Exhibit 99.2

BRP INC.

MANAGEMENT’S

DISCUSSION AND

ANALYSIS

FOR THE THREE- AND NINE-MONTH PERIODS

ENDED OCTOBER 31, 2023

 

Table of contents

 

Glossary			2
Basis of Presentation			3
Forward-Looking Statements and Non-IFRS Measures			3
Business Overview			5
Reporting Segments			5
Factors Affecting the Company’s Results of Operations			6
Executive Summary			9
Retail Performance & Market Statistics			10
Results of Operations			11
Analysis of Results for the Third Quarter of Fiscal 2024			11
Analysis of Segment Results for the Third Quarter of Fiscal 2024			13
Geographical Trends for the Third Quarter of Fiscal 2024			14
Analysis of Results for the nine-month period ended October 31, 2023			15
Analysis of Segment Results for the nine-month period ended October 31, 2023			17
Geographical Trends for the nine-month period ended October 31, 2023			18
Foreign Exchange			19
Liquidity and Capital Resources			20
Contractual Obligations			22
Capital Resources			23
Consolidated Financial Position			26
Off-Balance Sheet Arrangements			27
Transaction Between Related Parties			29
Financial Instruments			29
Non-IFRS Measures and Reconciliation Tables			31
Reconciliation Tables			32
Summary of Consolidated Quarterly Results			34
Reconciliation Table for Consolidated Quarterly Results			35
Critical Accounting Estimates			38
Environmental, Social and Governance			40
Controls and Procedures			41
Risk Factors			42
Disclosure of Outstanding Shares			42
Additional Information			42

 

BRP Inc.		Management’s Discussion and Analysis		1

Glossary

 

Abbreviations		Description		Abbreviations		Description
3WV		Three-Wheeled Vehicles		LIBOR		London Interbank Offered Rate
ATV		All-Terrain Vehicles		NCIB		Normal Course Issuer Bid
BPS		Basis points		MD&A		Management’s Discussion & Analysis
DB		Defined Benefits		OEM		Original Equipment Manufacturer
DC		Defined Contribution		ORV		Off-Road Vehicles
CAPEX		Capital Expenditure		PA&A		Parts, Accessories & Apparel
CGU		Cash Generating Unit		PP&E		Property, Plant & Equipment
EBITDA		Earnings Before Interest, Taxes, Depreciation & Amortization		PWC		Personal Watercraft
EPS		Earnings Per Share		R&D		Research & development
ESG		Environmental, Social and Governance		SIB		Substantial Issuer Bid
EURIBOR		Euro Interbank Offered Rate		SOFR		Secured Overnight Financing Rate
G&A		General & Administrative		Term SOFR		Defined as the forward-looking term rate based on SOFR plus a customary credit spread adjustment, when applicable
IAS		International Accounting Standards		SSV		Side-by-Side Vehicles
IFRS		International Financial Reporting Standards		Working Capital		Current assets less current liabilities
International		All regions except United States & Canada		LVHA		Low Voltage & Human Assisted Group

 

BRP Inc.		Management’s Discussion and Analysis		2

Basis of Presentation

The following MD&A provides information concerning financial condition and results of operations of BRP Inc. (the “Company” or “BRP”) for the third quarter of the fiscal year ending January 31, 2024. This MD&A should be read in conjunction with the unaudited condensed consolidated interim financial statements for the three- and nine-month periods ended October 31, 2023 and 2022. Some of the information included in this discussion and analysis contains forward-looking statements that involve risks and uncertainties. Actual results may differ materially from underlying forward-looking statements as a result of various factors, including those described in the “Forward-Looking Statements” section of this MD&A. This MD&A reflects information available to the Company as at November 29, 2023.

The unaudited condensed consolidated interim financial statements of the Company for the three- and nine-month periods ended October 31, 2023 and 2022 have been prepared using accounting policies consistent with International Financial Reporting Standards as issued by the International Accounting Standards Board (“IFRS”) and in accordance with IAS 34 “Interim Financial Reporting”. All amounts presented are in Canadian dollars unless otherwise indicated. The Company’s fiscal year is the twelve-month period ending January 31. All references in this MD&A to “Fiscal 2024” are to the Company’s fiscal year ending January 31, 2024, and references to “Fiscal 2023” are to the Company’s fiscal year ended January 31, 2023 and references to “Fiscal 2022” are to the Company’s fiscal year ended January 31, 2022 and references to “Fiscal 2021” are to the Company’s fiscal year ended January 31, 2021.

This MD&A, approved by the Board of Directors on November 29, 2023, is based on the Company’s unaudited condensed consolidated interim financial statements and accompanying notes thereto for the three- and nine-month periods ended October 31, 2023 and 2022.

Forward-Looking Statements and Non-IFRS Measures

Forward-Looking Statements

Certain statements in this MD&A about the Company’s current and future plans, prospects, expectations, anticipations, estimates and intentions, results, levels of activity, performance, objectives, targets, goals or achievements, including the Company’s environmental, social and governance targets, goals and initiatives set forth under its CSR25 program and announced intention to electrify its existing product lines and launch new electric product lines, priorities and strategies, financial position, market position, capabilities, competitive strengths, beliefs, the prospects and trends of the industries in which the Company operates, the expected growth in demand for products and services in the markets in which the Company competes, research and product development activities, including projected design, characteristics, capacity or performance of future products and their expected scheduled entry to market, including with respect to the Can-Am electric two-wheel motorcycles and Ski-Doo and Lynx electric snowmobiles, expected financial requirements and the availability of capital resources and liquidity or any other future events or developments and other statements that are not historical facts constitute forward-looking statements within the meaning of applicable securities laws. The words “may”, “will”, “would”, “should”, “could”, “expects”, “forecasts”, “plans”, “intends”, “trends”, “indications”, “anticipates”, “believes”, “estimates”, “outlook”, “predicts”, “projects”, “likely” or “potential” or the negative or other variations of these words or other comparable words or phrases, are intended to identify forward-looking statements.

 

BRP Inc.		Management’s Discussion and Analysis		3

Forward-looking statements are presented for the purpose of assisting readers in understanding certain key elements of the Company’s current objectives, goals, targets, strategic priorities, expectations and plans, and in obtaining a better understanding of the Company’s business and anticipated operating environment. Readers are cautioned that such information may not be appropriate for other purposes; readers should not place undue reliance on forward-looking statements contained herein. Forward-looking statements, by their very nature, involve inherent risks and uncertainties and are based on a number of assumptions, both general and specific. The Company cautions that its assumptions may not materialize and that global economic and political conditions, combined with one or more of the risks and uncertainties discussed herein, may render such assumptions, although believed reasonable at the time they were made, inaccurate. Such forward-looking statements are not guarantees of future performance and involve known and unknown risks, uncertainties and other factors which may cause the actual results or performance of the Company or the industry to be materially different from the outlook or any future results or performance implied by such statements. In addition, many factors could cause the Company’s actual results, level of activity, performance or achievements or future events or developments to differ materially from those expressed or implied by the forward-looking statements, including, without limitation, the risk factors discussed in greater detail under the heading “Risk Factors” of its Annual Information Form dated March 22, 2023.

The forward-looking statements contained in this MD&A are made as of the date of this MD&A, and the Company has no intention and undertakes no obligation to update or revise any forward-looking statements to reflect future events, changes in circumstances, or changes in beliefs, unless required by applicable securities regulations. In the event that the Company does update any forward-looking statements contained in this MD&A, no inference should be made that the Company will make additional updates with respect to that statement, related matters or any other forward-looking statement.

The Company made a number of economic, market and operational assumptions in preparing and making certain forward-looking statements contained in this MD&A, including without limitation, the assumptions underlying the Company’s environmental, social and governance targets, goals and initiatives under its CSR25 program, which are set out in the “Forward-Looking Statements” section of its Corporate Social Responsibility report (it being understood that this reference is limited to the “Forward-Looking Statements” section, and shall not be deemed to incorporate by reference the content of the Corporate Social Responsibility report in this MD&A), as well as the following assumptions: reasonable industry growth ranging from down to slightly up, that assumes an improved supply chain environment compared to last year; market share will remain constant or moderately increase; the softening of global and North American economic conditions, a limited impact from the military conflict between Russia and Ukraine and the COVID-19 pandemic; no further deterioration of from the conflicts in the Middle-East; no return of the mandatory inspections implemented on all cargo trucks crossing the Mexico-Texas border; main currencies in which the Company operates will remain at near current levels; inflation is expected to remain elevated, in-line with central banks projections; there will be no significant changes in tax laws or free trade arrangements or treaties applicable to the Company; the Company’s margins will remain at current levels; the supply base will remain able to support product development and planned production rates on commercially acceptable terms in a timely manner; no new trade barriers will be imposed amongst jurisdictions in which the Company carries operations; the absence of unusually adverse weather conditions, especially in peak seasons. BRP cautions that its assumptions may not materialize, although believed reasonable at the time they were made, subject to greater uncertainty.

Non-IFRS Measures

This MD&A makes reference to certain non-IFRS measures. These measures are not recognized measures under IFRS, do not have a standardized meaning prescribed by IFRS and are therefore unlikely to be comparable to similar measures presented by other companies. Rather, these measures are provided as additional information to complement those IFRS measures by providing further understanding of the Company’s results of operations from management’s perspective. Accordingly, they should not be considered in isolation nor as a substitute for analysis of the Company’s financial information reported under IFRS.

The Company defines and reconciles these measures in the “Non-IFRS Measures and Reconciliation Tables” section of this MD&A.

