page 118 Bombardier Inc. Annual Report 2003-04 21 NET CHANGES IN NON-CASH BALANCES RELATED TO OPERATIONS The net changes in non-cash balances related to operations were as follows for the year ended January 31: The Corporation is subject to currency and interest rate fluctuations. To manage the volatility relating to these exposures, the Corporation nets the exposures on a consolidated basis to take advantage of natural offsets. The Corporation is party to a number of derivative financial instruments, mainly forward foreign exchange contracts, interest-rate swap agreements and cross-currency interest-rate swap agreements to hedge a significant portion of the residual risk. These derivative financial instruments are used to manage currency and interest-rate risks on existing assets and liabilities, as well as on forecasted foreign currency cash flows. Forward foreign exchange contracts are agreements whereby one counter-party contracts with another, to exchange a specified amount of one currency in exchange for a specified amount of a second currency, at future dates. The Corporation uses forward foreign exchange contracts to manage currency exposure arising from forecasted foreign currency cash flows. For the North American operations, forward foreign exchange contracts allow the Corporation mainly to sell U.S. dollars and buy Canadian dollars at predetermined rates. For the European operations, forward foreign exchange contracts mainly allow the sale or purchase of U.S. dollars, sterling pounds, euros and other Western European currencies at predetermined rates. Derivative financial instruments 22 FINANCIAL INSTRUMENTS a) Forward foreign exchange contracts 2004 2003 Bombardier Receivables $( 185) $( 5 7 3) Assets under operating leases (107) (7) Inventories (815) (829) Accounts payable and accrued liabilities (176) 1,435 Advances and progress billings in excess of related costs (206) 524 Accrued benefit liability – net (176) 41 Other (42) (38) (1,707) 553 BC Receivables (54) 146 Accounts payable and accrued liabilities (53) (63) Other 18 11 (89) 94 $(1,796) $ 647