our cash and cash
equivalents balances typically reach their highest level (other than as a result of cash flows provided by or used in
investing and financing activities). Our interim results can be affected by these seasonal fluctuations.
Deployment and execution of strategic initiatives related to cost reductions and working capital
improvement
In 2015, we launched the multi-phased, multi-year Bombardier transformation plan focusing on three
priorities: improve cash generation, reduce costs and drive performance. As with any large, company-wide
transformation there are inherent risks in the timing of the deployment and in the planned value to be
achieved. More specifically, the timing and magnitude of the specific initiatives and subsequent benefits, if any,
could be affected by a multitude of external and internal factors including, but not limited to: the evolution of the
demands and requirements of our businesses, variations in planned production volumes and schedules, the
outcome of negotiations with suppliers and unions, changing legislation, changes in socio-economic conditions in
the countries in which we operate, evolutions in the labour market for key talent, and changes in the priorities of
the business. There can be no assurance that these initiatives, or other initiatives, will enable us to reach our
objectives, or that any such measures will be implemented successfully or within the set time frame. A failure to
successfully implement our strategy and transformation initiatives, or if such measures prove insufficient, could
have an adverse impact on our business activities, financial condition, profitability and outlook.
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 result in 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 a potential order.
In order to penetrate new markets and strengthen our partnerships, we have implemented a number of joint
ventures and partnerships in various countries and regions, such as Africa, the Middle East and Asia (in particular,
China). These operations involve certain risks, in particular in relation to potential political or economic instability
depending on the countries, in the difficulties that may arise in evaluating assets and liabilities relating to these
112 BOMBARDIER INC. FINANCIAL REPORT - FISCAL YEAR ENDED DECEMBER 31, 2017
operations, in integrating people, activities, technologies and products, as well as in implementing governance
and compliance systems and procedures.
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. These 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
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 investment.
In addition, due to the nature of our business, liability claims may arise from accidents, incidents or disasters
involving products and services that we have provided, including claims for serious personal injuries or death.
These accidents may be caused by climatic factors or human error.
If any of our products is proven to have quality issues, fails to meet the national or industrial standards or has
potential risks to the safety of human and properties, we may have to recall such products, be subject to
penalties, have our operating licences or permits revoked, suspend production and sale of our products, or be
ordered to take corrective measures. A product recall may also affect our reputation and brand name, result in a
decreased demand for our products and lead to stricter scrutiny by regulatory agencies over our operations.
We cannot be certain that current 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, both
present or that may arise in the future. For example, the harmonization of the European railway market through
the new European standards will require investment to upgrade our existing products to comply with regulatory
requirements, without which regulatory authorities and thus our customer may not accept our products.
Unavailability of compliant products may lead to a loss of market share.
We may become party to lawsuits in the ordinary course of business, including those involving allegations of late
deliveries of goods or services, product liability, product defects, quality problems and intellectual property
infringement. Material losses may be incurred related to litigation beyond the limits or outside the coverage of
current insurance and existing 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 revenues and profitability,
and subject us to criminal and civil enforcement actions. Moreover, legal proceedings resulting in judgments or
findings against us may harm our reputation and place us at a disadvantage for future orders or contract awards.
Also refer to Note 39 – Commitments and contingencies to our consolidated financial statements.
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 materials content, energy use and greenhouse gas emissions, air, water and noise pollution, the use, storage,
labelling, transportation and disposal or release of hazardous substances, human health and safety risks arising
from the exposure to hazardous or toxic materials or defective products 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, including our disposal of hazardous wastes at third party
sites. These laws and regulations may cause us to incur costs, including fines, damages, criminal or civil
BOMBARDIER INC. / 2017 FINANCIAL REPORT / OTHER 113
sanctions and remediation costs, or experience interruptions in our operations, and may negatively impact the
market for our products.
Environmental, health and safety regulatory requirements, or enforcement thereof, may become more stringent in
the future and we may incur additional costs to be compliant with such future requirements or enforcement. 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 will close, sell or dispose of in the
future.
Dependence on customers
While we have a varied customer base, in any given period a limited number of contracts or customers may
account for a significant portion of our revenues for some of our products. Although we constantly seek to expand
our customer base, we believe that in any given period revenues and results may continue to be significantly
affected by a limited number of customers due to the nature of some of our products. Consequently, the loss of
such a customer or changes to their orders could result in fewer sales and/or a lower market share. Since the
majority of our rail transportation customers are governments or public-sector companies or operate under public
contracts, our order intake is also dependent to a significant degree on public-sector budgets and spending
policies.
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) for our aerospace products, 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) for our rail transportation products.
Disruptions in our supply chain can impact our ability to deliver on schedule. Moreover, 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, in particular if we are unable to purchase the key components and
parts from those suppliers upon agreed terms or in a cost-effective manner and if we cannot find alternative
suppliers on commercially acceptable terms in a timely manner. We may not be able to recover any costs or
liability we incur (including liability to our customers) as a result of any such failure from the applicable supplier,
which could have a material adverse effect on our financial condition and results of our operations.
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 go unmitigated could result in delays to a program as a whole.
These suppliers subsequently deliver major components 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, if possible, could be costly and take a significant amount of time.
Human resources (including collective agreements)
Employment market competition is fierce when it comes to hiring the highly qualified managers and specialists
needed to complete the work we require, particularly in certain emerging countries. In many of our business areas
we intend to expand our business activities, for which we will need highly skilled employees. The success of our
development plans depends, in part, on our ability to develop skills, to retain employees, and to recruit and
integrate additional managers and skilled employees. Human resource risk includes the risk of delays in the
recruitment of or inability to retain and motivate highly skilled employees, including those involved in R&D and
manufacturing activities that are essential to our success. There is no guarantee that we will be successful in
recruiting, integrating and retaining such employees as needed to accompany our business development, in
particular in emerging countries. Conversely, the measures to adapt headcount to evolution in demand may result
in pressures from our workforce and social risks, which may have an adverse impact on our expected costs
reductions and production capacities.
114 BOMBARDIER INC. FINANCIAL REPORT - FISCAL YEAR ENDED DECEMBER 31, 2017
In addition, we are party to several collective agreements that are due to expire at various times in the future. An
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,
walkouts or lock-outs, and/or increased costs of labour, which could adversely affect our ability to deliver products
and services in a timely manner and on budget and could adversely affect our financial condition and results.
Additionally, as a result of our continuing review of our businesses and processes to reduce cost, improve our
manufacturing platform, and better position ourselves in the marketplace, it may be necessary to curtail
production or permanently shut down facilities, leading to the transfer of employees to new production facilities
and processes or to the reduction of our workforce. This could materially adversely impact our relationship with
our employees, as well as result in asset write-downs at affected facilities.
Reliance on information systems
Like those of other large multinational companies, our technology systems may be vulnerable to a variety of
sources of failure, interruption or misuse, including by reason of natural disasters, cyberattacks and cybersecurity
threats, network communication failures, computer viruses and other security threats to the confidentiality,
availability and integrity of our systems. Information security risks have increased in recent years due to the
proliferation of new technologies and the increased sophistication of perpetrators of cyberattacks.
Information contained in our systems include proprietary or sensitive information on our customers, suppliers,
partners, employees, business information, research and development activities and our intellectual property.
Unauthorized third parties may be able to penetrate our network security and misappropriate or compromise our
confidential information, deploy viruses, worms and other malware or phishing that would exploit any security
vulnerabilities in our management information systems, create system disruptions or cause machinery or plant
shutdowns. Such attacks could potentially lead to the publication, manipulation or leakage of information,
improper use of our systems, defective products, production downtimes, and supply shortages. Our partners and
suppliers also face risks of unauthorized access to their information systems which may contain our confidential
information. The Cyber Security, Risk and Compliance team, under the direction of the Global CIO, and reporting
to the Finance and Risk Management Committee of the Board of Bombardier, supervises and maintains technical
and process controls, enforcement and comprehensive monitoring of systems and networks designed to prevent,
detect and respond to unauthorized activity in our systems. We have not to date experienced a cyber security
event of a material nature. However, considering the complexity and evolving nature of the threats, as well as the
unpredictability of the timing, nature and scope of disruptions from such threats, we cannot ensure that the
measures taken will be sufficient to counter any such unauthorized access to information systems, nor that our
assessment and mitigation measures are sufficient to avoid, or mitigate the impact of, a system failure.
Any system failure, cyberattack or a breach of systems could result in disruption of activities and operational
delays, information losses, significant remediation costs, increased cyber security costs, lost revenues due to a
disruption of activities, diminished competitive advantage and/or litigation and reputational harm affecting
customer and investor confidence, which could materially adversely affect our business, financial condition, and
results of our operations. Material losses may be incurred related to the foregoing beyond the limits or outside the
coverage of current insurance and existing provisions for such losses may not be sufficient to cover the ultimate
loss or expenditure. Furthermore, media or other reports of perceived security vulnerabilities of our systems, even
if no breach has been attempted or had occurred, could adversely impact our brand and reputation and materially
impact our business and financial results.
Reliance on and protection of intellectual property
We regularly apply for new patents and actively manage our intellectual property portfolio to secure our
technological position. However, our patents and other intellectual property may not prevent competitors from
independently developing, or obtaining through licensing, alternative technologies that are substantially equivalent
or superior to ours, and we cannot provide assurance that the measures we have taken will be sufficient to
prevent any misappropriation of our intellectual property. Furthermore, we cannot assure that all our registration
applications will be successful, or our registered intellectual property rights will not be subject to any objection. If
BOMBARDIER INC. / 2017 FINANCIAL REPORT / OTHER 115
the steps we have taken and the protection afforded by law do not adequately safeguard our intellectual property
rights, or we are not able to register or defend our intellectual property rights, and our competitors exploit our
intellectual property in the manufacture and sale of competing products in the markets we operate, such events
could materially and adversely affect our business.
We could also face claims by others that we are improperly using intellectual property owned by them or
otherwise infringing their rights in intellectual property. Irrespective of the validity or the successful assertion of
such claims, we could incur costs in either defending or settling any intellectual property disputes alleging
infringement. Adverse rulings in any litigation or proceeding could result in the loss of our proprietary rights and
subject us to significant liabilities or even business disruption. Any potential intellectual property litigation against
us could also force us to, among other things, cease selling the challenged products, develop non-infringing
alternatives or obtain licences from owner of the infringed intellectual property. We may not be successful in
developing such alternatives or in obtaining such licences on reasonable terms or at all, which could damage our
reputation and affect our financial condition and profitability.
Adequacy of insurance coverage for our business, products and properties
We maintain insurance policies in accordance with the needs of our business. However, we cannot guarantee that
our insurance policies will provide adequate coverage should we face extraordinary occurrences that result in
losses. We may not obtain certain insurance coverage or may experience difficulties in obtaining the insurance
coverage we need at acceptable levels and costs in the future, which could materially and adversely affect our
business, financial condition and results of operations. We do not carry any insurance for business interruption or
loss of profit arising from accidents at any of our manufacturing facilities or other disruptions of our operations.
Accidents or natural disasters may also result in significant property damage, disruption of our operations and
personal injuries or fatalities, and our insurance coverage may be inadequate to cover such losses. In the event of
an uninsured loss or a loss in excess of our insured limits, we could suffer damage to our reputation and/or lose
all or a portion of our production capacity as well as future revenues expected to be generated by the relevant
facilities. Any material loss not covered by our insurance could adversely affect our business, financial condition
and results of operations.
Liquidity and access to capital markets
Financing risk
Our businesses are cyclical and highly capital intensive. In the ordinary course of our business, 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 and receivables factoring facilities to satisfy our
financing needs. There can be no assurance that such working capital cash sources will be available to us in the
future on acceptable terms or at all.
Our ability to achieve our business and cash generation plans is based on a number of assumptions which
involve significant judgments and estimates of future performance, borrowing capacity and credit availability,
which cannot at all times be assured.
We routinely review our debt profile with a view to managing or extending maturities (including, for example, as
noted under the heading “Letter of credit facilities”) and/or negotiating more favourable terms and conditions with
respect to our bank facilities. We also routinely review the terms and conditions of our bank facilities and seek
annual extensions of the availability periods thereunder. In this respect, we are currently in negotiations for the
annual extensions of each of our principal bank facilities as well as for certain other amendments, including
amendments to our financial covenants and other technical amendments. These amendments are subject to
prevailing market and other conditions that are beyond our control and there can be no assurance that we will be
able to successfully negotiate such amendments on commercially reasonable terms, or at all. However, failure to
successfully negotiate such amendments is not currently expected to have a material adverse effect on our
business, financial condition, cash flows and results of operations.
116 BOMBARDIER INC. FINANCIAL REPORT - FISCAL YEAR ENDED DECEMBER 31, 2017
From time to time, we undertake various financing initiatives to solidify our liquidity position. We plan to continue
to explore various initiatives such as certain business activities’ potential participation in industry consolidation.
There are no assurances that we will be able to implement these or any other strategic options on favourable
terms and timing or at all, and, if implemented, that such actions would have the planned results.
While we believe that our expected cash flows from operating activities, combined with available short-term
capital resources will enable the development of new products to enhance competitiveness and support growth
and will enable us to meet all other expected financial requirements in the foreseeable future, there can be no
assurance that this will be the case.
If our cash flows and other capital resources are insufficient to fund the required work on our ongoing contracts,
programs and projects, as well as our capital expenditures and debt service obligations, we could be forced to
reduce or delay deliveries, investments and capital expenditures or to seek additional debt or equity capital. We
may not be able to obtain alternative capital resources, if necessary, on favourable terms or at all.
A decline in credit ratings, a significant reduction in the surety or financing market global capacity, widening credit
spreads, changes in our outlook or guidance, significant changes in market interest rates or general economic
conditions or an adverse perception by banks 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, including factors outside of our control relating to the industries or countries
and regions in which we operate, and, accordingly, no assurance can be given that our credit ratings may not be
downgraded in the future. Actual or anticipated changes or downgrades in our credit ratings, including any
announcement that our ratings are under further review for a downgrade, may increase our cost of financing.
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. Pension funding requirements are dependent on regulatory requirements and on the valuations of plan
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, actuarial assumptions or other
factors may reduce the amount of funds available for operating purposes, thus limiting our financial flexibility and
weakening our financial condition.
There is no assurance that retirement benefit plan assets will earn the expected rates of return. The ability of our
retirement benefit plan assets to earn these 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.
The net retirement benefit liability is highly sensitive to variations to the underlying discount rate, which represents
the market rate for high-quality corporate fixed-income investments at the end of each reporting period consistent
with the currency and estimated term of the benefit obligations. As a result, the discount rates change is based on
market conditions.
BOMBARDIER INC. / 2017 FINANCIAL REPORT / OTHER 117
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 our aerospace customers primarily in the form of aircraft
loans and lease receivables. Reduced liquidity may result if our customers or other counterparties are unable to
make payment of amounts owed to us, or delay these payments, and we may incur impairment losses on these
assets. Furthermore, if our customers experience deteriorating credit quality, we may need to provide additional
direct or indirect financing support to maintain sales, increasing our exposure to credit risk, or reduce our
customers’ credit limits, which could negatively affect our revenues.
We also have exposure to banks in the form of periodically placed deposits and 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.
Substantial debt and significant interest payment requirements
We currently have, and expect to continue to have, a substantial amount of debt and significant interest payment
requirements. Our level of indebtedness could have significant consequences, including the following:
•
•
• we may be required to dedicate a substantial portion of our cash flows from operations to interest and
it may be more difficult to satisfy our obligations with respect to our indebtedness;
our vulnerability to general adverse economic and industry conditions may be increased;
principal repayments on our indebtedness, reducing the availability of cash flows to fund capital expenditures,
working capital, acquisitions, new business initiatives and other general corporate purposes;
our flexibility in planning for, or reacting to, changes in our businesses and the industries in which we operate
may be limited;
•
• we may be placed at a disadvantage compared to our competitors that have less debt or greater financial
•
resources;
it may limit, along with the financial and other restrictive covenants to which we are subject, among other
things, our ability to borrow additional funds on commercially reasonable terms, or at all;
• we may be required to monetize assets on terms that are unfavourable to us; and
• we may be required to offer debt or equity securities on terms that are not favourable to us or our
shareholders.
For more information regarding our long-term debt, see Note 27 - Long-term debt, to our consolidated financial
statements.
Restrictive debt covenants
The indentures governing certain of our indebtedness, revolving credit facilities and letter of credit facilities
contain covenants that, among other things, restrict our ability, and in some cases the ability of our subsidiaries,
to:
•
•
•
•
•
•
•
•
incur additional debt and provide guarantees;
repay subordinated debt;
create or permit certain liens;
use the proceeds from the sale of assets and capital stock of subsidiaries;
pay dividends and make certain other disbursements;
allow our subsidiaries to pay dividends or make other payments;
engage in certain transactions with affiliates; and
enter into certain consolidations, mergers or transfers of all or certain assets.
These restrictions could impair our ability to finance future operations or capital needs, or engage in other
business activities that may be beneficial.
118 BOMBARDIER INC. FINANCIAL REPORT - FISCAL YEAR ENDED DECEMBER 31, 2017
We are subject to various financial covenants under our letter of credit facilities and unsecured revolving credit
facilities which must be met on a quarterly basis. The $400-million letter of credit and $400-million unsecured
revolving credit facility, which are available for the Corporation excluding Transportation, include financial
covenants requiring a minimum EBITDA to fixed charges ratio, as well as a maximum gross debt and minimum
EBITDA thresholds, all calculated based on an adjusted consolidated basis i.e. excluding Transportation. The
Transportation letter of credit and revolving credit facilities include financial covenants requiring minimum equity
as well as a maximum debt to EBITDA ratio, all calculated based on Transportation stand-alone financial data. In
addition, we must maintain a minimum Transportation liquidity of €600 million ($ 720 million). The $400-million
letter of credit and $400-million unsecured revolving facilities, which are available for the Corporation excluding
Transportation, require liquidity between $750 million and $850 million depending on the level of the EBITDA to
fixed charges ratio, calculated based on an adjusted consolidated basis (i.e excluding Transportation) at the end
of each quarter of fiscal year 2017 (minimum liquidity of $750 million for fiscal year 2016). Minimum liquidity is not
defined as solely based on cash and cash equivalents as presented in the consolidated statement of financial
position.
Our ability to comply with these covenants may also 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 immediate defeasance or cash cover of all outstanding letters of credit,
and our bond holders and other lenders to declare amounts owed to them to be immediately payable. If any of
these facilities is accelerated, or we are subject to significant cash cover calls, we may not have access to
sufficient liquidity or credit to refinance such facilities on terms acceptable to us or at all. Furthermore, if we incur
additional debt in the future, we may be subject to additional covenants, which may be more restrictive than those
to which we are subject now. In addition, failure to comply with the obligations contained in our existing or future
indentures or loan agreements could require us to immediately cash cover, or repay debt under other agreements
that may contain cross-acceleration or cross-default provisions. There can be no assurance that we would be able
to obtain waivers or amendments of any such defaults, or be able to cash cover or refinance such facilities, on
terms acceptable to us or at all.
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 of 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 the repayment of 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.
BOMBARDIER INC. / 2017 FINANCIAL REPORT / OTHER 119
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, Swedish kronor and Mexican pesos. In situations where we are not fully hedged, our results of operations
are 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 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 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. These
RVGs may be provided 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.
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, steel and other materials that we use to
manufacture our products, and which represent a significant portion of our cost of sales. We do not maintain
significant inventories of raw materials and components and parts. The prices and availabilities of raw materials
and components and parts may vary significantly from period to period due to factors such as consumer demand,
supply, market conditions and costs of raw materials. In particular, raw materials required for our operations, may
be subject to pricing cyclicality and periodic shortages from time to time. We cannot guarantee that corresponding
variations in cost will be fully reflected in contract prices, and we may be unable to recoup these raw material
price increases, which could affect the profitability of such contracts.
Inflation risk
Our aerospace businesses are exposed to inflation risk relating to fluctuations in costs and revenue for aircraft
orders received but for which the delivery of the aircraft will take place several years in the future. Revenues for
these orders are adjusted for price escalation clauses linked to inflation. At Transportation, contract cost estimates
are subject to inflation rate assumptions. Estimated revenues at completion are adjusted for price escalation
clauses, several of which are linked to inflation. Fluctuations in inflation rates could nevertheless have a
significant impact on our future profitability if the inflation rate assumption used varies from the actual inflation
rate, and this is a particularly acute risk in respect of large long-term contracts which may have an impact on our
results for several years.
120 BOMBARDIER INC. FINANCIAL REPORT - FISCAL YEAR ENDED DECEMBER 31, 2017
ACCOUNTING AND REPORTING DEVELOPMENTS
Future changes in accounting policies
Financial instruments
In July 2014, the IASB completed the three-part project to replace IAS 39, Financial instruments: recognition and
measurement by issuing IFRS 9, Financial instruments. IFRS 9, Financial instruments includes classification and
measurement of financial assets and financial liabilities, a forward-looking ‘expected loss’ impairment model and a
substantially-reformed approach to hedge accounting.
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.
IFRS 9 also introduced a new expected-loss impairment model that will require more timely recognition of
expected credit losses. Specifically, the new standard requires entities to account for expected credit losses from
when financial instruments are first recognized and to recognize full lifetime expected losses on a more timely
basis.
Lastly, IFRS 9 introduced a new hedge accounting model, together with corresponding disclosures about risk
management activities. 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.
IFRS 9 will be effective for our fiscal year beginning on January 1, 2018. Our analysis has not identified significant
differences resulting from the adoption of this standard.
Revenue Recognition
In May 2014, the IASB released IFRS 15, Revenue from contracts with customers, which supersedes IAS 11,
Construction Contracts, and IAS 18, Revenue as well as other related interpretations. The core principle of
IFRS 15 is that an entity should recognize revenue to depict the transfer of promised goods or services to
customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for
those goods or services. Revenue is recognized when, or as, the customer obtains control of the goods or
services.
The standard will be effective for our fiscal year beginning on January 1, 2018, and as a result IFRS 15 will be
adopted in the first quarter of 2018. At that time we will restate our 2017 results, with an opening adjustment to
equity as at January 1, 2017.
The majority of long-term manufacturing and service contracts at Transportation currently accounted for under the
percentage-of-completion method are expected to meet the requirements for revenue recognition over time and
therefore will continue to apply the percentage-of-completion method. The principal differences identified in
respect of our accounting for long-term contracts at Transportation relate to the treatment of customer options for
additional trains and the recognition of variable consideration such as price escalation clauses.
Under IAS 11, estimated revenues at completion include anticipated customer options for additional trains if it is
probable that the customer will exercise the options and the amount can be measured reliably. Under IFRS 15,
customer options are only included in the transaction price of the contract when they become legally enforceable
as a result of the customer exercising its right to purchase the additional trains. This change will result in the
deferral of revenue and margin until the customer exercises their option. The change in policy is expected to
reduce equity at transition by approximately $635 million ($631 million after tax).
BOMBARDIER INC. / 2017 FINANCIAL REPORT / OTHER 121
Under IAS 11, variable consideration such as price escalation clauses is included in estimated revenues at
completion when the amount is considered probable and can be reliably measured. IFRS 15 introduces the
concept of a constraint on the recognition of variable consideration whereby amounts can only be included in the
transaction price to the extent it is highly probable that a significant reversal in the amount of cumulative revenue
recognized will not occur when the uncertainty associated with the variable consideration is subsequently
resolved. The introduction of this constraint will result in the transaction price recognizing the effect of price
escalation for certain indices at a later point in time. Consequently this will have the effect of deferring revenue
and margin which is expected to reduce equity at transition by approximately $85 million ($84 million after tax).
For the aerospace segments, revenues from the sale of aircraft will continue to be recognized when the aircraft
have been delivered.
IFRS 15 indicates IAS 37, Provisions, Contingent liabilities and Contingent Assets, should be applied to onerous
contracts but contains no other requirements as to their measurement. When the new revenue standard is
adopted all loss provisions for contracts with customers will need to follow the same policy for the definition of
unavoidable costs of fulfilling the contract. In line with one of the two approaches identified as reasonable by the
IFRS Interpretations Committee in its June 13, 2017 tentative agenda decision, we will define unavoidable costs
as the costs that we cannot avoid because we have the contract (for example, this would include an allocation of
overhead costs if those costs are incurred for activities required to complete the contract). This approach is
currently used for long-term contracts, however it will represent a change in accounting policy for other contracts
in the aerospace segments and will increase the amount of onerous contract provisions and thereby lower
subsequent inventory net realizable value charges. It is expected this change in policy will result in a reduction of
equity at transition of approximately $150 million ($160 million after tax).
We will need to account for a significant financing component on orders where timing of cash receipts and
revenue recognition differ substantially. Most of our contracts do not have a significant financing component.
However, there are several orders in the Business Aircraft segment where advances were received well before
expected delivery and therefore a financing component will need to be accounted for separately. The result is that
interest expense will be accrued during the advance period and the transaction price will be increased by a
corresponding amount. This change is expected to result in a decrease in equity at transition of approximately
$25 million before and after tax.
Under IFRS 15 revenues earned by the Aerostructures and Engineering Services on the inter-segment contract
for the C Series program will be recognized at a point in time (delivery) as opposed to the current policy whereby
it is recognized over-time (long-term contract accounting). Although this will impact the timing of revenues and
profit recognition for the Aerostructures and Engineering Services segment, since it is inter-segment it will have no
impact on our consolidated results.
While these changes will impact the timing of revenue and margin recognition, and will result in a reduction of
equity at transition, there will be no change to cash flows and there will be no change in the profitability over the
life of the contracts.
Based on our preliminary analysis, the changes in accounting policies are expected to result in an aggregate
reduction of equity at January 1, 2017 of approximately $900 million after tax.
For the nine-month period ended September 30, 2017 the changes in accounting policies are expected to result in
an increase of consolidated revenues and EBIT of approximately $70 million and $115 million respectively. These
impacts are mainly due to an expected increase of revenue and EBIT at Transportation of approximately
$85 million due to customers exercising their options and the timing of recognizing price escalation for long-term
contracts.
We are completing our assessment of the impact of the new standard on our consolidated financial statements for
the fourth quarter of fiscal year 2017.
122 BOMBARDIER INC. FINANCIAL REPORT - FISCAL YEAR ENDED DECEMBER 31, 2017
Leases
In January 2016, the IASB released IFRS 16, Leases, to replace the previous leases Standard, IAS 17, Leases, and
related Interpretations. IFRS 16 sets out the principles for the recognition, measurement, presentation and
disclosure of leases for both parties to a contract, the customer (lessee) and the supplier (lessor). IFRS 16
eliminates the classification of leases as either operating leases or finance leases and introduces a single lessee
accounting model. IFRS 16 also substantially carries forward the lessor accounting requirements. Accordingly, a
lessor continues to classify its leases as operating leases or finance leases, and to account for those two types of
leases differently.
IFRS 16 will be effective for our fiscal year beginning on January 1, 2019. We are currently evaluating the impact the
adoption of this standard will have on our consolidated financial statements. Where we are a lessee, we expect
IFRS 16 will result in on-balance sheet recognition of most of our leases that are considered operating leases under
IAS 17. This will result in the gross-up of the balance sheet through the recognition of a right-of-use asset and a
liability for the present value of the future lease payments. Depreciation expense on the right-of-use asset and
interest expense on the lease liability will replace the operating lease expense. We are continuing to assess the
impact of the new standard on our consolidated financial statements and will provide further updates as we
advance in our assessment.
Income taxes
In June 2017, the IASB released IFRIC 23, Uncertainty over income tax treatments. IFRIC 23 clarifies the
application of recognition and measurement requirements in IAS 12, Income Taxes, when there is uncertainty over
income tax treatments. It specifically addresses whether an entity considers each tax treatment independently or
collectively, the assumptions an entity makes about the examination of tax treatments by taxation authorities, how
an entity determines taxable profit (tax loss), tax bases, unused tax losses, unused tax credits and tax rates and
how an entity considers changes in facts and circumstances.
