BRP Inc.

Sensitivity analysis

Actuarial assumptions that influence significantly the determination of the defined benefit obligations of the Company are the discount rate, the expected rate of compensation increase and the participants’ longevity. The sensitivity analyses below have been determined based on reasonably possible changes of the respective assumptions occurring at the end of the reporting period, while holding all other assumptions constant.

The impact on employee future benefit liabilities would be the following as at January 31, 2024:

The sensitivity analysis presented above may not be representative of the potential change in the employee future benefit liabilities as it is unlikely that the change in assumptions would occur in isolation from one another as some of the assumptions may be correlated.

The authorized capital stock of the Company is comprised of an unlimited number of multiple voting shares carrying six votes per share with no par value, an unlimited number of subordinate voting shares carrying one vote per share with no par value, and an unlimited number of

non-voting

preferred shares issuable in series with no par value.

The changes in capital stock issued and outstanding were as follows:

[a]

Amount of 2,171,428 related to secondary offering (described below) and 64,856 related to a Beaudier Inc. donation.

On November 30, 2023, the Company announced the renewal of its NCIB to repurchase for cancellation up t

o 3,231,999

of its outstanding subordinate voting shares over a twelve-month period commencing on December 5, 2023, and ending no later than December 4, 2024 (the “Current NCIB”). During the year ended January 31, 2024, the Company repurchased for cancellation 885,200 subordinate voting shares for a total consideration of $

79.1

million under the Current NCIB.

In addition, during the same period, the Company continued its share repurchases under the NCIB that was announced and started during the fiscal year ended January 31, 2023 (“Previous NCIB”, as defined hereafter). The Company repurchased for cancellation

3,519,398

subordinate voting shares, the total allowable under the program, for a total consideration of

$

367.1

million

.

During the year ended January 31, 2024, the Company recognized a gain of

$

4.8

million in financing income (gain of

$

1.8

million in financing income for the year ended January 31, 2023) related to an automatic share purchase plan. The gain represents the difference between the share price used to establish the financial liability at the end of each quarter and the amount actually paid to repurchase shares during the regulatory restrictions or self-imposed blackout periods.

For the year ended January 31, 2024, of the total consideration of $

446.2

million,

$

32.1

million represents the carrying amount of the shares repurchased,

$

418.9

million represents the amount charged to retained losses and

$

4.8

million represents the gain recognized in net income.

On November 30, 2022, the Company announced the renewal of its NCIB to repurchase for cancellation up to 3,519,398 of its outstanding subordinate voting shares (“Previous NCIB”) andno shares were purchased during the year ended January 31, 2023 under the Previous NCIB.

For the year ended January 31, 2023, of the total consideration of $47.2 million, $3.1 million represents the carrying amount of the shares repurchased, $45.9 million represents the amount charged to retained losses and $1.8 million represents the gain recognized in net income.

On January 26, 2024, Bain Capital Integral Investors II, L.P. (“Bain Capital”) completed a secondary offering of 2,000,000 subordinate voting shares of the Company through an underwriter and a distribution in kind of 171,428 subordinate voting shares to certain affiliates and limited partners. Prior to such transaction, Bain Capital converted 2,171,428 multiple voting shares into an equivalent number of subordinate voting shares. The Company did not receive any of the proceeds of the secondary offering. In accordance with the terms of the registration rights agreement entered into in connection with the initial public offering of the Company’s subordinate voting shares, the Company incurred approximately $0.9 million of fees and expenses related to this secondary offering.

For the year ended January 31, 2024, the company did

no

t repurchase for cancellation subordinate shares under a SIB.

On May 11, 2022, the Company repurchased for cancellation 2,427,184 subordinate voting shares following the completion of a SIB for a total consideration of $250.0 million, of which $16.1 million represents the carrying amount of the shares repurchased and $233.9 million represents the amount charged to retained losses. Prior to the completion of the SIB, Beaudier group converted 570,779 of multiple voting shares into an equivalent number of subordinate voting shares. These converted shares were repurchased and cancelled as part of the SIB. The Company incurred $1.0 million of fees and expenses relating to the SIB, which were recorded in capital stock.