 

BRP Inc.		Management’s Discussion and Analysis		4

Business Overview

BRP Inc. is a global leader in the world of powersports products, propulsion systems and boats built on 80 years of ingenuity and intensive consumer focus. Through its portfolio of industry-leading and distinctive brands featuring Ski-Doo and Lynx snowmobiles, Sea-Doo watercraft and pontoons, Can-Am on- and off-road vehicles, Alumacraft and Quintrex boats, Manitou pontoons and Rotax marine propulsion systems as well as Rotax engines for karts and recreational aircraft, BRP unlocks exhilarating adventures and provides access to experiences across different playgrounds. The Company completes its lines of products with a dedicated parts, accessories and apparel portfolio to fully optimize the riding experience. Committed to growing responsibly, BRP is developing electric models for its existing product lines and exploring new low voltage and human assisted product categories.

The Company employs close to 23,000 people mainly in manufacturing and distribution sites in Mexico, Canada, Austria, the United States, Finland, Australia and Germany. The Company sells its products in over 130 countries. The products are sold directly through a network of approximately 2,600 dealers in 21 countries, as well as through approximately 150 distributors serving approximately 350 additional dealers.

Reporting Segments

BRP and its subsidiaries (the “Company”) design, develop, manufacture and sell powersports and marine products. The Company has two operating and reportable segments consisting of Powersports (Year-Round Products, Seasonal Products and PA&A and OEM engines) and Marine Products.

Powersports

Year-Round Products

Year-Round Products consist of BRP vehicles that are sold and used throughout the year in most climates and include ATVs, SSVs and 3WVs product lines. All products within the Year-Round Product category are sold under the Can-Am brand. Can-Am ATVs, SSVs and 3WVs all leverage BRP’s Rotax engines.

Seasonal Products

Seasonal products consist of BRP products that are mostly used in specific seasons. These products include snowmobiles, which are mainly used during the winter season with sales to dealers concentrated in the months of September to January, as well as PWC and Sea-Doo pontoons, which are mainly used during the summer season, with sales to dealers concentrated in the months of January to April. All these products leverage BRP’s Rotax engines.

Parts, Accessories & Apparel and OEM engines

PA&A and Rotax engines consist of parts, accessories and apparel (referred to as “PA&A”), engines for karts and recreational aircraft and other services.

Marine

Marine consists of boats, pontoons, jet boat and outboard engines and related PA&A and other services. BRP competes in the boat product category with Alumacraft and Quintrex boats, Manitou pontoons and in the marine engine product category with the Rotax engines for jet boats and outboard engine with Stealth Technology.

 

BRP Inc.		Management’s Discussion and Analysis		5

The following table shows the percentage of total revenues for each segment:

 

Proportion of Total Revenues  (in percentages)		Three-month periods ended								Nine-month periods ended
		October 31, 2023				October 31, 2022				October 31, 2023				October 31, 2022
Year-Round Products			47.8%				47.2%				51.8%				51.3%
Seasonal Products			35.2%				37.7%				32.0%				30.5%
Powersports PA&A and OEM Engines			12.8%				11.0%				11.7%				12.9%
Total Powersports			95.8%				95.9%				95.5%				94.7%
Marine			4.2%				4.1%				4.5%				5.3%
Total Revenues			100.0%				100.0%				100.0%				100.0%

Factors Affecting the Company’s Results of Operations

Revenues and Sales Program Costs

The Company’s revenues are primarily derived from the wholesale activities to dealers and distributors of the Company’s manufactured vehicles, including Year-Round Products, Seasonal Products, Powersports PA&A and OEM Engines, as well as Marine Products. Revenue recognition normally occurs when products are shipped to dealers or distributors from the Company’s facilities.

In order to support the wholesale activities of the Company and the retail activities of dealers and distributors, the Company may provide support in the form of various sales programs consisting of cash and non-cash incentives. The cash incentives consist mainly of rebates given to dealers, distributors and consumers, volume discounts to dealers and distributors, free or extended coverage period under dealer and distributor inventory financing programs, and retail financing programs. The cost of these cash incentives is recorded as a reduction of revenues. The non-cash incentives mainly consist of extended warranty coverage or free PA&A. When an extended warranty coverage is given with the purchase of a product, a portion of the revenue recognized upon the sale of that product is deferred and recognized during the extended warranty coverage period. The cost of the free PA&A is recorded in cost of sales.

The support provided to dealers, distributors and consumers tends to increase when general economic conditions are difficult, when changing market conditions require the launch of new or more competitive programs, or when dealer and distributor inventory is above appropriate levels.

Under dealer and distributor inventory financing arrangements, the Company could be required to purchase repossessed new and unused products in certain cases of default by dealers or distributors. The cost of repossession tends to increase when dealers or distributors are facing challenging and prolonged difficult retail conditions and when their non-current inventory level is high. During the current fiscal year and previous fiscal year, the Company did not experience significant repossessions under its dealer and distributor inventory financing arrangements. Refer to the “Off-Balance Sheet Arrangements” section of this MD&A for more information on dealer and distributor inventory financing arrangements.

Commodity Costs

Approximately 75% of the Company’s cost of sales consists of material used in the manufacturing process. Therefore, the Company is exposed to the fluctuation of prices of certain raw materials such as aluminum, steel, plastic, resins, stainless steel, copper, rubber and certain rare earth metals. Additionally, the Company is exposed to fuel price fluctuations related to its procurement and distribution activities. The Company does not hedge its long-term exposure to such price fluctuations. Therefore, an increase in commodity prices could negatively impact the Company’s operating results if it is not able to transfer these cost increases to dealers, distributors or consumers.

 

BRP Inc.		Management’s Discussion and Analysis		6

Warranty Costs

The Company’s regular warranty generally covers periods ranging from six months to five years for most products. In certain circumstances, the Company provides extended warranty coverage as a result of sales programs, under certain commercial accounts, or as required by local regulations. During the warranty period, the Company reimburses dealers and distributors for the entire cost of repair or replacement performed on the products (mainly composed of parts or accessories provided by the Company and labour costs incurred by dealers or distributors). In addition, the Company sells in the normal course of business and provides under certain sales programs extended product warranties.

During its product development process, the Company ensures that high quality standards are maintained at each development stage of a new product. This includes the development of detailed product specifications, the evaluation of the quality of the supply chain and the manufacturing methods and detailed testing requirements over the development stage of the products. Additionally, product quality is ensured by quality inspections during and after the manufacturing process.

The Company records a regular warranty provision when products are sold. Management believes that, based on available information, the Company has adequate provisions to cover any future warranty claims on products sold. However, future claim amounts can differ significantly from provisions that are recorded in the condensed consolidated interim statements of financial position. For extended warranty, the claims are recorded in cost of sales as incurred.

Foreign Exchange

The Company’s revenues are reported in Canadian dollars but are mostly generated in U.S. dollars, Canadian dollars and euros. The Company’s revenues reported in Canadian dollars are to a lesser extent exposed to foreign exchange fluctuations with the Australian dollar, Brazilian real, Swedish krona, Norwegian krone, British pound, New Zealand dollar, Mexican peso, Chinese yuan and Japanese yen. The costs incurred by the Company are mainly denominated in Canadian dollars, U.S. dollars and euros and, to a lesser extent in Mexican pesos. Therefore, recorded revenues, gross profit and operating income in Canadian dollars are exposed to foreign exchange fluctuations. The Company’s facilities are located in different countries, which helps mitigate some of its foreign currency exposure.

As of October 31, 2023, the Company had an outstanding balance of U.S. $1,960.7 million ($2,722.0 million) under its U.S. $2,035.0 million ($2,825.1 million) term facility agreement (the “Term Facility”), which results in a gain or loss in net income when the U.S. dollar/Canadian dollar exchange rate at the end of the period varies from the opening period rate. Additionally, the Company’s interest expense on the Term Facility is exposed to U.S. dollar/Canadian dollar exchange rate fluctuations. The Company does not currently hedge the U.S. dollar/Canadian dollar exchange rate fluctuation exposures related to its Term Facility, and therefore, an increase in the value of the U.S. dollar against the Canadian dollar could negatively impact the Company’s net income.

For further detail relating to the Company’s exposure to foreign currency fluctuations, see “Financial Instruments – Foreign Exchange Risk” section of this MD&A.

 

BRP Inc.		Management’s Discussion and Analysis		7

Net Financing Costs (Financing Costs less Financing Income)

Net financing costs are incurred principally on long-term debt, defined benefit pension plan liabilities and revolving credit facilities. As at October 31, 2023, the Company’s long-term debt of $2,888.7 million was mainly comprised of the Term Facility (B-1 and B-2), which bears interest at Term SOFR plus 2.00% and Term SOFR plus 2.75%, respectively. The Company entered into interest rate cap contracts, which limit its exposure to interest rates increases.

Income Taxes

The Company is subject to federal, provincial and state income taxes in jurisdictions in which it conducts business. The Canadian income tax statutory rate was 26.5% for the three- and nine-month periods ended October 31, 2023. However, the Company’s effective consolidated tax rate is influenced by various factors, including the mix of accounting profits or losses before income tax among tax jurisdictions in which it operates and the foreign exchange gain or loss on the Term Facility. The Company expects to pay cash taxes in all tax jurisdictions for Fiscal 2024, except in the United States where the Company plans to utilize its tax attributes to offset taxable income or income tax payable.

