Exhibit 99.1
Unaudited Condensed Consolidated Interim Financial Statements
BRP Inc.
For the three- and nine-month periods ended October 31, 2019 and 2018
BRP Inc.
CONDENSED CONSOLIDATED INTERIM STATEMENTS OF NET INCOME
[Unaudited]
[in millions of Canadian dollars, except per share data]
Three-month periods ended | Nine-month periods ended | |||||||||||||||||
Notes | October 31, 2019 | October 31, 2018 | October 31, 2019 | October 31, 2018 | ||||||||||||||
Revenues | 17 | $1,643.6 | $1,394.2 | $4,436.8 | $3,737.9 | |||||||||||||
Cost of sales | 1,201.7 | 1,037.4 | 3,366.5 | 2,819.4 | ||||||||||||||
Gross profit | 441.9 | 356.8 | 1,070.3 | 918.5 | ||||||||||||||
Operating expenses | ||||||||||||||||||
Selling and marketing | 104.6 | 86.8 | 293.6 | 248.8 | ||||||||||||||
Research and development | 60.3 | 51.6 | 173.7 | 158.2 | ||||||||||||||
General and administrative | 70.3 | 58.0 | 188.4 | 155.8 | ||||||||||||||
Other operating expenses (income) | 18 | (1.3 | ) | 3.3 | 7.7 | 9.6 | ||||||||||||
Total operating expenses | 233.9 | 199.7 | 663.4 | 572.4 | ||||||||||||||
Operating income | 208.0 | 157.1 | 406.9 | 346.1 | ||||||||||||||
Financing costs | 19 | 24.1 | 17.3 | 66.0 | 57.0 | |||||||||||||
Financing income | 19 | (0.3 | ) | (0.4 | ) | (1.9 | ) | (2.3 | ) | |||||||||
Foreign exchange loss on long-term debt | — | 10.2 | 0.4 | 69.0 | ||||||||||||||
Income before income taxes | 184.2 | 130.0 | 342.4 | 222.4 | ||||||||||||||
Income tax expense | 20 | 48.9 | 39.8 | 90.0 | 77.8 | |||||||||||||
Net income | $135.3 | $90.2 | $252.4 | $144.6 | ||||||||||||||
Attributable to shareholders | $135.6 | $90.3 | $253.0 | $144.3 | ||||||||||||||
Attributable tonon-controlling interest | $(0.3 | ) | $(0.1 | ) | $(0.6 | ) | $0.3 | |||||||||||
Basic earnings per share | 16 | $1.51 | $0.93 | $2.69 | $1.46 | |||||||||||||
Diluted earnings per share | 16 | $1.49 | $0.92 | $2.66 | $1.44 |
The accompanying notes are an integral part of these unaudited condensed consolidated interim financial statements.
2
BRP Inc.
CONDENSED CONSOLIDATED INTERIM STATEMENTS OF COMPREHENSIVE INCOME
[Unaudited]
[in millions of Canadian dollars]
Three-month periods ended | Nine-month periods ended | |||||||||||||||
October 31, 2019 | October 31, 2018 | October 31, 2019 | October 31, 2018 | |||||||||||||
Net income | $135.3 | $90.2 | $252.4 | $144.6 | ||||||||||||
Other comprehensive income (loss) | ||||||||||||||||
Items that will be reclassified subsequently to net income | ||||||||||||||||
Net changes in fair value of derivatives designated as cash flow hedges | 2.5 | (4.6 | ) | 3.5 | (1.9 | ) | ||||||||||
Net changes in unrealized loss on translation of foreign operations | (0.2 | ) | (11.0 | ) | (10.6 | ) | (18.5 | ) | ||||||||
Income tax (expense) recovery | 0.2 | 0.8 | (0.8 | ) | 0.1 | |||||||||||
2.5 | (14.8 | ) | (7.9 | ) | (20.3 | ) | ||||||||||
Items that will not be reclassified subsequently to net income | ||||||||||||||||
Actuarial gains (losses) on defined benefit pension plans | 11.7 | (7.4 | ) | (43.1 | ) | 13.0 | ||||||||||
Gain (loss) on fair value of restricted investments | — | (0.3 | ) | 0.7 | (0.5 | ) | ||||||||||
Income tax (expense) recovery | (3.2 | ) | 2.0 | 10.9 | (3.4 | ) | ||||||||||
8.5 | (5.7 | ) | (31.5 | ) | 9.1 | |||||||||||
Total other comprehensive income (loss) | 11.0 | (20.5 | ) | (39.4 | ) | (11.2 | ) | |||||||||
Total comprehensive income | $146.3 | $69.7 | $213.0 | $133.4 | ||||||||||||
Attributable to shareholders | $146.6 | $69.8 | $213.7 | $133.2 | ||||||||||||
Attributable tonon-controlling interest | $(0.3 | ) | $(0.1 | ) | $(0.7 | ) | $0.2 |
The accompanying notes are an integral part of these unaudited condensed consolidated interim financial statements.