IFRIC 23 will be effective for our fiscal year beginning on January 1, 2019, with earlier application permitted. We are
assessing the impact of the adoption of this standard on our consolidated financial statements.
FINANCIAL INSTRUMENTS
An important portion of the consolidated balance sheets is composed of financial instruments. Our financial
assets include cash and cash equivalents, trade and other receivables, aircraft loans and lease receivables,
investments in securities, investments in financing structures, long-term contract receivables, restricted cash and
derivative financial instruments with a positive fair value. Our financial liabilities include trade and other payables,
long-term debt, short-term borrowings, lease subsidies, government refundable advances, vendor non-recurring
costs, sale and leaseback obligations and derivative financial instruments with a negative fair value. Derivative
financial instruments are mainly used to manage exposure to foreign exchange and interest rate risks. They
consist mostly of forward foreign exchange contracts and 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 financial instruments as
well as the revenues, expenses, gains and losses associated with these instruments are provided in
BOMBARDIER INC. / 2017 FINANCIAL REPORT / OTHER 123
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. These
values 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 we have immediate access. However, there is no active market for most of our financial instruments. In the
absence of an active market, we determine 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, we use 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.
Note 35 – Fair value of financial instruments, to the consolidated financial statements, also 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.
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 adjusted net income and
adjusted EPS to provide users of the financial statements a better understanding of the core results of our
business and enable better comparability of results from one period to another and with peers.
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
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.
124 BOMBARDIER INC. FINANCIAL REPORT - FISCAL YEAR ENDED DECEMBER 31, 2017
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 4 – 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:
•
the estimate requires us to make assumptions about matters that are highly uncertain at the time the
estimate is made; and
• 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 five-year period and are fundamental information used as a basis for many
estimates necessary to prepare financial information. We prepare a budget and a strategic plan covering a five-
year period, on an annual basis, using a process whereby a detailed one-year budget and four-year strategic plan
are prepared by each reportable segment and then consolidated. 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 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 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
Transportation conducts most of its business under long-term manufacturing and service contracts and the
aerospace segments have 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, vehicle overhaul and signaling contracts)
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.
Estimated revenues at completion are adjusted for change orders, anticipated options for additional assets,
claims, performance incentives, price escalation clauses and other contract terms that provide for the adjustment
of prices. If it is probable that changes in revenues will occur and the amount can be measured reliably, 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 usage and costs, including
escalation clauses, labour hours 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
BOMBARDIER INC. / 2017 FINANCIAL REPORT / OTHER 125
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,
including a review of escalation assumptions. 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
Transportation’s gross margin for 2017 by approximately $84 million.
Assets held for sale
On October 16, 2017, we entered into an agreement with Airbus SE (Airbus) whereby Airbus will acquire 50.01%
of CSALP, the entity that manufactures and sells the C Series aircraft. Airbus will provide procurement, sales and
marketing, and customer support expertise to CSALP. At closing of the transaction, since Bombardier will no
longer control CSALP, the transaction will be accounted for as a disposal of CSALP in exchange for an equity
interest in the new partnership. At the transaction date, our interest in the new partnership will be measured at fair
value based on the expected cash flows to be generated by the partnership. Thereafter, our investment will be
accounted for using the equity method of accounting. Completion of the transaction is expected in 2018, subject
to regulatory approvals and usual closing conditions.
In the consolidated financial statements the CSALP net assets are classified as a disposal group that is held for
sale since management believes closing of the transaction is highly probable (e.g. the agreement was signed and
the transaction is expected to be completed in 2018).
As an asset held for sale, the CSALP disposal group is measured at the lower of cost and fair value less costs to
sell. PP&E and Intangible assets are not depreciated or amortized once classified as held for sale. In Q4 2017,
the fair value less costs to sell of CSALP was estimated based on our interest in the discounted cash flows of the
partnership subsequent to closing of the transaction. Our impairment methodology described in the aerospace
program tooling section below was used to determine discounted cash flows. Judgment was applied in
considering potential synergies from Airbus procurement, sales and marketing and customer support expertise in
the discounted cash flows. Based on this assessment, we do not expect a loss on the transaction and therefore
the disposal group is measured at cost.
See Note 28 - Assets held for sale for more information.
Aerospace program tooling
Our aerospace segments capitalize 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 date of completion of the first aircraft of a program, and an impairment test is performed at least
annually for aircraft programs under development and for specific 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
amounts of aerospace CGUs are based on fair value less costs of disposal, 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.
126 BOMBARDIER INC. FINANCIAL REPORT - FISCAL YEAR ENDED DECEMBER 31, 2017
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 to determine the recoverable amount include the applicable discount rate, the
expected future cash flows over the remaining life of each program, which include costs to complete the
development activities, if any, as well as potential upgrades and derivatives expected over the life of the program.
The estimated cost of potential upgrades and derivatives is based on past experience with previous programs.
The expected future cash flows also include cash flows from aftermarket activities, as well as expected cost
savings due to synergies from the perspective of a market participant.
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 in
the aerospace sector. The recoverable amounts were established during the fourth quarter of 2017, using a post-
tax discount rate of 10.0%.
The estimated future cash flows for the first five years are based on the budget and strategic plan. After the initial
five years, long-range forecasts prepared by management are used. Forecast future cash flows are based on
management’s best estimate of future sales under existing firm orders, expected future orders, timing of payments
based on expected delivery schedules, revenues from related services, procurement costs based on existing
contracts with suppliers, future labour costs, general market conditions, foreign exchange rates and applicable
long-range forecast income tax rates.
Since an annual impairment test is required for aircraft programs under development, an assessment was
prepared for the Global 7000 and Global 8000 aircraft program and we concluded there was no impairment.
Since the C Series aircraft program recently entered into service and given that a significant impairment charge
was recorded in 2015, an assessment was prepared again this year and we concluded there was no impairment.
Sensitivity analysis
The following analyses are presented in isolation from one another, i.e. all other estimates left unchanged:
A 10% decrease, evenly distributed over future periods, in the expected future net cash inflows for the
Global 7000 and Global 8000 aircraft program and the C Series aircraft program would not have resulted in an
impairment charge in fiscal year 2017.
An increase of 100-basis points in the discount rate used to perform the impairment tests would not have resulted
in an impairment charge in fiscal year 2017 for the Global 7000 and Global 8000 aircraft program and the
C Series aircraft program.
Goodwill
Goodwill is related to the DaimlerChrysler Rail Systems GmbH (Adtranz) acquisition in May 2001. This goodwill is
monitored by management at the Transportation operating segment level. 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 an annual impairment assessment of goodwill.
During the fourth quarter of 2017, an impairment test was completed. The recoverable amount of the
Transportation operating segment was calculated based on fair value less cost to sell using a discounted cash
flow model. We did not identify any impairment.
Estimated future cash flows were based on the budget and strategic plan for the first 5 years and a growth rate of
1% was applied to derive a terminal value beyond the initial 5-year period. The post-tax discount rate is also a key
BOMBARDIER INC. / 2017 FINANCIAL REPORT / OTHER 127
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 2017 was 8.5%.
Sensitivity analysis
A 100-basis point change in the post-tax discount rate would not have resulted in an impairment charge in 2017.
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. We exercise 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 prudent tax planning strategies. See
Note 12 - Income taxes for more details.
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 our international business relationships and
the long-term nature and complexity of existing contractual agreements, differences arising between our actual
results and the assumptions made, or future changes to such assumptions, could necessitate future adjustments
to tax expense or recovery already recorded. We establish tax provisions for possible consequences of audits by
the tax authorities of each country in which we operate. The amount of such provisions is based on various
factors, such as experience from previous tax audits and differing interpretations of tax regulations by the taxable
entity and the relevant tax authority. Such differences in interpretation may arise for a wide variety of issues
depending on the conditions prevailing in the domicile of each legal entity.
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 may 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 RVG 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, as well as on the likelihood that credit or residual value guarantees will be
called upon at the expiry of the financing arrangements. 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 the underlying aircraft 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. 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 10% in the residual value curves of all commercial aircraft as at December 31, 2017,
Commercial Aircraft’s EBIT for 2017 would have been negatively impacted by $24 million.
128 BOMBARDIER INC. FINANCIAL REPORT - FISCAL YEAR ENDED DECEMBER 31, 2017
Assuming an increase of 10% in the likelihood that residual value guarantees will be called upon at the expiry of
the financing arrangements as at December 31, 2017, Commercial Aircraft’s EBIT for 2017 would have been
negatively impacted by $41 million.
Assuming a 100-basis point decrease in interest rates as at December 31, 2017, Commercial Aircraft’s EBT for
2017 would have been negatively impacted by $12 million. Assuming a 100-basis point increase in interest rates
as at December 31, 2017, Commercial Aircraft’s EBT for 2017 would have been positively impacted by $9 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, we establish the discount rate for our Canadian pension and other post-employment
plans by constructing a yield curve using three 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 is derived using
market observations and extrapolated data. The extrapolated data points are created by adding a term-based
yield spread over long-term provincial bond yields. This term-based spread is extrapolated between a base
spread and a long spread. The base spread is based on the observed spreads between AA-rated corporate
bonds and AA-rated provincial bonds for the 5 to 10 years to maturity range. The long spread is determined as the
spread required at the point of average maturity of AA-rated provincial bonds in the 11 to 30 years to maturity
range such that the average AA-rated corporate bond spread above AA-rated provincial bonds is equal to the
extrapolated spread derived by applying the ratio of the observed spreads between A-rated corporate bonds and
AA-rated provincial bonds for the 11 to 30 years to maturity range over the 5 to 10 years to maturity range, to the
base spread. For maturities longer than the average maturity of AA-rated provincial bonds in the 11 to 30 years to
maturity range, the spread is assumed to remain constant at the level of the long spread.
As the U.K. high-quality corporate bond market, as defined under IFRS, includes relatively few long-term maturity
bonds, the discount rate for the Corporation’s U.K. pension and other post-employment plans is established by
constructing an hypothetical yield curve. The hypothetical yield curve is developed from Sterling corporate bond
yield information for corporate bonds rated AA or equivalent quality. Target yields are developed from bonds
across a range of maturity points, and a curve is fitted to those targets. Spot rates (zero coupon bond yields) are
developed from the yield curve and used to discount benefit payment amounts associated with each future year.
Since corporate bonds are generally not available for very long maturities, an assumption is made that spot rates
remain level beyond the term of the longest data target point. The term of the longest data target point as at
December 31, 2017 was 22 years.
We determine the expected rates of compensation increases 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, to the consolidated financial statements, for further details regarding
assumptions used and sensitivity analysis to changes in critical actuarial assumptions.
BOMBARDIER INC. / 2017 FINANCIAL REPORT / OTHER 129
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.
This evaluation includes the use of judgment to determine whether rights held by NCI, such as the CDPQ’s rights
in respect of Transportation and Investissement Québec’s rights in respect of CSALP, are protective in nature as
opposed to substantive. We reassess the 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 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.
Onerous contract provision
An onerous contract provision is recorded if it is more likely than not that the unavoidable costs of meeting the
obligations under a firm contract, other than long-term contracts related to designing, engineering or
manufacturing specifically designed products and service contracts for which revenue is recognized using the
percentage of completion method of accounting, exceed the economic benefits expected to be received under the
contract. Judgment is used to determine which costs are considered unavoidable and the calculation of the
unavoidable costs require estimates of expected future costs, including anticipated future cost reductions related
to performance improvements and transformation initiatives. Unavoidable costs exclude the allocation of certain
indirect overheads which are included in the cost of inventories, such as amortization. As early production units in
a new aircraft program require higher costs than units produced later in the program, cost estimates also depend
on expected delivery schedules. The estimates are reviewed on a quarterly basis.
CDPQ investment equity and derivative liability components
The convertibles shares issued to the CDPQ contain no obligation for Bombardier to deliver cash or other
financial assets to the CDPQ. Judgment was used to conclude that the CDPQ’s convertible share investment in
BT Holdco is considered a compound instrument comprised of an equity component, representing the
discretionary dividends and liquidation preference, and a liability component that reflects a derivative to settle the
instrument by delivering a variable number of common shares of BT Holdco, as opposed to the entire instrument
being characterized as a liability. We present convertible shares in equity (NCI) and derivative component as a
liability.
The fair value of the convertible shares at issuance was assigned to its respective equity and derivative liability
components so that no gain or loss arose from recognizing each component separately, the fair value of the
derivative liability being established first and the residual amount allocated to the equity component. The liability
component is remeasured quarterly using management’s best estimate of the present value of the settlement
amount. Management uses an internal valuation model based on stochastic simulations to estimate the fair value
of the conversion option embedded in the BT Holdco convertible shares. The fair value of the embedded
conversion option is based on the difference in present value between: the convertible shares’ accrued liquidation
preference based on the minimum return entitlement; and the fair value of the common shares on an as
converted basis. This value is dependent on Transportation meeting the performance incentives agreed upon with
the CDPQ, the timing of exercise of the conversion rights and the applicable conversion rate. The simulation
model generates multiple Transportation performance scenarios over the expected term of the option, using the
best estimate of Transportation’s expected results over the remaining term of the instrument and a standard
deviation derived from historic results. Fair value of the shares on an as-converted basis is calculated using an
130 BOMBARDIER INC. FINANCIAL REPORT - FISCAL YEAR ENDED DECEMBER 31, 2017
EBIT multiple, which is based on market data, to determine the enterprise value. The discount rate used is also
determined using market data. Management uses internal assumptions to determine the term of the instrument
and the future performance of Transportation, derived from the budget and strategic plan.
See Note 35 - Fair value of financial instruments for a sensitivity analysis on the variability in the fair value of the
conversion option as a result of a reasonably likely change in the expected future performance of Transportation.
CONTROLS AND PROCEDURES
In compliance with the Canadian Securities Administrators’ Regulation 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:
• material information relating to the Corporation has been made known to them; and
•
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 (2013
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, 2017 that have materially affected, or are reasonably likely to materially affect, our
internal controls over financial reporting.
BOMBARDIER INC. / 2017 FINANCIAL REPORT / OTHER 131
FOREIGN EXCHANGE RATES
We are subject to currency fluctuations from the translation of revenues, expenses, assets and liabilities of 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, 2017
1.1993
0.7975
1.3517
December 31, 2016
1.0541
0.7430
1.2312
Increase
14%
7%
10%
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, 2017
1.1770
0.7878
1.3262
December 31, 2016
1.0812
0.7497
1.2416
Increase
9%
5%
7%
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, 2017
December 31, 2016
Increase/(Decrease)
1.1281
0.7705
1.2874
1.1072
0.7549
1.3561
2%
2%
(5%)
132 BOMBARDIER INC. FINANCIAL REPORT - FISCAL YEAR ENDED DECEMBER 31, 2017
SHAREHOLDER INFORMATION
Authorized, issued and outstanding share data, as at February 13, 2018
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
Authorized
3,592,000,000
3,592,000,000
12,000,000
12,000,000
9,400,000
Issued and
outstanding
313,898,549
1,879,799,713
5,811,736
6,188,264
9,400,000
(3)
(1) Ten votes each, convertible at the option of the holder into one Class B Subordinate Voting Share.
(2) Convertible at the option of the holder into one Class A Share under certain conditions.
(3) Net of 52,983,051 Class B Subordinate Voting Shares purchased and held in trust in connection with the PSU and RSU plans.
Warrant, share option, PSU, DSU and RSU data as at December 31, 2017
Warrants issued and outstanding
Options issued and outstanding under the share option plans
PSUs, DSUs and RSUs issued and outstanding under the PSU, DSU and RSU plans
Class B Subordinate Voting Shares held in trust to satisfy PSU and RSU obligations
205,851,872
116,307,725
89,083,834
52,983,051
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
Additional information relating to the Corporation, including the annual information form, are available on SEDAR
at sedar.com or on Bombardier’s dedicated investor relations website at ir.bombardier.com.
Global 7000 and Global 8000 aircraft program is currently in development, and as such is 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.
ALP, AVENTRA, BiLevel, Bombardier, Challenger, Challenger 350, Challenger 605, Challenger 650, Challenger 850, CITYFLO, CRJ, CRJ700,
CRJ900, CRJ1000, CRJ Series, C Series, CS100, CS300, EBI, FLEXITY, FLEXX, Global, Global 5000, Global 6000, Global 7000,
Global 8000, INNOVIA, INTERFLO, Learjet, Learjet 70, Learjet 75, Learjet 85, MITRAC, MOVIA, OMNEO, OPTIFLO, Parts Express, Primove,
Q400, Smart Services, SPACIUM, TALENT, TRAXX, TWINDEXX, WAKO and ZEFIRO are trademarks of Bombardier Inc. or its subsidiaries.
The printed version of this financial report uses Rolland Opaque paper, containing 30% post-consumer fibres, certified Eco-Logo, processed
chlorine free. Using this paper, instead of virgin paper, saves the equivalent of 56 mature trees, 2,520 kg of waste, 8,280 kg of CO2 emissions
(equivalent to the annual emissions of 3 cars) and 205,566 litres of water.
Bombardier Inc., 800 René-Lévesque Blvd. West, Montréal, Québec, Canada H3B 1Y8
Telephone: +1 514 861 9481; fax: +1 514 861 2420; website: bombardier.com
Un exemplaire en français est disponible sur demande adressée auprès du service des Relations avec les investisseurs ou sur le site Internet
de la Société dédié aux relations avec les investisseurs, à l’adresse ir.bombardier.com.
BOMBARDIER INC. / 2017 FINANCIAL REPORT / OTHER 133
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, 2017, 2016 and 2015.
The following table provides selected financial information for the last three fiscal years.
Fiscal years ended December 31
Revenues
Net loss attributable to equity holders of Bombardier Inc.
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
As at December 31
Total assets
Non-current financial liabilities
The quarterly data table is shown hereafter.
February 14, 2018
2017
16,218
(516)
(0.25)
—
—
0.72
0.89
1.56
$
$
$
$
$
$
$
$
2016
16,339
(1,022)
(0.48)
—
—
0.68
0.78
1.56
$
$
$
$
$
$
$
$
2015
18,172
(5,347)
(2.58)
—
—
0.70
0.78
1.56
$
$
$
$
$
$
$
$
2017
2016
2015
$ 25,006
$ 10,165
$ 22,826
$ 9,737
$ 22,903
$ 9,527
134 BOMBARDIER INC. FINANCIAL REPORT - FISCAL YEAR ENDED DECEMBER 31, 2017
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
Business Aircraft
Commercial Aircraft
Aerostructures and Engineering
Services
Transportation
Corporate and Elimination
EBIT
Business Aircraft
Commercial Aircraft
Aerostructures and Engineering
Services
Transportation
Corporate and Elimination
Financing expense(1)
Financing income(1)
EBT
Income taxes
Net loss
Attributable to
Equity holders of Bombardier Inc.
NCI
EPS (in dollars)
Basic and diluted
1,570
8,525
(1,220)
$ 16,218
$
$
391
(385)
150
417
(327)
246
778
(56)
(476)
77
(553) $
(516) $
(37)
(553) $
$
$
$
$
$
Total
Fourth
quarter
Third
quarter
Second
quarter
2017
First
quarter
Total
Fourth
quarter
Third
quarter
Second
quarter
2016
First
quarter
$
4,961
2,382
$
1,473
677
$
1,095
525
$
1,386
640
$
1,007
540
$
5,741
2,617
$
1,651
699
$
1,314
538
$
1,473
764
$
1,303
616
413
2,493
(341)
4,715
129
(147)
$
$
50
206
(89)
149
273
(23)
(101)
8
(109) $
(108) $
(1)
(109) $
$
$
343
2,134
(262)
3,835
93
(95)
38
129
(50)
115
175
(14)
(46)
71
(117) $
426
1,975
(335)
4,092
95
(87)
$
$
33
(52)
(112)
(123)
194
(12)
(305)
(9)
(296) $
388
1,923
(282)
3,576
1,549
7,574
(1,142)
$ 16,339
$
$
$
477
(903)
74
(56)
29
134
(76)
105
154
(25)
(24)
7
(31) $
128
396
(156)
(58)
819
(70)
(807)
174
(981) $
319
1,948
(237)
4,380
99
(144)
$
$
24
161
(66)
74
281
(49)
(158)
101
(259) $
337
1,782
(235)
3,736
84
(107)
$
$
20
125
(59)
63
195
(14)
(118)
(24)
(94) $
$
$
425
1,964
(317)
4,309
212
(586)
69
87
(33)
(251)
187
(11)
(427)
63
(490) $
(91) $
(26)
(117) $
(289) $
(7)
(296) $
(28) $ (1,022) $
(3)
41
(31) $
(981) $
(251) $
(8)
(259) $
(79) $
(15)
(94) $
(531) $
41
(490) $
468
1,880
(353)
3,914
82
(66)
15
23
2
56
170
(10)
(104)
34
(138)
(161)
23
(138)
(0.25) $
(0.05) $
(0.05) $
(0.13) $
(0.02) $
(0.48) $
(0.12) $
(0.04) $
(0.24) $
(0.07)
Market price range of Class B Subordinate Voting Shares (in Canadian dollars)
High
Low
$
$
3.24
1.96
$
$
3.24
2.15
$
$
2.67
1.96
$
$
2.67
2.01
$
$
2.76
1.99
$
$
2.28
0.72
$
$
2.20
1.70
$
$
2.19
1.56
$
$
2.28
1.21
$
$
1.43
0.72
(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.
BOMBARDIER INC. / 2017 FINANCIAL REPORT / OTHER 135
BOMBARDIER INC.
HISTORICAL FINANCIAL SUMMARY
(in millions of U.S. dollars, except per share amounts and number of common shares)
For the fiscal years ended December 31
2017
2016
2015
2014
2013
Revenues
EBIT before special items(1)
Special items
EBIT
Financing expense
Financing income
EBT
Income taxes
Net income (loss)
Attributable to
Equity holders of Bombardier Inc.
NCI
Adjusted net income (loss)(1)
EPS (in dollars)
Basic and diluted
Adjusted(1)
General information
Export revenues from Canada
Net additions to PP&E and intangible assets
Amortization
Impairment charges on PP&E and intangible
assets
Dividend per common share (in Canadian dollars)
$
$
$
$
Class A
Class B Subordinate Voting
$
$
Dividend per preferred share (in Canadian dollars)
Series 2
Series 3
Series 4
Market price ranges (in Canadian dollars)
Class A Shares
High
Low
Close
Class B Subordinate Voting Shares
High
Low
Close
As at December 31
Number of common shares (in millions)
Book value per common share (in dollars)
$
$
$
$
$
$
$
$
$
$
$ 16,218
672
$
426
246
778
(56)
(476)
77
(553)
$
$ 16,339
427
$
485
(58)
819
(70)
(807)
174
(981)
$
$ 18,172
554
$
5,392
(4,838)
418
(70)
(5,186)
154
(5,340)
$
$ 20,111
923
$
1,489
(566)
249
(75)
(740)
506
(1,246)
$
$ 18,151
893
$
(30)
923
271
(119)
771
199
572
$
$
$
$
$
$
(516)
(37)
63
(0.25)
0.03
6,498
1,317
314
51
0.00
0.00
0.72
0.89
1.56
3.25
1.87
3.05
3.24
1.96
3.03
2,194
(2.79)
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
(1,022)
41
(268)
(0.48)
(0.15)
6,383
1,201
371
10
0.00
0.00
0.68
0.78
1.56
3.35
0.89
2.33
2.28
0.72
2.16
2,193
(2.58)
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
(5,347)
7
326
(2.58)
0.14
7,335
1,862
438
4,300
0.00
0.00
0.70
0.78
1.56
4.24
1.18
1.49
4.24
1.03
1.34
2,220
(1.99)
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
(1,260)
14
648
(0.74)
0.35
8,086
1,964
417
1,266
0.10
0.10
0.75
0.78
1.56
4.68
3.30
4.13
4.68
3.41
4.15
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
564
8
608
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
1,740
(0.18)
1,739
1.20
$
(1) Non-GAAP financial measures. Refer to the Non-GAAP financial measures for definitions of these metrics and reconciliations to the most
comparable IFRS measures in 2017 and 2016.
136 BOMBARDIER INC. FINANCIAL REPORT - FISCAL YEAR ENDED DECEMBER 31, 2017
BOMBARDIER INC.
HISTORICAL FINANCIAL SUMMARY (CONTINUED)
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
As at December 31
Assets
Cash and cash equivalents
Trade and other receivables
Inventories
Other financial assets
Other assets
Assets held for sale
Current assets
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
Advances and progress billings in excess of
long-term contract inventories
Advances on aerospace programs
Other financial liabilities
Other liabilities
Liabilities directly associated with assets
held for sale
Current liabilities
Provisions
Advances on aerospace programs
Long-term debt
Retirement benefits
Other financial liabilities
Other liabilities
Non-current liabilities
Equity (deficit)
Attributable to equity holders
of Bombardier Inc.
Attributable to NCI
2017
2016
2015
2014
2013
$
$
$
$
$
$
2,988
1,231
5,890
415
439
4,150
15,113
1,696
3,581
2,042
603
491
825
655
9,893
25,006
4,194
937
1,990
970
342
2,310
2,533
13,276
814
1,104
9,200
2,633
965
746
15,462
28,738
$
$
$
3,384
1,291
5,844
336
441
—
11,296
1,949
5,174
1,855
705
332
915
600
11,530
22,826
3,239
822
1,539
1,550
608
2,175
—
9,933
1,444
1,535
8,738
2,647
999
1,019
16,382
26,315
$
$
$
2,720
1,473
6,978
450
484
—
12,105
2,061
3,975
1,978
761
356
870
797
10,798
22,903
4,040
1,108
1,408
2,002
991
2,274
—
11,823
918
1,534
8,908
2,159
619
996
15,134
26,957
(5,702)
1,970
(3,732)
25,006
$
(5,243)
1,754
(3,489)
22,826
$
(4,067)
13
(4,054)
22,903
$
$
2,489
1,538
7,970
530
592
—
13,119
2,092
6,823
2,127
875
294
1,328
956
14,495
27,614
4,216
990
1,698
3,339
1,010
2,182
—
13,435
562
1,608
7,627
2,629
602
1,096
14,124
27,559
42
13
55
27,614
$
$
$
$
3,397
1,492
8,234
637
626
—
14,386
2,066
6,606
2,381
1,231
318
1,568
807
14,977
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
BOMBARDIER INC. / 2017 FINANCIAL REPORT / OTHER 137
BOMBARDIER INC.
CONSOLIDATED FINANCIAL STATEMENTS
For the fiscal years ended
December 31, 2017 and 2016
138 BOMBARDIER INC. FINANCIAL REPORT - FISCAL YEAR ENDED DECEMBER 31, 2017
MANAGEMENT’S RESPONSIBILITY FOR FINANCIAL REPORTING
The consolidated financial statements and MD&A of Bombardier Inc. and all other information in the financial
report are the responsibility of management and have been reviewed and approved by the Board of Directors.
The consolidated financial statements have been prepared by management in accordance with IFRS as issued by
the International Accounting Standards Board. The MD&A has been prepared in accordance with the
requirements of Canadian Securities Administrators. The financial statements and MD&A include items that are
based on best estimates and judgments of the expected effects of current events and transactions. Management
has determined such items on a reasonable basis in order to ensure that the financial statements and MD&A are
presented fairly in all material respects. Financial information presented in the MD&A is consistent with that in the
consolidated financial statements.
Bombardier Inc.’s Chief Executive Officer (CEO) and Chief Financial Officer (CFO) have designed disclosure
controls and procedures and internal controls over financial reporting, or have caused them to be designed under
their supervision, to provide reasonable assurance that material information relating to Bombardier Inc. has been
made known to them; and information required to be disclosed in Bombardier Inc.’s filings is recorded, processed,
summarized and reported within the time periods specified in Canadian securities legislation.