Seasonality

The Company’s revenues and operating income experience substantial fluctuations from quarter to quarter. In general, wholesale sales of the Company’s products are highest in the period immediately preceding their respective season and during the said season of use. However, the mix of product sales may vary considerably, from time to time, as a result of changes in seasonal and geographic demand, the introduction of new products and models, and production scheduling for particular types of products. As a result, the Company’s financial results are likely to fluctuate significantly from period to period.

 

BRP Inc.		Management’s Discussion and Analysis		8

Executive Summary

The Company’s three-month period ended October 31, 2023 was marked by a decrease in the volume of shipments and revenues compared to the three-month period ended October 31, 2022. The results of the third quarter of this fiscal year were driven by a decrease in PWC and 3WV deliveries, as the third quarter of this fiscal year compares unfavourably to a strong third quarter last fiscal year, where shipments of PWC and 3WV were completed after peak retail season due to supply chain issues last year. The ORV deliveries were also negatively impacted during the third quarter from the lower delivery throughput at the U.S.-Mexico border, following a three-week period of increased cargo inspections. The decrease can also be explained by a softening in industry demand in the International market compared to the three-month period ended October 31, 2022. The Company’s North American quarterly retail sales were up for SSV, ATV and Snowmobile which were offset by lower retail of PWC, 3WV and Sea-Doo pontoon, resulting in overall flat retail when compared to the same period last year. Furthermore, the Company continues to demonstrate production efficiencies due to supply chain improvements, leading to an increase in the profit margin percentage for the three-month period ended October 31, 2023 compared to the same period last year.

The strong deliveries of units in the first half of the year offset the decrease in the three-month period ended October 31, 2023, as evidenced by the increase of 10% in the Company’s revenues for the nine-month period ended October 31, 2023, compared to the same period last year. Finally, the Company’s North American retail sales for Powersports Products increased by 16% for the nine-month period ended October 31, 2023, compared to the same period last year.

 Financial Highlights

 

(in millions of Canadian  dollars, except per  share data and margin)		Three-month periods ended																Nine-month periods ended
		October 31, 2023				October 31, 2022				Variance ($)				Variance (%)				October 31, 2023				October 31, 2022				Variance ($)				Variance (%)
Income Statement
Revenues			$2,467.8				$2,709.3				$(241.5)				(8.9%)				$7,675.2				$6,957.1				$718.1				10.3%
Gross Profit			627.4				654.7				(27.3)				(4.2%)				1,948.5				1,711.8				236.7				13.8%
Gross Profit margin (%)			25.4%				24.2%				N/A				120bps				25.4%				24.6%				N/A				80bps
Operating income			317.8				384.8				(67.0)				(17.4%)				978.5				930.2				48.3				5.2%
Normalized EBITDA[1]			444.9				487.9				(43.0)				(8.8%)				1,295.1				1,178.3				116.8				9.9%
Net income			63.1				141.6				(78.5)				(55.4%)				556.3				500.3				56.0				11.2%
Normalized net income[1]			238.0				292.5				(54.5)				(18.6%)				685.4				667.5				17.9				2.7%
EPS – diluted			0.81				1.76				(0.95)				(54.0%)				7.01				6.15				0.86				14.0%
Normalized EPS – diluted [1]			3.06				3.64				(0.58)				(15.9%)				8.64				8.21				0.43				5.2%

^[1] See “Non-IFRS Measures” section.

Recent events

On November 29, 2023, the Company’s Board of Directors authorized the renewal of its normal course issuer bid program which allows for the purchase for cancellation of up to 3,231,999 million subordinate voting shares over the next twelve months, representing approximately 10% of the Company’s public float.

 

BRP Inc.		Management’s Discussion and Analysis		9

Retail Performance & Market Statistics

North American retail sales - for the Third Quarter of Fiscal 2024

The Company’s North American retail sales for Powersports Products were flat for the three-month period ended October 31, 2023 compared to the three-month period ended October 31, 2022. This was mainly driven by the strong retail sales of Snowmobile for the three-month period ended October 31, 2023 compared to the three-month period ended October 31, 2022, which completely offset the decrease in the retail sales of PWC and 3WV, which was due to late shipments that occurred after peak retail season during the three-month period ended October 31, 2022.

 

✓

North American Year-Round Products retail sales increased on a percentage basis in the high-single digits compared to the three-month period ended October 31, 2022. The Year-Round Products industry increased on a percentage basis in the low-single digits over the same period.

✓

North American Seasonal Products retail sales decreased on a percentage basis in the low-teens range and by high-single digits when excluding Sea-Doo pontoon, compared to the three-month period ended October 31, 2022. The Seasonal Products industry increased on a percentage basis in the high-single digits over the same period.

The Company’s North American retail sales for Marine Products decreased by 30% compared to the three-month period ended October 31, 2022 as a result of softening consumer demand for the boating industry.

North American retail sales - for the nine-month period ended October 31, 2023

The Company’s North American retail sales for Powersports Products increased by 16% for the nine-month period ended October 31, 2023 compared to the nine-month period ended October 31, 2022, which was mainly driven by an increase in the retail sales of SSV, PWC, ATV and Snowmobile.

 

✓

North American Year-Round Products retail sales increased on a percentage basis in the high-single digits compared to the nine-month period ended October 31, 2022. The Year-Round Products industry remained flat over the same period.

✓

North American Seasonal Products retail sales increased on a percentage basis in the high-twenties range, and in the low-twenties range when excluding Sea-Doo pontoon, compared to the nine-month period ended October 31, 2022. The Seasonal Products industry increased on a percentage basis in the low-twenties range over the same period.

The Company’s North American retail sales for Marine Products decreased by 40% compared to the nine-month period ended October 31, 2022 as a result of softening consumer demand for the boating industry and lower product availability of newly introduced products.

North American dealer inventories

As at October 31, 2023, North American dealer inventories for Powersports Products increased by 52% compared to October 31, 2022. The increase is across most product lines and mainly due to low levels of inventory during the third quarter of Fiscal 2023, driven by supply chain disruptions that, while improving, were still felt across the industry at that time.

 

BRP Inc.		Management’s Discussion and Analysis		10

Results of Operations

Analysis of Results for the Third Quarter of Fiscal 2024

The following section provides an overview of the financial performance of the Company for the three-month period ended October 31, 2023 compared to the same period ended October 31, 2022.

 

(in millions of Canadian dollars, except  margin data)		Three-month periods ended
		October 31, 2023				October 31, 2022				Variance ($)				Variance (%)
Income Statement
Revenues			$2,467.8				$2,709.3				$(241.5	)			(8.9%)
Gross Profit			627.4				654.7				(27.3	)			(4.2%)
Gross Profit margin (%)			25.4%				24.2%				N/A				120bps
Operating Expenses			309.6				269.9				39.7				14.7%
Normalized EBITDA[1]			444.9				487.9				(43.0	)			(8.8%)
Net Financing Costs			61.8				32.8				29.0				88.4%
Income Taxes			52.0				77.8				(25.8	)			(33.2%)
Net income			63.1				141.6				(78.5	)			(55.4%)

^[1] See “Non-IFRS Measures” section

Revenues

The decrease in revenues was primarily due to a lower volume of PWC, 3WV, SSV and Sea-Doo pontoon sold, mainly explained by the late shipments of PWC and 3WV for the same period last fiscal year, the U.S.-Mexico border slowdown affecting ORV deliveries, the softening in industry demand in the International market, and higher sales programs across all product lines except PWC. The decrease was partially offset by a higher volume of Snowmobile and ATV sold, favourable product mix, and favourable pricing across all product lines. The decrease includes a favourable foreign exchange rate variation of $7 million.

Gross Profit

The decrease in gross profit was the result of a lower volume sold, as highlighted above, higher sales programs, and higher labor costs due to inflation. The decrease was partially offset by favourable pricing across all product lines, favourable product mix of Snowmobile and SSV sold, a decrease in logistics costs due to more efficiencies in the supply chain and a reduction in certain material costs. The increase in gross profit margin percentage was the result of favourable pricing across all product lines and higher production efficiency coming from an improved supply chain, partially offset by a lower volume sold and higher sales programs. The decrease in gross profit includes an unfavourable foreign exchange rate variation of $19 million.

Operating Expenses

The following table provides a breakdown of the Company’s Operating Expenses for the three-month period ended October 31, 2023 compared to the three-month period ended October 31, 2022:

 

(in millions of Canadian dollars)		Three-month periods ended
		October 31, 2023				October 31, 2022				Variance ($)				Variance (%)
Selling and marketing			$117.8				$113.3				$4.5				4.0%
Research and development			114.4				80.6				33.8				41.9%
General and administrative			72.7				74.9				(2.2	)			(2.9%)
Other operating expenses			4.7				1.1				3.6				327.3%
Operating Expenses			$309.6				$269.9				$39.7				14.7%

The increase in operating expenses was mainly attributable to an increase in R&D expenses to support future growth. The increase in operating expenses includes an unfavourable foreign exchange rate variation of $10 million.

 

BRP Inc.		Management’s Discussion and Analysis		11

Normalized EBITDA ^[1]

The decrease in normalized EBITDA ^[1] was primarily due to lower gross profit and higher operating expenses.

Net Financing Costs

The increase in net financing costs primarily resulted from higher interest expense on the Term Facility due to a higher average interest rate and a higher outstanding nominal amount, as well as higher transaction costs on long-term debt due to the derecognition of unamortized transaction costs on the repricing of the Company’s Term Loan B-2.

Income Taxes

The decrease in income tax expense was primarily due to lower operating income and to higher deductible financing costs. The effective income tax rate amounted to 45.2% for the three-month period ended October 31, 2023 compared to 35.5% for the three-month period ended October 31, 2022. The increase resulted primarily from the tax and accounting treatment of the foreign exchange loss on the Term Facility.

