page 117 Bombardier Inc. Annual Report 2003-04 NOTE 19. INCOME TAXES (CONT ’ D) Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Corporation’s deferred income tax asset (liability) as at January 31 were as follows: The net amount of deferred income tax is presented on the Corporation’s balance sheet as follows as at January 31: Deferred translation adjustment, which arises from the translation to Canadian dollars of assets and liabilities of the Corporation’s foreign self-sustaining foreign operations, and of the long-term debt designated as hedges of the net investment in self-sustaining foreign operations resulted in a net change of $393 million for the year ended January 31, 2004. The net change resulted primarily from the strengthening of the Canadian dollar against the U.S. dollar and the sterling pound. Operating losses carried forward and other temporary differences, which are available to reduce future taxable income of certain subsidiaries, for which a valuation allowance has been recognized, amounted to $6.0 billion as at January 31, 2004 ($5.0 billion as at January 31, 2003), approximately $1.3 billion of which have expiry dates between two and 20 years, while the remaining losses can be carried forward indefinitely. Approximately $2.6 billion of the operating losses carried forward and other temporary differences relate to business acquisitions. Any subsequent recognition of these future tax benefits will be recorded as a reduction of the goodwill related to this acquisition. In addition, the Corporation has approximately $1.2 billion of available capital losses, most of which can be carried forward indefinitely. Capital losses can only be used against future capital gains, and therefore no deferred tax benefits have been recognized. Undistributed earnings of the Corporation’s foreign subsidiaries are considered to be indefinitely reinvested and, accordingly, no provision for income taxes has been provided thereon. Upon distribution of these earnings in the form of dividends or otherwise, the Corporation may be subject to withholding taxes. 20 DEFERRED TRANSLATION ADJUSTMENT 2004 2003 Operating losses carried forward $2,316 $1,904 Warranty and other provisions 568 383 Accrued benefit liability 244 311 Finance receivables 103 159 Intangible assets 147 138 Inventories (397) (44) Assets under operating leases (50) (73) Property, plant and equipment (236) (159) Other 11 (117) 2,706 2,502 Valuation allowance (2,145) (1,773) Net amount $ 561 $ 729 2004 2003 Bombardier Deferred income tax asset $ 455 $ 632 Deferred income tax liability (133) (182) 322 450 BC Deferred income tax asset 244 283 Deferred income tax liability (5) (4) 239 279 $ 561 $ 729