Bombardier Inc.’s CEO and CFO have also evaluated the effectiveness of Bombardier Inc.’s disclosure controls
and procedures and internal controls over financial reporting as of the end of the fiscal year 2017. Based on this
evaluation, the CEO and the CFO concluded that the disclosure controls and procedures and internal controls
over financial reporting were effective as of that date, using the criteria set forth by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO) on Internal Control – Integrated Framework (2013
framework). In addition, based on this assessment, they determined that there were no material weaknesses in
internal control over financial reporting as of the end of the fiscal year 2017. In compliance with the Canadian
Securities Administrators’ National Instrument 52-109, Bombardier Inc.’s CEO and CFO have provided a
certification related to Bombardier Inc.’s annual disclosure to the Canadian Securities Administrators, including the
consolidated financial statements and MD&A.
The Board of Directors is responsible for ensuring that management fulfills its responsibilities for financial
reporting and is ultimately responsible for reviewing and approving the consolidated financial statements and
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 meets periodically with management, as well as with the internal
and independent auditors, to review the consolidated financial statements, independent auditors’ report, MD&A,
auditing matters and financial reporting issues, to discuss internal controls over the financial reporting process,
and to satisfy itself that each party is properly discharging its responsibilities. In addition, the Audit Committee has
the duty to review the appropriateness of the accounting policies and significant estimates and judgments
underlying the consolidated financial statements as presented by management, and to review and make
recommendations to the Board of Directors with respect to the independence and the fees of the independent
auditors. The Audit Committee reports its findings to the Board of Directors for its consideration when it approves
the consolidated financial statements and MD&A for issuance to shareholders.
The consolidated financial statements have been audited by Ernst & Young LLP, the independent auditors, in
accordance with Canadian generally accepted auditing standards on behalf of the shareholders. The independent
auditors have full and free access to the Audit Committee to discuss their audit and related matters.
Alain Bellemare
President and Chief Executive Officer
John Di Bert, CPA, CA
Senior Vice President and Chief Financial Officer
February 14, 2018
BOMBARDIER INC. FINANCIAL REPORT - FISCAL YEAR ENDED DECEMBER 31, 2017 - MANAGEMENT’S REPORT 139
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, 2017, 2016 and January 1, 2016, and the
consolidated statements of income, comprehensive income, changes in equity and cash flows for fiscal years
ended December 31, 2017 and 2016, 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. 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, 2017, 2016 and January 1, 2016, and its financial performance and its cash
flows for fiscal years ended December 31, 2017 and 2016 in accordance with International Financial Reporting
Standards, as issued by the International Accounting Standards Board.
(1)
Ernst & Young LLP
Montréal, Canada
February 14, 2018
(1) CPA auditor, CA, public accountancy permit no. A112431
140 BOMBARDIER INC. FINANCIAL REPORT - FISCAL YEAR ENDED DECEMBER 31, 2017
CONSOLIDATED FINANCIAL STATEMENTS
For fiscal years 2017 and 2016
(Tabular figures are in millions of U.S. dollars, unless otherwise indicated)
Consolidated financial statements
Notes to the consolidated financial statements
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
16.
17.
18.
19.
20.
21.
22.
23.
24.
25.
26.
27.
28.
29.
30.
31.
32.
33.
34.
35.
36.
37.
38.
39.
BASIS OF PREPARATION
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
FUTURE CHANGES IN ACCOUNTING POLICIES
USE OF ESTIMATES AND JUDGMENT
SEGMENT DISCLOSURE
RESEARCH AND DEVELOPMENT
OTHER EXPENSE (INCOME)
SPECIAL ITEMS
FINANCING EXPENSE AND FINANCING INCOME
NON-CONTROLLING INTEREST
EMPLOYEE BENEFITS COSTS
INCOME TAXES
EARNINGS PER SHARE
FINANCIAL INSTRUMENTS
CASH AND CASH EQUIVALENTS
TRADE AND OTHER RECEIVABLES
INVENTORIES
OTHER FINANCIAL ASSETS
OTHER ASSETS
PROPERTY, PLANT AND EQUIPMENT
INTANGIBLE ASSETS
RETIREMENT BENEFITS
TRADE AND OTHER PAYABLES
PROVISIONS
OTHER FINANCIAL LIABILITIES
OTHER LIABILITIES
LONG-TERM DEBT
ASSETS HELD FOR SALE
SHARE CAPITAL
SHARE-BASED PLANS
NET CHANGE IN NON-CASH BALANCES
CREDIT FACILITIES
CAPITAL MANAGEMENT
FINANCIAL RISK MANAGEMENT
FAIR VALUE OF FINANCIAL INSTRUMENTS
INVESTMENTS IN JOINT VENTURES AND ASSOCIATES
TRANSACTIONS WITH RELATED PARTIES
UNCONSOLIDATED STRUCTURED ENTITIES
COMMITMENTS AND CONTINGENCIES
143
148
148
148
159
161
167
170
170
171
172
173
175
176
178
178
181
181
182
183
184
185
186
187
196
197
198
198
199
200
201
204
206
207
209
210
214
218
218
219
219
BOMBARDIER INC. FINANCIAL REPORT - FISCAL YEAR ENDED DECEMBER 31, 2017 - FINANCIAL STATEMENTS 141
The following table shows the abbreviations used in the consolidated financial statements.
Term
AFS
AOCI
BPS
CCTD
BT Holdco Bombardier Transportation (Investment) UK
Description
Available for sale
Accumulated other comprehensive income
Basis points
Cumulative currency translation difference
Limited
Description
Term
FVTP&L Fair value through profit and loss
HFT
IAS
IASB
IFRIC
Held for trading
International Accounting Standard(s)
International Accounting Standards Board
International Financial Reporting Interpretation
Committee
CDPQ
CGU
CSALP
DB
DC
DDHR
DSU
EBIT
EBITDA
Caisse de dépôt et placement du Québec
Cash generating unit
C Series Aircraft Limited Partnership
Defined benefit
Defined contribution
Derivative designated in a hedge relationship
Deferred share unit
Earnings (loss) before financing expense, financing
income and income taxes
Earnings (loss) before financing expense, financing
income, income taxes, amortization and impairment
charges on PP&E and intangible assets
EBT
EPS
Earnings (loss) before income taxes
Earnings (loss) per share attributable to equity
holders of Bombardier Inc.
IFRS
L&R
MD&A
NCI
OCI
PP&E
PSG
PSU
R&D
RSU
SG&A
U.K.
U.S.
International Financial Reporting Standard(s)
Loans and receivables
Management’s discussion and analysis
Non-controlling interests
Other comprehensive income (loss)
Property, plant and equipment
Performance security guarantee
Performance share unit
Research and development
Restricted share unit
Selling, general and administrative
United Kingdom
United States of America
142 BOMBARDIER INC. FINANCIAL REPORT - FISCAL YEAR ENDED DECEMBER 31, 2017
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 loss
Attributable to
Equity holders of Bombardier Inc.
NCI
EPS (in dollars)
Basic and diluted
The notes are an integral part of these consolidated financial statements.
Notes
17
6
36
7
8
9
9
12
13
2017
16,218
14,276
1,942
1,194
240
(175)
11
426
246
778
(56)
(476)
77
(553)
(516)
(37)
(553)
(0.25)
$
$
$
$
$
2016
16,339
14,622
1,717
1,133
287
(126)
(4)
485
(58)
819
(70)
(807)
174
(981)
(1,022)
41
(981)
(0.48)
$
$
$
$
$
BOMBARDIER INC. FINANCIAL REPORT - FISCAL YEAR ENDED DECEMBER 31, 2017 - FINANCIAL STATEMENTS 143
BOMBARDIER INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the fiscal years ended December 31
(in millions of U.S. dollars)
Net loss
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(1)(2)
Income taxes
AFS financial assets
Net unrealized loss
CCTD
Net investments in foreign operations
Items that are never reclassified to net income
Retirement benefits
Remeasurement of defined benefit plans(3)
Income taxes
Total OCI
Total comprehensive loss
Attributable to
Equity holders of Bombardier Inc.
NCI
Notes
2017
(553)
$
2016
(981)
$
12
12
(1)
250
36
(29)
256
(2)
(64)
252
(68)
184
374
(179)
(320)
141
(179)
(3)
26
310
(82)
251
(1)
(178)
(755)
73
(682)
(610)
(1,591)
(1,564)
(27)
(1,591)
$
$
$
$
$
$
(1) Includes $53 million of loss reclassified to the related non-financial asset for fiscal year 2017 ($252 million of loss for fiscal year 2016).
(2) $152 million of net deferred gain is expected to be reclassified from OCI to the carrying amount of the related non-financial asset or to
income during fiscal year 2018.
(3) Includes net actuarial gains (losses).
The notes are an integral part of these consolidated financial statements.
144 BOMBARDIER INC. FINANCIAL REPORT - FISCAL YEAR ENDED DECEMBER 31, 2017
BOMBARDIER INC.
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
As at
(in millions of U.S. dollars)
Assets
Cash and cash equivalents
Trade and other receivables
Inventories
Other financial assets
Other assets
Assets held for sale
Current assets
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
Advances and progress billings in excess of
long-term contract inventories
Advances on aerospace programs
Other financial liabilities
Other liabilities
Liabilities directly associated
with assets held for sale
Current liabilities
Provisions
Advances on aerospace programs
Long-term debt
Retirement benefits
Other financial liabilities
Other liabilities
Non-current liabilities
Equity (deficit)
Attributable to equity holders of Bombardier Inc.
Attributable to NCI
Commitments and contingencies
Notes
December 31
2017
December 31
2016
January 1
2016
15
16
17
18
19
28
20
21
21
12
18
19
23
24
17
25
26
28
24
27
22
25
26
10
39
$
$
$
$
$
$
$
2,988
1,231
5,890
415
439
4,150
15,113
1,696
3,581
2,042
603
491
825
655
9,893
25,006
4,194
937
1,990
970
342
2,310
2,533
13,276
814
1,104
9,200
2,633
965
746
15,462
28,738
$
$
$
3,384
1,291
5,844
336
441
—
11,296
1,949
5,174
1,855
705
332
915
600
11,530
22,826
3,239
822
1,539
1,550
608
2,175
—
9,933
1,444
1,535
8,738
2,647
999
1,019
16,382
26,315
2,720
1,473
6,978
450
484
—
12,105
2,061
3,975
1,978
761
356
870
797
10,798
22,903
4,040
1,108
1,408
2,002
991
2,274
—
11,823
918
1,534
8,908
2,159
619
996
15,134
26,957
(5,702)
1,970
(3,732)
25,006
$
(5,243)
1,754
(3,489)
22,826
$
(4,067)
13
(4,054)
22,903
The notes are an integral part of these consolidated financial statements.
On behalf of the Board of Directors,
Pierre Beaudoin
Director
Vikram S. Pandit
Director
BOMBARDIER INC. FINANCIAL REPORT - FISCAL YEAR ENDED DECEMBER 31, 2017 - FINANCIAL STATEMENTS 145
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)
Accumulated OCI
Preferred
shares
Common
shares Warrants
Other
retained
earnings
(deficit)
Remea-
surement
losses
Contributed
surplus
AFS
financial
assets
Cash flow
hedges
CCTD
Total
NCI
Total
equity
(deficit)
As at January 1, 2016
$
347
$
2,195
$
— $
(4,219) $ (2,080)
$ 106
$
7
$
(375) $
(48) $
(4,067) $
13
$ (4,054)
Total comprehensive income
Net income (loss)
OCI
Issuance of warrants(1)
Issuance of NCI(1)
Dividends
Preferred shares
Dividends to NCI
Shares purchased - PSU plans
Share-based expense
—
—
—
—
—
—
—
—
—
As at December 31, 2016
$
347
$
Total comprehensive income
Net loss
OCI
Dividends
Preferred shares
Dividends to NCI
Change in NCI
Shares distributed - PSU plans
Share-based expense
—
—
—
—
—
—
—
—
As at December 31, 2017
$
347
$
—
—
—
—
—
—
—
(43)
—
2,152
$
—
—
—
—
—
—
2
—
2,154
$
—
—
—
73
—
—
—
—
—
73
—
—
—
—
—
—
—
—
73
(1,022)
—
(1,022)
—
368
(32)
—
—
—
—
(692)
(692)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
22
$
(4,905) $ (2,772)
$ 128
$
(516)
—
(516)
(27)
—
(157)
—
—
—
195
195
—
—
—
—
—
—
—
—
—
—
—
(2)
45
$
(5,605) $ (2,577)
$ 171
$
—
(1)
(1)
—
—
—
—
—
—
6
—
(2)
(2)
—
—
—
—
—
4
—
252
252
—
—
—
—
—
—
—
(101)
(101)
—
—
—
—
—
—
(1,022)
(542)
(1,564)
73
368
(32)
—
(43)
22
41
(68)
(27)
—
1,845
—
(77)
—
—
(981)
(610)
(1,591)
73
2,213
(32)
(77)
(43)
22
$
(123) $ (149) $
(5,243) $
1,754
$ (3,489)
—
250
250
—
—
—
—
—
127
$
—
(247)
(247)
—
—
—
—
—
(516)
196
(320)
(27)
—
(157)
—
45
(37)
178
141
—
(82)
157
—
—
(553)
374
(179)
(27)
(82)
—
—
45
$ (396) $
(5,702) $
1,970
$ (3,732)
(1)
Related to the convertible shares issued to the CDPQ on February 11, 2016 in relation to the sale of a minority stake in Transportation and the minority stake in the C Series Aircraft Limited
Partnership issued to the Government of Québec on June 30, 2016 and September 1, 2016. See Note 10 – Non-controlling interest for more details.
The notes are an integral part of these consolidated financial statements.
146 BOMBARDIER INC. FINANCIAL REPORT - FISCAL YEAR ENDED DECEMBER 31, 2017
BOMBARDIER INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the fiscal years ended December 31
(in millions of U.S. dollars)
Operating activities
Net loss
Non-cash items
Amortization
Impairment charges on PP&E and intangible assets
Deferred income taxes
Gains on disposals of PP&E and intangible assets
Share of income of joint ventures and associates
Share-based expense
Loss on repurchase of long-term debt
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
Other
Cash flows from investing activities
Financing activities
Net proceeds from issuance of long-term debt
Repayments of long-term debt
Dividends paid(1)
Purchase of Class B Shares held in trust under the PSU and RSU plans
Issuance of NCI, net of transaction costs(2)
Dividends to NCI
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
Income taxes
Notes
2017
2016
$
(553)
$
(981)
20, 21
8, 20, 21
12
7
36
30
8
31
27
27
15
314
51
34
(38)
(175)
45
23
55
775
531
(1,389)
72
(5)
(1,322)
988
(651)
(18)
—
—
(89)
200
430
34
(327)
3,384
3,057
594
94
61
8
$
$
$
$
$
371
10
31
(19)
(126)
22
86
141
602
137
(1,255)
54
6
(1,195)
1,367
(1,566)
(17)
(43)
2,418
(77)
(108)
1,974
(252)
664
2,720
3,384
565
111
20
5
$
$
$
$
$
(1) Related to preferred shares.
(2) Related to the convertible shares issued to the CDPQ on February 11, 2016 in relation to the sale of a minority stake in Transportation and
the minority stake in the C Series Aircraft Limited Partnership issued to the Government of Québec on June 30, 2016 and
September 1, 2016. See Note 10 – Non-controlling interest for more details.
(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 receivables after the effect of hedges and the interest portion related to the settlement of an interest-rate swap, if any.
The notes are an integral part of these consolidated financial statements.
BOMBARDIER INC. FINANCIAL REPORT - FISCAL YEAR ENDED DECEMBER 31, 2017 - FINANCIAL STATEMENTS 147
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS
For the fiscal years ended December 31, 2017 and 2016
(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” or “our” or “we”). The Corporation is a
manufacturer of transportation equipment, including business and commercial aircraft, as well as major aircraft
structural components, and rail transportation equipment and systems, and is a provider of related services. The
Corporation carries out its operations in four distinct segments: Business Aircraft, Commercial Aircraft,
Aerostructures and Engineering Services and Transportation. The main activities of the Corporation are described
in Note 5 - Segment disclosure.
The Corporation’s consolidated financial statements for fiscal years 2017 and 2016 were authorized for issuance
by the Board of Directors on February 14, 2018.
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.
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 or assets represent more than 10% of total revenues or
more than 10% of total assets of Aerospace or Transportation segments, are as follows:
Subsidiary
C Series Aircraft Limited Partnership
Bombardier Transportation GmbH
Bombardier Transportation (Holdings) UK Ltd
Bombardier Transportation Financial Services S. à r.l.
Bombardier Transport Canada Inc.
Learjet Inc.
Location
Canada
Germany
U.K.
Luxembourg
Canada
U.S.
Revenues and assets of these subsidiaries combined with those of Bombardier Inc. totalled 66% of consolidated
revenues and 80% of consolidated assets for fiscal year 2017 (66% and 75% for fiscal year 2016).
148 BOMBARDIER INC. FINANCIAL REPORT - FISCAL YEAR ENDED DECEMBER 31, 2017
Joint ventures – Joint ventures are those entities over which the Corporation exercises joint control, requiring
unanimous consent of the parties sharing control of relevant activities such as, 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.
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, the euro, Pound sterling, various other
European currencies and the U.S. dollar in Transportation, and mainly the U.S. dollar in the aerospace segments.
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:
Euro
Canadian dollar
Pound sterling
December 31
2017
1.1993
0.7975
1.3517
December 31
2016
1.0541
0.7430
1.2312
Exchange rates
as at
January 1
2016
1.0887
0.7202
1.4833
Average exchange rates
for fiscal years
2017
1.1281
0.7705
1.2874
2016
1.1072
0.7549
1.3561
Revenue recognition
Long-term contracts – Revenues from long-term contracts related to designing, engineering or manufacturing
specifically designed products (including rail vehicles, vehicles overhaul and signaling contracts) and service
contracts are generally 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 at
completion are adjusted for change orders, anticipated options for additional assets, claims, performance
incentives, price escalation clauses and other contract terms that provide for the adjustment of prices. If it is
probable that changes in revenues will occur, and the amount can be measured reliably, they are included in
estimated revenues at completion. 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.
BOMBARDIER INC. FINANCIAL REPORT - FISCAL YEAR ENDED DECEMBER 31, 2017 - NOTES 149
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.
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.
Other – Revenues from the sale of pre-owned aircraft, spare parts and certain operation and maintenance of
systems are recognized when the goods have been delivered or the services have been rendered, 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. Government refundable advances provided to the Corporation to finance research and
development activities on a risk-sharing basis are considered part of the Corporation’s operating activities and are
therefore presented as cash flows from operating activities in the statement of cash flows.
Special items
Special items comprise items which do not reflect the Corporation’s core performance or where their separate
presentation will assist users of the consolidated financial statements in understanding the Corporation’s results
for the period. Such items include, among others, the impact of restructuring charges and significant impairment
charges and reversals.
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.
150 BOMBARDIER INC. FINANCIAL REPORT - FISCAL YEAR ENDED DECEMBER 31, 2017
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.
CDPQ’s convertible share investment in BT Holdco is factored into diluted EPS by adjusting net income
attributable to equity holders of Bombardier Inc. to reflect their share of Transportation’s earnings on an as
converted basis. See Note 10 – Non-controlling interest for more details.
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, long-term contract receivables, restricted cash and derivative financial instruments with a positive fair
value. Financial liabilities of the Corporation include trade and other payables, long-term debt, short-term
borrowings, 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 asset is derecognized when the rights to receive cash flows from the asset have expired, or the
Corporation has transferred its rights to receive cash flows from the asset and either (a) the Corporation has
transferred substantially all the risks and rewards of the asset, or (b) the Corporation has neither transferred nor
retained substantially all the risks and rewards of the asset, but has transferred control of the asset.
For transactions where it is not obvious whether the Corporation has transferred or retained substantially all the
risks and rewards of ownership, the Corporation performs a quantitative analysis to compare its exposure to the
variability in asset cash flows before and after the transfer. Judgment is applied in determining a number of
reasonably possible scenarios that reflect the expected variability in the amount and timing of net cash flows, and
then in assigning each scenario a probability with greater weighting being given to those outcomes which are
considered more likely to occur.
A financial liability is derecognized when the obligation under the liability is discharged or cancelled or expires.
When an existing liability is replaced by another from the same creditor on substantially different terms, or the
terms of the liability are substantially modified, such an exchange or modification is treated as the derecognition of
the original liability and the recognition of a new liability. The difference in the respective carrying amounts is
recognized in the statement of income.
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.
BOMBARDIER INC. FINANCIAL REPORT - FISCAL YEAR ENDED DECEMBER 31, 2017 - NOTES 151
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 and 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 call options on long-term debt as well as foreign
exchange and other derivative instruments not closely related to sale or purchase agreements. 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
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, long-term contract receivables 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.
152 BOMBARDIER INC. FINANCIAL REPORT - FISCAL YEAR ENDED DECEMBER 31, 2017
Trade receivables as well as other financial assets 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, short-term borrowings, 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.
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.
BOMBARDIER INC. FINANCIAL REPORT - FISCAL YEAR ENDED DECEMBER 31, 2017 - NOTES 153
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 account 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.
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.
154 BOMBARDIER INC. FINANCIAL REPORT - FISCAL YEAR ENDED DECEMBER 31, 2017
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 rates 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 remeasurement 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 as incurred or are either capitalized as
part of labour costs and included in inventories and in certain PP&E and intangible assets during their
construction. The benefit cost recorded in net income is allocated to labour costs based on the function of the
employee accruing the benefits.
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.
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.
BOMBARDIER INC. FINANCIAL REPORT - FISCAL YEAR ENDED DECEMBER 31, 2017 - NOTES 155
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 and exclude costs which were
not necessary to create the asset, such as identified inefficiencies.
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
Other intangible assets
Method
Unit of production
Estimated useful life
Expected number of aircraft to be produced(1)
Licenses, patents and trademarks
Other
Straight-line
Straight-line
3 to 20 years
3 to 5 years
(1) As at December 31, 2017, 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 13 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-life 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.
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. The Corporation suspends the capitalisation of borrowing costs during extended periods in
which it suspends active development of a qualifying asset. 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.
• 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 discounted
cash flow models.
156 BOMBARDIER INC. FINANCIAL REPORT - FISCAL YEAR ENDED DECEMBER 31, 2017
• The value in use is calculated using estimated net cash flows, with detailed projections generally over a
five-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. A reversal of an impairment loss reflects an
increase in the estimated service potential of an asset. 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 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
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.
BOMBARDIER INC. FINANCIAL REPORT - FISCAL YEAR ENDED DECEMBER 31, 2017 - NOTES 157
Onerous contracts – If it is more likely than not that the unavoidable costs of meeting the obligations under a
firm contract, other than a long-term contract with a customer, 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, and exclude the allocation of certain
indirect overheads which are included in the cost of inventories such as amortization. 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.
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, DSUs and RSUs, 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, DSUs and RSUs that are expected to vest. For share option plans, the value of the compensation is
measured using a Black-Scholes option pricing model. The effect of any change in the number of options, PSUs,
DSUs and RSUs 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.
Cash-settled share-based payments – Cash-settled share-based payments are measured at fair value at the
grant date with a corresponding liability. Until the liability is settled, the fair value of the liability is remeasured at
the end of each reporting period and at the date of settlement, with any changes in fair value recognised in
income. Limited PSUs, DSUs and RSUs are cash-settled share-based payments, for which 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, DSUs and RSUs that are expected to vest.
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.
158 BOMBARDIER INC. FINANCIAL REPORT - FISCAL YEAR ENDED DECEMBER 31, 2017
3.
FUTURE CHANGES IN ACCOUNTING POLICIES
Financial instruments
In July 2014, the IASB completed the three-part project to replace IAS 39, Financial instruments: recognition and
measurement by issuing IFRS 9, Financial instruments. IFRS 9, Financial instruments includes classification and
measurement of financial assets and financial liabilities, a forward-looking ‘expected loss’ impairment model and a
substantially-reformed approach to hedge accounting.
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.
IFRS 9 also introduced a new expected-loss impairment model that will require more timely recognition of
expected credit losses. Specifically, the new standard requires entities to account for expected credit losses from
when financial instruments are first recognized and to recognize full lifetime expected losses on a more timely
basis.
Lastly, IFRS 9 introduced a new hedge accounting model, together with corresponding disclosures about risk
management activities. 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.
IFRS 9 will be effective for the Corporation’s fiscal year beginning on January 1, 2018. The Corporation’s analysis
has not identified significant differences resulting from the adoption of this standard.
Revenue Recognition
In May 2014, the IASB released IFRS 15, Revenue from contracts with customers, which supersedes IAS 11,
Construction Contracts, and IAS 18, Revenue as well as other related interpretations. The core principle of
IFRS 15 is that an entity should recognize revenue to depict the transfer of promised goods or services to
customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for
those goods or services. Revenue is recognized when, or as, the customer obtains control of the goods or
services.
For the Corporation the standard comes into effect January 1, 2018, and as a result IFRS 15 will be adopted in
the first quarter of 2018. At that time the Corporation will restate its 2017 results, with an opening adjustment to
equity as at January 1, 2017.
The majority of long-term manufacturing and service contracts at Transportation currently accounted for under the
percentage-of-completion method are expected to meet the requirements for revenue recognition over time and
therefore will continue to apply the percentage-of-completion method. The principal differences identified in
respect of the Corporation’s accounting for long-term contracts at Transportation relate to the treatment of
customer options for additional trains and the recognition of variable consideration such as price escalation
clauses.
Under IAS 11, estimated revenues at completion include anticipated customer options for additional trains if it is
probable that the customer will exercise the options and the amount can be measured reliably. Under IFRS 15,
customer options are only included in the transaction price of the contract when they become legally enforceable
as a result of the customer exercising its right to purchase the additional trains. This change will result in the
deferral of revenue and margin until the customer exercises their option. The change in policy is expected to
reduce equity at transition by approximately $635 million ($631 million after tax).
BOMBARDIER INC. FINANCIAL REPORT - FISCAL YEAR ENDED DECEMBER 31, 2017 - NOTES 159
Under IAS 11, variable consideration such as price escalation clauses is included in estimated revenues at
completion when the amount is considered probable and can be reliably measured. IFRS 15 introduces the
concept of a constraint on the recognition of variable consideration whereby amounts can only be included in the
transaction price to the extent it is highly probable that a significant reversal in the amount of cumulative revenue
recognized will not occur when the uncertainty associated with the variable consideration is subsequently
resolved. The introduction of this constraint will result in the transaction price recognizing the effect of price
escalation for certain indices at a later point in time. Consequently this will have the effect of deferring revenue
and margin which is expected to reduce equity at transition by approximately $85 million ($84 million after tax).
For the aerospace segments, revenues from the sale of aircraft will continue to be recognized when the aircraft
have been delivered.
IFRS 15 indicates IAS 37, Provisions, Contingent liabilities and Contingent Assets, should be applied to onerous
contracts but contains no other requirements as to their measurement. When the new revenue standard is
adopted all loss provisions for contracts with customers will need to follow the same policy for the definition of
unavoidable costs of fulfilling the contract. In line with one of the two approaches identified as reasonable by the
IFRS Interpretations Committee in its June 13, 2017 tentative agenda decision, the Corporation will define
unavoidable costs as the costs that the Corporation cannot avoid because it has the contract (for example, this
would include an allocation of overhead costs if those costs are incurred for activities required to complete the
contract). This approach is currently used for long-term contracts, however it will represent a change in
accounting policy for other contracts in the aerospace segments and will increase the amount of onerous contract
provisions and thereby lower subsequent inventory net realizable value charges. It is expected this change in
policy will result in a reduction of equity at transition of approximately $150 million ($160 million after tax).