Net Income

The decrease in net income was primarily due to a lower operating income, an unfavourable foreign exchange rate variation on the U.S. denominated long-term debt and an increase in financing costs, partially offset by a lower income tax expense and an increase in financing income.

^[1] See “Non-IFRS Measures” section.

 

BRP Inc.		Management’s Discussion and Analysis		12

Analysis of Segment Results for the Third Quarter of Fiscal 2024

The following section provides an overview of the financial performance of the Company’s segments for the three-month period ended October 31, 2023 compared to the same period ended October 31, 2022. The inter-segment transactions are included in the analysis.

 

Segment results  (in millions of Canadian dollars)		Three-month periods ended												Variance ($)				Variance (%)
		October 31, 2023								October 31, 2022
Revenues [1]
Powersports
Year-Round			$1,180.6								$1,279.8				$(99.2	)			(7.8%)
Seasonal			868.7								1,020.9				(152.2	)			(14.9%)
Powersports PA&A and OEM Engines			314.5								298.0				16.5				5.5%
Marine			106.7								118.8				(12.1	)			(10.2%)
Gross profit (loss)
Powersports			643.8								648.8				(5.0	)			(0.8%)
As a percentage of revenues			27.2%								25.0%				N/A				220bps
Marine			(16.4)								5.9				(22.3	)			(378.0%)
As a percentage of revenues			-15.4%								5.0%				N/A				NM [2]

^[1] Including inter-segment transactions.

^[2] NM - Not Meaningful.

Powersports

Revenues

Year-Round Products

The decrease in revenues from Year-Round Products was primarily attributable to a lower volume of 3WV and SSV sold, combined with higher sales programs. The decrease in SSV wholesale is partially explained by the U.S.-Mexico border slowdown, where the implementation of systematic cargo inspections adversely affected the Company’s ability to complete certain deliveries. The decrease in revenues was partially offset by a favourable product mix of SSV and ATV sold due to the introduction of new models, and favourable pricing across all product lines. The decrease includes a favourable foreign exchange rate variation of $5 million.

Seasonal Products

The decrease in revenues from Seasonal Products was primarily attributable to a lower volume of PWC and Sea-Doo pontoon sold, mainly due to late shipments in the three-month period ended October 31, 2022. The decrease was partially offset by a higher volume of Snowmobile sold, a favourable product mix due to the introduction of new models, and favourable pricing across all product lines. The decrease also includes an unfavourable foreign exchange rate variation of $4 million.

Powersports PA&A and OEM Engines

The increase in revenues was attributable to a higher volume of PA&A sold, coming from aircraft engine and mechanical gearbox sales for traditional and electric bicycles, and favourable pricing, partially offset by higher sales programs. The increase also includes a favourable foreign exchange rate variation of $5 million.

Gross Profit

The decrease in gross profit was the result of a lower volume sold, as highlighted above, higher sales programs across most product lines due to higher interest rates, and higher labour costs due to inflation. The decrease was partially offset by favourable pricing across all product lines, a decrease in logistics costs due to more efficiencies in the supply chain and a reduction in certain material costs. The increase in gross profit margin percentage was the result of a favourable mix of Snowmobile and SSV sold, favourable pricing across all product lines and higher production efficiency coming from an improved supply chain, partially offset by higher sales programs across most product lines and a lower volume sold. The decrease in gross profit includes an unfavourable foreign exchange rate variation of $18 million.

 

BRP Inc.		Management’s Discussion and Analysis		13

Marine

Revenues

The decrease in revenues from the Marine segment was mainly due to a decrease in the volume sold and an increase in sales programs. The decrease was partially offset by a favourable product mix and pricing across most product lines. The decrease includes a favourable foreign exchange rate variation of $1 million.

Gross Profit (loss)

The gross profit decrease and gross profit margin percentage decrease were primarily due to lower revenues and higher sales programs across most product lines.

Geographical Trends for the Third Quarter of Fiscal 2024

Revenues

 

Revenues by geography  (in millions of Canadian dollars)		Three-month periods ended												Variance ($)				Variance (%)
		October 31, 2023								October 31, 2022
Revenues ($)
United States			$1,494.2								$1,683.3				(189.1	)			(11.2%	)
Canada			428.9								441.9				(13.0	)			(2.9%	)
International			544.7								584.1				(39.4	)			(6.7%	)
Total Revenues ($)			2,467.8								2,709.3
Revenues (%)
United States			60.5%								62.1%				N/A				(160bps)
Canada			17.4%								16.3%				N/A				110bps
International			22.1%								21.6%				N/A				50bps
Total Revenues (%)			100.0%								100.0%

United States

The decrease in revenues from the United States was primarily due to the lower volume of Year-Round Products and Seasonal Products sold and higher sales programs, partially offset by favourable product mix across most product lines and favourable pricing. The decrease includes an unfavourable foreign exchange impact of $8 million.

Canada

The decrease in revenues from Canada was primarily due to the lower volume of Year-Round Products and Seasonal Products sold, and higher sales programs, partially offset by favourable pricing across all product lines and favourable product mix.

International

The decrease in revenues from International was primarily due to the lower volume of Year-Round Products and Seasonal Products sold, and higher sales programs. The decrease was partially offset by a favourable volume of PA&A sold, coming from sales from businesses acquired in the second half of Fiscal 2023, as well as favourable pricing across most product lines. The decrease includes a favourable foreign exchange variation of $15 million.

 

BRP Inc.		Management’s Discussion and Analysis		14

Analysis of Results for the nine-month period ended October 31, 2023

The following section provides an overview of the Company’s financial performance for the nine-month period ended October 31, 2023 compared to the same period ended October 31, 2022.

 

(in millions of Canadian dollars, except margin data)		Nine-month periods ended
		October 31, 2023				October 31, 2022				Variance ($)				Variance (%)
Income Statement
Revenues			$7,675.2				$6,957.1				$718.1				10.3%
Gross Profit			1,948.5				1,711.8				236.7				13.8%
Gross Profit margin (%)			25.4%				24.6%				N/A				80bps
Operating Expenses			970.0				781.6				188.4				24.1%
Normalized EBITDA[1]			1,295.1				1,178.3				116.8				9.9%
Net Financing Costs			145.7				72.8				72.9				100.1%
Income Taxes			169.2				208.5				(39.3	)			(18.8%)
Net income			556.3				500.3				56.0				11.2%

^[1] See “Non-IFRS Measures” section.

Revenues

The increase in revenues was primarily due to a higher volume of SSV, ATV and Snowmobile sold, increased deliveries of Sea-Doo pontoon, favourable product mix across most product lines, as well as favourable pricing. The increase was partially offset by higher sales programs which are mostly due to rising interest rates, and a lower volume of 3WV, PWC and PA&A sold. The increase includes a favourable foreign exchange rate variation of $183 million.

Gross Profit

The increase in gross profit was the result of a higher volume of SSV, Snowmobile and ATV sold, increased deliveries of Sea-Doo pontoon, along with favourable pricing, a decrease in logistics costs due to more efficiencies in the supply chain, and favourable product mix across most product lines. The increase was partially offset by higher sales programs, as well as higher materials and labour costs due to inflation. The increase in gross profit margin percentage was the result of a favourable product mix across all product lines except ATV, SSV and PA&A, favourable pricing across all product lines, partially offset by higher sales programs. The increase in gross profit includes an unfavourable foreign exchange rate variation of $28 million.

Operating Expenses

The following table provides a breakdown of the Company’s Operating Expenses for the nine-month period ended October 31, 2023 compared to the nine-month period ended October 31, 2022:

 

(in millions of Canadian dollars)		Nine-month periods ended
		October 31, 2023				October 31, 2022				Variance ($)				Variance (%)
Selling and marketing			$362.4				$316.0				$46.4				14.7%
Research and development			318.8				246.7				72.1				29.2%
General and administrative			265.3				219.3				46.0				21.0%
Other operating expenses (income)			23.5				(0.4	)			23.9				NM[1]
Operating Expenses			$970.0				$781.6				$188.4				24.1%

 ^[1] NM - Not Meaningful.

The increase in operating expenses was mainly attributable to an increase in R&D expenses to support future growth as well as higher selling and marketing expenses, which are mainly due to continued product investment. The increase was also attributable to higher G&A expenses mainly related to the modernization of the Company’s software infrastructure. The increase in operating expenses includes an unfavourable foreign exchange rate variation of $51 million.

 

BRP Inc.		Management’s Discussion and Analysis		15

Normalized EBITDA ^[1]

The increase in normalized EBITDA ^[1] was primarily due to higher gross profit, partially offset by higher operating expenses.

Net Financing Costs

The increase in net financing costs primarily resulted from higher interest expense on the Term Facility due to a higher average interest rate, and a higher outstanding nominal amount, as well as higher transaction costs on long-term debt due to the derecognition of unamortized transaction costs on the repricing of the Company’s Term Loan B-2.

Income Taxes

The decrease in income tax expense was primarily due to the recognition of certain benefits related to Canadian tax incentives, the higher deductible financing costs, the favourable mix of accounting profits and losses between tax jurisdictions and to the effect of foreign currency translation related to property, plant and equipment from Mexican operations. The decrease was partially offset by higher operating income. The effective income tax rate amounted to 23.3% for the nine-month period ended October 31, 2023 compared to 29.4% for the nine-month period ended October 31, 2022. The decrease resulted primarily from the recognition of certain benefits related to Canadian tax incentives, the tax and accounting treatment of the foreign exchange loss on the Term Facility and from a favourable mix of accounting profits and losses between tax jurisdictions.