During the year ended January 31, 2024, the Company declared four quarterly dividends of $0.18 per share for holders of its multiple voting shares and subordinate voting shares. The dividends were paid on April 17, 2023, July 14, 2023, October 13, 2023 and January 12, 2024 for a total consideration of $55.6 million to shareholders.

During the year ended January 31, 2023, the Company declared four quarterly dividends of $0.16 per share for holders of its multiple voting shares and subordinate voting shares. The dividends were paid on April 18, 2022, July 14, 2022, October 14, 2022 and January 13, 2023 for a total consideration of $50.8 million to shareholders.

A reserve of 10,814,828 subordinate voting shares are available to be granted in stock options to officers and employees under the Company’s stock option plan. Such stock options are time vesting and 25% of the options will vest on each of the first, second, third and fourth anniversary of the grant. The stock options have a

ten-year

term at the end of which the options expire.

Under the stock option plan existing prior to the initial public offering of the Company’s subordinate voting shares, the options vested or were eligible to vest in equal annual instalments on each of the five anniversary dates of the date of grant and were exercisable for a period of up toten years from the grant date.

The following table summarizes the weighted-average fair value of options granted and the main assumptions that were used to calculate the fair value during the years ended January 31, 2024 and 2023:

The Company uses the Black-Scholes option-pricing model to estimate the fair value of options granted. The expected volatility used in option pricing models is calculated based on historical volatility of similar listed entities.

The number of stock options varied as follows:

[

a]

The weighted average stock price on these exercised stock options was $101.46.

[b]

The weighted average stock price on these exercised stock options was $104.48

.

The following table summarizes information about stock options outstanding and exercisable, as at January 31,

2024:

The following table summarizes information about stock options outstanding and exercisable, as at January 31, 2023:

Share based compensation

expense of $18.7 million for the year ended January 31, 2024 ($19.5 million for the year ended January 31, 2023) has been recorded in general and administrative expenses in the consolidated statements of net income.

As at January 31, 2024, the total unrecognized compensation cost related to unvested share-based payments totalled $21.7 million ($22.0 million as at January 31, 2023).

Details of segment information were as

follows:

[a]

Including an impairment charge of $116.3 million related to the Marine segment.

The following table provides geographic information on Company’s revenues, property, plant and equipment, intangible assets and

assets. The attribution of revenues was based on customer locations.

Details of basic earnings per share were as follows:

Details of diluted earnings per share were as follows:

The average market value of the Company’s shares for purposes of calculating the dilutive effect of stock options was based on share value on the Toronto Stock Exchange for the period during which the options were outstanding.

Details of revenues were as follows:

Cost of sales comprise costs of inventories sold, production overheads unallocated to inventories, warranty and distribution costs, costs related to sales programs that involve a free product or service delivered to clients, write-down of inventories, reversal of write-down of inventories, depreciation of property, plant and equipment, intangible assets,

assets used to manufacture and net insurance gains related to inventory.

During the year ended January 31, 2024, the Company recorded $6,913.0 million of inventories in cost of sales ($6,664.6 million for the year ended January 31, 2023).

The Company’s government assistance, including tax credits, was as follows:

During the twelve-month period ended January 31, 2024, as a result of softening consumer demand for the boating industry and related decrease in financial performance, the Company determined that some of its cash-generating units (“CGU”) were impaired and recorded an impairment charge of $25.0 million related to intangible assets of Alumacraft Boat Co. CGU and $45.5 million related to Triton Industries, Inc. CGU. The Company also recorded an impairment charge of $17.8 million to property, plant and equipment of Alumacraft Boat Co. CGU and $25.5 million related to Triton Industries, Inc. CGU. The charges were determined by comparing the carrying amount of each CGU to its recoverable amount, which is the higher of the fair value less costs of disposal or the value in use. The recoverable amount for the impaired CGUs was based on a value in use (“VIU”) calculation using entity-based measurement. The Company has determined that the discounted cash flow (“DCF”) technique provided the best assessment of what each impaired CGU could be exchanged for in an arm’s length transaction. Fair value is represented by the present value of expected future cash flows of the business together with the residual value of the business at the end of the forecast period. The DCF technique was applied on an enterprise-value basis, where the after-tax cash flows prior to interest expense are discounted using a weighted average cost of capital. This approach requires assumptions regarding revenue growth rates, sustainable results, level of working capital, capital expenditures, tax rates and discount rates. The assumptions used in the DCF are Level 3 inputs (as defined thereafter in Note 31). The estimated future cash flows are discounted to their present value using a pre-tax discount rate ranging from 12.9% to 13.1%. These discount rates were calculated by adding to the Company’s weighted average cost of capital the risk factor associated with the product line tested. A growth rate of 1.5% was used to calculate the terminal value.