The Corporation will need to account for a significant financing component on orders where timing of cash
receipts and revenue recognition differ substantially. Most of the Corporation’s contracts do not have a significant
financing component. However, there are several orders in the Business Aircraft segment where advances were
received well before expected delivery and therefore a financing component will need to be accounted for
separately. The result is that interest expense will be accrued during the advance period and the transaction price
will be increased by a corresponding amount. This change is expected to result in a decrease in equity at
transition of approximately $25 million before and after tax.
Under IFRS 15 revenues earned by the Aerostructures and Engineering Services on the inter-segment contract
for the C Series program will be recognized at a point in time (delivery) as opposed to the current policy whereby
it is recognized over-time (long-term contract accounting). Although this will impact the timing of revenues and
profit recognition for the Aerostructures and Engineering Services segment, since it is inter-segment it will have no
impact on the consolidated results of the Corporation.
While these changes will impact the timing of revenue and margin recognition, and will result in a reduction of
equity at transition, there will be no change to cash flows and there will be no change in the profitability over the
life of the contracts.
Based on our preliminary analysis, the changes in accounting policies are expected to result in an aggregate
reduction of equity at January 1, 2017 of approximately $900 million after tax.
For the nine-month period ended September 30, 2017 the changes in accounting policies are expected to result in
an increase of consolidated revenues and EBIT of approximately $70 million and $115 million respectively. These
impacts are mainly due to an expected increase of revenue and EBIT at Transportation of approximately
$85 million due to customers exercising their options and the timing of recognizing price escalation for long-term
contracts.
The Corporation is completing its assessment of the impact of the new standard on its consolidated financial
statements for the fourth quarter of fiscal year 2017.
160 BOMBARDIER INC. FINANCIAL REPORT - FISCAL YEAR ENDED DECEMBER 31, 2017
Leases
In January 2016, the IASB released IFRS 16, Leases, to replace the previous leases Standard, IAS 17, Leases, and
related Interpretations. IFRS 16 sets out the principles for the recognition, measurement, presentation and
disclosure of leases for both parties to a contract, the customer (lessee) and the supplier (lessor). IFRS 16
eliminates the classification of leases as either operating leases or finance leases and introduces a single lessee
accounting model. IFRS 16 also substantially carries forward the lessor accounting requirements. Accordingly, a
lessor continues to classify its leases as operating leases or finance leases, and to account for those two types of
leases differently.
IFRS 16 will be effective for the Corporation’s fiscal year beginning on January 1, 2019. The Corporation is currently
evaluating the impact the adoption of this standard will have on its consolidated financial statements. Where the
Corporation is a lessee, the Corporation expects IFRS 16 will result in on-balance sheet recognition of most of its
leases that are considered operating leases under IAS 17. This will result in the gross-up of the balance sheet
through the recognition of a right-of-use asset and a liability for the present value of the future lease payments.
Depreciation expense on the right-of-use asset and interest expense on the lease liability will replace the operating
lease expense. The Corporation is continuing to assess the impact of the new standard on its consolidated
financial statements and will provide further updates as it advances in its assessment.
Income taxes
In June 2017, the IASB released IFRIC 23, Uncertainty over income tax treatments. IFRIC 23 clarifies the
application of recognition and measurement requirements in IAS 12, Income Taxes, when there is uncertainty over
income tax treatments. It specifically addresses whether an entity considers each tax treatment independently or
collectively, the assumptions an entity makes about the examination of tax treatments by taxation authorities, how
an entity determines taxable profit (tax loss), tax bases, unused tax losses, unused tax credits and tax rates and
how an entity considers changes in facts and circumstances.
IFRIC 23 will be effective for the Corporation’s fiscal year beginning on January 1, 2019, with earlier application
permitted. The Corporation is assessing the impact of the adoption of this standard on its consolidated financial
statements.
4.
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:
•
•
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 five-year period and are fundamental information used as a
basis for many estimates necessary to prepare financial information. Management prepares a budget and a
strategic plan covering a five-year period, on an annual basis, using a process whereby a detailed one-year
budget and four-year strategic plan are prepared by each reportable segment and then consolidated. 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
BOMBARDIER INC. FINANCIAL REPORT - FISCAL YEAR ENDED DECEMBER 31, 2017 - NOTES 161
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 – Transportation conducts most of its business under long-term manufacturing and service
contracts and the aerospace segments have 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, vehicle overhaul
and signaling contracts) 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.
Estimated revenues at completion are adjusted for change orders, anticipated options for additional assets,
claims, performance incentives, price escalation clauses and other contract terms that provide for the adjustment
of prices. If it is probable that changes in revenues will occur, and the amount can be measured reliably, 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 usage and costs, including
escalation clauses, labour hours 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, including a review of escalation assumptions. 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
Transportation’s gross margin for fiscal year 2017 by approximately $84 million.
Assets held for sale – On October 16, 2017, the Corporation entered into an agreement with Airbus SE (Airbus)
whereby Airbus will acquire 50.01% of CSALP, the entity that manufactures and sells the C Series aircraft. Airbus
will provide procurement, sales and marketing, and customer support expertise to CSALP. At closing of the
transaction, since Bombardier will no longer control CSALP, the transaction will be accounted for as a disposal of
CSALP in exchange for an equity interest in the new partnership. At the transaction date, the Corporation’s
interest in the new partnership will be measured at fair value based on the expected cash flows to be generated
by the partnership. Thereafter, the Corporation’s investment will be accounted for using the equity method of
accounting. Completion of the transaction is expected in 2018, subject to regulatory approvals and usual closing
conditions.
In the consolidated financial statements the CSALP net assets are classified as a disposal group that is held for
sale since management believes closing of the transaction is highly probable (e.g. the agreement was signed and
the transaction is expected to be completed in 2018).
162 BOMBARDIER INC. FINANCIAL REPORT - FISCAL YEAR ENDED DECEMBER 31, 2017
As an asset held for sale, the CSALP disposal group is measured at the lower of cost and fair value less costs to
sell. PP&E and Intangible assets are not depreciated or amortized once classified as held for sale. In Q4 2017,
the fair value less costs to sell of CSALP was estimated based on the Corporation’s interest in the discounted
cash flows of the partnership subsequent to closing of the transaction. The Corporation’s impairment methodology
described in the aerospace program tooling section below was used to determine discounted cash flows.
Judgment was applied in considering potential synergies from Airbus procurement, sales and marketing and
customer support expertise in the discounted cash flows. Based on this assessment, the Corporation does not
expect a loss on the transaction and therefore the disposal group is measured at cost.
See Note 28 - Assets held for sale for more information.
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. Other key estimates used to determine the
recoverable amount include the applicable discount rate, the expected future cash flows over the remaining life of
each program, which include costs to complete the development activities, if any, as well as potential upgrades,
and derivatives expected over the life of the program. The estimated cost of potential upgrades and derivatives is
based on past experience with previous programs. The expected future cash flows also include cash flows from
aftermarket activities, as well as expected cost savings due to synergies from the perspective of a market
participant. The inputs used in the discounted cash flow model are Level 3 inputs (inputs that are not based on
observable market data).
The recoverable amounts of aerospace assets or CGUs are based on fair value less costs of disposal. The
recoverable amounts were established during the fourth quarter of 2017. The fair value measurements are
categorized within Level 3 of the fair value hierarchy. The estimate of the fair value less costs of disposal was
determined using forecast future cash flows. The estimated future cash flows for the first five years are based on
the budget and strategic plan. After the initial five years, long-range forecasts prepared by management are used.
Forecast future cash flows are based on management’s best estimate of future sales under existing firm orders,
expected future orders, timing of payments based on expected delivery schedules, revenues from related
services, procurement costs based on existing contracts with suppliers, future labour costs, general market
conditions, foreign exchange rates and applicable long-range forecast income tax rates and a post-tax discount
rate of 10% 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 in the
aerospace sector.
Since an annual impairment test is required for aircraft programs under development, an assessment was
prepared for the Global 7000 and Global 8000 aircraft program and the Corporation concluded there was no
impairment.
Since the C Series aircraft program recently entered into service and given that a significant impairment charge
was recorded in 2015, an assessment was prepared again this year and the Corporation concluded there was no
impairment.
Sensitivity analysis
The following analyses are presented in isolation from one another, i.e. all other estimates left unchanged:
A 10% decrease, evenly distributed over future periods, in the expected future net cash inflows for the
Global 7000 and Global 8000 aircraft program and the C Series aircraft program would not have resulted in an
impairment charge in fiscal year 2017.
An increase of 100-basis points in the discount rate used to perform the impairment tests would not have resulted
in an impairment charge in fiscal year 2017 for the Global 7000 and Global 8000 aircraft program and the
C Series aircraft program.
BOMBARDIER INC. FINANCIAL REPORT - FISCAL YEAR ENDED DECEMBER 31, 2017 - NOTES 163
Goodwill – The recoverable amount of the Transportation operating segment, the group of CGUs at which level
goodwill is monitored by management, is based on fair value less costs of disposal using a discounted cash flow
model. During the fourth quarter of 2017, the Corporation completed its annual goodwill impairment test for the
Transportation segment and did not identify any impairment. The fair value measurement is categorized within
Level 3 of the fair value hierarchy.
Estimated future cash flows were based on the budget and strategic plan for the first 5 years and a growth rate of
1% was applied to derive a terminal value beyond the initial 5-year period. 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 2017 was 8.5%. A 100-basis
point change in the post-tax discount rate would not have resulted in an impairment charge in 2017.
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 prudent tax planning strategies. See Note 12 - Income taxes for more details.
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 expense or recovery already recorded. The Corporation establishes tax provisions for
possible consequences of audits by the tax authorities of each country in which it operates. The amount of such
provisions is based on various factors, such as experience from previous tax audits and differing interpretations of
tax regulations by the taxable entity and the relevant tax authority. Such differences in interpretation may arise for
a wide variety of issues depending on the conditions prevailing in the domicile of each legal entity.
Credit and residual value guarantees – The Corporation uses an internal valuation model based on stochastic
simulations. The amounts expected to be paid under the guarantees may 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, as well as on the likelihood that
credit or residual value guarantees will be called upon at the expiry of the financing arrangements. 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 the underlying aircraft 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. 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 10% in the residual value curves of all commercial aircraft as at December 31, 2017,
Commercial Aircraft’s EBIT for 2017 would have been negatively impacted by $24 million.
Assuming an increase of 10% in the likelihood that residual value guarantees will be called upon at the expiry of
the financing arrangements as at December 31, 2017, Commercial Aircraft’s EBIT for 2017 would have been
negatively impacted by $41 million.
164 BOMBARDIER INC. FINANCIAL REPORT - FISCAL YEAR ENDED DECEMBER 31, 2017
Assuming a 100-basis point decrease in interest rates as at December 31, 2017, Commercial Aircraft’s EBT for
2017 would have been negatively impacted by $12 million. Assuming a 100-basis point increase in interest rates
as at December 31, 2017, Commercial Aircraft’s EBT for 2017 would have been positively impacted by $9 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 the Corporation’s
Canadian pension and other post-employment plans is established by constructing a yield curve using three
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 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 term-
based spread is extrapolated between a base spread and a long spread. The base spread is based on the
observed spreads between AA-rated corporate bonds and AA-rated provincial bonds for the 5 to 10 years to
maturity range. The long spread is determined as the spread required at the point of average maturity of AA-rated
provincial bonds in the 11 to 30 years to maturity range such that the average AA-rated corporate bond spread
above AA-rated provincial bonds is equal to the extrapolated spread derived by applying the ratio of the observed
spreads between A-rated corporate bonds and AA-rated provincial bonds for the 11 to 30 years to maturity range
over the 5 to 10 years to maturity range, to the base spread. For maturities longer than the average maturity of
AA-rated provincial bonds in the 11 to 30 years to maturity range, the spread is assumed to remain constant at the
level of the long spread.
As the U.K. high-quality corporate bond market, as defined under IFRS, includes relatively few long-term maturity
bonds, the discount rate for the Corporation’s U.K. pension and other post-employment plans is established by
constructing an hypothetical yield curve. The hypothetical yield curve is developed from Sterling corporate bond
yield information for corporate bonds rated AA or equivalent quality. Target yields are developed from bonds
across a range of maturity points, and a curve is fitted to those targets. Spot rates (zero coupon bond yields) are
developed from the yield curve and used to discount benefit payment amounts associated with each future year.
Since corporate bonds are generally not available for very long maturities, an assumption is made that spot rates
remain level beyond the term of the longest data target point. The term of the longest data target point as at
December 31, 2017 was 22 years.
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 analysis to
changes in critical actuarial assumptions.
Onerous contract provision – An onerous contract provision is recorded if it is more likely than not that the
unavoidable costs of meeting the obligations under a firm contract, other than long-term contracts related to
designing, engineering or manufacturing specifically designed products and service contracts for which revenue is
recognized using the percentage of completion method of accounting, exceed the economic benefits expected to
be received under the contract. Judgment is used to determine which costs are considered unavoidable and the
calculation of the unavoidable costs require estimates of expected future costs, including anticipated future cost
reductions related to performance improvements and transformation initiatives. Unavoidable costs exclude the
allocation of certain indirect overheads which are included in the cost of inventories, such as amortization. As
early production units in a new aircraft program require higher costs than units produced later in the program, cost
estimates also depend on expected delivery schedules. The estimates are reviewed on a quarterly basis.
BOMBARDIER INC. FINANCIAL REPORT - FISCAL YEAR ENDED DECEMBER 31, 2017 - NOTES 165
CDPQ equity and derivative liability components – The convertibles shares issued to the CDPQ contain no
obligation for the Corporation to deliver cash or other financial assets to the CDPQ. Judgment was used to
conclude that the CDPQ’s convertible share investment in BT Holdco is considered a compound instrument
comprised of an equity component, representing the discretionary dividends and liquidation preference, and a
liability component that reflects a derivative to settle the instrument by delivering a variable number of common
shares of BT Holdco, as opposed to the entire instrument being characterized as a liability. The Corporation
presents convertible shares in its equity (NCI) and derivative component as a liability.
The fair value of the convertible shares at issuance was assigned to its respective equity and derivative liability
components so that no gain or loss arose from recognizing each component separately, the fair value of the
derivative liability being established first and the residual amount allocated to the equity component. The liability
component is remeasured quarterly using the Corporation’s best estimate of the present value of the settlement
amount. The Corporation uses an internal valuation model based on stochastic simulations to estimate the fair
value of the conversion option embedded in the BT Holdco convertible shares. The fair value of the embedded
conversion option is based on the difference in the present value between: the convertible shares’ accrued
liquidation preference based on the minimum return entitlement; and the fair value of the common shares on an
as converted basis. This value is dependent on Transportation meeting the performance incentives agreed upon
with the CDPQ, the timing of exercise of the conversion rights and the applicable conversion rate. The simulation
model generates multiple Transportation performance scenarios over the expected term of the option, using the
best estimate of Transportation’s expected results over the remaining term of the instrument and a standard
deviation derived from historic results. Fair value of the shares on an as-converted basis is calculated using an
EBIT multiple, which is based on market data, to determine the enterprise value. The discount rate used is also
determined using market data. The Corporation uses internal assumptions to determine the term of the instrument
and the future performance of Transportation, derived from the budget and strategic plan.
See Note 35 - Fair value of financial instruments for a sensitivity analysis on the variability in the fair value of the
conversion option as a result of a reasonably likely change in the expected future performance of Transportation.
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 the Corporation has power to affect the investee’s
returns, including an assessment of the impact of potential voting rights, contractual agreements and de facto
control.
Also, the Corporation uses judgment to determine whether rights held by NCI, such as the CDPQ’s rights in
respect of Transportation and Investissement Québec’s rights in respect of CSALP, are protective in nature as
opposed to substantive. The Corporation reassesses the initial determination of control if facts or circumstances
indicate that there may be changes to one or more elements of control.
166 BOMBARDIER INC. FINANCIAL REPORT - FISCAL YEAR ENDED DECEMBER 31, 2017
5.
SEGMENT DISCLOSURE
The Corporation has four reportable segments: Business Aircraft, Commercial Aircraft, Aerostructures and
Engineering Services and Transportation. Each reportable segment offers different products and services and
mostly requires different technology and marketing strategies.
Business Aircraft
Business Aircraft designs, manufactures and provides aftermarket support for three families of business jets
(Learjet, Challenger and Global), spanning from the light to large categories.
Commercial Aircraft
Commercial Aircraft designs and manufactures a broad portfolio of commercial aircraft in the 60- to 150-seat
categories, including the Q400 turboprops, the CRJ Series family of regional jets as well as the all-new C Series
mainline jets. Commercial Aircraft provides aftermarket support for these aircraft as well as for the 20- to 59-seat
range category.
Aerostructures and Engineering Services
Aerostructures and Engineering Services designs and manufactures major aircraft structural components (such
as engine nacelles, fuselages and wings) and provides aftermarket component repair and overhaul as well as
other engineering services for both internal and external clients.
Transportation
Transportation provides the most comprehensive product range and services offering in the rail industry and
covers the full spectrum of rail solutions, ranging from complete trains to subsystems, services, system
integration, signalling and e-mobility solutions.
Corporate and Elimination
Corporate and Elimination comprise corporate charges that are not allocated to segments, elimination of profit on
intercompany transactions and other adjustments.
The segmented information is prepared using the accounting policies described in Note 2 – Summary of
significant accounting policies.
The revenue recognition policies of Aerostructures and Engineering Services follow the Corporation’s policies for
either long-term contracts or aerospace programs depending on the nature of the contracts, except for
intersegment contracts for design and engineering activities. Aerostructures and Engineering Services does not
recognize revenues and costs for design and engineering work on intersegment contracts, except for the C Series
aircraft program, for which profits or losses are recognized on a percentage-of-completion basis.
BOMBARDIER INC. FINANCIAL REPORT - FISCAL YEAR ENDED DECEMBER 31, 2017 - NOTES 167
Management assesses segment performance based on EBIT and EBIT before special items. The segmented
results of operations and other information are as follows, for fiscal years:
Transportation
Business
Aircraft
Commercial
Aircraft
Aerostructures
and Engineering
Services
Corporate and
Elimination
8,519
6
8,525
712
295
417
121
123
98
38
$
$
$
$
$
$
$
$
4,913
$
48
4,961
416
25
391
61
1,075
97
—
—
$
$
$
$
$
$
$
$
$
$
$
2,382
—
2,382
(377)
8
(385)
42
107
67
—
5
$
$
$
$
$
$
$
398
1,172
1,570
157
7
150
4
22
50
—
—
$
$
$
$
$
$
$
— $
6
(1,226)
(1,220)
(236)
91
(327)
$
$
$
$
$
12
(10)
2
8
— $
Transportation
Business
Aircraft
Commercial
Aircraft
Aerostructures and
Engineering
Services
Corporate and
Elimination
$
$
7,567
7
7,574
560
164
$
396
$
5,718
23
5,741
369
(108)
477
$
$
$
$
103
116
97
10
$
$
$
$
126
721
159
—
$
$
$
$
$
$
2,617
—
2,617
(417)
486
(903)
28
392
64
—
$
$
$
$
$
$
430
1,119
1,549
124
(4)
128
8
20
51
—
$
$
$
$
$
$
7
(1,149)
(1,142)
(209)
(53)
(156)
22
(48)
$
$
$
$
— $
— $
10
2017
Total
$
16,218
—
16,218
672
426
246
778
(56)
(476)
77
(553)
240
1,317
314
46
5
2016
Total
16,339
—
16,339
427
485
(58)
819
(70)
(807)
174
(981)
287
1,201
371
Results of operations
External revenues
Intersegment revenues
Total revenues
EBIT before special items
Special items(1)
EBIT
Financing expense
Financing income
EBT
Income taxes
Net loss
Other information
R&D(2)
Net additions to PP&E and
intangible assets(3)
Amortization
Impairment charges
on PP&E(4)
Impairment charges on
intangible assets(5)
Results of operations
External revenues
Intersegment revenues
Total revenues
EBIT before special items
Special items(1)
EBIT
Financing expense
Financing income
EBT
Income taxes
Net loss
Other information
R&D(2)
Net additions to PP&E and
intangible assets(3)
Amortization
Impairment charges
on PP&E(4)
(1) See Note 8 – Special items for more details.
(2) Includes tooling amortization. See Note 6 – Research and development for more details.
(3) As per the consolidated statements of cash flows.
(4) See Note 20 – Property, plant and equipment for more details.
(5) See Note 21 – Intangibles assets for more details
168 BOMBARDIER INC. FINANCIAL REPORT - FISCAL YEAR ENDED DECEMBER 31, 2017
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)
Segmented liabilities
Net segmented assets
Transportation
Business Aircraft
Commercial Aircraft
Aerostructures and Engineering Services
Corporate and Elimination
December 31, 2017
December 31, 2016
January 1, 2016
$
25,006
$
22,826
$
22,903
3,057
60
603
21,286
28,738
139
190
9,218
19,191
(315)
2,256
453
338
(637)
$
$
$
$
$
$
3,384
41
705
18,696
26,315
141
222
8,769
17,183
(33)
1,448
434
142
(478)
$
$
$
$
$
$
2,720
56
761
19,366
26,957
154
224
8,979
17,600
354
395
467
434
116
$
$
$
$
$
$
(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 and PP&E and intangible assets are, allocated to countries, as follows:
North America
United States
Canada
Mexico
Europe
Germany
United Kingdom
France
Switzerland
Other
Asia-Pacific
China
Australia
India
Other
Other
Revenues for fiscal years (1)
PP&E and intangible assets as at (2)
$
2017
3,912
1,630
70
5,612
1,640
1,498
1,089
871
2,373
7,471
457
607
285
857
2,206
$
2016
4,782
1,342
114
6,238
1,613
1,340
1,219
522
2,694
7,388
442
516
154
547
1,659
December 31 December 31
2016
2017
January 1
2016
$
258
4,077
38
4,373
1,048
807
35
379
717
2,986
3
23
23
3
52
$
262
5,977
37
6,276
938
773
31
358
635
2,735
4
23
22
3
52
$
300
4,009
36
4,345
983
1,667
36
368
645
3,699
6
24
21
4
55
Russia
Other
86
843
929
$ 16,218
(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
255
799
1,054
$ 16,339
3
25
28
7,439
2
25
27
9,090
1
28
29
8,128
$
$
$
countries based on the Corporation’s allocation of the related purchase price.
BOMBARDIER INC. FINANCIAL REPORT - FISCAL YEAR ENDED DECEMBER 31, 2017 - NOTES 169
6. 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
7.
OTHER EXPENSE (INCOME)
Other expense (income) was as follows, for fiscal years:
Changes in estimates and fair value(1)
Gains on disposals of PP&E and intangible assets
Impairment of intangible assets and PP&E(2)
Severance and other involuntary termination costs (including changes in estimates)(2)
Other
2017
1,235
(1,082)
153
87
240
$
$
2016
1,486
(1,345)
141
146
287
$
$
2017
42
(38)
7
2
(2)
11
$
$
2016
29
(19)
—
(6)
(8)
(4)
$
$
(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.
170 BOMBARDIER INC. FINANCIAL REPORT - FISCAL YEAR ENDED DECEMBER 31, 2017
8.
SPECIAL ITEMS
Special items were as follows, for fiscal years:
Restructuring charges(1)
Primove impairment and other costs(2)
Impairment of non-core operations(3)
Re-negotiation of a commercial agreement(4)
Reversal of Learjet 85 aircraft program cancellation provisions(5)
Loss on repurchase of long-term debt(6)
Tax litigation(7)
Onerous contracts provision - C Series aircraft program(8)
Pension obligation(9)
Foreign exchange gains related to the sale of a minority stake in Transportation(10)
Transaction costs(11)
Tax impacts of special items
Of which is presented in
Special items in EBIT
Financing expense - loss on repurchase of long-term debt(6)
Financing expense - interest related to tax litigation(7)
Financing expense - transaction costs(11)
Income taxes - effect of special items
2017
285
91
43
35
(28)
23
11
—
—
—
—
(15)
445
426
23
11
—
(15)
445
$
$
$
$
2016
215
—
—
—
(59)
86
40
492
(139)
(38)
8
(20)
585
485
86
26
8
(20)
585
$
$
$
$
1. For fiscal year 2017, represents severance charges of $253 million, partially offset by curtailment gains of
$6 million, and impairment charges of PP&E of $38 million all related to previously-announced restructuring actions.
For fiscal year 2016, represents severance charges of $227 million, partially offset by curtailment gains of $22
million, and impairment charges of PP&E of $10 million all related to previously-announced restructuring actions.
2. Following a reassessment of the value of the Primove e-mobility technology and the status of existing contractual
obligations, the Corporation recorded an inventory write-down of $22 million, impairment charges of PP&E of $6
million, and a contract loss provision of $63 million, for fiscal year 2017. Primove offers e-mobility solutions for
several types of electronic rail and road vehicles.
3. An impairment charge related to non-core operations of $43 million recorded in fiscal year 2017 with respect to the
expected sale of legal entities, as part of the Transportation transformation plan.
4. A provision was taken, for fiscal year 2017, to reflect the anticipated outcome of a re-negotiation of a commercial
agreement with a third party.
5. Based on the ongoing activities with respect to the cancellation of the Learjet 85 aircraft program, the Corporation
reduced the related provisions by $28 million for fiscal year 2017 ($59 million for fiscal year 2016). The reduction in
provisions is treated as a special item since the original provisions were also recorded as special charges in 2014
and 2015.
6. For fiscal year 2017, represents the loss related to the redemption of the $600-million Senior Notes due 2019. For
fiscal year 2016, represents the loss related to the redemption of the $650-million and $750-million Senior Notes
due 2018.
7. Represents a change in the estimates used to determine the provision related to tax litigation.
8. For fiscal year 2016, represents provision for onerous contracts in conjunction with the closing of C Series aircraft
firm orders.
9. For fiscal year 2016, the Corporation had a constructive obligation for discretionary ad hoc indexation increases to
certain pension plans. Following a communication to plan members that the Corporation does not expect to grant
such increases in the foreseeable future in line with the Corporation’s current practice, the constructive obligation
amounting to $139 million was reversed.
10. For fiscal year 2016, represents foreign exchange gains related to the reorganization of Transportation under one
holding entity necessary to facilitate the placement of a minority stake in Transportation.
11. For fiscal year 2016, represents transaction costs attributable to the conversion option embedded in the CDPQ
investment in BT Holdco. See Note 10 - Non-controlling interest for more details.
BOMBARDIER INC. FINANCIAL REPORT - FISCAL YEAR ENDED DECEMBER 31, 2017 - NOTES 171
9.
FINANCING EXPENSE AND FINANCING INCOME
Financing expense and financing income were as follows, for fiscal years:
Financing expense
Net loss on certain financial instruments(1)
Accretion on net retirement benefit obligations
Accretion on other financial liabilities
Loss on repurchase of long-term debt(2)
Accretion on provisions
Amortization of letter of credit facility costs
Tax litigation(3)
Transaction costs(4)
Other
Interest on long-term debt, after effect of hedges
Financing income
Changes in discount rates of provisions
Other
Income from investment in securities
Interest on cash and cash equivalents
Interest on loans and lease receivables, after effect of hedges
2017
2016
$
$
$
$
$
102
78
59
23
20
17
11
—
103
413
365
778 (5) $
$
(7)
(18)
(25)
(13)
(11)
(7)
(31)
(56) (6) $
80
66
59
86
13
24
26
8
82
444
375
819 (5)
(17)
(21)
(38)
(11)
(13)
(8)
(32)
(70) (6)
(1) Net losses (gains) on certain financial instruments classified as FVTP&L, including losses (gains) arising from changes in interest rates.
(2) Represents the loss related to the redemption of the $600-million Senior Notes due 2019 for fiscal year 2017, which was recorded as a
special item ($86 million represents the loss related to the redemption of the $650-million and $750-million Senior Notes due 2018 for fiscal
year 2016, which was recorded as a special item).
(3) Represents a change in the estimates used to determine the provision related to tax litigation. See Note 8 – Special items for more details.
(4) Represents transaction costs attributable to the conversion option embedded in the CDPQ investment in BT Holdco. See Note 10 – Non-
controlling interest for more details.