Net Income

The increase in net income was primarily due to a higher operating income, lower income tax expense and a favourable impact of the foreign exchange rate variation on the U.S. denominated long-term debt, partially offset by an increase in financing costs.

^[1] See “Non-IFRS Measures” section.

 

BRP Inc.		Management’s Discussion and Analysis		16

Analysis of Segment Results for the nine-month period ended October 31, 2023

The following section provides an overview of the financial performance of the Company’s segments for the nine-month period ended October 31, 2023 compared to the same period ended October 31, 2022. The inter-segment transactions are included in the analysis.

 

Segment results  (in millions of Canadian dollars)		Nine-month periods  ended												Variance ($)				Variance (%)
		October 31, 2023								October 31, 2022
Revenues [1]
Powersports
Year-Round			$3,975.5								$3,572.3				$403.2				11.3%
Seasonal			2,458.1								2,120.8				337.3				15.9%
Powersports PA&A and OEM Engines			893.6								899.1				(5.5	)			(0.6%)
Marine			355.9								390.4				(34.5	)			(8.8%)
Gross profit (loss)
Powersports			1,978.1								1,666.5				311.6				18.7%
As a percentage of revenues			27.0%								25.3%				N/A				170bps
Marine			(29.6	)							45.3				(74.9	)			(165.3%)
As a percentage of revenues			-8.3%								11.6%				N/A				NM [2]

^[1] Including inter-segment transactions.

^[2] NM – Not Meaningful.

Powersports

Revenues

Year-Round Products

The increase in revenues from Year-Round Products was primarily attributable to a higher volume of SSV and ATV sold, mainly driven by supply chain issues in Fiscal 2023, which impacted product deliveries, as well as favourable pricing and product mix across all product lines, which was partially offset by a lower volume of 3WV sold and higher sales programs. The increase includes a favourable foreign exchange rate variation of $108 million.

Seasonal Products

The increase in revenues from Seasonal Products was primarily attributable to a higher volume of Snowmobile and Sea-Doo pontoon sold, driven by strong consumer demand and due to supply chain issues experienced in Fiscal 2023, which impacted product availability. The increase was also attributable to favourable pricing and product mix across all product lines, partially offset by a lower volume of PWC sold and higher sales programs. The increase includes a favourable foreign exchange rate variation of $39 million.

Powersports PA&A and OEM Engines

The decrease in revenues from Powersports PA&A and OEM Engines was mainly attributable to a lower volume of sales. The decrease in sales volume was mainly attributable to lower dealer orders due to a high level of stock remaining in dealer inventory. The decrease was partially offset by higher pricing, favourable product mix and mechanical gearbox sales for traditional and electric bikes. The decrease includes a favourable foreign exchange rate variation of $27 million.

Gross Profit

The increase in gross profit was the result of a higher volume of SSV, Snowmobile and ATV sold, favourable pricing, as well as increased deliveries of the Sea-Doo pontoon, and a decrease in logistics costs due to more efficiencies in the supply chain and a reduction in certain material costs. The increase was partially offset by higher sales programs. The increase in gross profit margin percentage was the result of a favourable pricing across all product lines, as well as a favourable product mix of Sea-Doo pontoon, 3WV, PWC and Snowmobile sold. The increase in gross profit includes an unfavourable foreign exchange rate variation of $27 million.

 

BRP Inc.		Management’s Discussion and Analysis		17

Marine

Revenues

The decrease in revenues from the Marine segment was mainly caused by a lower volume of boats and PA&A sold due to a longer production ramp-up following the introduction of new products, supply chain issues, and by higher sales programs, partially offset by favourable pricing. The decrease includes a favourable foreign exchange rate variation of $9 million.

Gross Profit

The gross profit decrease and gross profit margin percentage decrease was primarily due to lower revenues, higher commodities and labour costs due to inflation and production inefficiencies, and higher sales programs, partially offset by favourable pricing.

Geographical Trends for the nine-month period ended October 31, 2023

Revenues

 

Revenues by geography  (in millions of Canadian dollars)		Nine-month periods  ended												Variance ($)				Variance (%)
		October 31, 2023								October 31, 2022
Revenues ($)
United States			$4,733.4								$4,264.8				$468.6				11.0%
Canada			1,211.3								1,077.9				133.4				12.4%
International			1,730.5								1,614.4				116.1				7.2%
Total Revenues ($)			$7,675.2								$6,957.1
Revenues (%)
United States			61.7%								61.3%				N/A				40bps
Canada			15.8%								15.5%				N/A				30bps
International			22.5%								23.2%				N/A				(70bps)
Total Revenues (%)			100.0%								100.0%

United States

The increase in revenues from the United States was primarily due to the higher volume of Year-Round Products and Seasonal Products sold, as well as favourable pricing across all product lines, partially offset by higher sales programs. The increase includes a favourable foreign exchange impact of $118 million.

Canada

The increase in revenues from Canada was primarily due to a higher volume of Year-Round Products and Seasonal Products, as well as favourable pricing across all product lines, partially offset by higher sales programs.

International

The increase in revenues from International was primarily due to a favourable product mix of Year-Round Products and Seasonal Products, as well as a favourable pricing across all product lines, partially offset by a lower volume sold and higher sales programs. The increase includes a favourable foreign exchange impact of $65 million.

 

BRP Inc.		Management’s Discussion and Analysis		18

Foreign Exchange

The key average exchange rates used to translate foreign-denominated revenues and expenses, excluding any effect of the Company’s hedging program for the three- and nine-month periods ended October 31, 2023, were as follows:

 

		Three-month periods ended								Nine-month periods ended
		October 31, 2023				October 31, 2022				October 31, 2023				October 31, 2022
U.S. dollars (CA$/US$)			1.3576				1.3314				1.3485				1.2950
Euro (CA$/€)			1.4545				1.3255				1.4577				1.3562

The key period-end exchange rates used to translate foreign-denominated assets and liabilities were as follows:

 

 

 

 

 

		October 31, 2023								January 31, 2023
U.S. dollars (CA$/US$)			1.3883								1.3333
Euro (CA$/€)			1.4674								1.4476

When comparing the operating income and the income before income tax for the three- and nine-month periods ended October 31, 2023, the impacts of foreign exchange fluctuations were as follows:

 

		Foreign exchange (gain) loss
(in millions of Canadian dollars)		Three-month period				Nine-month period
Revenues			$(7.1)				$(182.7)
Cost of sales			25.7				210.9
Impact of foreign exchange fluctuations on gross profit			18.6				28.2
Operating expenses			9.9				50.5
Impact of foreign exchange fluctuations on operating income			28.5				78.7
Long-term debt			8.3				(41.3)
Net financing costs			1.0				5.8
Impact of foreign exchange fluctuations on income before income taxes			$37.8				$43.2

 

BRP Inc.		Management’s Discussion and Analysis		19

Liquidity and Capital Resources

Liquidity

The Company’s primary sources of cash consist of existing cash balances, operating activities and available borrowings under the Revolving Credit Facilities, Term Facility, Term Loans and Bank Overdraft.

The Company’s primary use of cash is to fund operations, working capital requirements and capital expenditures in connection with product development and manufacturing infrastructure. The fluctuation of working capital requirements is primarily due to the seasonality of the Company’s production schedule and product shipments.

A summary of net cash flows by activity for the nine-month periods ended October 31, 2023 and 2022 is presented below:

 

		Nine-month periods ended
(millions of Canadian dollars)		October 31, 2023				October 31, 2022
Net cash flows generated from operating activities			$1,053.2				$342.3
Net cash flows used in investing activities			(352.5)				(599.5)
Net cash flows generated from (used in) financing activities			(591.7)				80.6
Effect of exchange rate changes on cash and cash equivalents			(27.7)				(29.3)
Net increase (decrease) in cash and cash equivalents			81.3				(205.9)
Cash and cash equivalents at beginning of period			202.3				265.8
Cash and cash equivalents at end of period			$283.6				$59.9
Free cash flow [1]			$694.5				$(54.2)

Net Cash Flows Generated from Operating Activities

A summary of cash flows from operating activities for the nine-month periods ended October 31, 2023 and 2022 is presented below:

 

		Nine-month periods ended
(millions of Canadian dollars)		October 31, 2023				October 31, 2022
Net income			$556.3				$500.3
Non-cash and non-operating items			728.3				650.3
Changes in working capital			(3.5)				(528.3)
Income taxes paid, net of refunds			(227.9)				(280.0)
Net cash flows generated from operating activities			$1,053.2				$342.3

Net cash flows generated from operating activities totalled $1,053.2 million for the nine-month period ended October 31, 2023 compared to $342.3 million for the nine-month period ended October 31, 2022. The $710.9 million increase in net cash flows generated was mainly due to higher profitability, favourable changes in working capital and lower income taxes paid. The lower investment in working capital was primarily attributable to a decrease in inventory and an increase in trade and other receivables collection, as well as an increase in provisions compared to the nine-month period ended October 31, 2022 due to higher sales programs. The favourable changes in working capital were partially offset by a decrease in trade payables and accruals compared to the nine-month period ended October 31, 2022.

^[1] See “Non-IFRS Measures” section.