3
BRP Inc.
CONDENSED CONSOLIDATED INTERIM STATEMENTS OF FINANCIAL POSITION
[Unaudited]
[in millions of Canadian dollars]
As at
Notes | October 31, 2019 | January 31, 2019 | ||||||||
Cash | $123.9 | $100.0 | ||||||||
Trade and other receivables | 375.4 | 388.3 | ||||||||
Income taxes and investment tax credits receivable | 11.7 | 13.6 | ||||||||
Other financial assets | 5 | 8.5 | 12.8 | |||||||
Inventories | 6 | 1,252.3 | 946.2 | |||||||
Other current assets | 26.6 | 24.9 | ||||||||
Total current assets | 1,798.4 | 1,485.8 | ||||||||
Investment tax credits receivable | 11.9 | 14.5 | ||||||||
Other financial assets | 5 | 20.2 | 20.0 | |||||||
Property, plant and equipment | 960.0 | 905.1 | ||||||||
Intangible assets | 7 | 607.0 | 478.7 | |||||||
Right-of-use assets | 8 | 189.0 | — | |||||||
Deferred income taxes | 214.4 | 169.6 | ||||||||
Othernon-current assets | 3.8 | 3.5 | ||||||||
Totalnon-current assets | 2,006.3 | 1,591.4 | ||||||||
Total assets | $3,804.7 | $3,077.2 | ||||||||
Trade payables and accruals | $1,178.2 | $1,003.5 | ||||||||
Provisions | 10 | 427.6 | 408.6 | |||||||
Other financial liabilities | 11 | 146.6 | 108.3 | |||||||
Income tax payable | 68.4 | 68.3 | ||||||||
Deferred revenues | 69.5 | 71.3 | ||||||||
Current portion of long-term debt | 12 | 19.4 | 18.4 | |||||||
Current portion of lease liabilities | 8 | 29.1 | — | |||||||
Total current liabilities | 1,938.8 | 1,678.4 | ||||||||
Long-term debt | 12 | 1,622.2 | 1,197.1 | |||||||
Lease liabilities | 8 | 185.7 | — | |||||||
Provisions | 10 | 118.1 | 111.6 | |||||||
Other financial liabilities | 11 | 47.7 | 28.4 | |||||||
Deferred revenues | 141.7 | 129.7 | ||||||||
Employee future benefit liabilities | 274.6 | 237.1 | ||||||||
Deferred income taxes | 14.9 | 0.9 | ||||||||
Othernon-current liabilities | 19.4 | 16.8 | ||||||||
Totalnon-current liabilities | 2,424.3 | 1,721.6 | ||||||||
Total liabilities | 4,363.1 | 3,400.0 | ||||||||
Deficit | (558.4 | ) | (322.8 | ) | ||||||
Total liabilities and deficit | $3,804.7 | $3,077.2 |
The accompanying notes are an integral part of these unaudited condensed consolidated interim financial statements.
4
BRP Inc.