(5) Of which $453 million represents the interest expense calculated using the effective interest rate method for financial liabilities classified as
other than HFT for fiscal year 2017 ($446 million for fiscal year 2016).
(6) Of which $7 million represents the interest income calculated using the effective interest rate method for financial assets classified as L&R
for fiscal year 2017 ($23 million for fiscal year 2016).
Borrowing costs capitalized to PP&E and intangible assets totalled $183 million for fiscal year 2017, using an
average capitalization rate of 6.16% ($122 million and 5.48% for fiscal year 2016). 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).
172 BOMBARDIER INC. FINANCIAL REPORT - FISCAL YEAR ENDED DECEMBER 31, 2017
10. NON-CONTROLLING INTEREST
The summarized statement of financial position for BT Holdco, which has significant NCI, was as follows, as at:
Current assets
Non-current assets
Total assets
Current liabilities
Non-current liabilities
Total liabilities
Net assets
December 31, 2017
5,255
4,327
9,582
December 31, 2016
3,885
$
3,824
7,709
$
7,060
1,656
8,716
866
$
$
$
5,413
1,440
6,853
856
$
$
$
$
$
The selected income and cash flow information for BT Holdco, which has significant NCI, was as follows, for fiscal
year:
Revenues
Net income (loss)
Comprehensive income (loss)
Cash flows from operating activities
Cash flows from investing activities
Cash flows from financing activities
$
$
$
$
$
$
2017
8,525
(57)
123
857
(133)
(290)
(1)
$
$
$
$
$
$
2016
7,574
9
(392)
666
(80)
(322)
(1) Includes $282 million (€250 million) of dividend paid for fiscal year 2017.
The changes to the accumulated NCI for BT Holdco, which has significant NCI, were as follows:
Balance as at January 1, 2016
Issuance of NCI
Minimum return entitlement
OCI
Dividends
Balance as at December 31, 2016
Minimum return entitlement
OCI
Dividends
Balance as at December 31, 2017
$
$
BT Holdco
—
1,281
146
(80)
(73)
1,274
171
180
(77)
1,548
CDPQ investment in BT Holdco
On February 11, 2016, Bombardier closed the sale to the CDPQ of a $1.5-billion convertible share investment in
Bombardier Transportation’s newly-created holding company, Bombardier Transportation (Investment) UK Limited
(BT Holdco). Under the terms of the investment, Bombardier Inc. sold voting shares convertible into a 30%
common equity stake of BT Holdco to the CDPQ, subject to annual adjustments related to performance.
Following the completion of the previously announced corporate reorganization, BT Holdco owns essentially all of
the assets and liabilities of Bombardier’s Transportation business segment, its operational headquarters remains
in Germany and continues to be consolidated in Bombardier’s financial results.
Key terms of the investment
The CDPQ is entitled to its pro-rata portion (on an as-converted basis, initially equal to 30% of BT Holdco
common shares) of any dividends declared.
BOMBARDIER INC. FINANCIAL REPORT - FISCAL YEAR ENDED DECEMBER 31, 2017 - NOTES 173
Dividends are payable in cash or, subject to certain conditions, in additional convertible shares at the option of BT
Holdco (any such issuance to increase the CDPQ’s participation).
Performance incentives
The terms of the transaction provide strong performance incentives for Transportation. For each of the first five
years following the closing date, the CDPQ’s ownership (on conversion) and return may be subject to upward or
downward annual adjustments, based on performance targets jointly agreed to as part of Transportation’s
business plan.
If Transportation outperforms its business plan, the CDPQ’s percentage of ownership on conversion of its shares
decreases by 2.5% annually, down to a minimum threshold of 25%. In this circumstance, the convertible shares’
minimum return also decreases from 9.5% to a floor of 7.5%.
Conversely, should Transportation underperform relative to its plan, the CDPQ’s percentage of ownership on
conversion of its shares will increase by 2.5% annually, up to a maximum of 42.5% over a five-year period. In this
case, the convertible shares’ minimum return also increases from 9.5% up to 12%.
Transportation’s strong results in 2017 outpaced the performance targets underlying CDPQ’s investment in BT
Holdco. Accordingly, for the 12-month period starting on February 12, 2018, CDPQ’s percentage of ownership on
conversion of its shares will decrease by 2.5%, down from 30% to 27.5%, and the preference return entitlement
rate on liquidation of its shares will decrease from 9.5% to 7.5% for this period. Any dividends paid by BT Holdco
to its shareholders during this period will be distributed on the basis of each shareholder’s percentage of
ownership on conversion, being 72.5% for Bombardier and 27.5% for the CDPQ. These adjustments will become
effective once the audited consolidated financial statements of BT Holdco are duly approved by its Board of
Directors.
Shareholders rights and exit
Under the terms of the investment, the CDPQ has standard minority protection rights, including: pre-emptive
rights, a right of first offer, and tag-along rights, and Bombardier has a right of first offer and customary drag-along
rights, in each case subject to certain conditions.
Bombardier has the ability to buy back the CDPQ’s investment upon specified terms at any time on or after the
third anniversary of the closing of the investment, at the higher of the fair market value (on an as-converted basis)
or a minimum of 15% compounded annual return to the CDPQ.
At any time on or after February 11, 2021, and provided that Bombardier has not exercised its right to buy back
the CDPQ’s investment before then, the CDPQ will have the right to cause BT Holdco to proceed with a
secondary initial public offering (IPO) or a sale of 100% of its shares.
In the case of an IPO, the conversion ratio of the CDPQ’s shares will be adjusted so that, immediately prior to the
IPO, the CDPQ receives shares having a value equal to the higher of: (i) the value of its shares, on an as-
converted basis, based on the implied value of the IPO; or (ii) the minimum return adjusted for any distributions, in
both cases taking into account changes, if any, resulting from the effect of the performance incentives. The
CDPQ’s shares would be sold in priority to Bombardier’s shares as part of the secondary IPO.
In the case of a sale of 100% of the BT Holdco shares, the CDPQ will have the right to receive an amount equal
to the higher of: (i) the value of its shares, on an as-converted basis, based on the implied value of the sale to a
third party; or (ii) the minimum return adjusted for any distributions, in both cases taking into account changes, if
any, resulting from the effect of the performance incentives.
Upon a change of control of Bombardier Inc. or, in certain circumstances, of BT Holdco, the CDPQ will have the
right to require an IPO or a sale of 100% of the BT Holdco shares and to receive the higher of: (i) the value of the
common shares held by the CDPQ on an as-converted basis, based on the implied value of the IPO or sale to a
third party, as discussed above; or (ii) a minimum three-year 15% compounded annual return (or at any time after
three years, a 15% compounded annual return).
174 BOMBARDIER INC. FINANCIAL REPORT - FISCAL YEAR ENDED DECEMBER 31, 2017
Other details of the transaction
The parties have agreed to a consolidated Bombardier cash position, as defined in the agreement, at the end of
each quarter of at least $1.25 billion. This condition was met on a quarterly basis and as at December 31, 2017
and 2016. In the event Bombardier’s cash position falls below that level, the Board of directors of Bombardier will
create a Special Initiatives Committee composed of three independent directors acceptable to the CDPQ, who
would be responsible to develop an action plan to improve cash. The implementation of the plan, once agreed
with the CDPQ, would be overseen by the Special Initiatives Committee.
Government of Québec investment in the C Series aircraft program
On June 30, 2016, Bombardier closed the $1.0-billion investment by the Government of Québec (through
Investissement Québec) in return for a 49.5% equity stake in a newly-created limited partnership, the C Series
Aircraft Limited Partnership (CSALP), to which we have transferred the assets, liabilities and obligations of the
C Series aircraft program. At that time, CSALP was owned 50.5% by Bombardier Inc. and, as a subsidiary of
Bombardier Inc., will carry on the operations related to our C Series aircraft program. CSALP continues to be
consolidated in our financial results.
Bombardier received the investment in two installments of $500-million each on June 30, 2016 and
September 1, 2016. The proceeds of the investment have been used entirely for cash flow purposes of the
C Series aircraft program. Under the terms of the limited partnership agreement, the Corporation has committed
to invest additional capital contributions in CSALP up to a maximum amount of $1.0 billion in case of any liquidity
shortfall in CSALP. Additional capital contributions by the Corporation would increase its ownership interest in
CSALP.
The investment contemplates a continuity undertaking providing that we maintain in the Province of Québec, for a
period of 20 years, CSALP’s operational, financial and strategic headquarters, manufacturing and engineering
activities, policies, practices and investment plans for research and development, in each case in respect of the
design, manufacture and marketing of the CS100 and CS300 aircraft and after-sales services for these aircraft
and that we will operate the facilities located in Mirabel, Canada for these purposes.
As at December 31, 2017, CSALP had total assets amounting to $4,150 million, of which $2,583 million was
aerospace program tooling ($3,933 million as at December 31, 2016 of which $2,535 million was aerospace
program tooling). CSALP has no long-term debt.
The Corporation has committed to invest additional capital contributions in CSALP up to a maximum amount of
$1.0 billion in case of any liquidity shortfall in CSALP, of which as at December 31, 2017, the Corporation has
contributed $683 million in CSALP.
Subject to certain conditions, the Corporation has the right to repurchase Investissement Québec’s interest in
CSALP at fair market value.
See Note 28 - Assets held for sale for details on the Airbus transaction.
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
7, 8
2017
4,809
424
45
255
5,533
$
$
2016
4,887
255
22
221
5,385
$
$
(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.
BOMBARDIER INC. FINANCIAL REPORT - FISCAL YEAR ENDED DECEMBER 31, 2017 - NOTES 175
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
2017
43
34
77
$
$
2016
143
31
174
$
$
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 recovery at statutory rate
Increase (decrease) resulting from
Non-recognition of tax benefits related to tax losses and temporary differences
Write-down of deferred income tax assets
Income tax rates differential of foreign subsidiaries and other investees
Recognition of previously unrecognized tax losses or temporary differences
Permanent differences
Effect of substantively enacted income tax rate changes (1)
Other
Income tax expense
Effective tax rate
(1) Relates mainly to the U.S. tax reform.
2017
2016
$ (476)
$ (807)
26.7 %
(127)
268
6
14
(187)
57
65
(19)
77
(16.2)%
$
26.8 %
(216)
383
72
(1)
(65)
(6)
3
4
174
(21.6)%
$
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:
Non-recognition of tax benefits related to tax losses and temporary differences
Origination and reversal of temporary differences
Write-down of deferred income tax assets
Recognition of previously unrecognized tax losses or temporary differences
Effect of substantively enacted income tax rate changes
2017
268
(118)
6
(187)
65
34
$
$
2016
383
(362)
72
(65)
3
31
$
$
176 BOMBARDIER INC. FINANCIAL REPORT - FISCAL YEAR ENDED DECEMBER 31, 2017
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
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
$
$
December 31, 2017
Asset
Liability
2,433
501
$
— $
—
December 31, 2016
Asset
Liability
1,891
588
$
— $
—
—
629
781
112
(3)
66
(162)
63
4,420
(3,817)
603
$
—
—
—
—
—
628
790
809
(49)
11
—
—
—
—
—
— $
135
(136)
99
4,766
(4,061)
705
$
—
—
—
—
—
—
—
—
—
—
— $
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
Other(1)
Balance at end of year, net
(1) Mainly comprises foreign exchange rate effects.
$
$
January 1, 2016
Liability
—
—
Asset
1,928
459
$
817
469
596
(95)
(30)
253
(48)
173
4,522
(3,761)
761
2017
705
(34)
(68)
(29)
29
603
$
$
$
—
—
—
—
—
—
—
—
—
—
—
2016
761
(31)
73
(82)
(16)
705
The net operating losses carried forward and deductible temporary differences for which deferred tax assets have
not been recognized amounted to $15,830 million as at December 31, 2017, of which $1,482 million relates to
retirement benefits that will reverse through OCI ($13,939 million as at December 31, 2016 of which $1,401
million relates to retirement benefits that will reverse through OCI and $12,548 million as at January 1, 2016 of
which $1,170 million relates to retirement benefits that will reverse through OCI). Of these amounts, approximately
$10,480 million as at December 31, 2017 has no expiration date ($10,560 million as at December 31, 2016 and
$9,832 million as at January 1, 2016) and approximately $2,669 million relates to the Corporation’s operations in
Germany where a minimum income tax is payable on 40% of taxable income ($2,007 million as at December 31,
2016 and $1,846 million as at January 1, 2016) and $406 million relate to the Corporation’s operations in France
where a minimum income tax is payable on 50% of taxable income ($359 million as at December 31, 2016 and
$476 million as at January 1, 2016).
In addition, the Corporation has $1,620 million of unused investment tax credits, most of which can be carried
forward for 20 years and $117 million of net capital losses carried forward for which deferred tax assets have not
been recognized ($1,537 million and $72 million as at December 31, 2016 and $1,467 million and $75 million as at
January 1, 2016). Net capital losses can be carried forward indefinitely and can only be used against future taxable
capital gains.
Net deferred tax assets of $501 million were recognized as at December 31, 2017 ($520 million as at
December 31, 2016 and $663 million as at January 1, 2016) 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 prudent 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 4 – Use of estimates and
judgment for more information on how the Corporation determines the extent to which deferred income tax assets
are recognized.
BOMBARDIER INC. FINANCIAL REPORT - FISCAL YEAR ENDED DECEMBER 31, 2017 - NOTES 177
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, as the Corporation has
control or joint control over the dividend policy, 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 $588 million as at December 31, 2017 ($392 million as at December 31, 2016
and $369 million as at January 1, 2016).
13.
EARNINGS PER SHARE
Basic and diluted EPS were computed as follows, for fiscal years:
(Number of shares, stock options, PSUs, DSUs, RSUs and warrants in thousands)
Net loss attributable to equity holders of Bombardier Inc.
Preferred share dividends, including taxes
Net loss attributable to common equity holders of Bombardier Inc.
Weighted-average number of common shares outstanding
Net effect of stock options, PSUs, DSUs, RSUs, warrants and conversion option
Weighted-average diluted number of common shares
EPS (in dollars)
Basic and diluted
2017
2016
$
(516)
(27)
$
(543)
2,195,379
—
2,195,379
$
(1,022)
(32)
$
(1,054)
2,212,547
—
2,212,547
$
(0.25)
$
(0.48)
The effect of the exercise of stock options, PSUs, DSUs, RSUs and warrants was included in the calculation of
diluted EPS in the above table, except for 374,076,982 for fiscal year 2017 (258,707,646 for fiscal year 2016)
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 or the effect of the exercise would be antidilutive.
The calculation of diluted EPS did not include the impact of the CDPQ conversion option since the minimum
return entitlement was greater than CDPQ’s shares of the BT Holdco net income on an as converted basis
assuming Transportation does not achieve its performance targets. The Corporation’s obligation to fund the
CSALP through issuance of additional units is not dilutive since the subscription price approximates the fair value
of the equity to be acquired.
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
FVTP&L - changes in fair value
Designated as FVTP&L
Financial assets
Financial liabilities
Required to be classified as HFT
Derivatives not designated in hedging relationships
Other(1)
2017
2016
(36)
$
(15)
(8)
(1)
78
(93)
$
$
$
$
5
(18)
(41)
(52)
$
$
$
$
$
(1) Excluding the interest income portion related to cash and cash equivalents of $11 million for the fiscal year 2017 ($13 million for fiscal year
2016).
178 BOMBARDIER INC. FINANCIAL REPORT - FISCAL YEAR ENDED DECEMBER 31, 2017
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:
December 31, 2017
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
December 31, 2016
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
January 1, 2016
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
FVTP&L
HFT Designated
AFS
(1)
Amortized
cost
DDHR
Total
carrying
value Fair value
$ 2,988
—
79
$ 3,067
$
$
$
$
— $
—
354
354
$
— $
—
216
216
$
— $
—
361
361
—
1,231
331
$ 1,562
6
—
74
80
n/a
n/a
n/a
n/a
$ 4,188
9,218
677
$ 14,083
$ 3,384
—
144
$ 3,528
$
$
$
$
— $
—
259
259
$
— $
—
227
227
$
— $
—
374
374
—
1,291
310
$ 1,601
6
—
141
147
n/a
n/a
n/a
n/a
$ 3,233
8,769
808
$ 12,810
$ 2,720
—
13
$ 2,733
$
$
— $
—
230
230
$
— $
—
348
348
—
1,473
380
$ 1,853
$
$
— $
—
41
41
$
1
—
135
136
n/a
n/a
n/a
n/a
$ 4,039
8,979
702
$ 13,720
$
$
$
$
$
$
$
$
$
$
$
$
— $ 2,988
1,231
—
1,240
253
$ 5,459
253
— $ 4,194
9,218
—
1,289
184
$ 14,701
184
— $ 3,384
1,291
—
1,251
196
$ 5,926
196
— $ 3,239
8,769
—
1,576
368
$ 13,584
368
— $ 2,720
1,473
—
1,320
349
$ 5,513
349
— $ 4,040
8,979
—
1,539
661
$ 14,558
661
$ 2,988
1,231
1,278
$ 5,497
$ 4,194
9,354
1,329
$ 14,877
$ 3,384
1,291
1,272
$ 5,947
$ 3,239
8,624
1,616
$ 13,479
$ 2,720
1,473
1,326
$ 5,519
$ 4,040
6,767
1,426
$ 12,233
(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
BOMBARDIER INC. FINANCIAL REPORT - FISCAL YEAR ENDED DECEMBER 31, 2017 - NOTES 179
Offsetting financial assets and financial liabilities
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:
Description of recognized financial assets
and liabilities
Amount recognized
in the financial
statements
Amounts subject
to master netting
agreements
Net amount not
subject to master
netting agreements
December 31, 2017
Derivative financial instruments - assets
Derivative financial instruments - liabilities
Cash and cash equivalents
December 31, 2016
Derivative financial instruments - assets
Derivative financial instruments - liabilities
Cash and cash equivalents
January 1, 2016
Derivative financial instruments - assets
Derivative financial instruments - liabilities
Cash and cash equivalents
$
$
$
$
$
$
$
$
$
332
(538)
2,988
340
(627)
3,384
362
(702)
2,720
$
$
$
$
$
$
$
$
$
(135)
176
(41)
(177)
321
(144)
(216)
455
(239)
$
$
$
$
$
$
$
$
$
197
(362)
2,947
163
(306)
3,240
146
(247)
2,481
Derivatives and hedging activities
The carrying amounts of all derivative and non-derivative financial instruments in a hedge relationship were as
follows, as at:
Derivative financial instruments
designated as fair value hedges
Interest-rate swaps
$
5
$
— $
58
$
— $
93
$
—
December 31, 2017
Liabilities
Assets
December 31, 2016
Liabilities
Assets
January 1, 2016
Liabilities
Assets
248
184
Derivative financial instruments
designated as cash flow hedges(1)
Forward foreign exchange contracts
Derivative financial instruments
classified as HFT(2)
Forward foreign exchange contracts
Embedded derivative financial instruments
Conversion option
Call options on long-term debt
Other
57
—
21
1
79
Total derivative financial
instruments
Non-derivative financial instruments
designated as hedges of net investment
$
332
$
Long-term debt
$
— $
28
50
304
—
—
354
538
138
58
—
11
75
144
368
86
170
—
3
259
256
661
13
—
—
—
13
41
—
—
—
41
340
$
627
$
362
$
702
— $
— $
— $
—
$
$
(1) The maximum length of time of derivative financial instruments hedging the Corporation’s exposure to the variability in future cash flows for
anticipated transactions is 23 months as at December 31, 2017.
(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 $2 million and
$3 million respectively for fiscal year 2017 (net losses of $24 million and net gains of $25 million respectively for
fiscal year 2016). The ineffectiveness recognized in net income that relates to cash flow hedge, amounted to net
gains of $27 million for fiscal year 2017. The methods and assumptions used to measure the fair value of financial
instruments are described in Note 35 – Fair value of financial instruments.
180 BOMBARDIER INC. FINANCIAL REPORT - FISCAL YEAR ENDED DECEMBER 31, 2017
15. CASH AND CASH EQUIVALENTS
Cash and cash equivalents were as follows, as at:
December 31, 2017
1,382
$
December 31, 2016
1,375
$
January 1, 2016
1,235
$
Cash
Cash equivalents
Term deposits
Money market funds
449
1,226
3,057
69
2,988
1,105
904
3,384
—
3,384
746
739
2,720
—
2,720
Cash and cash equivalents(1)
Reclassified as assets held for sale
Cash and cash equivalents
(1) For purpose of the statement of cash flows, cash and cash equivalents comprise the cash reclassified as asset held for sale. See Note 28 –
$
$
$
$
$
$
Assets held for sale for more details on the CSALP assets and liabilities reclassification.
See Note 32 – Credit facilities for details on covenants related to cash and cash equivalents.
See Note 10 – Non-controlling interest for details on the agreement with CDPQ related to a consolidated
Bombardier cash position of at least $1.25 billion at the end of each quarter.
16.
TRADE AND OTHER RECEIVABLES
Trade and other receivables were as follows, as at:
December 31, 2017(1)(2)
Trade receivables, gross
Allowance for doubtful accounts
Other
Total
December 31, 2016(1)(2)
Trade receivables, gross
Allowance for doubtful accounts
Other
Total
January 1, 2016(1)(2)
Trade receivables, gross
Allowance for doubtful accounts
Other
Total
Total
1,206
(70)
1,136
95
1,231
1,209
(44)
1,165
126
1,291
1,372
(36)
1,336
137
1,473
$
$
$
$
$
$
$
$
$
$
$
$
Not past
due
Past due but not impaired (3)
less than
90 days
more than
90 days
Impaired (4)
726
—
726
861
—
861
908
—
908
$
$
$
$
$
$
195
—
195
118
—
118
263
—
263
$
$
$
$
$
$
171
—
171
121
—
121
72
—
72
$
$
$
$
$
$
114
(70)
44
109
(44)
65
129
(36)
93
(1) Of which $311 million and $443 million are denominated in euros and other foreign currencies, respectively, as at December 31, 2017
($349 million and $428 million, respectively, as at December 31, 2016 and $390 million and $452 million, respectively, as at
January 1, 2016).
(2) Of which $287 million represents customer retentions relating to long-term contracts as at December 31, 2017 based on normal terms and
conditions ($259 million as at December 31, 2016 and $233 million as at January 1, 2016).
(3) Of which $225 million of trade receivables relates to Transportation long-term contracts as at December 31, 2017, of which $144 million
were more than 90 days past due ($183 million as at December 31, 2016, of which $121 million were more than 90 days past due and
$243 million as at January 1, 2016, of which $69 million were more than 90 days past due). Transportation 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, 2017 ($27 million as at
December 31, 2016 and $66 million as at January 1, 2016).
BOMBARDIER INC. FINANCIAL REPORT - FISCAL YEAR ENDED DECEMBER 31, 2017 - NOTES 181
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.
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
2017
(44)
(36)
14
1
(5)
(70)
$
$
2016
(36)
(15)
4
2
1
(44)
$
$
Off-balance sheet factoring facilities
In the normal course of its business, Transportation has factoring facilities mainly in Europe, to which it can sell,
without credit recourse, qualifying trade receivables. Trade receivables of € 907 million ($1,088 million) were
outstanding under such facilities as at December 31, 2017 (€ 820 million ($864 million) as at December 31, 2016
and € 871 million ($948 million) as at January 1, 2016). Trade receivables of € 1,349 million ($1,618 million) were
sold to these facilities during fiscal year 2017 (€ 993 million ($1,099 million) during fiscal year 2016).
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, 2017
2,472
$
December 31, 2016
3,187
$
January 1, 2016
4,215
$
8,356
(6,221)
2,135
574
(40)
534
749
5,890
$
6,995
(5,457)
1,538
221
(6)
215
904
5,844
$
7,064
(5,490)
1,574
223
(17)
206
983
6,978
$
(1) Finished products include 3 new aircraft not associated with a firm order and 5 pre-owned aircraft, totaling $93 million as at
December 31, 2017 (1 new aircraft and 12 pre-owned aircraft, totaling $67 million as at December 31, 2016 and 4 new aircraft and 54 pre-
owned aircraft, totaling $279 million as at January 1, 2016).
The amount of inventories recognized as cost of sales totalled $13,445 million for fiscal year 2017
($13,611 million for fiscal year 2016). These amounts include $293 million of write-downs for fiscal year 2017
($244 million for fiscal year 2016). Reversal of write-down of $17 million is recognized for fiscal year 2017
($16 million for fiscal year 2016).
For fiscal year 2017, an additional write-down of inventories of $22 million has been recognized as a special item
following the impairment of Primove assets. See Note 8 – Special items for more details.
182 BOMBARDIER INC. FINANCIAL REPORT - FISCAL YEAR ENDED DECEMBER 31, 2017
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 addition, in the normal course of business, the Corporation
provides performance bonds, bank guarantees and other forms of guarantees to customers, mainly in
Transportation, 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 $8,251 million as at
December 31, 2017 ($7,002 million as at December 31, 2016 and $6,916 million as at January 1, 2016).
Revenues include revenues from Transportation long-term contracts, which amounted to $6,867 million for fiscal
year 2017 ($5,849 million for fiscal year 2016).
In connection with certain long-term contracts, Transportation enters into arrangements whereby amounts are
received from third-party advance providers in exchange for the rights to customer payments. There is no
recourse to Transportation if the customer defaults on its payment obligations assigned to the third-party advance
provider. Amounts received under these arrangements are included as advances and progress billings in
reduction of long-term contracts (production contracts) inventories and amounted to € 434 million ($520 million) as
at December 31, 2017 (€471 million ($496 million) as at December 31, 2016). The third-party advance providers
could request repayment of these amounts if Transportation fails to perform its contractual obligations under the
related long-term contract.
18. OTHER FINANCIAL ASSETS
Other financial assets were as follows, as at:
Investments in securities(1)(2)
Derivative financial instruments(3)
Long-term contract receivables(4)
Investments in financing structures(2)
Aircraft loans and lease receivables(2)(5)
Restricted cash
Other
Of which current
Of which non-current
$
December 31, 2017
361
332
253
219
49
12
14
1,240
415
825
1,240
$
$
$
$
December 31, 2016
380
340
231
211
64
10
15
1,251
336
915
1,251
$
$
$
January 1, 2016
359
362
298
197
81
11
12
1,320
450
870
1,320
$
$
$
$
(1) Includes $51 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, 2017 ($78 million as at December 31, 2016 and $80 million January 1, 2016).
(2) Carried at fair value, except for $2 million of aircraft loans and lease receivables, nil of investments in securities and $50 million of
investment in financing structures carried at amortized cost as at December 31, 2017 ($2 million, $6 million and $46 million, respectively, as
at December 31, 2016 and $2 million, $11 million and $46 million, respectively, as at January 1, 2016).
(3) See Note 14 – Financial instruments.
(4) See Note 34 – Financial risk management.
(5) Financing with two airlines represents 78% of the total aircraft loans and lease receivables as at December 31, 2017 (three airlines
represented 75% as at December 31, 2016 and three airlines represented 64% as at January 1, 2016). 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.
BOMBARDIER INC. FINANCIAL REPORT - FISCAL YEAR ENDED DECEMBER 31, 2017 - NOTES 183
19. OTHER ASSETS
Other assets were as follows, as at:
Retirement benefits(1)
Sales tax and other taxes
Prepaid sales concessions
and deferred contract costs
Intangible assets other than aerospace program
tooling and goodwill(2)
Prepaid expenses
Income taxes receivable
Deferred financing charges
Other
Of which current
Of which non-current
(1) See Note 22 – Retirement benefits.
(2) See Note 21 – Intangible assets.
