page 65 Bombardier Inc. Annual Report 2003-04 as at January 31, 2003. Following BC’s decision to no longer originate loans in this portfolio, the portfolio was reclassified from continuing to wind-down portfolios during the fourth  quarter of fiscal year 2004. Railcar leasing  These activities consisted of third-party freight railcar leasing, as well as full-service mainte- nance and/or management services to owners and users of freight railcars in North American markets. BC purchased freight railcars,  typically from a third-party manufacturer,  and subsequently entered into a sale and leaseback arrangement with a financial  institution. The financial institution assumed ownership of the asset with BC as the lessee. BC then sub-leased the asset to the actual user of the equipment, typically for three to seven years. The diversified fleet averages  six years of age. The on-balance sheet portion of the portfo- lio amounted to $51 million as at January 31, 2004, compared to $61 million as at January 31, 2003. The portion of the off-balance sheet portfolio totalled $864 million as at January 31, 2004, compared to $1.0 billion as at January 31, 2003. The reduction is mainly due to the strengthening of the Canadian dollar com- pared to the U.S. dollar. The average utilization rate was 93% for fis- cal year 2004, compared to 88% the previous fiscal year. BC expects the wind-down of this portfolio to occur over the next 10 years due to its long- term nature. Receivable factoring BC’s receivable factoring portfolio consisted of third-party trade receivables, which originated from the Corporation’s manufacturing segments. This portfolio had no outstanding balance as at January 31, 2004, compared to $1.0 billion as at January 31, 2003. Following the Corporation’s decision to exit these activities, the wind-down of this portfolio has been completed through normal course collections.  Other The other category consists of the technology management and finance, mid-market com- mercial equipment finance and small ticket finance portfolios. This portfolio amounted to $92 million as at January 31, 2004, compared to $235 million the previous fiscal year. The wind-down of these portfolios is expected to be substantially completed within one year. Allowance for credit losses Allowance for credit losses totalled $76 million as at January 31, 2004, compared to $151 mil- lion as at January 31, 2003. The decrease is mainly attributable to the progress made in the reduction of wind-down portfolios and the corresponding decline in the allowance related to these finance receivables. The amount of the allowance for the continuing portfolios was $38 million or 1.1% of finance receivables as at January 31, 2004, compared to $44 million or 1.1% of finance receivables as at January 31, 2003. The allowance for the wind-down portfo- liosamounted to $38 million or 4.3% of finance receivables as at January 31, 2004, compared to $107 million or 3.3% as at January 31, 2003. Compared to the wind-down portfolios, the continuing portfolios warrant a lower percent- age of allowance due to a lower credit risk profile derived from credit enhancements, such as repurchase agreements, loan guarantees and better collateral and loan-to-value positions.  Risk management  Effective risk management is essential for BC to achieve its strategic goal of return commen- surate with risks in the businesses. Risks that could affect the performance of BC are regularly identified, measured and monitored. These risks include credit, interest rate, operational and residual value risks. BC controls the credit risk of its portfolios by setting limits on the total amount outstanding, obtaining collateral, monitoring the size, maturity and structure of the portfolios and by applying appropriate credit standards. BC strives to minimize its overall debt costs while ensuring that interest margins are pro- tected from adverse interest rate movements. To achieve this objective, BC seeks to match the interest rate characteristics of its assets  and liabilities by using derivative financial instru- ments as part of an asset/liability management program to reduce its overall financial risk. BC is not an interest-rate swap dealer, nor is it a trader in derivative securities, and has not and will not use speculative derivative products for the purposes of generating earnings from changes in market conditions. Operational risk is the risk of loss resulting from inadequate or failed internal controls,  systems and people or unforeseen external events. In order to mitigate these risks, BC regularly reviews its operating processes,  policies and controls. It continues to proactively refine its risk management processes within the governance structure of the Corporation to effectively identify, measure and mitigate various risk exposures. Residual value risks, mostly related to the commercial aircraft long-term leasing and  to “other” wind-down portfolios, stem from the potential variance between the estimated residual value at lease inception and the actual value of the assets upon termination of the lease. BC regularly assesses its exposure  to residual values and has put systems and procedures in place to monitor and mitigate these risks.