 

BRP Inc.		Management’s Discussion and Analysis		20

Net Cash Flows Used in Investing Activities

A summary of cash flows from investing activities for the nine-month periods ended October 31, 2023 and 2022 is presented below:

 

		Nine-month periods ended
(millions of Canadian dollars)		October 31, 2023				October 31, 2022
Additions to property, plant and equipment			$(333.1	)			$(353.1	)
Additions to intangible assets			(25.6	)			(43.4	)
Business combinations, net of acquired cash			—				(208.8	)
Other			6.2				5.8
Net cash flows used in investing activities			$(352.5	)			$(599.5	)

Net cash flows used in investing activities totalled $352.5 million for the nine-month period ended October 31, 2023 compared to $599.5 million for the nine-month period ended October 31, 2022. The $247.0 million decrease in net cash flows used was mostly explained by lower investments in business combinations and property, plant and equipment compared to the nine-month period ended October 31, 2022.

Net Cash Flows Generated from (Used in) Financing Activities

A summary of cash flows from financing activities for the nine-month periods ended October 31, 2023 and 2022 is presented below:

 

		Nine-month periods ended
(millions of Canadian dollars)		October 31, 2023				October 31, 2022
Repurchase of subordinate voting shares			(367.1	)			(305.5	)
Dividends paid			(41.9	)			(38.2	)
Repayment of long-term debt			(37.9	)			(94.8	)
Interest paid			(126.0	)			(63.1	)
Increase in revolving credit facilities			—				365.1
Issuance of long-term debt			—				244.5
Other			(18.8	)			(27.4	)
Net cash flows generated from (used in) financing activities			$(591.7	)			$80.6

Net cash flows used in financing activities totalled $591.7 million for the nine-month period ended October 31, 2023 compared to net cash flows generated from financing activities in the amount of $80.6 million for the nine-month period ended October 31, 2022. The $672.3 million increase in net cash flows used was mainly attributable to a decrease in the amount drawn on revolving credit facilities, the issuance of new long-term debt in the nine-month period ended October 31, 2022 and an increase in the interest paid. The increase was partially offset by a reduction in the repayment of long-term debt for the nine-month period ended October 31, 2023.

 

BRP Inc.		Management’s Discussion and Analysis		21

Contractual Obligations

The following table summarizes the Company’s significant contractual obligations as at October 31, 2023:

 

(millions of Canadian dollars)		Less than 1 year				1-3 years				4-5 years				More than 5 years				Total amount
Trade payables and accruals			$1,525.9				$—				$—				$—				$1,525.9
Long-term debt (including interest)			220.9				497.8				2,221.4				754.5				3,694.6
Lease liabilities (including interest)			52.9				79.0				37.3				38.4				207.6
Derivative financial instruments			35.2				18.8				—				—				54.0
Other financial liabilities			50.8				30.6				2.5				31.1				115.0
Total			$1,885.7				$626.2				$2,261.2				$824.0				$5,597.1

The Company enters into purchasing agreements with suppliers related to material used in production. These agreements are usually entered into before production begins and may specify a fixed or variable quantity of material to be purchased. Due to the uncertainty as to the amount and pricing of material that may be purchased, the Company is not able to determine with precision its commitments in connection with these supply agreements.

Management believes that the Company’s operating activities and available financing capacity will provide adequate sources of liquidity to meet its short- and long-term needs.

 

BRP Inc.		Management’s Discussion and Analysis		22

Capital Resources

Revolving Credit Facilities

The applicable interest rates vary depending on a leverage ratio. The leverage ratio is defined in the Revolving Credit Facilities agreement by the ratio of net debt to consolidated cash flows of the Company (the “Leverage ratio”). The applicable interest rates are as follows:

 

Currency		Applicable Interest Rates
U.S. dollars at either		◾   Term SOFR plus 1.45% to 3.00% per annum; or ◾   U.S. Base Rate plus 0.45% to 2.00% per annum; or ◾   U.S. Prime Rate plus 0.45% to 2.00% per annum;
Canadian dollars at either		◾   Bankers’ Acceptance plus 1.45% to 3.00% per annum; or ◾   Canadian Prime Rate plus 0.45% to 2.00% per annum
Euros		◾   EURIBOR plus 1.45% to 3.00% per annum

In addition, the Company incurs commitment fees of 0.25% to 0.40% per annum on the undrawn amount of the Revolving Credit Facilities.

As at October 31, 2023, the cost of borrowing under the Revolving Credit Facilities was as follows:

 

Currency		Cost of Borrowing
U.S. dollars at either		◾   Term SOFR plus 1.45% per annum; or ◾   U.S. Base Rate plus 0.45% per annum; or ◾   U.S. Prime Rate plus 0.45% per annum;
Canadian dollars at either		◾   Bankers’ Acceptance plus 1.45% per annum; or ◾   Canadian Prime Rate plus 0.45% per annum
Euros		◾   EURIBOR plus 1.45% per annum

As at October 31, 2023, the commitment fees on the undrawn amount of the Revolving Credit Facilities were 0.25% per annum.

Under certain conditions, the Company is required to maintain a minimum fixed charge coverage ratio in order to have full access to its Revolving Credit Facilities. Additionally, the total available borrowing under the Revolving Credit Facilities is subject to a borrowing base calculation representing 75% of the carrying amount of trade and other receivables plus 50% of the carrying amount of inventories.

As at October 31, 2023 and January 31, 2023, the Company had contracted the following indebtedness:

 

(millions of Canadian dollars)		October 31, 2023				January 31, 2023
Bank overdraft			$29.3				$29.0
Issued letters of credit under the Revolving Credit Facilities			35.1				33.5
Other outstanding letters of credit			6.2				6.0

 

BRP Inc.		Management’s Discussion and Analysis		23

Term Facility

On March 10, 2023, the Company amended its Term Loan B-1 by replacing the LIBOR references with SOFR references, with all other conditions remaining the same. On October 4, 2023, the Company repriced its Term Loan B-2, which reduced the cost of borrowing by 0.75%, with all other conditions remaining the same. The Company incurred transactions costs of $0.9 million, which have been recorded in financing costs. In addition, the unamortized transaction costs of $19.1 million were derecognized and recorded in financing costs.

As at October 31, 2023, the cost of borrowing under the Term Loan was as follows:

 

Loan		Cost of Borrowing
Term Loan B-1		◾   Term SOFR plus 2.00% per annum, with a Term SOFR floor of 0.00%; or ◾   U.S. Base Rate plus 1.00%; or ◾   U.S. Prime Rate plus 1.00%
Term Loan B-2		◾   Term SOFR plus 2.75% per annum, with a Term SOFR floor of 0.5%

Under the Term Facility, the cost of borrowing in U.S. Base Rate or U.S. Prime Rate cannot be lower than the cost of borrowing under SOFR.

The Company is required to repay a minimum of 0.25% of the nominal amount each quarter. Consequently, the Company repaid an amount of U.S. $15.2 million ($20.5 million) during the nine-month period ended October 31, 2023. Also, the Company may be required to repay a portion of the Term Facility in the event that it has an excess cash position at the end of the fiscal year and its leverage ratio is above a certain threshold level. As at October 31, 2023 and 2022, the Company was not required to repay any portion of the Term Facility under this requirement.

Austrian Term Loans

During the nine-month period ended October 31, 2023, the Company entered into an unsecured loan agreement at a favourable interest rate under an Austrian government program. This program supports research and development projects based on the Company’s incurred expenses in Austria. The term loans have a nominal amount of €2.3 million ($3.3 million) with an interest rate varying between 1.00% to 4.57% with maturity dates varying from March 2027 to December 2027.

As at October 31, 2023, the Company had €119.4 million ($175.2 million) outstanding under its Austrian term loans bearing interest at a range between 0.87% to 5.18% and maturing between December 2023 to December 2030.

Lease Liabilities

As at October 31, 2023, the contractual obligations in relation to assets recognized under lease agreements amounted to $207.6 million.

Normal Course Issuer Bid Program

During the nine-month period ended October 31, 2023, the Company completed the NCIB that was announced and started during the fiscal year ended January 31, 2023 and repurchased for cancellation 3,519,398 subordinate voting shares for a total consideration of $367.1 million.

 

BRP Inc.		Management’s Discussion and Analysis		24

Dividend

On November 29, 2023, the Company’s Board of Directors declared a quarterly dividend of $0.18 per share for holders of its multiple and subordinate voting shares. The dividend will be paid on January 12, 2024 to shareholders of record at the close of business on December 29, 2023.

The Board of Directors has determined that this quarterly dividend is appropriate based on several relevant factors, including, without limitation, the Company’s results of operations, current and anticipated cash requirements and surplus, financial condition, contractual restrictions and financing agreement covenants (including restrictions in the Term Facility and the Revolving Credit Facilities or other material agreements) and solvency tests imposed by corporate law.

The payment of each quarterly dividend remains subject to the declaration of that dividend by the Board of Directors. The actual amount, the declaration date, the record date and the payment date of each quarterly dividend are subject to the discretion of the Board of Directors.