December 31, 2017
290
262
$
December 31, 2016
124
238
$
$
January 1, 2016
251
244
193
120
107
60
46
16
1,094
439
655
1,094
$
$
$
300
112
145
41
51
30
1,041
441
600
1,041
$
$
$
341
114
174
56
72
29
1,281
484
797
1,281
$
$
$
184 BOMBARDIER INC. FINANCIAL REPORT - FISCAL YEAR ENDED DECEMBER 31, 2017
20. PROPERTY, PLANT AND EQUIPMENT
PP&E were as follows, as at:
Cost
Balance as at December 31, 2016
Additions
Disposals
Transfers
Reclassified as assets held for sale(1)
Effect of foreign currency
exchange rate changes
Balance as at December 31, 2017
Accumulated amortization and impairment
Balance as at December 31, 2016
Amortization
Impairment
Disposals
Reclassified as assets held for sale(1)
Effect of foreign currency
exchange rate changes
Balance as at December 31, 2017
Net carrying value
Cost
Balance as at January 1, 2016
Additions
Disposals
Transfers
Effect of foreign currency
exchange rate changes
Balance as at December 31, 2016
Accumulated amortization and impairment
Balance as at January 1, 2016
Amortization
Impairment
Disposals
Effect of foreign currency
exchange rate changes
Balance as at December 31, 2016
Net carrying value
$
$
$
$
$
$
$
$
$
$
Land Buildings Equipment
Construction
in progress
Other
Total
77
—
—
—
—
6
83
$
$
(1) $
—
(15)
—
—
(2)
(18) $
$
65
$
2,387
24
(19)
34
(305)
$
1,444
50
(103)
27
(49)
112
2,233
$
24
1,393
$
(1,239) $
(84)
(20)
43
74
(77)
(1,303) $
$
930
(998) $
(80)
(4)
92
23
(3)
(970) $
$
423
161
104
(43)
(62)
(12)
13
161
$
$
384
37
(9)
1
—
$ 4,453
215
(174)
—
(366)
2
415
157
$ 4,285
— $
—
(7)
—
—
(266) $ (2,504)
(197)
(46)
141
97
(33)
—
6
—
—
(7) $
$
154
2
(80)
(291) $ (2,589)
$ 1,696
124
Land
Buildings
Equipment
Construction
in progress
Other
Total
87
—
(6)
—
(4)
77
$
$
— $
—
(1)
—
—
(1) $
$
76
$
2,409
24
(22)
19
$
1,418
55
(68)
60
(43)
2,387
$
(21)
1,444
$
(1,216) $
(60)
(6)
14
29
(1,239) $
$
1,148
(935) $
(121)
(3)
47
14
(998) $
$
446
155
107
—
(90)
(11)
161
$
$
406
12
(45)
11
$ 4,475
198
(141)
—
—
384
(79)
$ 4,453
— $
—
—
—
(263) $ (2,414)
(193)
(10)
71
(12)
—
10
—
— $
$
161
(1)
42
(266) $ (2,504)
$ 1,949
118
(1) See Note 28 – Assets held for sale for more details on the CSALP assets and liabilities reclassification.
Included in the table are assets under finance lease where the Corporation is the lessee, with cost and accumulated
amortization amounting to $237 million and $126 million, respectively, as at December 31, 2017 ($234 million and
$111 million, respectively, as at December 31, 2016 and $245 million and $105 million, respectively, as at January 1,
2016).
BOMBARDIER INC. FINANCIAL REPORT - FISCAL YEAR ENDED DECEMBER 31, 2017 - NOTES 185
21.
INTANGIBLE ASSETS
Intangible assets were as follows, as at:
Aerospace program tooling
Goodwill
Other (1)(2)
Total
Acquired
Internally
generated
Total (3)
2,380
363
—
(1,164)
$ 12,149
719
—
(4,526)
$ 14,529
1,082
—
(5,690)
—
1,579
$
—
8,342
—
$ 9,921
(1,452) $
(8)
—
—
549
(7,903) $ (9,355)
(87)
(5)
—
3,107
(79)
(5)
—
2,558
—
(911) $
$
668
—
—
(5,429) $ (6,340)
$ 3,581
2,913
$
$
$
$
$
1,855
—
—
—
187
2,042
$
$
— $
—
—
—
—
—
— $
$
2,042
699
55
(4)
(19)
87
818
(587)
(30)
—
3
3
(87)
(698)
120
$ 17,083
1,137
(4)
(5,709)
274
$ 12,781
$ (9,942)
(117)
(5)
3
3,110
(87)
$ (7,038)
5,743
$
Aerospace program tooling
Goodwill
Other (1)(2)
Total
Cost
Balance as at December 31, 2016
$
Additions
Disposals
Reclassified as assets held for sale(4)
Effect of foreign currency
exchange rate changes
Balance as at December 31, 2017
$
Accumulated amortization and impairment
Balance as at December 31, 2016
$
Amortization
Impairment
Disposals
Reclassified as assets held for sale(4)
Effect of foreign currency
exchange rate changes
Balance as at December 31, 2017
Net carrying value
Cost
Balance as at January 1, 2016
Additions
Disposals
Effect of foreign currency
exchange rate changes
Balance as at December 31, 2016
$
$
$
$
Acquired
Internally
generated
Total
(3)
1,864
516
—
—
2,380
$ 11,320
829
—
$ 13,184
1,345
—
—
$ 12,149
—
$ 14,529
$
$
$
$
$
1,978
—
—
(123)
1,855
$
$
— $
—
—
—
— $
$
1,855
683
35
(4)
(15)
699
(569)
(32)
2
12
(587)
112
$ 15,845
1,380
(4)
(138)
$ 17,083
$ (9,778)
(178)
2
12
$ (9,942)
7,141
$
Accumulated amortization and impairment
Balance as at January 1, 2016
Amortization
Disposals
Effect of foreign currency
exchange rate changes
Balance as at December 31, 2016
Net carrying value
$
$
$
(1,449) $
(3)
—
(7,760) $ (9,209)
(146)
—
(143)
—
—
(1,452) $
$
928
—
—
(7,903) $ (9,355)
$ 5,174
4,246
(1) Presented in Note 19 – Other assets.
(2) Includes internally generated intangible assets with a cost and accumulated amortization of $429 million and $324 million, respectively, as
at December 31, 2017 ($365 million and $296 million, respectively, as at December 31, 2016 and $365 million and $278 million,
respectively, as at January 1, 2016).
(3) Includes intangible assets under development with a cost of $3,390 million as at December 31, 2017 ($2,467 million as at
December 31, 2016 and $3,622 million as at January 1, 2016).
(4) See Note 28 – Assets held for sale for more details on the CSALP assets and liabilities reclassification.
186 BOMBARDIER INC. FINANCIAL REPORT - FISCAL YEAR ENDED DECEMBER 31, 2017
Aerospace program tooling
The net carrying value of aerospace program tooling comprises $52 million for Commercial Aircraft, excluding $2,583
million reclassified as assets held for sale, $3,584 million for Business Aircraft, $12 million for Aerostructure and
Engineering Services and $(67) million for Corporate and Elimination, respectively, as at December 31, 2017
($2,586 million, $2,631 million, $8 million and $(51) million respectively, as at December 31, 2016 and $1,914 million,
$2,041 million, $20 million and nil, respectively, as at January 1, 2016).
Goodwill
Goodwill is related primarily to the DaimlerChrysler Rail Systems GmbH (Adtranz) acquisition in May 2001.
Goodwill is monitored by management at the Transportation operating segment level. During the fourth quarter of
fiscal year 2017, the Corporation completed an impairment test. The Corporation did not identify any impairment.
See Note 4 – Use of estimates and judgment for more details.
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”). 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 Québec, or a pension committee, board of trustees or corporate
trustee in the case of plans registered in Québec 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
BOMBARDIER INC. FINANCIAL REPORT - FISCAL YEAR ENDED DECEMBER 31, 2017 - NOTES 187
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.
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., all 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 notably governed under the Supplemental Pension Plans Act in Québec, the Pension
Benefits Act in Ontario 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 future service costs and deficits, as prescribed
by laws and actuarial practices. Under the laws in effect, minimum contributions are required to amortize the going-
concern deficits (established under the assumption that the plan will continue to be in force) over a period up to
fifteen years and, for Ontario registered plans, to amortize solvency deficits (established under the assumption that
the plan stops its operations and is being liquidated) over a period of five years. Effective December 31, 2015,
Quebec legislation funding rules have changed to eliminate the funding of solvency deficits for ongoing plans.
Starting in 2016, funding is based on an “enhanced” going-concern valuation, including a stabilization provision.
This provision will be funded by special amortization and current service contributions, and by actuarial gains.
Pension plans in the U.S. are mainly governed under the Employee Retirement Income Security Act, the Internal
Revenue Code and the Pension Protection Act of 2006. Actuarial valuations are required annually. Contributions
are determined by appointed actuaries and cover future service costs and deficits, as prescribed by law. Funding
deficits are generally amortized over a period of seven years.
Pension plans in the U.K. are notably 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 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, 2017, the average target asset allocation was as follows:
- 53%, 57% and 51% in fixed income securities, for Canadian, U.K. and U.S. plans, respectively;
37%, 30% and 49% in equity securities, for Canadian, U.K. and U.S. plans, respectively; and
-
10% and 13% in real return asset securities, for Canadian and U.K. plans, respectively.
-
188 BOMBARDIER INC. FINANCIAL REPORT - FISCAL YEAR ENDED DECEMBER 31, 2017
In addition, to mitigate interest rate risk, interest rate hedging overlay portfolios (comprised of long-term interest
rate swaps and long-term bond forwards) were implemented in November 2016 for a small plan and will be
implemented for other plans when the market will be favourable and the plans’ triggers will be reached.
The plan administrators have also established dynamic de-risking strategies. As a result, asset allocation will likely
become more conservative in the future and interest rate hedging overlay portfolios are likely to be established as
plan funding status and market conditions continue to improve. Under certain pension legislations, and subject to
compliance with certain conditions, the buy-out of annuities with insurance companies would discharge the
Corporation and administrators of their respective obligations. In these jurisdictions, buy-out of annuities payable to
pensioners or deferred pensioners, will be contemplated for plans becoming fully funded on a buy-out basis.
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 management 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 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 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 fixed income
securities 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 benefit indexation has been capped in certain plans and a portion of plan assets has
been invested in real return fixed income securities and real return asset securities.
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 stems 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 investments in treasury bills,
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 and mortality improvement 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. The Corporation’s main unfunded DB plans are located in Germany.
Nearly two thirds of the German unfunded DB plan liability relate to former plan members who no longer accrue
future service benefits. 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, 2017 - NOTES 189
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 allowances. 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.
RETIREMENT BENEFITS PLANS
The following table provides the components of the retirement benefit cost, for fiscal years:
Current service cost
Accretion expense
Past service credit (1)
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
Pension
benefits
263
67
—
(6)
(4)
—
320
86
406
282
38
86
339
67
$
$
$
$
$
$
$
Other
benefits
7
11
—
—
—
—
18
—
18
n/a
18
n/a
7
11
$
$
$
$
$
$
$
$
$
$
$
$
2017
Total
270
78
—
(6)
(4)
—
338
86
424
282
56
86
346
78
Pension
benefits
260
55
(140)
(22)
—
1
154
84
238
114
40
84
183
55
$
$
$
$
$
$
$
Other
benefits
6
11
—
—
—
—
17
—
17
n/a
17
n/a
6
11
$
$
$
$
$
$
$
$
$
$
$
$
2016
Total
266
66
(140)
(22)
—
1
171
84
255
114
57
84
189
66
(1) Comprises the reversal of constructive obligations of $139 million for fiscal year 2016. See Note 8 – Special items for more details.
n/a: Not applicable
Changes in the cumulative amount of remeasurements gains (losses) of defined benefit plans recognized in OCI,
and presented as a separate component of deficit, were as follows, for fiscal years:
Gains (losses)
Balance as at January 1, 2016
Impact of asset ceiling and minimum liability
Actuarial losses, net
Effect of exchange rate changes
Income taxes
Balance as at December 31, 2016
Impact of asset ceiling and minimum liability
Actuarial gains, net
Effect of exchange rate changes
Income taxes
Balance as at December 31, 2017
$
$
(2,080)
(5)
(764)
14
73
(2,762)
(14)
359
(93)
(68)
(2,578)
190 BOMBARDIER INC. FINANCIAL REPORT - FISCAL YEAR ENDED DECEMBER 31, 2017
The following tables present the changes in the defined benefit obligation and fair value of pension plan assets, for
fiscal years:
Pension
benefits
Other
benefits
2017
Total
Pension
benefits
Other
benefits
Change in benefit obligation
Obligation at beginning of year
Accretion
Current service cost
Plan participants’ contributions
Past service credit (1)
Actuarial losses - changes in
financial assumptions
Actuarial losses (gains) - changes in
experience adjustments
Actuarial gains - changes in
demographic assumptions
Benefits paid
Curtailment
Settlement
Other
Reclassified as liabilities directly
associated with assets held for sale(2)
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
Reclassified as liabilities directly
associated with assets held for sale(2)
Effect of exchange rate changes
Fair value at end of year
$ 10,509
348
263
29
—
361
(51)
(60)
(374)
(6)
(107)
—
(310)
830
$ 11,432
$
5,824
1,548
4,060
$ 11,432
$
$
8,274
257
29
281
615
(374)
(103)
(14)
(218)
668
9,415
$
$
$
$
$
$
283
11
7
—
—
19
(6)
(7)
(12)
—
—
—
(7)
20
308
177
—
131
308
$
$ 10,792
359
270
29
—
380
(57)
(67)
(386)
(6)
(107)
—
9,722
365
260
28
(140)
1,247
21
(16)
(333)
(22)
(4)
1
(317)
850
$ 11,740
—
(620)
$ 10,509
$
6,001
1,548
4,191
$ 11,740
$
5,353
1,603
3,553
$ 10,509
— $
12
—
—
—
(12)
—
—
—
—
— $
8,274
269
29
281
615
(386)
(103)
(14)
(218)
668
9,415
$
$
8,080
262
28
310
494
(333)
(4)
(13)
—
(550)
8,274
$
$
$
$
$
$
$
2016
Total
9,988
376
266
28
(140)
1,259
16
(17)
(344)
(22)
(4)
1
—
(615)
$ 10,792
$
5,517
1,603
3,672
$ 10,792
266
11
6
—
—
12
(5)
(1)
(11)
—
—
—
—
5
283
164
—
119
283
— $
11
—
—
—
(11)
—
—
—
—
— $
8,080
273
28
310
494
(344)
(4)
(13)
—
(550)
8,274
(1) Comprises the reversal of constructive obligations of $139 million for fiscal year 2016. See Note 8 – Special items for more details.
(2) See Note 28 – Assets held for sale for more details on the CSALP assets and liabilities reclassification.
BOMBARDIER INC. FINANCIAL REPORT - FISCAL YEAR ENDED DECEMBER 31, 2017 - NOTES 191
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 and minimum
liability(1)
Net amount recognized
Amounts included in:
Retirement benefit
Liability
Asset(2)
Net liability
December 31, 2017
Other
benefits
Pension
benefits
December 31, 2016
Other
benefits
Pension
benefits
January 1, 2016
Other
benefits
Pension
benefits
$ 11,432
(9,415)
2,017
18
2,035
2,325
(290)
2,035
$
$
$
$
$
$
$
308
—
308
—
308
308
—
308
$ 10,509
(8,274)
2,235
5
2,240
2,364
(124)
2,240
$
$
$
$
$
$
$
283
—
283
—
283
283
—
283
$
$
$
$
9,722
(8,080)
1,642
—
1,642
1,893
(251)
1,642
$
$
$
$
266
—
266
—
266
266
—
266
(1) Comprises the effect of exchange rate changes.
(2) Presented in Note 19 – Other assets.
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, 2017
Other
benefits
Pension
benefits
December 31, 2016
Other
benefits
Pension
benefits
January 1, 2016
Other
benefits
Pension
benefits
$
$
639
366
162
81
1,248
575
28
37
147
787
2,035
$
$
— $
—
—
—
—
—
276
20
12
308
308
$
562
375
493
99
1,529
522
25
36
128
711
2,240
$
$
— $
—
—
—
—
—
250
22
11
283
283
$
589
327
(52)
95
959
492
24
33
134
683
1,642
$
$
—
—
—
—
—
—
233
22
11
266
266
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, 2017
Plan
Benefit
assets
obligation
December 31, 2016
Plan
Benefit
assets
obligation
January 1, 2016
Plan
assets
Benefit
obligation
$
5,030
4,215
1,000
400
10,645
1,095
$ 11,740
$
$
4,409
4,053
634
319
9,415
—
9,415
$
4,503
3,912
993
390
9,798
994
$ 10,792
$
$
3,946
3,419
618
291
8,274
—
8,274
$
$
4,214
3,527
914
384
9,039
949
9,988
$
$
3,625
3,579
587
289
8,080
—
8,080
192 BOMBARDIER INC. FINANCIAL REPORT - FISCAL YEAR ENDED DECEMBER 31, 2017
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
732
1,007
300
419
1,240
2,966
1,335
3,139
29
4,503
994
220
9,415
Total
779
951
371
350
1,102
2,774
1,301
2,351
27
3,679
925
117
8,274
Total
804
959
282
343
1,101
2,685
1,288
2,199
26
3,513
983
95
8,080
Level 1
551
$
$
1,001
291
419
1,238
2,949
—
—
—
—
934
—
4,434
Level 1
611
945
360
350
1,099
2,754
—
—
—
—
871
—
4,236
Level 1
655
938
282
343
1,098
2,661
—
—
—
—
927
—
4,243
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
December 31, 2017
Level 3
—
$
Level 2
181
—
9
—
—
9
1,335
3,139
29
4,503
—
220
4,913
$
6
—
—
2
8
—
—
—
—
60
—
68
December 31, 2016
Level 3
—
$
Level 2
168
—
11
—
—
11
1,301
2,351
27
3,679
—
117
3,975
$
6
—
—
3
9
—
—
—
—
54
—
63
Level 2
149
January 1, 2016
Level 3
—
$
15
—
—
—
15
1,288
2,199
26
3,513
—
93
3,770
$
6
—
—
3
9
—
—
—
—
56
2
67
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, 2017, 2016 and January 1, 2016.
BOMBARDIER INC. FINANCIAL REPORT - FISCAL YEAR ENDED DECEMBER 31, 2017 - NOTES 193
The following table presents the contributions made for fiscal year 2017 and 2016 as well as the estimated
contributions for fiscal year 2018:
Contribution to
Funded pension plans
Unfunded pension plans
Other benefits
Total defined benefits plans
DC pension plans
Total contributions
2018
Estimated
2017
2016
$
$
205
29
13
247
89
336
$
$
232
25
12
269
86
355
$
$
234
28
11
273
84
357
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, 2017
$
$
336
1,549
2,455
3,015
3,424
10,779
The following table provides the weighted average duration of the defined benefit obligations related to pension
plans, as at:
December 31, 2017
Duration in years as at
Funded pension plans
Canada
U.S.
U.K.
Other
Unfunded pension plans
Germany
Canada
U.S.
Other
The following table provides the expected payments to be made under the unfunded plans, as at
December 31, 2017:
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
$
$
18
75
105
120
130
448
$
$
20
91
138
151
163
563
$
$
194 BOMBARDIER INC. FINANCIAL REPORT - FISCAL YEAR ENDED DECEMBER 31, 2017
17.0
15.8
20.8
17.4
19.2
13.2
13.8
14.7
Total
38
166
243
271
293
1,011
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, 2017
Other
benefits
Pension
benefits
December 31, 2016
Other
benefits
Pension
benefits
January 1, 2016
Other
benefits
Pension
benefits
3.22%
3.00%
2.30%
n/a
3.03%
3.00%
2.28%
n/a
n/a
3.95%
3.00%
2.25%
5.07%
3.56%
3.00%
2.20%
5.25%
5.08%
3.80%
3.02%
2.21%
n/a
3.22%
3.00%
2.30%
n/a
n/a
4.19%
3.00%
2.05%
5.12%
3.95%
3.00%
2.25%
5.23%
5.07%
3.69%
3.26%
2.21%
n/a
3.80%
3.02%
2.21%
n/a
n/a
4.07%
3.25%
2.05%
4.99%
4.19%
3.00%
2.05%
5.29%
5.12%
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.
Mortality tables
2014 Private Sector Mortality Table ("CPM2014Priv")
projected generationally using CPM Improvement
Scale B ("CPM-B")
SNA07M_CMI 2013 and S1P(M/F)A CMI 2012
RP-2014 mortality table projected generationally
using the MP-2017 improvement scale(1)
Germany Dr. K Heubeck 2005
Country
Canada
U.K.
U.S.
Mortality tables
2014 Private Sector Mortality Table ("CPM2014Priv")
projected generationally using CPM Improvement
Scale B ("CPM-B")
SNA07M_CMI 2013 and S1P(M/F)A CMI 2012
RP-2014 mortality table projected generationally
using the MP-2017 improvement scale(1)
Germany Dr. K Heubeck 2005
Life expectancy over 65 for a male member currently
Aged 45 on December
2016
Aged 65 on December
2016
2017
2017
21.7
22.1
20.7
19.1
21.7
22.1
20.9
19.0
22.7
23.9
22.3
21.8
22.7
23.9
22.5
21.6
Life expectancy over 65 for a female member currently
Aged 45 on December
2016
Aged 65 on December
2016
2017
2017
24.1
24.3
22.7
23.2
24.1
24.3
22.9
23.1
25.1
26.2
24.3
25.7
25.1
26.2
24.4
25.6
(1) RP-2014 mortality table projected generationally using the MP-2016 improvement scale as at December 31, 2016
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
2017
(28)
7
5
$
$
$
Net retirement benefit
liability as at
December 31, 2017
(499)
88
125
$
$
$
A one year additional life expectancy as at December 31, 2017 for all DB plans would increase the net retirement
benefit liability by $301 million and the retirement benefit cost for fiscal year 2017 by $16 million, all other actuarial
assumptions remaining unchanged.
BOMBARDIER INC. FINANCIAL REPORT - FISCAL YEAR ENDED DECEMBER 31, 2017 - NOTES 195
As at December 31, 2017, 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 5.25% and to decrease progressively to 5.08% by calendar year 2027 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, 2017 and for fiscal year 2017:
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:
Trade payables
Accrued liabilities
Interest
Other
One percentage point
increase
29
2
$
$
One percentage point
decrease
(25)
(2)
$
$
$
December 31, 2017
2,888
815
139
352
4,194
$
$
December 31, 2016
2,126
639
141
333
3,239
$
January 1, 2016
2,812
613
154
461
4,040
$
$
196 BOMBARDIER INC. FINANCIAL REPORT - FISCAL YEAR ENDED DECEMBER 31, 2017
24. PROVISIONS
Changes in provisions were as follows, for fiscal years 2017 and 2016:
Balance as at December 31, 2016
Additions
Utilization
Reversals
Accretion expense
Effect of changes in discount rates
Reclassified as liabilities directly
associated with assets held for sale
Effect of foreign currency
exchange rate changes
Balance as at December 31, 2017
Of which current
Of which non-current
Balance as at January 1, 2016
Additions
Utilization
Reversals
Accretion expense
Effect of changes in discount rates
Effect of foreign currency
exchange rate changes
Balance as at December 31, 2016
Of which current
Of which non-current
Product
warranties
670
$
227
(167)
(108)
1
(1)
Credit and
residual
value
guarantees
562
$
81
(86)
(2)
8
(9)
$
Restructuring,
severance
and other
termination
benefits
111
265 (2)
(104)
(14)
—
—
(2)
(13) (5)
50
659
557
102
659
$
$
$
—
—
554
72
482
554
19
277
126
151
277
$
$
$
Credit and
residual
value
guarantees
670
$
14
(107)
(22)
6
1
$
Restructuring,
severance
and other
termination
benefits
66
252
(181)
(18)
—
—
(2)
(2)
Product
warranties
725
298
(223)
(110)
1
(2)
(19)
670
521
149
670
$
$
$
—
562
59
503
562
$
$
$
(8)
111
110
1
111
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
(1)
Other
923
207 (3)
(304)
(48)
11
3
(4)
(544) (5)
13
261
182
79
261
(1)
(3)
Other
565
763
(270)
(121) (4)
6
(16)
(4)
923
132
791
923
Total
2,266
780
(661)
(172)
20
(7)
(557)
82
1,751
937
814
1,751
Total
2,026
1,327
(781)
(271)
13
(17)
(31)
2,266
822
1,444
2,266
$
$
$
$
$
$
$
$
(1) Mainly comprised of onerous contract provisions, claims and litigations.
(2) See Note 8 – Special items for more details on additions and reversals related to restructuring charges.
(3) See Note 8 – Special items for more details on the addition related to the re-negotiation of a commercial agreement, on the addition related
to the Primove impairment and other costs and on the addition related to tax litigation provision for fiscal year 2017 (includes addition
related to the C Series aircraft program onerous contracts provision and to the tax litigation provision for fiscal year 2016).
(4) See Note 8 – Special items for more details on the reversal of Learjet 85 aircraft program cancellation provisions.
(5) See Note 28 – Assets held for sale for more details on the CSALP assets and liabilities reclassification.
BOMBARDIER INC. FINANCIAL REPORT - FISCAL YEAR ENDED DECEMBER 31, 2017 - NOTES 197
25. OTHER FINANCIAL LIABILITIES
Other financial liabilities were as follows, as at:
Government refundable advances
Derivative financial instruments(1)
Lease subsidies(2)
Current portion of long-term debt(3)
Vendor non-recurring costs
Sale and leaseback obligations
Other
Of which current
Of which non-current
$
December 31, 2017
550
538
74
18
13
—
114
1,307
342
965
1,307
$
$
$
$
December 31, 2016
395
627
141
31
351
25
37
1,607
608
999
1,607
$
$
$
January 1, 2016
411
702
135
71
20
133
138
1,610
991
619
1,610
$
$
$
$
(1) See Note 14 – Financial instruments.
(2) The amount contractually required to be paid is $88 million as at December 31, 2017 ($160 million as at December 31, 2016 and
$182 million as at January 1, 2016).
(3) See Note 27 – Long-term debt.
26. OTHER LIABILITIES
Other liabilities were as follows, as at:
Employee benefits(1)
Accruals for long-term contract costs
Deferred revenues
Supplier contributions to aerospace programs
Other taxes payable
Income taxes payable
Other
Of which current
Of which non-current
$
December 31, 2017
690
640
465
388
234
190
449
3,056
2,310
746
3,056
$
$
$
$
December 31, 2016
652
579
422
650
163
222
506
3,194
2,175
1,019
3,194
$
$
$
January 1, 2016
647
606
397
606
212
224
578
3,270
2,274
996
3,270
$
$
$
$
(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).
198 BOMBARDIER INC. FINANCIAL REPORT - FISCAL YEAR ENDED DECEMBER 31, 2017
27.
LONG-TERM DEBT
Long-term debt was as follows, as at:
Amount in
currency of
origin Currency Contractual (1)
Interest rate
After effect
of fair value
hedges
Maturity
Amount
Amount
Amount
December 31
2017
December 31
2016
January 1
2016
850
780
1,400
500
USD
EUR
USD
USD
7.75%
6.13%
8.75%
5.75%
1,200
USD
6.00%
1,250
USD
6.13%
1,000
1,500
600(5)
650(6)
750(6)
250
150
Various(8)
USD
USD
USD
USD
USD
USD
CAD
Various
7.50%
7.50%
4.75%
7.50%
5.50%
7.45%
7.35%
Various(8)
Senior notes
Notes
Debentures
Other(7)
Of which current(9)
Of which non-current
n/a(2) Mar. 2020 $
885 $
899 $
n/a May 2021
n/a Dec. 2021
3-month
Libor + 3.36(3)
3-month
Libor + 3.57(3)
3-month
Libor + 3.48(4)
Mar. 2022
Oct. 2022
Jan. 2023
n/a Dec. 2024
n/a Mar. 2025
n/a
n/a
n/a
n/a
n/a
n/a
n/a May 2034
n/a Dec. 2026
n/a
2018-2026
1,019
1,373
506
1,223
1,281
990
1,490
—
—
—
248
119
84
931
1,369
507
916
985
—
510
1,228
1,234
1,280
1,290
—
1,488
596
—
—
248
111
112
—
1,487
594
677
740
248
107
191
$
$
$
9,218 $
8,769 $
8,979
18 $
9,200
9,218 $
31 $
71
8,738
8,769 $
8,908
8,979
(1) Interest on long-term debt as at December 31, 2017 is payable semi-annually, except for the other debts for which the timing of interest
payments is variable.