CONDENSED CONSOLIDATED INTERIM STATEMENTS OF CHANGES IN EQUITY
[Unaudited]
[in millions of Canadian dollars]
For the nine-month period ended October 31, 2019
Attributed to shareholders | ||||||||||||||||||||||||||||||||
Capital (Note 13) | Contributed surplus | Retained losses | Translation of foreign operations | Cash- flow hedges | Total | Non- controlling | Total deficit | |||||||||||||||||||||||||
Balance as at January 31, 2019, as previously reported | $217.8 | $38.3 | $(596.3 | ) | $17.0 | $(4.8 | ) | $(328.0 | ) | $5.2 | $(322.8 | ) | ||||||||||||||||||||
Adjustment for IFRS 16 (net of tax) (Note 8) | — | — | (16.7 | ) | — | — | (16.7 | ) | (0.1 | ) | (16.8 | ) | ||||||||||||||||||||
Balance as at February 1, 2019 | 217.8 | 38.3 | (613.0 | ) | 17.0 | (4.8 | ) | (344.7 | ) | 5.1 | (339.6 | ) | ||||||||||||||||||||
Net income (loss) | — | — | 253.0 | — | — | 253.0 | (0.6 | ) | 252.4 | |||||||||||||||||||||||
Other comprehensive income (loss) | — | — | (31.5 | ) | (10.5 | ) | 2.7 | (39.3 | ) | (0.1 | ) | (39.4 | ) | |||||||||||||||||||
Total comprehensive income (loss) | — | — | 221.5 | (10.5 | ) | 2.7 | 213.7 | (0.7 | ) | 213.0 | ||||||||||||||||||||||
Dividends | — | — | (28.3 | ) | — | — | (28.3 | ) | — | (28.3 | ) | |||||||||||||||||||||
Issuance of subordinate shares | 10.4 | (3.2 | ) | — | — | — | 7.2 | — | 7.2 | |||||||||||||||||||||||
Repurchase of subordinate shares (Note 13) | (42.0 | ) | — | (379.0 | ) | — | — | (421.0 | ) | — | (421.0 | ) | ||||||||||||||||||||
Stock-based compensation | — | 10.3 | [a] | — | — | — | 10.3 | — | 10.3 | |||||||||||||||||||||||
Non-controlling interest arising on business combination (Note 4) | — | — | — | — | — | — | 19.4 | 19.4 | ||||||||||||||||||||||||
Obligation to repurchase anon-controlling interest (Note 4) | — | — | — | — | — | — | (19.4 | ) | (19.4 | ) | ||||||||||||||||||||||
Balance as at October 31, 2019 | $186.2 | $45.4 | $(798.8 | ) | $6.5 | $(2.1 | ) | $(562.8 | ) | $4.4 | $(558.4 | ) |
[a] | Includes $0.8 million of income tax recovery. |
For the nine-month period ended October 31, 2018
Attributed to shareholders | ||||||||||||||||||||||||||||||||
Capital Stock | Contributed surplus | Retained losses | Translation of foreign operations | Cash- flow hedges | Total | Non- controlling | Total deficit | |||||||||||||||||||||||||
Balance as at January 31, 2018 | $234.8 | $(7.8 | ) | $(551.8 | ) | $27.7 | $0.1 | $(297.0 | ) | $5.0 | $(292.0 | ) | ||||||||||||||||||||
Net income | — | — | 144.3 | — | — | 144.3 | 0.3 | 144.6 | ||||||||||||||||||||||||
Other comprehensive income (loss) | — | — | 9.1 | (18.4 | ) | (1.8 | ) | (11.1 | ) | (0.1 | ) | (11.2 | ) | |||||||||||||||||||
Total comprehensive income (loss) | — | — | 153.4 | (18.4 | ) | (1.8 | ) | 133.2 | 0.2 | 133.4 | ||||||||||||||||||||||
Dividends | — | — | (26.6 | ) | — | — | (26.6 | ) | — | (26.6 | ) | |||||||||||||||||||||
Issuance of subordinate shares | 9.3 | (3.1 | ) | — | — | — | 6.2 | — | 6.2 | |||||||||||||||||||||||
Repurchase of subordinate shares | (26.4 | ) | 38.6 | (223.0 | ) | — | — | (210.8 | ) | — | (210.8 | ) | ||||||||||||||||||||
Stock-based compensation | — | 8.8 | [a] | — | — | — | 8.8 | — | 8.8 | |||||||||||||||||||||||
Balance as at October 31, 2018 | $217.7 | $36.5 | $(648.0 | ) | $9.3 | $(1.7 | ) | $(386.2 | ) | $5.2 | $(381.0 | ) |
[a] | Includes $0.2 million of income tax recovery. |
The accompanying notes are an integral part of these unaudited condensed consolidated interim financial statements.