 

BRP Inc.		Management’s Discussion and Analysis		25

Consolidated Financial Position

The following table reflects the main variances that have occurred in the Company’s unaudited condensed consolidated interim statements of financial position between October 31, 2023 and January 31, 2023, the impact of the fluctuation of exchange rates on such variances, the related net variance (excluding the impact of the fluctuation of exchange rates on such variances) as well as explanations for the net variance:

 

(millions of Canadian  dollars)		October 31, 2023				January 31, 2023				Variance				Exchange Rate Impact				Net Variance				Explanation of Net Variance
Trade and other receivables			$525.8				$655.0				$(129.2)				$(9.1	)			$(138.3)			Mostly explained by an improvement in the timing of collections during Fiscal 2024
Inventories			2,586.2				2,290.1				296.1				(53.8	)			242.3			Mostly explained by higher finished product inventory for upcoming deliveries, partially offset by lower work in progress inventory and raw material
Property, plant and equipment			1,932.3				1,810.4				121.9				(13.5	)			108.4			Mostly explained by continued capacity investments in property, plant and equipment
Trade payables and accruals			1,525.9				1,548.2				(22.3)				(21.1	)			(43.4)			Mostly explained by lower compensation benefits and improvements in supplier payments
Provisions			891.8				665.2				226.6				(20.4	)			206.2			Mostly explained by higher sales programs
Deferred revenues			205.4				226.8				(21.4)				(4.3	)			(25.7)			Mostly explained by recognition of revenue
Long-term debt, including current portion			2,888.7				2,790.2				98.5				(109.5	)			(11.0)			Mostly explained by repayments of long-term debt
Employee future benefit liabilities			139.0				158.0				(19.0)				1.5				(17.5)			Mostly explained by the increase of the discount rate by approximately 80 basis points for the Canadian defined benefit obligations

 

BRP Inc.		Management’s Discussion and Analysis		26

Off-Balance Sheet Arrangements

Dealer and Distributor Financing Arrangements

The Company, most of its independent dealers and some of its independent distributors are parties to agreements with third-party financing service providers. These agreements provide financing to facilitate the purchase of the Company’s products and improve the Company’s working capital by allowing an earlier collection of accounts receivable from dealers and distributors. Approximately three-quarters of the Company’s sales are made under such agreements. The parties listed above have agreements with Huntington Distribution Finance, Inc., Huntington Commercial Finance Canada Inc., Huntington Commercial Finance LLC and Huntington Commercial Finance New Zealand Ltd (collectively, “Huntington”), to provide financing facilities in North America, Australia and New Zealand, and with Wells Fargo Commercial Distribution Finance, Wells Fargo Bank International, Wells Fargo International Finance LLC and Wells Fargo International Finance (New Zealand) Limited (collectively “Wells Fargo”) for financing facilities in North America, Europe and Australia. The agreement between the Company and Huntington was set to expire on January 31, 2024, but in the second quarter of the fiscal year ending January 31, 2024, the Company entered into the “Second Amended and Restated Wholesale Financing Program Agreement for Canada and the United States” (Amended Financing Program), which extended the term until January 31, 2028, under similar pricing terms and conditions. The purpose of the Amended Financing Program was to extend the term and consolidate all recent amendments in one agreement, including adding the entities Alumacraft and Manitou, as well as the terms of the substantially completed units financing. For most of the contracts with Wells Fargo, the maximum commitment period was up to November 29, 2024, but on November 21, 2023 the Company signed an extension to January 31, 2026. On October 23, 2023, Wells Fargo announced that they were discontinuing operations in Australia and New Zealand, and would not continue with the dealer financing agreement in Australia and New Zealand. However, Wells Fargo will continue to honor the agreement until October 23, 2024, at which point the Company will need to find another financing partner. At this time, the Company has identified potential financing partners for that region and has initiated discussions to replace Wells Fargo in a timely manner.

The total amount of financing provided to the Company’s independent dealers and distributors totalled $2,389.6 million and $7,426.2 million for the three- and nine-month periods ended October 31, 2023, compared to $2,097.7 million and $5,862.9 million for the three- and nine-month periods ended October 31, 2022. The outstanding financing between the Company’s independent dealers and distributors and third-party finance companies amounted to $3,283.5 million and $2,674.0 million as at October 31, 2023, and January 31, 2023, respectively.

The breakdown of outstanding amounts by country and local currency between the Company’s independent dealers and distributors with third-party finance companies were as follows, as at:

 

(in millions)		Currency				October  31, 2023				January  31, 2023
Total outstanding			CAD				$3,283.5				$2,674.0
United States			USD				$1,674.0				$1,480.6
Canada			CAD				$746.5				$472.1
Europe			EUR				€57.3				€63.3
Australia and New Zealand			AUD				$146.7				$145.0

The costs incurred by the Company under the dealers’ and distributors’ financing agreements totalled $39.0 million and $142.3 million for the three- and nine-month periods ended October 31, 2023 compared to $26.9 million and $56.0 million for the three- and nine-month periods ended October 31, 2022.

Under the dealer and distributor financing agreements, in the event of default, the Company may be required to purchase, from the finance companies, repossessed new and unused products at the total unpaid principal balance of the dealer or distributor to the finance companies.

 

BRP Inc.		Management’s Discussion and Analysis		27

The combined maximum obligation is generally within a range of U.S. $14.0 million ($19.4 million) or 15% of the calendar year twelve-month average amount of financing outstanding under the financing agreements and U.S. $25.0 million ($34.7 million) or 10% of the last twelve-month average amount of financing outstanding under the financing agreements ($270.9 million as at October 31, 2023).

As such, the maximum amount subject to the Company’s obligation to purchase repossessed new and unused products from the finance companies was $290.3 million as at October 31, 2023 and $186.4 million as at January 31, 2023.

The Company did not incur significant losses related to new and unused products repossessed by the finance companies for the three- and nine-month periods ended October 31, 2023 and 2022.

Substantially completed units financing

The Amended Financing Program provides for the financing of the substantially completed units shipped at the Company’s dealers (“Substantially Completed Units”). The financing of those Substantially Completed Units is limited by certain financial thresholds. Under this program, the Company’s dealers are required to comply with thresholds regarding the Substantially Completed Units shipped at the Company’s dealers (“Thresholds”).

As at October 31, 2023, the total maximum outstanding obligations of all dealers for substantially completed units could not exceed U.S. $300.0 million ($416.5 million), this limit will remain at U.S. $300.0 million ($416.5 million) until January 31, 2024, and gradually reduce to nil as of April 30, 2024. The maximum outstanding obligations of any individual dealer at any time for Substantially Completed Units shall not exceed U.S. $18.0 million ($25.0 million). In addition, the maximum obligations by all dealers for PWC is limited to U.S. $50 million ($69.4 million) as at October 31^st, 2023 and will remain at this limit until January 31, 2024, and gradually reduce to nil as of April 30, 2024.

In the event one of the Thresholds is exceeded, the Company would be required to reduce the outstanding dealers’ financing by assuming their financing until compliance with Thresholds. The Substantially Completed Units stop being considered within the Thresholds limits when all the missing components are installed by the dealers. The Company was in compliance with the Thresholds as at October 31, 2023.

Consumer Financing Arrangements

The Company has contractual relationships with third-party financing companies in order to facilitate consumer credit for the purchase of its products in North America. The agreements generally allow the Company to offer a subsidized interest rate to consumers for a certain limited period under certain sales programs. In Canada, the Company has agreements with TD Financing Services and the Fédération des caisses Desjardins du Québec for such purposes. In the United States, the Company has agreements with Sheffield Financial, Citi Retail Services and Roadrunner Financial. Under these contracts, the Company’s financial obligations are related to the commitments made under certain sales programs.

 

BRP Inc.		Management’s Discussion and Analysis		28

Transaction Between Related Parties

Transactions with Bombardier Inc., a Company Related to Beaudier Group

Pursuant to the purchase agreement entered into in 2003 in connection with the acquisition of the recreational product business of Bombardier Inc., the Company committed to reimburse to Bombardier Inc. income taxes amounting to $23.0 million as at October 31, 2023 and $22.7 million as at January 31, 2023, respectively. The payments will begin when Bombardier Inc. starts making income tax payments in Canada and/or in the United States. The Company does not expect to make any payments to Bombardier Inc. in relation to that obligation for Fiscal 2024.

Financial Instruments

The Company’s financial instruments, divided into financial assets and financial liabilities, are measured at the end of each period at fair value or amortized costs using the effective interest method depending on their classification determined by IFRS. By nature, financial assets are exposed to credit risk whereas financial liabilities are exposed to liquidity risk. Additionally, the Company’s financial instruments and transactions could be denominated in foreign currency creating a foreign exchange exposure that could be mitigated by the use of derivative financial instruments. The Company is to a lesser extent exposed to interest risk associated to its Revolving Credit Facilities, Term Facility and Austrian term loans.

Foreign Exchange Risk

The elements reported in the unaudited condensed consolidated interim statements of net income, in the unaudited condensed consolidated interim statements of financial position and in the unaudited condensed consolidated interim statements of cash flows presented in the Company’s unaudited condensed consolidated interim financial statements in Canadian dollars are significantly exposed to the fluctuation of exchange rates, mainly the Canadian dollar/U.S. dollar rate and the Canadian dollar/euro rate.

The Company’s cash inflows and outflows are mainly comprised of Canadian dollars, U.S. dollars and euros. The Company intends to maintain, as a result of its business transactions, a certain offset position on U.S. dollar and euro denominated cash inflows and outflows.

For some currencies over which the Company cannot achieve an offset through its recurring business transactions, mainly the U.S. dollar, the Australian dollar, the Swedish krona, the Norwegian krone and the British pound, the Company uses foreign exchange contracts according to the Company’s hedging strategy. Management periodically reviews the relevant hedging position and may hedge at any level within the authorized parameters of the policy, up to the maximum percentage allowed. Those contracts are accounted for under the cash flow hedge model covering highly probable forecasted sales in these currencies, and the gains or losses on those derivatives are recorded in net income only when the forecasted sales occur.