(2) The remaining portion of the interest-rate swap agreement related to these Senior Notes was settled in the fourth quarter of fiscal year
2017. As this interest-rate swap was in a fair value hedge relationship, the related deferred gains recorded in the hedged item will be
amortized in interest expense up to the maturity of this debt.
(3) The interest-rate swap agreement related to these Senior Notes were partially settled in the fourth quarter of fiscal year 2015 and 2017. As
these interest-rate swap were in a fair value hedge relationship, the related deferred gains recorded in the hedged item will be amortized in
interest expense up to the maturity of these debts.
(4) The interest-rate swap agreement related to these Senior Notes were partially settled in the fourth quarter of fiscal year 2015. As these
interest-rate swap were in a fair value hedge relationship, the related deferred gains recorded in the hedged item will be amortized in
interest expense up to the maturity of these debts.
Repurchased pursuant to an optional redemption exercised in November, 2017.
Repurchased pursuant to an optional redemption exercised in December, 2016.
Includes obligations under finance leases.
(6)
(5)
(7)
(8) The notional amount of other long-term debt is $84 million as at December 31, 2017 ($112 million as at December 31, 2016 and $191
million as at January 1, 2016). The contractual interest rate, which represents a weighted average rate, is 5.99% as at December 31, 2017
(5.43% as at December 31, 2016 and 4.78% as at January 1, 2016).
(9) See Note 25 – Other financial liabilities.
n/a: Not applicable
All Senior notes and Notes rank pari-passu and are unsecured. The Corporation is subject to various financial
covenants under the letter of credit facilities and the two unsecured revolving credit facilities, which must be met
on a quarterly basis, see Note 32 - Credit facilities for more details. A breach of any of these agreements or the
inability to comply with these covenants could result in a default under these facilities, which would permit the
Corporation’s banks to request immediate defeasance or cash cover of all outstanding letters of credit, and bond
holders and other lenders to declare amounts owed to them to be immediately payable. These conditions were all
met as at December 31, 2017 and 2016 and January 1, 2016.
BOMBARDIER INC. FINANCIAL REPORT - FISCAL YEAR ENDED DECEMBER 31, 2017 - NOTES 199
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
28. ASSETS HELD FOR SALE
$
December 31, 2017
18
4,934
4,137
9,089
$
$
December 31, 2016
31
3,736
4,829
8,596
$
January 1, 2016
71
2,946
5,680
8,697
$
$
On October 16, 2017, the Corporation entered into an agreement with Airbus SE (Airbus) whereby Airbus will provide
procurement, sales and marketing, and customer support expertise to the CSALP, the entity that manufactures and
sells the C Series aircraft. At closing, Airbus will acquire a 50.01% interest in CSALP. Bombardier and Investissement
Québec (IQ) will own approximately 31% and 19% respectively. The Corporation is moving ahead and is making
progress obtaining regulatory approvals for the partnership with Airbus for the C Series aircraft. The Corporation
expects to obtain all approvals for the partnership in 2018. Therefore, management believes closing of the transaction
is highly probable.
CSALP’s headquarters and primary assembly line and related functions will remain in Québec, with the support of
Airbus’ global reach and scale. Airbus’ global industrial footprint will expand with the final assembly line in Canada
and additional C Series aircraft production at Airbus’ manufacturing site in Alabama, U.S.
Ownership Structure and Agreement Highlights
The C Series aircraft program is operated by CSALP in respect of which Bombardier and IQ held approximately a
63% and a 37% interest respectively as at December 31, 2017. The Investment Agreement contemplates Airbus
acquiring a 50.01% interest in CSALP. Airbus will enter into commercial agreements relating to (i) sales and
marketing support services for the C Series aircraft program, (ii) management of procurement, which will include
leading negotiations to improve CSALP level supplier agreements, and (iii) customer support. At closing, there will
be no cash contribution by any of the partners, nor will CSALP assume any financial debt. It also contemplates
that Bombardier will continue with its current funding plan of CSALP and will fund, if required, the cash shortfalls
of CSALP during the first year following the closing up to a maximum amount of $350 million, and during the
second and third years following the closing up to a maximum aggregate amount of $350 million over both years,
in consideration for non-voting participating units of CSALP with cumulative annual dividends of 2%, with any
excess shortfall during such periods to be shared proportionately amongst the Corporation, Airbus and IQ, but in
the latter case, at its discretion.
Airbus will benefit from call rights in respect of all of Bombardier’s interest in CSALP at fair market value, with the
amount for non-voting participating units capped at the invested amount plus accrued but unpaid dividends,
including a call right exercisable no earlier than 7.5 years following the closing, except in the event of certain
circumstances such as changes in the control of Bombardier, in which case the right is accelerated. Bombardier
will benefit from a corresponding put right whereby it could require that Airbus acquire its interest at fair market
value after the expiry of the same period. IQ’s interest is redeemable at fair market value by CSALP, under certain
conditions, starting in 2023. IQ will benefit from a corresponding put right whereby it could require that CSALP,
under certain conditions, acquire its interest at fair market value starting in 2023. IQ will also benefit from tag
along rights in connection with a sale by Bombardier of its interest in the partnership.
The Board of Directors of CSALP will initially consist of seven directors, four of whom will be proposed by Airbus,
two of whom will be proposed by Bombardier, and one of whom will be proposed by IQ. Airbus will be entitled to
name the Chairman of CSALP.
The transaction also provides for the issuance to Airbus, upon closing, of warrants exercisable to acquire up to
100,000,000 Class B Shares (subordinate voting) of Bombardier, at an exercise price per share equal to the US$
equivalent of $2.29 CDN. The warrants will have a five-year term from the date of issue, will not be listed and will
provide for market standard adjustment provisions, including in the event of corporate changes, stock splits, non-
200 BOMBARDIER INC. FINANCIAL REPORT - FISCAL YEAR ENDED DECEMBER 31, 2017
cash dividends, distributions of rights, options or warrants to all or substantially all shareholders or consolidations.
The Toronto Stock Exchange (TSX) has determined to accept notice of the private placement of such warrants
and has conditionally approved the listing of the Class B Shares issuable pursuant to the terms of the warrants on
the TSX. Listing will be subject to Bombardier fulfilling all of the listing requirements of the TSX.
The transaction has been approved by the Boards of Directors of both Airbus and Bombardier, as well as the
Cabinet of the Government of Québec. The transaction remains subject to regulatory approvals, as well as other
conditions usual in this type of transaction. Completion of the transaction is currently expected in 2018.
Assets held for sale
The major class of assets held for sale or liabilities directly associated with assets held for sale was as follows, as
at:
Cash and cash equivalents
Other current assets (1)
Non-current assets (2)
Total assets
Current liabilities (3)
Non-current liabilities (4)
Total liabilities
December 31, 2017
69
1,043
3,038
4,150
934
1,599
2,533
$
$
$
$
(1) Mainly comprised of inventories.
(2) Mainly comprised of aerospace program tooling.
(3) Mainly comprised of trade and other payables, supplier advances and advances on aerospace programs.
(4) Mainly comprised of vendor non-recurring costs, provisions and advances on aerospace programs.
In addition, CSALP have $32 million of accumulated OCI as at December 31, 2017.
These assets and liabilities are reported in the Commercial aircraft reportable segment.
29. SHARE CAPITAL
Preferred shares
The preferred shares authorized were as follows, as at December 31, 2017, and 2016 and January 1, 2016:
Series 2 Cumulative Redeemable Preferred Shares
Series 3 Cumulative Redeemable Preferred Shares
Series 4 Cumulative Redeemable Preferred Shares
Authorized for the
specific series
12,000,000
12,000,000
9,400,000
The preferred shares issued and fully paid were as follows, as at:
Series 2 Cumulative Redeemable Preferred Shares
Series 3 Cumulative Redeemable Preferred Shares
Series 4 Cumulative Redeemable Preferred Shares
December 31, 2017
5,811,736
6,188,264
9,400,000
December 31, 2016
9,692,521
2,307,479
9,400,000
January 1, 2016
9,692,521
2,307,479
9,400,000
BOMBARDIER INC. FINANCIAL REPORT - FISCAL YEAR ENDED DECEMBER 31, 2017 - NOTES 201
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, 2022 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.
Dividend:
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.
Series 3 Cumulative Redeemable Preferred Shares
Redemption: Redeemable, at the Corporation’s option, at $25.00 Cdn per share on August 1, 2022 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, 2022 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.
Dividend:
For the five-year period from August 1, 2017 and including July 31, 2022, the Series 3 Cumulative
Redeemable Preferred Shares carry fixed cumulative preferential cash dividends at a rate of 3.983% or
$0.99575 Cdn per share per annum, payable quarterly on the last day of January, April, July and October of
each year at a rate of $0.2489375 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 Restated Articles of Incorporation.
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
Conversion:
Dividend:
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.
202 BOMBARDIER INC. FINANCIAL REPORT - FISCAL YEAR ENDED DECEMBER 31, 2017
Common shares
All common shares are without nominal or par value.
Class A Shares (multiple voting)
Voting rights: Ten votes each.
Conversion: Convertible, at any time, at the option of the holder, into one Class B Share (subordinate voting).
Dividend:
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.
Class B Shares (subordinate voting)
Voting rights: One vote each.
Conversion: Convertible, at the option of the holder, into one Class A Share (multiple voting): (i) if an offer made to Class A
Dividend:
(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 and RSU plans
Balance at beginning of year
Purchased
Distributed
Balance at end of year
Authorized
The change in the number of warrants exercisable was as follows as at:
Balance at beginning of year
Issuance of warrants
Balance at end of year
December 31, 2017 December 31, 2016
313,900,550
(2,001)
313,898,549
3,592,000,000
313,900,550
—
313,900,550
3,592,000,000
December 31, 2017 December 31, 2016
1,932,675,863
104,900
2,001
1,932,782,764
(53,533,118)
—
550,067
(52,983,051)
1,879,799,713
3,592,000,000
1,932,511,397
164,466
—
1,932,675,863
(26,194,908)
(27,338,210)
—
(53,533,118)
1,879,142,745
3,592,000,000
December 31, 2017 December 31, 2016
—
205,851,872
205,851,872
205,851,872
—
205,851,872
BOMBARDIER INC. FINANCIAL REPORT - FISCAL YEAR ENDED DECEMBER 31, 2017 - NOTES 203
In February 2016, the Corporation issued, in the name of CDPQ, warrants exercisable for a total number of
105,851,872 Class B Shares (subordinate voting) in the capital of Bombardier Inc. (Class B Subordinate Voting
Shares), exercisable for a period of seven years at an exercise price per share equal to $1.66 U.S. dollars, being
the equivalent of $2.21 Canadian dollars using the exchange rate at the date of execution of the subscription
agreement.
Also on June 30 and September 1, 2016 Bombardier issued, in the name of Investissement Québec, warrants
exercisable for a total number of 100,000,000 Class B Subordinate Voting Shares in the capital of Bombardier
Inc., exercisable for a period of five years at an exercise price per share equal to $1.72 U.S. dollars, being the
equivalent of $2.21 Canadian dollars using the exchange rate at the date of execution of the subscription
agreement.
Dividends
Dividends declared were as follows:
Class A common shares
Class B common shares
Series 2 Preferred Shares
Series 3 Preferred Shares
Series 4 Preferred Shares
Per share
(Cdn$)
0.00 $
0.00
Per share
(Cdn$)
December 31, 2017
Total
(in millions
of U.S.$)
—
—
—
4
3
11
18
18
Dividends declared for fiscal years
December 31, 2016
Total
(in millions
of U.S.$)
—
—
—
5
1
11
17
17
0.00 $
0.00
0.68
0.78
1.56
0.72
0.89
1.56
$
$
Per share
(Cdn$)
0.00 $
0.00
Dividends declared after
December 31, 2017
Total
(in millions
of U.S.$)
—
—
—
1
1
3
5
5
0.13
0.25
0.39
$
30. SHARE-BASED PLANS
PSU, DSU and RSU plans
The Board of Directors of the Corporation approved a PSU and a RSU plan under which PSUs and RSUs may be
granted to executives and other designated employees. The PSUs and the RSUs give recipients the right, upon
vesting, to receive a certain number of the Corporation’s Class B Shares (subordinate voting). The RSUs also
give certain recipients the right to receive a cash payment equal to the value of the RSUs. 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 2017, a combined value of $47 million of DSUs, PSUs and RSUs were authorized
for issuance ($50 million during fiscal year 2016).
The number of PSUs, DSUs and RSUs has varied as follows, for fiscal years:
PSU
DSU
2017
RSU
PSU
DSU
2016
RSU
Balance at beginning
of year
Granted
Exercised
Forfeited
Balance at end of year
39,324,712
38,540,340
(495,307)
(10,238,393)
67,131,352
2,677,843
439
(151,671)
(1,372,230)
1,154,381 (1)
22,058,924
—
—
(1,260,823)
20,798,101
15,627,217
31,233,004
(65,790)
(7,469,719)
39,324,712
4,883,829
—
(351,061)
(1,854,925)
2,677,843 (1)
22,332,682
1,659,631
—
(1,933,389)
22,058,924
(1) Of which 1,154,381 DSUs are vested as at December 31, 2017 (1,260,639 as at December 31, 2016).
204 BOMBARDIER INC. FINANCIAL REPORT - FISCAL YEAR ENDED DECEMBER 31, 2017
PSUs and DSUs granted will vest if a financial performance threshold is met. The conversion ratio for vested
PSUs and DSUs ranges from 50% 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, 2016 and December 31,
2017, the vesting dates range from August 2019 to August 2020. RSUs granted will vest regardless of the
performance. RSUs generally vest three years following the grant date. For grants issued in 2015, the vesting
date will be in August 2018.
The weighted-average grant date fair value of PSUs and RSUs granted during fiscal year 2017 was $2.04 ($1.50
during fiscal year 2016). The fair value of each PSUs and RSUs 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 and/or RSU plan. These shares are held in trust for the benefit of the
beneficiaries until the PSUs and RSUs become vested or are cancelled. The cost of these purchases has been
deducted from share capital.
A compensation expense of $29 million was recorded during fiscal year 2017 with respect to the PSU, DSU and
RSU plans (a compensation expense of $11 million during fiscal year 2016).
Share option plans
Under share option plans, options are granted to key employees to purchase Class B Shares (subordinate
voting). Of the 224,641,195 Class B Shares (subordinate voting) reserved for issuance, 65,065,789 were
available for issuance under these share option plans, as at December 31, 2017.
Current share option plan - Effective June 1, 2009, the Corporation amended the share option plan for key
employees for options granted after this date. The most significant terms and conditions of the amended plan are
as follows:
•
the exercise price is equal to the weighted-average trading prices on the stock exchange during the five
trading days preceding the date on which the options were granted;
the options vest at the expiration of the third year following the grant date; and
the options terminate no later than seven years after the grant date.
•
•
The summarized information on the current share option plan is as follows as at December 31, 2017:
Exercise price range (Cdn$)
1 to 2
2 to 4
4 to 6
6 to 8
Issued and outstanding
Weighted-
average
exercise
price (Cdn$)
1.74
2.84
4.83
7.01
Weighted-
average
remaining
life (years)
5.00
5.49
2.53
0.43
Exercisable
Weighted-
average
exercise
price (Cdn$)
—
3.72
4.83
7.01
Number of
options
—
9,957,695
4,009,793
1,912,000
15,879,488
Number of
options
68,964,473
41,421,459
4,009,793
1,912,000
116,307,725
No options were exercised during fiscal year 2017 and 2016.
BOMBARDIER INC. FINANCIAL REPORT - FISCAL YEAR ENDED DECEMBER 31, 2017 - NOTES 205
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
Forfeited
Expired
Balance at end of year
Options exercisable at end of year
2017
Weighted-
average
exercise
price (Cdn$)
2.38
2.55
3.27
4.72
2.32
Number of
options
74,347,206
29,195,107
(4,486,127)
(2,017,000)
97,039,186
2016
Weighted-
average
exercise
price (Cdn$)
2.61
1.94
2.76
3.45
2.38
4.40
15,055,731
4.80
Number of
options
97,039,186
27,745,712
(5,577,590)
(2,899,583)
116,307,725
15,879,488
Share-based compensation expense for options
The weighted-average grant date fair value of stock options granted during fiscal year 2017 was $0.90 per option
($0.64 per option for fiscal year 2016). 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
2017
1.48%
5 years
50.38%
0%
2016
0.58%
5 years
49%
0%
A compensation expense of $16 million was recorded during fiscal year 2017 with respect to share option plans
($11 million during fiscal year 2016).
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
2016
155
1,161
(130)
200
(699)
269
183
(452)
(159)
74
602
(1) For purpose of the statement of cash flows, net change in non-cash balances comprise all assets and liabilities of CSALP reclassified as
2017 (1)
103
(836)
325
(72)
1,042
(36)
338
(311)
166
56
775
$
$
$
$
asset held for sale. See Note 28 – Assets held for sale for more details on the CSALP assets and liabilities reclassification.
206 BOMBARDIER INC. FINANCIAL REPORT - FISCAL YEAR ENDED DECEMBER 31, 2017
The following table presents the reconciliation of movements of liabilities to cash flows arising from financing
activities:
Balance as at December 31, 2016
Changes from financing cash flows
Proceeds from long-term debt
Repayment of long-term debt
Transaction costs
Total changes from financing cash flows
The effect of changes in foreign exchange rates
Other
Balance as at December 31, 2017
Long-term debt
8,769
$
1,000
(631)
(15)
9,123
125
(30)
9,218
$
32. CREDIT FACILITIES
Letter of credit facilities
The letter of credit facilities and their maturities were as follows, as at:
December 31, 2017
Transportation facility
Corporation excluding Transportation facility
December 31, 2016
Transportation facility
Corporation excluding Transportation facility
January 1, 2016
Transportation facility
Corporation excluding Transportation facility
Amount
committed
Letters of
credit issued
Amount
available
Maturity
$
$
$
$
$
$
4,270 (1) $
400
4,670
3,489
400
3,889
3,963
600
4,563
(1)
(1)
$
$
$
$
$
4,013 $
169
4,182 $
3,311 $
136
3,447 $
3,195 $
221
3,416 $
257
231
488
178
264
442
768
379
1,147
2021 (2)
2020 (3)
2020
2019
2019
2018
(1) € 3,560 million as at December 31, 2017 (€ 3,310 million as at December 31, 2016 and € 3,640 million as at January 1, 2016).
(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 one year amortization period during which new letters of credit cannot be issued. The final maturity date of the facility is
2021.
(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.
In addition to the outstanding letters of credit shown in the above table, letters of credit of $3,037 million were
outstanding under various bilateral agreements and letters of credit of $377 million under the PSG facility as at
December 31, 2017 ($1,869 million and $206 million, respectively, as at December 31, 2016 and $1,721 million
and $173 million, respectively, as at January 1, 2016).
The Corporation also uses numerous bilateral bonding facilities with insurance companies to support
Transportation’s operations. An amount of $3.4 billion was outstanding under such facilities as at
December 31, 2017 ($2.9 billion as at December 31, 2016 and $2.6 billion as at January 1, 2016).
BOMBARDIER INC. FINANCIAL REPORT - FISCAL YEAR ENDED DECEMBER 31, 2017 - NOTES 207
Revolving credit facilities
The Corporation has a $400-million unsecured revolving credit facility (“revolving credit facility”) that matures in
June 2020 and bears interest at the applicable base rate (Libor, in the case of a U.S. dollar cash drawing) plus a
margin. This facility is available for cash drawings for the general working capital needs of the Corporation
excluding Transportation. In addition, the Corporation has an unsecured revolving credit facility (“Transportation
revolving credit facility”) amounting to €640 million ($768 million) , available to Transportation for cash drawings.
The facility matures in May 2020 and bears interest at Euribor plus a margin. These facilities were unused as of
December 31, 2017.
Financial covenants
The Corporation is subject to various financial covenants under the letter of credit facilities, excluding the PSG
facility, and the two unsecured revolving credit facilities, which must be met on a quarterly basis. The $400-million
letter of credit and $400-million unsecured revolving credit facility, which are available for the Corporation
excluding Transportation, include financial covenants requiring a minimum EBITDA to fixed charges ratio, as well
as a maximum gross debt and minimum EBITDA thresholds, all calculated based on an adjusted consolidated
basis i.e. excluding Transportation. The Transportation letter of credit and revolving credit facilities include
financial covenants requiring minimum equity as well as a maximum debt to EBITDA ratio, all calculated based on
Transportation stand-alone financial data. These terms and ratios are defined in the respective agreements and
do not correspond to the Corporation’s global metrics as described in Note 33 – Capital management or to the
specific terms used in the MD&A. In addition, the Corporation must maintain a minimum Transportation liquidity of
€600 million ($ 720 million). The $400-million letter of credit and $400-million unsecured revolving facilities, which
are available for the Corporation excluding Transportation, require liquidity between $750 million and $850 million
depending on the level of the EBITDA to fixed charges ratio, calculated based on an adjusted consolidated basis
(i.e excluding Transportation) at the end of each quarter of fiscal year 2017 (minimum liquidity of $750 million for
fiscal year 2016). Minimum liquidity required is not defined as comprising only cash and cash equivalents as
presented in the consolidated statement of financial position. These conditions were all met on a quarterly basis
and as at December 31, 2017 and 2016 and January 1, 2016.
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.
208 BOMBARDIER INC. FINANCIAL REPORT - FISCAL YEAR ENDED DECEMBER 31, 2017
33. CAPITAL MANAGEMENT
The Corporation analyzes its capital structure using global metrics, which are based on a broad economic view of
the Corporation, in order to assess the creditworthiness of the Corporation. The Corporation manages and
monitors its global metrics such that it can achieve an investment-grade profile.
The Corporation’s objectives with regard to its global metrics are as follows:
adjusted EBIT to adjusted interest ratio greater than 5.0; and
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.
Adjusted EBIT(1)
Adjusted interest(2)
Adjusted EBIT to adjusted interest ratio
Adjusted debt(3)
Adjusted EBITDA(4)
Adjusted debt to adjusted EBITDA ratio
$
$
$
$
2017
770
631
1.2
9,631
1,162
8.3
$
$
$
$
2016
498
618
0.8
9,184
943
9.7
(1) Represents 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.
(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.
In addition to the above global level metrics, the Corporation separately monitors its net retirement benefit liability
which amounted to $2.3 billion as at December 31, 2017 ($2.5 billion as at December 31, 2016). The
measurement of this liability is dependent on numerous key long-term assumptions such as 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.
BOMBARDIER INC. FINANCIAL REPORT - FISCAL YEAR ENDED DECEMBER 31, 2017 - NOTES 209
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 aerospace 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 four reportable segments, Business Aircraft, Commercial
Aircraft, Aerostructures and Engineering Services and Transportation. 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.
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
Investments in financing structures
Derivative financial instruments
Investments in securities
December 31, 2017
29
193
310
306
$
$
$
$
December 31, 2016
46
181
326
319
$
$
$
$
January 1, 2016
59
169
362
304
$
$
$
$
210 BOMBARDIER INC. FINANCIAL REPORT - FISCAL YEAR ENDED DECEMBER 31, 2017
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 aerospace segments’ receivables, aircraft
loans and lease receivables and certain investments in financing structures. Aerospace segments’ 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. The Corporation uses
scenario analyses to stress-test cash flow projections. Liquidity adequacy is continually monitored, taking into
consideration historical volatility and seasonal needs, stress-test results, the maturity profile of indebtedness,
access to capital markets, the level of customer advances, working capital requirements, the funding of product
development and other financial commitments. The Corporation also monitors any financing opportunities to
optimize its capital structure and maintain appropriate financial flexibility. In addition, the Corporation engages in
certain working capital financing initiatives such as the sale of receivables, aircraft and flight simulators sale and
leaseback transactions and the negotiation of extended payment terms with certain suppliers. The Corporation
also routinely reviews its debt profile with a view to managing or extending maturities and/or negotiating more
favourable terms and conditions with respect to its bank facilities. The Corporation also routinely reviews the
terms and conditions of its bank facilities and seeks annual extensions of the availability periods thereunder. In
this respect, the Corporation is currently in negotiations for the annual extensions of each of its principal bank
facilities as well as for certain other amendments, including amendments to its financial covenants and other
technical amendments. These amendments are subject to prevailing market and other conditions that are beyond
its control and there can be no assurance that the Corporation will be able to successfully negotiate such
amendments on commercially reasonable terms, or at all. However, failure to successfully negotiate such
amendments is not currently expected to have a material adverse effect on its business, financial condition, cash
flows and results of operations.
Maturity analysis –The maturity analysis of financial assets and financial liabilities, excluding derivative financial
instruments, was as follows, as at December 31, 2017:
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
Principal
Interest
Liabilities
Net amount
$
$
$
$
$
$
2,988 $
1,231
908
4,194
751
9,218
$
1 to 3
years
3 to 5
years
5 to 10
years
Over 10
years
With no
specific
maturity
Less
than 1
year
2,988 $
1,202
126
4,316
4,184
113
— $
2
155
157
4
164
— $
—
—
—
—
197
— $
1
674
675
—
499
— $
3
166
169
—
299
250
139
688
(519) $
Total
2,988
1,231
1,175
5,394
4,194
1,272
— $
23
54
77
6
—
—
—
6
9,089
4,103
18,658
71 $ (13,264)
18
643
4,958
(642) $ (2,187) $ (5,389) $ (4,598) $
893
1,283
2,344
3,887
887
5,273
4,041
1,151
5,389
(1) The carrying amount of other financial assets excludes the carrying amount of derivative financial instruments and the carrying amount of
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, 2017 - NOTES 211
Other financial assets include long-term contract receivables maturing in March 2033. Under the respective
agreements, the Corporation will receive incentive payments related to the reliability of manufactured trains. Due
to future variations in the relevant index and reassessment of the achievement of the reliability targets, the
amounts shown in the table above may vary. Also, termination of a related service contract in case of our non-
performance would extinguish our right to future payments.
The Corporation negotiated extended payment terms of 240 days after delivery with certain of its suppliers. Trade
payables with these extended terms totaled €479 million ($575 million) and bore interest at a weighted average
rate of 1.96% as at December 31, 2017 (€272 million ($287 million) and 1.75%, respectively, as at December 31,
2016).
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, 2017:
Nominal
value (USD
equivalent)
Undiscounted cash flows (1)
Less
than 1
year
1 year
2 to
3 years
3 to
5 years
Over
5 years
Total
Derivative financial assets
Forward foreign exchange contracts
Interest-rate derivatives
Derivative financial liabilities
Forward foreign exchange contracts
Net amount
$
$
$
12,374 $
300
12,674 $
280 $
3
283 $
10,035 $
$
(224) $
59 $
24 $
1
25 $
(6) $
19 $
— $
—
— $
— $
— $
— $
1
1 $
— $
1 $
— $
—
— $
304
5
309
— $
— $
(230)
79
(1) Amounts denominated in foreign currency are translated at the period end exchange rate.
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, Swedish krona 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 identified by the segments and covered by the central
treasury function. Foreign currency exposures are mitigated 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 Board authorized 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. The aerospace segments have adopted a progressive hedging strategy while Transportation hedges all
its identified foreign currency exposures to limit the effect of currency movements on their results. The segments
212 BOMBARDIER INC. FINANCIAL REPORT - FISCAL YEAR ENDED DECEMBER 31, 2017
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.