Details of other operating expenses (income) were as follows:

Details of financing costs and financing income were as follows:

Details of income tax expense were as follows:

The reconciliation of income taxes computed at the Canadian statutory rates to income tax expense recorded was as follows:

The income tax statutory rate is 26.5% for the year ended January 31, 2024 and 2023. The income tax statutory rate is the Bombardier Recreational Products Inc. combined rate applicable in jurisdictions in which it operates.

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company’s deferred income tax assets (liabilities) were as follows, as at:

As at January 31, 2024,

non-capital

losses amounted to $162.1 million ($256.9 million as at January 31, 2023), of which $125.9 million ($220.3 million as at January 31, 2023) is available to reduce future federal taxable income in the United States and $36.2 million ($36.6 million as at January 31, 2023) is available to reduce future taxable income in other tax jurisdictions.

As at January 31, 2024, the balance of deductible capital losses amounted to $110.1 million ($95.9 million as at January 31, 2023) and are available to offset future taxable capital gains in Canada for an unlimited period of time.

As at January 31, 2024, the Company has $57.6 million in investment tax credits receivable, of which $50.3 million is refundable and $7.3 million is available to reduce

future

income taxes in

the United States

(respectively $61.4 million, $51.0 million and $10.4 million as at January 31, 2023).

As at January 31, 2024 and 2023, deferred income taxes assets have been entirely recognized except for certain elements, consisting mainly of deductible capital losses carried forward, as the Canadian and Quebec taxation laws required those losses to be offset with available capital gains in order to be deductible.

In addition, deferred income taxes have not been provided for the undistributed earnings of foreign subsidiaries since either income taxes would not be applicable upon distribution of earnings or the Company determined that such earnings will be indefinitely reinvested. However, distribution in the form of dividends or otherwise from countries where earnings are indefinitely reinvested may be subject to income taxes.

In December 2021, the Organisation for Economic Co-operation and Development published the Global Anti-Base Erosion Model Rules (“GloBE Rules”) designed to ensure that a multinational enterprise is subject to tax at an effective minimum tax rate of 15% calculated under the GloBE Rules regardless of the jurisdictions where it operates. The GloBE Rules have been enacted or are in process of being enacted into the domestic law of many jurisdictions where the Company operates. Based on a preliminary assessment, the Company’s financial results should not be materially impacted.

The Company had related party transactions during the years ended January 31, 2024 and 2023. The most significant transactions are described below and were made on an arm’s length basis, unless otherwise indicated.

Key management personnel of the Company, defined as employees with authority and responsibility for planning, directing and controlling the activities of the Company, are considered related parties to the Company. The key management personnel of the Company are its directors and the executive officers.

The Company incurred the following benefit expenses in relation with key management personnel:

Pursuant to the purchase agreement entered into in 2003 in connection with the acquisition of the recreational product business of Bombardier Inc., the Company is committed to reimburse to Bombardier Inc. income taxes amounting to $22.4 million as at January 31, 2024 ($22.7 million as at January 31, 2023). The payments will begin when Bombardier Inc. starts making income tax payments in Canada and/or in the United States.

The fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair values of the Company’s financial instruments take into account the credit risk embedded in the instrument. For financial assets, the credit risk of the counterparty is considered whereas for financial liabilities, the Company’s credit risk is considered.

In order to determine the fair value of its financial instruments, the Company uses, when active markets exist, quoted prices from these markets (“Level 1” fair value). When public quotations are not available in the market, fair values are determined using valuation techniques. When inputs used in the valuation techniques are only inputs directly and indirectly observable in the marketplace, fair value is presented as “Level 2” fair value. If fair value is assessed using inputs that require considerable judgment from the Company in interpreting market data and developing estimates, fair value is presented as “Level 3” fair value. For Level 3 fair value, the use of different assumptions and/or estimation methodologies may have a material effect on the estimated fair values.