Finally, the Company reduces the exposure on its net income arising from the revaluation at period-end of monetary items denominated in a different functional currency by using foreign exchange contracts. Those contracts are recorded in net income at each period end in order to mitigate the gains or losses resulting from the revaluation at spot rate of these foreign-denominated positions.

While the Company’s operating income is protected, to a certain extent, from significant fluctuations of foreign exchange rates resulting from the application of the Company’s hedging strategy, the net income is significantly exposed to Canadian dollar/U.S. dollar rate fluctuations due to the U.S. dollar-denominated long-term debt. However, there is a monetary impact for the Company only to the extent the Term Facility is repaid.

 

BRP Inc.		Management’s Discussion and Analysis		29

Liquidity Risk

The Company is exposed to the risk of encountering difficulty in meeting obligations related to its financial liabilities. In order to manage its liquidity risk accurately, the Company continuously monitors its operating cash requirements taking into account the seasonality of the Company’s working capital needs, revenues and expenses. The Company believes the cash flows generated from operations combined with its cash on hand and the availability of funds under its credit facilities ensures its financial flexibility and mitigates its liquidity risk.

Credit Risk

The Company could be exposed, in the normal course of business, to the potential inability of dealers, distributors and other business partners to meet their contractual obligations on financial assets and on amounts guaranteed under dealer and distributor financing arrangements with Huntington and Wells Fargo.

The Company considers that its credit risk associated with its trade receivables and its limited responsibilities under the dealer and distributor financing agreements with Huntington and Wells Fargo does not represent a significant concentration of risk and loss due to the large number of dealers, distributors and other business partners and their dispersion across many geographic areas. Moreover, the Company mitigates such risk by doing business through its own distribution channels and by monitoring the creditworthiness of the dealers and distributors in the different geographic areas.

Interest Rate Risk

The Company is exposed to the variation of interest rates mainly resulting from the Term SOFR on its Term Facility. However, the Company entered into interest rate cap contracts, which limit its exposure to interest rate increase.

 

BRP Inc.		Management’s Discussion and Analysis		30

Non-IFRS Measures and Reconciliation Tables

The Company uses non-IFRS measures and ratio, including the following:

 

Non-IFRS measures		Definition		Reason for use
Normalized EBITDA		Net income before financing costs, financing income, income tax expense (recovery), depreciation expense and normalized elements		Assist investors in determining the financial performance of the Company’s operating activities on a consistent basis by excluding certain non-cash elements such as depreciation expense, impairment charge, foreign exchange gain or loss on the Company’s long-term debt denominated in U.S. dollars and foreign exchange gain or loss on certain of the Company’s lease liabilities. Other elements, such as restructuring and wind-down costs, non-recurring gain or loss and acquisition-related costs, may be excluded from net income in the determination of Normalized EBITDA as they are considered not being reflective of the operational performance of the Company
Normalized net income		Net income before normalized elements adjusted to reflect the tax effect on these elements		In addition to the financial performance of operating activities, these measures consider the impact of investing activities, financing activities and income taxes on the Company’s financial results
Normalized income tax expense		Income tax expense adjusted to reflect the tax effect on normalized elements and to normalize specific tax elements
Normalized effective tax rate		Based on Normalized net income before Normalized income tax expense
Normalized earnings per share – diluted		Calculated by dividing the Normalized net income by the weighted average number of shares – diluted
Free cash flow		Cash flows from operating activities less additions to PP&E and intangible assets		Assist investors in assessing the Company’s liquidity generation abilities that could be available for shareholders, debt repayment and business combination, after capital expenditure

The Company believes non-IFRS measures are important supplemental measures of financial performance because they eliminate items that have less bearing on the Company’s financial performance and thus highlight trends in its core business that may not otherwise be apparent when relying solely on IFRS measures. The Company also believes that securities analysts, investors and other interested parties frequently use non-IFRS measures in the evaluation of companies, many of which present similar metrics when reporting their results. Management also uses non-IFRS measures in order to facilitate financial performance comparisons from period to period, prepare annual operating budgets, assess the Company’s ability to meet its future debt service, capital expenditure and working capital requirements and also as a component in the determination of the short-term incentive compensation for the Company’s employees. Because other companies may calculate these non-IFRS measures differently than the Company does, these metrics are not comparable to similarly titled measures reported by other companies.

 

BRP Inc.		Management’s Discussion and Analysis		31

Reconciliation Tables

The following table presents the reconciliation of Net income to Normalized net income ^[1] and Normalized EBITDA ^[1].

 

		Three-month periods ended								Nine-month periods ended
(in millions of Canadian dollars)		October 31, 2023				October 31, 2022				October 31, 2023				October 31, 2022
Net income			$63.1				$141.6				$556.3				$500.3
Normalized elements
Foreign exchange loss on long-term debt and lease liabilities			142.1				133.0				108.3				149.0
Cybersecurity incident costs			—				23.3				—				23.3
Gain on NCIB			(1.6)				—				(4.8)				(1.8)
Costs related to business combinations [2]			5.2				3.6				11.8				5.7
Border crossing costs [3]			6.2				—				6.2				—
Exit costs [4]			15.0				—				15.0				—
Transaction costs on long-term debt [5]			20.0				—				20.0				—
Other elements			1.4				0.8				1.6				1.9
Income tax adjustment [1] [6]			(13.4)				(9.8)				(29.0)				(10.9)
Normalized net income [1]			238.0				292.5				685.4				667.5
Normalized income tax expense [1]			65.4				87.6				198.2				219.4
Financing costs adjusted [1]			47.9				33.3				139.2				77.4
Financing income adjusted [1]			(4.5)				(0.3)				(8.9)				(2.8)
Depreciation expense adjusted [1]			98.1				74.8				281.2				216.8
Normalized EBITDA [1]			$444.9				$487.9				$1,295.1				$1,178.3

 

[1]	See “Non-IFRS Measures” section.

 

[2]	Transaction costs and depreciation of intangible assets related to business combinations.

 

[3]	During Fiscal 2024, the Company incurred incremental transport and idle costs such as direct labor, which were related to mitigation strategies implemented to handle the border crossing slowdown between Juarez, Mexico, where the Company has three factories, and El Paso, Texas, USA.

 

[4]	The Company impaired service parts inventory related to its Evinrude outboard engine production.

 

[5]	Derecognition of unamortized transaction costs related to the repricing of Term Loan B-2.

 

[6]	Income tax adjustment is related to the income tax on Normalized elements subject to tax and for which income tax has been recognized and to the adjustment related to the impact of foreign currency translation from Mexican operations.

The following table presents the reconciliation of net cash flows generated from operating activities to free cash flow ^[1].

 

(millions of Canadian dollars)		Nine-month periods ended
		October 31, 2023				October 31, 2022
Net cash flows generated from operating activities			$1,053.2				$342.3
Additions to property, plant and equipment			333.1				353.1
Additions to intangible assets			25.6				43.4
Free cash flow [1]			$694.5				$(54.2)

 

[1]	See “Non-IFRS Measures” section.

 

BRP Inc.		Management’s Discussion and Analysis		32

The following table presents the reconciliation of items as included in the Normalized net income ^[1] and Normalized EBITDA ^[1] compared to respective IFRS measures as well as the Normalized EPS – basic and diluted ^[1] calculation.

 

(millions of Canadian dollars, except per share data)		Three-month periods ended								Nine-month periods ended
		October 31, 2023				October 31, 2022				October 31, 2023				October 31, 2022
Depreciation expense reconciliation
Depreciation expense			$100.5				$76.3				$288.6				$220.4
Depreciation of intangible assets related to business combinations			2.4				1.5				7.4				3.6
Depreciation expense adjusted			$98.1				$74.8				$281.2				$216.8
Income tax expense reconciliation
Income tax expense			$52.0				$77.8				$169.2				$208.5
Income tax adjustment [2]			(13.4)				(9.8)				(29.0)				(10.9)
Normalized income tax expense [1]			$65.4				$87.6				$198.2				$219.4
Financing costs reconciliation
Financing costs			$67.9				$33.1				$159.4				$77.4
Transaction costs on long-term debt [3]			20.0				—				20.0				—
Other			—				(0.2)				0.2				—
Financing costs adjusted			$47.9				$33.3				$139.2				$77.4
Financing income reconciliation
Financing income			$(6.1)				$(0.3)				$(13.7)				$(4.6)
Gain on NCIB			(1.6)				—				(4.8)				(1.8)
Financing income adjusted			$(4.5)				$(0.3)				$(8.9)				$(2.8)
Normalized EPS - basic [1] calculation
Normalized net income [1]			$238.0				$292.5				$685.4				$667.5
Non-controlling interests			0.1				0.4				1.4				1.7
Weighted average number of shares - basic			76,514,017				78,735,106				77,736,259				79,573,969
Normalized EPS - basic [1]			$3.11				$3.71				$8.80				$8.37
Normalized EPS - diluted [1] calculation
Normalized net income [1]			$238.0				$292.5				$685.4				$667.5
Non-controlling interests			0.1				0.4				1.4				1.7
Weighted average number of shares - diluted			77,817,364				80,253,434				79,149,406				81,137,287
Normalized EPS - diluted [1]			$3.06				$3.64				$8.64				$8.21

 

[1]	See “Non-IFRS Measures” section.

 

[2]	Income tax adjustment is related to the income tax on Normalized elements subject to tax and for which income tax has been recognized and to the adjustment related to the impact of foreign currency translation from Mexican operations.

 

[3]	Derecognition of unamortized transaction costs related to the repricing of Term Loan B-2.

 

BRP Inc.		Management’s Discussion and Analysis		33