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. These programs are reviewed annually and amended as necessary to reflect
current market conditions or practices.
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 2017 is before giving effect to cash flow hedge relationships.
Gain (loss)
Variation CAD/USD GBP/USD EUR/USD EUR/GBP EUR/CHF
(6) $
+10% $
(15) $
12 $
48 $
Effect on EBT
Other
16
(23) $
The following impact on OCI for fiscal year 2017 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
+10% $
201 $
47 $
85 $
91 $
89 $
Variation CAD/USD GBP/USD EUR/USD EUR/GBP EUR/CHF
Other
135
Effect on OCI before income taxes
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 fixed-rate long-term debt synthetically converted to
variable interest rates (see Note 27 – Long-term debt). 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.
In addition, the Corporation is exposed to gains and losses arising from changes in interest rates, which includes
marketability risks, through its financial instruments carried at fair value. These financial instruments include
certain aircraft loans and lease receivables, investments in securities, investments in financing structures, 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. These
programs are reviewed annually and amended as necessary to reflect current market conditions or practices.
BOMBARDIER INC. FINANCIAL REPORT - FISCAL YEAR ENDED DECEMBER 31, 2017 - NOTES 213
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, 2017 and 2016, the impact on EBT would have been a
negative adjustment of $27 million as at December 31, 2017 ($22 million as at December 31, 2016).
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 option-pricing models and discounted cash flow models to estimate the fair value of
embedded derivatives using applicable market data.
214 BOMBARDIER INC. FINANCIAL REPORT - FISCAL YEAR ENDED DECEMBER 31, 2017
The Corporation uses an internal valuation model based on stochastic simulations to estimate the fair value of the
conversion option embedded in the BT Holdco convertible shares. The fair value of the embedded conversion
option is based on the difference in present value between: the convertible shares’ accrued liquidation preference
based on the minimum return entitlement; and the fair value of the common shares on an as converted basis. This
value is dependent on the Transportation segment meeting the performance incentives agreed upon with the
CDPQ, the timing of exercise of the conversion rights and the applicable conversion rate. The simulation model
generates multiple Transportation performance scenarios over the expected term of the option. Fair value of the
shares on an as converted basis is calculated using an EBIT multiple, which is based on market data, to
determine the enterprise value. The discount rate used is also determined using market data. The Corporation
uses internal assumptions to determine the term of the instrument and the future performance of the
Transportation segment.
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, certain investments in
financing structures, 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.
Long-term contract receivables – The Corporation uses discounted cash flow analyses to estimate the fair
value using market data for interest rates.
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, 2017:
Financial assets
Aircraft loans and lease receivables
Derivative financial instruments(1)
Investments in securities
Investments in financing structures
Financial liabilities
Trade and other payables
Lease subsidies
Derivative financial instruments(1)
Total
Level 1
Level 2
Level 3
$
$
$
$
47
332
357 (2)
169
905
(6)
(74)
(538)
(618)
$
$
$
$
—
—
50
—
50
—
—
—
—
$
$
$
$
—
332
307
—
639
—
—
(234)
(234)
$
$
$
$
47
—
—
169
216
(6)
(74)
(304)
(384)
(1) Derivative financial instruments consist of forward foreign exchange contracts, interest-rate swap agreements and embedded derivatives.
(2) Excludes $4 million of AFS investments carried at cost.
BOMBARDIER INC. FINANCIAL REPORT - FISCAL YEAR ENDED DECEMBER 31, 2017 - NOTES 215
Changes in the fair value of Level 3 financial instruments were as follows, for fiscal years 2017 and 2016:
Balance as at January 1, 2016
Net gains (losses) and interest
included in net income(1)
Issuances
Settlements
Effect of foreign currency
exchange rate changes
Balance as at December 31, 2016
Net gains (losses) and interest
included in net income(1)
Issuances
Settlements
Effect of foreign currency
exchange rate changes
Balance as at December 31, 2017
Reclassified as liabilities directly associated
with assets held for sale(2)
Balance as at December 31, 2017
$
$
Aircraft loans
and lease
receivables
79
$
Investments
in financing
structures
151
$
Trade and
other
payables
(1)
$
Lease
subsidies
(135)
$
Conversion
option
—
$
2
—
(19)
—
62
5
—
(20)
—
47
—
47
$
$
23
—
(9)
—
165
8
—
(4)
—
169
—
169
$
$
—
(11)
6
—
(6)
—
(3)
3
—
(6)
—
(6)
$
$
(28)
—
22
—
(141)
(5)
—
24
—
(122)
48
(74)
(61)
(120)
—
11
(170)
(108)
—
—
(26)
(304)
—
(304)
$
$
(1) Of which an amount of $1 million represents realized gains for fiscal year 2017, which is recorded in financing income ($2 million represents
realized gains for fiscal year 2016, which is recorded in financing income).
(2) See Note 28 – Assets held for sale for more details on the CSALP assets and liabilities reclassification.
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 for aerospace segments’ level 3 financial
instruments 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, 2017:
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 BB- to CCC (B+)
Discount rate adjustments
for marketability
9.84%
Between 1.75%
and 8.17% (6.46%)
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.
The projected future performance of the Transportation segment is an important input for the determination of the
fair value of the embedded derivative option in the convertible shares issued to the CDPQ. The projected future
performance of the Transportation segment is prepared by management based on budget and strategic plan.
216 BOMBARDIER INC. FINANCIAL REPORT - FISCAL YEAR ENDED DECEMBER 31, 2017
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, 2017:
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 2017
Decrease in aircraft
residual value
curves by 5%
Change of assumptions
Downgrade the
internally assigned
credit rating of
unrated customers
by 1 notch
Increase the
marketability
adjustments by
100 bps
$
$
$
$
$
(2)
(6)
(1)
(1)
(4)
n/a
$
$
$
$
$
(1)
(11)
1
(2)
(9)
n/a
Conversion option
Sensitivity analysis
A 5% decrease in the expected future performance of the Transportation segment would have resulted in a
decrease in the fair value with a corresponding gain recognized in EBT for fiscal year 2017 of $23 million.
A 5% increase in the expected future performance of the Transportation segment would have resulted in an
increase in the fair value with a corresponding loss recognized in EBT for fiscal year 2017 of $30 million.
Fair value hierarchy for items recorded at amortized cost
The following table presents financial assets and financial liabilities measured at amortized cost on a non-
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).
•
The fair value of financial assets and liabilities by level of hierarchy was as follows, as at December 31, 2017:
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
$
1,231
$
46
323
1,600
$
$ (4,188)
(9,354)
(585)
(132)
$ (14,259)
$
$
$
—
—
—
—
—
—
—
—
—
$
1,231
$
—
—
—
1,231
$
$ (4,188)
(9,354)
—
—
$ (13,542)
46
323
369
—
—
(585)
(132)
(717)
$
$
$
BOMBARDIER INC. FINANCIAL REPORT - FISCAL YEAR ENDED DECEMBER 31, 2017 - NOTES 217
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 Transportation.
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
2017
108
67
175
$
$
$
$
2016
65
61
126
The Corporation has pledged shares in associates, with a carrying value of nil as at December 31, 2017 ($24 million
as at December 31, 2016 and $18 million as at January 1, 2016).
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:
2017
2016
Sales of products and services, and other income
Purchase of products and services, and other expenses
$
$
Joint
ventures Associates
$
16
— $
41 $
21 $
Joint
ventures Associates
23
—
47 $
59 $
The following table presents the Corporation’s outstanding balances with joint ventures and associates, as at:
December 31, 2017
December 31, 2016
January 1, 2016
Receivables
Payables
Advances and progress
billing in excess of long-term
contract inventories
$
$
$
Joint
ventures Associates
12
2
20 $
11 $
Joint
ventures Associates
8
4
22 $
2 $
$
$
$
$
Joint
ventures Associates
8
2
31 $
3 $
8 $
— $
7 $
— $
4 $
—
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 aerospace segments and Transportation, 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
Termination and other long-term benefits
2017
24
23
1
—
48
$
$
2016
23
17
3
1
44
$
$
218 BOMBARDIER INC. FINANCIAL REPORT - FISCAL YEAR ENDED DECEMBER 31, 2017
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:
Financing structures related to
the sale of commercial aircraft
$
4,705 $
2,315
$
5,625 $
3,014
$
6,612 $
4,102
December 31, 2017
December 31, 2016
January 1, 2016
Assets Liabilities
Assets
Liabilities
Assets
Liabilities
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 at an agreed upon date. 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 $1.5 billion, of which $370 million was recorded as provisions
and related liabilities as at December 31, 2017 ($1.6 billion and $371 million, respectively, as at December 31,
2016 and $1.7 billion and $354 million, respectively, as at January 1, 2016). 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.
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:
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 (d)
December 31, 2017
December 31, 2016
January 1, 2016
$
$
$
$
$
1,060
1,221
(540)
1,741
1,437
143
52
$
$
$
$
$
1,300
1,233
(557)
1,976
1,721
207
48
$
$
$
$
$
1,669
1,248
(598)
2,319
1,818
192
48
(1) Some of the residual value guarantees can only be exercised once the credit guarantees have expired without exercise. Therefore, the
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).
BOMBARDIER INC. FINANCIAL REPORT - FISCAL YEAR ENDED DECEMBER 31, 2017 - NOTES 219
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 $554 million as at December 31, 2017 ($562 million as
at December 31, 2016 and $670 million as at January 1, 2016) 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
balanced 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 $122 million as at December 31, 2017 ($141 million as at December 31, 2016 and
$135 million as at January 1, 2016). 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 sale 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 2027.
Substantially all financial support involving potential credit risk lies with regional airline customers. The credit risk
relating to three regional airline customers accounted for 73% of the total maximum credit risk as at
December 31, 2017 (72% as at December 31, 2016 and 71% as at January 1, 2016).
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.
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, 2017
106
856
98
—
1,060
$
$
December 31, 2016
57
845
398
—
1,300
$
January 1, 2016
90
991
580
8
1,669
$
$
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, 2017
102
863
472
1,437
$
$
December 31, 2016
231
600
890
1,721
$
January 1, 2016
271
204
1,343
1,818
$
$
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
220 BOMBARDIER INC. FINANCIAL REPORT - FISCAL YEAR ENDED DECEMBER 31, 2017
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, 2017
96
47
—
143
$
$
December 31, 2016
158
49
—
207
$
January 1, 2016
173
19
—
192
$
$
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 $52 million as at
December 31, 2017 ($48 million as at December 31, 2016 and January 1, 2016). This guarantee matures in 2025.
e) Performance guarantees - In certain projects carried out through consortia or other partnership vehicles in
Transportation, 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.
The Corporation’s maximum net exposure to projects for which the exposure of the Corporation is capped,
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 to 5 years
More than 5 years
$
December 31, 2017
124
357
473
954
$
$
December 31, 2016
143
361
475
979
$
January 1, 2016
146
346
346
838
$
$
Rent expense was $113 million for fiscal year 2017 ($170 million for fiscal year 2016).
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 to 5 years
More than 5 years
$
December 31, 2017
8,844
5,467
34
14,345
$
$
December 31, 2016
4,120
8,280
46
12,446
$
January 1, 2016
6,485
3,925
56
10,466
$
$
BOMBARDIER INC. FINANCIAL REPORT - FISCAL YEAR ENDED DECEMBER 31, 2017 - NOTES 221
The purchase obligations of the Corporation include capital commitments for the purchase of PP&E and intangible
assets amounting to $306 million and $164 million, respectively, as at December 31, 2017 ($373 million and
$415 million as at December 31, 2016 and $176 million and $489 million as at January 1, 2016).
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 all legal proceedings pending as at December 31, 2017,
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.
Transportation
Since the fourth quarter of 2016, the Swedish police authorities are conducting an on-going investigation in
relation to allegations concerning a 2013 contract for the supply of signaling equipment to Azerbaijan Railways
ADY. The Corporation’s subsidiary has launched an internal review into the allegations which is conducted by
external advisors under the supervision of counsel. Both the investigation and the internal review are ongoing. On
August 18, 2017, charges were laid against a then employee of the subsidiary for aggravated bribery and,
alternatively, influence trafficking. The trial on these charges took place from August 29 to September 20, 2017.
No charges were laid against the subsidiary of the Corporation. In a decision rendered on October 11, 2017, the
then employee was acquitted of all charges. The decision was appealed on October 25, 2017 by the Prosecution
Authority. The underlying contract that gave rise to this matter is being audited by the World Bank Group pursuant
to its contractual audit rights. The audit is still ongoing and no results have been communicated so far regarding
the same. The Corporation’s policy is to comply with all applicable laws and it is cooperating to the extent possible
with the investigation and the audit. Due to the nature of these proceedings, it is not possible at this time to
identify potential outcomes.
Investigation in Brazil
On March 20, 2014, Bombardier Transportation Brasil Ltda (“BT Brazil”), a subsidiary of the Corporation, received
notice that it was among the 18 companies and over 100 individuals named in administrative proceedings initiated
by governmental authorities in Brazil, including the Administrative Council for Economic Protection (“CADE”), and
the Sao Paulo Public Prosecutor’s office, following previously disclosed investigations carried on by such
governmental authorities with respect to allegations of cartel activity in the public procurement of railway
equipment and the construction and maintenance of railway lines in Sao Paulo and other areas. Since the service
of process in 2014 on BT Brazil, the competition authority has decided to detach the proceedings against 43
individuals whom it claims to have been difficult to serve process and has also issued additional technical notes
dealing with various procedural objections raised by the defendant corporations and individuals. BT Brazil is
currently contesting before the courts both the decision to detach the proceedings against 43 individuals and
decisions by CADE restricting physical access to some of the forensic evidence.
BT Brazil as a result of the administrative proceedings initiated by CADE in 2014 became a party as defendant to
legal proceedings brought by the Sao Paulo State prosecution service against it and other companies for alleged
‘administrative improbity’ in relation to refurbishment contracts awarded in 2009 by the Sao Paulo metro operator
CMSP and for ‘cartel’ in relation to a five year-maintenance contract with the Sao Paulo urban transit operator
CPTM signed in 2002. In September 2015, the prosecution service of Sao Paulo announced a second public civil
action for ‘cartel’ in relation to the follow-on five year maintenance contract covering the period 2007 to 2012. In
addition, BT Brazil was served notice and joined in December 2014 a civil suit as co-defendant first commenced
by the Sao Paulo state government against Siemens AG in the fall of 2013 and with which the State government
seeks to recover loss for alleged cartel activities.
Companies found to have engaged in unlawful cartel conduct are subject to administrative fines, state actions for
repayment of overcharges and potentially disqualification for a certain period. The Corporation and BT Brazil
continue to cooperate with investigations relating to the administrative proceedings and intend to defend
themselves vigorously.
222 BOMBARDIER INC. FINANCIAL REPORT - FISCAL YEAR ENDED DECEMBER 31, 2017
Triumph litigation
Triumph Aerostructures LLC (“Triumph”), a supplier to the Corporation on the Global 7000 and Global 8000
aircraft program, filed a lawsuit against the Corporation with the Québec Superior Court, District of Montréal on
December 22, 2016 seeking approximately $340 million in compensation for alleged directed changes by the
Corporation to the wing requirements that Triumph claims are outside the scope of the contract as well as for
alleged delays and disruption in connection with the contract.
In May 2017, Triumph and the Corporation entered into a comprehensive settlement agreement that resolves all
outstanding commercial disputes between them, including all pending litigation, related to the design,
manufacture and supply of wing components for the Global 7000 and Global 8000 aircraft program. The
settlement resets the commercial relationship between the companies and allows each company to better achieve
its business objectives going forward. The settlement did not have a material impact on earnings.
Metrolinx
In July 2016, Bombardier Transportation Canada Inc. (BTCI), a subsidiary of Bombardier Inc., received a notice of
default in respect of its contract to supply 182 Light vehicles to Metrolinx. The contract was entered into on
June 14, 2010. The value of the contract is $770 million CDN ($614 million).
In December 2017, Metrolinx and BTCI entered into a contract amendment which resolves outstanding
commercial disputes and settles the outstanding arbitration between the parties. The agreement reduces the
number of Light Rail Vehicles (LRV) to be delivered to Metrolinx from 182 LRV to 76 LRV and includes an
additional option for 106 LRV. In addition, the GO Transit Operations and Maintenance contract was extended by
18 months.
Petition before the U.S. Department of Commerce and the U.S. International Trade Commission
On April 27, 2017, The Boeing Company filed a petition before the U.S. Department of Commerce and the U.S.
International Trade Commission seeking the imposition of antidumping and countervailing duties on imports from
Canada to the U.S. of large civil aircraft with 100 to 150 seats. The petition was filed pursuant to sections 701 and
731 of the Tariff Act of 1930, 19 U.S.C. § 1671 and 1673. The Boeing petition alleged that the Corporation’s
C Series aircraft program has received government subsidies, that the Corporation is “dumping” the C Series
aircraft into the U.S. market, and that such sales represent a threat to the domestic aerospace industry in the U.S.
The Corporation is responding to the petition in the U.S. Department of Commerce and the U.S. International
Trade Commission proceedings. On June 9, 2017, the U.S. International Trade Commission made a preliminary
affirmative determination, finding that there is a reasonable indication that an industry in the U.S. is threatened
with material injury by reason of imports of 100- to 150-seat large civil aircraft from Canada that are allegedly sold
in the U.S. at less than fair value and that are allegedly subsidized by the Governments of Canada, Québec and
the United Kingdom. On September 25, 2017, the U.S. Department of Commerce issued a preliminary affirmative
countervailing duty determination of 219.63%, and on October 4, 2017, the U.S. Department of Commerce issued
a preliminary affirmative antidumping duty determination of 79.82%. On December 18, 2017, the U.S. Department
of Commerce issued a final affirmative countervailing duty determination of 212.39% and a final affirmative
antidumping duty determination of 79.82%. The Corporation disagrees with these final determinations of the U.S.
Department of Commerce. On January 16, 2018, and January 24, 2018, the Corporation filed notices of its
intention to appeal the final U.S. Department of Commerce determinations. On January 26, 2018, the U.S.
International Trade Commission issued its final determination on the threat of injury, finding that the U.S. industry
is not injured or threatened with material injury by reason of imports of 100- to 150-seat large civil aircraft from
Canada. This decision means that the U.S. Commerce Department will not publish antidumping or countervailing
duty orders against imports of such aircraft from Canada. However, it remains possible that The Boeing Company
will appeal the U.S. International Trade Commission decision through the judicial system.
BOMBARDIER INC. FINANCIAL REPORT - FISCAL YEAR ENDED DECEMBER 31, 2017 - NOTES 223
Transnet
The Corporation has learned through relevant media reports of the appointment of a Judicial Commission of
Inquiry into Allegations of State Capture, Corruption and Fraud in the Public Sector, including organs of
state(“Inquiry”) for which the terms of reference were published by presidential proclamation on January 25, 2018.
Before and after the Inquiry, the media made allegations of irregularities with respect to multiple procurements
regarding the supply of 1,064 locomotives by South African train operator Transnet Freight Rail. The Corporation
has not received any communication or request for information from the authorities conducting the inquiry. Based
on information known to the Corporation at this time, there is no reason to believe that the Corporation has been
involved in any wrongdoing with respect to the procurement by Transnet of 240 TRAXX locomotives from
Bombardier Transportation in one of numerous aforementioned procurements.
Spain
In December, 2017, the Spanish Competition Authority (“CNMC”) conducted an inspection at the offices of
Bombardier European Investments, S.L.U. (“BEI”) in Madrid. According to the Inspection Order, CNMC’s
inspection follows information it learned about possible irregularities in public tenders with the Railway
Infrastructures Administrator (“ADIF”). There are currently no charges nor allegations that BEI breached any law.
Under Spanish law, the inspection is referred to as a “preliminary investigation”, and not as a formal investigation.
On January 2, 2018, BEI received an information request from the CNMC regarding the legal and operational
organization of BEI. BEI is cooperating with the authorities to the extent possible and responded to the
information request. There is no formal next step as yet determined by the CNMC in this preliminary investigation.
The Corporation's policy is to comply with all applicable laws, including antitrust and competition laws. In light of
the early stage of the preliminary investigation, management is unable to predict its duration or outcome, including
whether any operating division of the Corporation could be found liable for any violation of law or the extent of
any fine, if found to be liable.
ALP, AVENTRA, BiLevel, Bombardier, Challenger, Challenger 350, Challenger 605, Challenger 650, Challenger 850,
CITYFLO, CRJ, CRJ700, CRJ900, CRJ1000, CRJ Series, C Series, CS100, CS300, EBI, FLEXITY, FLEXX, Global, Global
5000, Global 6000, Global 7000, Global 8000, INNOVIA, INTERFLO, Learjet, Learjet 70, Learjet 75, Learjet 85, MITRAC,
MOVIA, OMNEO, OPTIFLO, Parts Express, Primove, Q400, Smart Services, SPACIUM, TALENT, TRAXX, TWINDEXX,
WAKO and ZEFIRO are trademarks of Bombardier Inc. or its subsidiaries.
224 BOMBARDIER INC. FINANCIAL REPORT - FISCAL YEAR ENDED DECEMBER 31, 2017
INVESTOR INFORMATION
Our Board of Directors
BOARD MEMBERS(1)
Laurent Beaudoin
Pierre Beaudoin
Alain Bellemare
Joanne Bissonnette
J. R. André Bombardier
Martha Finn Brooks
Jean-Louis Fontaine
Diane Giard
August W. Henningsen
Pierre Marcouiller
Chairman Emeritus of the Board of Directors of Bombardier
Chairman of the Board of Directors of Bombardier
President and Chief Executive Officer of Bombardier
Corporate Director
Vice Chairman of the Board of Directors of Bombardier
Corporate Director
Vice Chairman of the Board of Directors of Bombardier
Executive Vice President - Personal - Commercial Banking and Marketing of National Bank
of Canada
Corporate Director
Executive Chairman of the Board of Directors of Camso Inc. (a manufacturing business of
off-road tires)
Douglas (Doug) R. Oberhelman Corporate Director
Vikram Pandit
Carlos Represas
Antony N. Tyler
Beatrice Weder di Mauro
BOARD COMMITTEES
Chairman and Chief Executive Officer of The Orogen Group (a company leveraging
opportunities for the financial services industry)
Corporate Director
Corporate Director
Professor of International Macroeconomics, Johannes Gutenberg University Mainz and
fellow-in-residence at INSEAD in Singapore
Board
committees
Board representation(1) Responsibilities
Audit Committee
Vikram Pandit (Chair)
Martha Finn Brooks
Pierre Marcouiller
Beatrice Weder di Mauro
Finance and
Risk
Management
Committee
Martha Finn Brooks
(Co-Chair)
August W. Henningsen
(Co-Chair)
Carlos E. Represas
Antony N. Tyler
Corporate
Governance and
Nomination
Committee
Carlos E. Represas
(Chair)
Pierre Marcouiller
Vikram Pandit
Antony N. Tyler
Human
Resources and
Compensation
Committee
Vikram Pandit (Chair)
August W. Henningsen
Pierre Marcouiller
Carlos Represas
• Help the directors meet their responsibilities with respect to accountability
• Assist in maintaining good communication between the directors and Ernst &
Young, Bombardier’s independent auditors
• Assist in maintaining the independence of Ernst & Young
• Maintain the credibility and objectivity of our financial reports
• Investigate and assess any material risk
• Review Bombardier’s material financial risks and its monitoring, control and
risk management
• Review adequacy of policies, procedures and controls in place for risk
management
• Review and monitor significant or unusual transactions and/or projects
related
to ongoing activities, business opportunities, mergers, acquisitions,
divestitures, significant asset sales or purchases and equity investments
• Monitor matters or activities related to or involving Bombardier’s financial
• Monitor selection criteria and credentials for Board candidates
• Monitor Board and Committees’ composition and performance
• Monitor Board remuneration
• Oversee succession planning of the President and CEO and other selected
senior positions
• Assess performance of the President and CEO
• Review and approve total executive compensation policy accounting for base
salary, short-term and long-term incentives as well as pension, benefits and
perquisites
(1) As at December 31, 2017. Supplemental information regarding our Board of Directors can be found on our website at bombardier.com.
STOCK EXCHANGE LISTINGS
FISCAL YEAR 2018 FINANCIAL RESULTS
Class A Shares and Class B
Subordinate Voting Shares
Preferred Shares, Series 2,
Series 3 and Series 4
Stock listing ticker
Toronto (Canada)
Toronto (Canada)
BBD (Toronto)
First quarterly report
Second quarterly report
May 3, 2018
August 2, 2018
Third quarterly report
November 8, 2018
2018 Annual Financial Report
February 14, 2019
PREFERRED DIVIDEND PAYMENT DATES
Payment subject to approval by the Board of Directors
Series 2
Record date
Payment date
Record date
Payment date
2017-12-29
2018-01-31
2018-02-28
2018-03-29
2018-04-30
2018-05-31
Series 3
2018-01-15
2018-02-15
2018-03-15
2018-04-15
2018-05-15
2018-06-15
2018-06-29
2018-07-31
2018-08-31
2018-09-28
2018-10-31
2018-11-30
Series 4
2018-07-15
2018-08-15
2018-09-15
2018-10-15
2018-11-15
2018-12-15
Record date
Payment date
Record date
Payment date
2018-01-12
2018-04-13
2018-07-13
2018-10-12
2018-01-31
2018-04-30
2018-07-31
2018-10-31
2018-01-12
2018-04-13
2018-07-13
2018-10-12
2018-01-31
2018-04-30
2018-07-31
2018-10-31
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.
226 BOMBARDIER INC. FINANCIAL REPORT - FISCAL YEAR ENDED DECEMBER 31, 2017
Bombardier Inc.
800 René-Lévesque Blvd. West
Montréal, Québec
Canada H3B 1Y8
Investor relations
Tel.: +1 514 861 9481, extension 13273
Fax: +1 514 861 2420
Email: investors@bombardier.com
Communications
Tel.: +1 514 861 9481, extension 13390
Fax: +1 514 861 2420
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
For additional information, we invite you to visit our
websites at:
bombardier.com and ir.bombardier.com
Contact Information
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 Robert-Bourassa Blvd., 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 3, 2018, at 10:30 a.m. at the following
address:
Alexandra Pier
200 de la Commune Street West
Montréal, QC, Canada H2Y 4B2
The annual meeting will also be broadcast live on our
website at bombardier.com.
Global 7000 and Global 8000 aircraft program is
currently in development, and as such is 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.
ALP, AVENTRA, BiLevel, Bombardier, Challenger,
Challenger 350, Challenger 605, Challenger 650,
Challenger 850, CITYFLO, CRJ, CRJ700, CRJ900,
CRJ1000, CRJ Series, C Series, CS100, CS300,
EBI, FLEXITY, FLEXX, Global, Global 5000, Global
6000, Global 7000, Global 8000, INNOVIA,
INTERFLO, Learjet, Learjet 70, Learjet 75, Learjet 85,
MITRAC, MOVIA, OMNEO, OPTIFLO, Parts Express,
PRIMOVE, Q400, Smart Services, SPACIUM,
TALENT, TRAXX, TWINDEXX, WAKO and ZEFIRO
are trademarks of Bombardier Inc. or its subsidiaries.
The printed version of this annual report uses paper containing 30% post-consumer fibres,
certified EcoLogo, processed chlorine free. Using this paper, instead of virgin paper, saves(1):
56
mature trees,
equivalent to the
area of 4 tennis
courts
2,520 kg
of waste, or the
contents of 51
garbage cans
8,280 kg
of CO2,
equivalent to
the annual
emissions of 3 cars
205,566 litres
of water, equal to
one person’s
consumption of
water in 587 days
(1) Data issued by the paper manufacturer.
Completely recyclable -
the responsible choice
Printed in Canada
978-2-923797-40-3
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Archives nationales du Québec
All rights reserved.
© 2018 Bombardier Inc. or its subsidiaries
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resources saved when using this paper.