The fair value, fair value level and valuation techniques and inputs were as follows:

For cash and cash equivalents, trade and other receivables, Revolving Credit Facilities, trade payables and accruals, dealer holdback programs and customer deposits, the carrying amounts reported on the consolidated statements of financial position or in the notes approximate the fair values of these items due to their short-term nature. During the years ended January 31, 2024 and 2023, no changes in fair value level classifications occurred.

Cash includes $5.4 million held by BRP Saint Petersburg LLC ($10.2 million as at January 31, 2023). This cash is subject to regulatory restrictions and is therefore not available for general use by the other entities within the group.

The foreign exchange risk associated with financial instruments is defined by the risk that the future cash flows of a recorded financial instrument will fluctuate because of changes in foreign exchange rates. Foreign exchange risk associated with financial instruments arises from financial instruments denominated in a currency other than the functional currency of the Company.

The Company’s significant foreign exchange risk exposure associated with financial instruments are with Credit Facilities, trade and other receivables, trade payables and accruals, lease liabilities and derivative financial instruments.

The table below presents the impact on consolidated net income and consolidated other comprehensive income of a variation of foreign exchange rates on financial instruments subject to foreign exchange risks as at January 31, 2024 and 2023:

[a]

Based on variations that might exist at the closing dates.

[b]

Mainly from the long-term debt denominated in U.S. dollars.

The Company uses foreign exchange contracts to manage its foreign currency risks mainly in U.S. dollars and the Company uses short-term foreign exchange contracts to manage its daily cash position.

For currencies over which the Company cannot achieve an offset through its recurring business transactions, 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.

As at January 31, 2024, the maximum length of time over which the Company is hedging its exposure to variability in future cash flow from anticipated sales is 36 months. All foreign exchange contracts used to hedge highly probable anticipated sales are recorded under the cash flow hedge model. The Company does not trade in derivative financial instruments for speculative purposes.

The following tables set out the notional amounts outstanding under hedging foreign exchange contracts, the carrying amount, the average contractual exchange rates and the settlement periods of these

contracts:

[a]

Exchange rates

as at January 31, 2024 were used to translate notional amounts denominated in foreign currencies into Canadian

dollars.

[a]

Exchange

rates as at January 31, 2023 were used to translate notional amounts denominated in foreign currencies into Canadian dollars.

The following tables set out the notional amounts outstanding under foreign exchange contracts, the average contractual exchange rates and the settlement periods of these

contracts:

[a]

Exchange rates as at January 31, 2024 were used to translate notional amounts denominated in foreign currencies into Canadian dollars.

[a]

Exchange rates as at January 31, 2023 were used to translate notional amounts denominated in foreign currencies into Canadian dollars.

Liquidity risk is defined as the Company’s exposure to the risk of not being able to meet its financial obligations. The Company manages its liquidity risk by continuously monitoring its operating cash requirements and by the use of its funding sources to ensure its financial flexibility and mitigate its liquidity risk (see Note 31).

The following table summarizes the contractual maturities of the Company’s financial liabilities as at January 31, 2024:

The Company is exposed to the variation of interest rates on financial instruments mainly on its Credit Facilities. As at January 31, 2024,

an

increase of a 0.25 percentage base point would have resulted in an unfavourable impact of $6.9 million on consolidated net income and consolidated comprehensive income for the year ended January 31, 2024 (unfavorable $7.6 million as at January 31, 2023) while a decrease of a 0.25 percentage base point would have resulted in a favourable impact of $6.9 million (favourable $7.6 million as at January 31, 2023) on consolidated net income and consolidated comprehensive income for the year ended January 31, 2024 without considering the effects of hedging instruments. Percentage increases or decreases of interest rates above are based on changes that might exist at the consolidated statement of financial position dates and have been applied on the Company’s financial instruments subject to interest rate changes. To limit its exposure to interest rate increase, the Company entered into interest rate cap contracts.

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 agreements.

The Company considers that its credit risk associated with its trade receivables and its limited responsibilities under dealer and distributor financing agreements 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 its independent dealers’ and distributors’ credit.

The following table provides further details on receivables for which the Company considers to be exposed to credit risk as at January 31, 2024 and 2023:

The counterparties to the derivative financial instruments and restricted investments are all investment grade financial institutions, which the Company anticipates will satisfy their obligations under these contracts. Over the past years, the Company has not incurred significant losses related to credit risk on its financial assets.

As described in Note 33 a), the Company has provided financial guarantees to third party financing companies in case of dealers’ inability to meet their obligations under their financing agreements with the financing companies.

The Company’s primary uses of capital are for capital investments and working capital. Based on the current level of operations, management believes that cash on hand, cash flows from operations and available borrowings under the Credit Facilities will enable the Company to meet its working capital, capital expenditure, debt service and other funding requirements.

The Company’s capital is composed of long-term debt and shareholders’ equity. The Company’s aim is to maintain a level of capital that is adequate to meet several objectives, including an acceptable Leverage ratio in order to provide access to adequate funding sources to support current operations, pursue its internal growth strategy and maintain capital flexibility. The Company may repurchase subordinate voting shares for cancellation pursuant to a NCIB or SIB, issue capital stock, or vary the amount of dividends paid to shareholders.

The Company’s objective is to maintain a Leverage ratio of 3.5 or less, which was continuously achieved during the years ended January 31, 2024 and 2023.

In addition to the commitments and contingencies described elsewhere in these consolidated financial statements, the Company is subject to the following (all amounts presented are undiscounted):

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.

The outstanding financing between the Company’s independent dealers and distributors and third-party finance companies amounted to $3,469.2 million and $2,674.0 million as at January 31, 2024 and 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

was

as follows:

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.

The combined maximum obligation is generally within a range of:

i) U.S. $

14.0

million ($

18.7

million) or

% of the calendar year twelve-month average amount of financing outstanding under the financing agreements ($

19.3

million as at January 31, 2024) and;

ii) U.S.

$25.0 million ($33.5 million) or 10% of the last twelve-month average amount of financing outstanding under the financing agreements ($284.7 million as at January 31, 2024).

As such, the maximum amount subject to the Company’s obligation to purchase repossessed new and unused products from the finance companies was $304.0 million as at January 31, 2024 and $186.4 million as at January 31, 2023.

For the year ended January 31, 2024, the Company incurred a loss of

$

0.9

million related to new and unused products repossessed by the finance companies (didnot incur losses for the year ended January 31, 2023).

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.

The Company did not have any Substantially Completed Units in its network as at January 31, 2024, in compliance with its requirements.

In the normal course of business, the Company has entered into agreements that include indemnities in favour of third parties and which are customary in the industry, such as purchase and sale agreements, confidentiality agreements, engagement letters with advisors and consultants, outsourcing agreements, leasing contracts, underwriting and agency agreements, information technology agreements, and service agreements. These indemnification agreements may require the Company to compensate counterparties for losses they incurred as a result of breaches in representation and regulations or as a result of litigation claims or statutory sanctions that may be suffered as a consequence of the transaction.

The nature of these indemnification agreements prevents the Company from making a reasonable estimate of the maximum exposure due to the difficulties in assessing the amount of liability that stems from the unpredictability of future events and the unlimited coverage offered to counterparties. Historically, the Company has not made any significant payments under such or similar indemnification agreements.

The Company shall indemnify directors and officers of the Company for various losses including, but not limited to, all costs to settle suits or actions due to association with the Company, subject to certain restrictions. The Company has purchased directors’ and officers’ liability insurance to mitigate the cost of any potential future suits or actions. The term of the indemnification is not explicitly defined, but is limited to acts taking place during the period over which the indemnified party served as a trustee, director or officer of the Company. The maximum amount of any potential future payment cannot be reasonably estimated.

The Company intends to vigorously defend its position in litigation matters to which it is a party. Management believes the Company has recorded adequate provisions to cover potential

loss

es in relation to pending legal actions. Additionally, the Company has a general liability insurance coverage for claims relating to injuries or damages incurred with the Company’s products. This insurance coverage limits the potential losses associated with legal claims related to product usage.

While the final outcome with respect to actions pending as at January 31, 2024 cannot be predicted with certainty, it is the management’s opinion that their resolution will not have material effects on the Company’s future results of operations or cash flows.