5
BRP Inc.
CONDENSED CONSOLIDATED INTERIM STATEMENTS OF CASH FLOWS
[Unaudited]
[in millions of Canadian dollars]
Nine-month periods ended | ||||||||||
Notes | October 31, 2019 | October 31, 2018 | ||||||||
OPERATING ACTIVITIES | ||||||||||
Net income | $252.4 | $144.6 | ||||||||
Non-cash andnon-operating items: | ||||||||||
Depreciation expense | 170.9 | 123.7 | ||||||||
Income tax expense | 20 | 90.0 | 77.8 | |||||||
Foreign exchange loss on long-term debt | 0.4 | 69.0 | ||||||||
Interest expense and transaction costs | 19 | 58.3 | 48.8 | |||||||
Other | 10.0 | 2.1 | ||||||||
Cash flows generated from operations before changes in working capital | 582.0 | 466.0 | ||||||||
Changes in working capital: | ||||||||||
Decrease in trade and other receivables | 7.4 | 4.6 | ||||||||
Increase in inventories | (309.3 | ) | (249.9 | ) | ||||||
Increase in other assets | (7.5 | ) | (21.8 | ) | ||||||
Increase in trade payables and accruals | 177.2 | 224.9 | ||||||||
Increase in other financial liabilities | 35.9 | 16.1 | ||||||||
Increase (decrease) in provisions | 23.9 | (13.4 | ) | |||||||
Increase in other liabilities | 10.4 | 5.7 | ||||||||
Cash flows generated from operations | 520.0 | 432.2 | ||||||||
Income taxes paid, net of refunds | (103.3 | ) | (53.7 | ) | ||||||
Net cash flows generated from operating activities | 416.7 | 378.5 | ||||||||
INVESTING ACTIVITIES | ||||||||||
Business combinations, net of acquired cash | 4 | (114.4 | ) | (177.5 | ) | |||||
Additions to property, plant and equipment | (164.5 | ) | (173.2 | ) | ||||||
Additions to intangible assets | 7 | (38.4 | ) | (7.6 | ) | |||||
Other | 0.2 | 0.8 | ||||||||
Net cash flows used in investing activities | (317.1 | ) | (357.5 | ) | ||||||
FINANCING ACTIVITIES | ||||||||||
Decrease in revolving credit facilities | (0.3 | ) | (1.3 | ) | ||||||
Issuance of long-term debt | 12 | 457.3 | 145.7 | |||||||
Long-term debt amendment fees | 12 | (6.5 | ) | (8.9 | ) | |||||
Repayment of long-term debt | 12 | (12.9 | ) | (9.4 | ) | |||||
Repayment of lease liabilities | 8 | (23.0 | ) | — | ||||||
Interest paid | (56.5 | ) | (37.6 | ) | ||||||
Issuance of subordinate voting shares | 7.2 | 6.2 | ||||||||
Repurchase of subordinate voting shares | 13 | (415.4 | ) | (248.6 | ) | |||||
Dividends paid | (28.3 | ) | (26.6 | ) | ||||||
Other | (2.0 | ) | (2.3 | ) | ||||||
Net cash flows used in financing activities | (80.4 | ) | (182.8 | ) | ||||||
Effect of exchange rate changes on cash | 4.7 | (2.7 | ) | |||||||
Net increase (decrease) in cash | 23.9 | (164.5 | ) | |||||||
Cash at the beginning of period | 100.0 | 226.0 | ||||||||
Cash at the end of period | $123.9 | $61.5 |
The accompanying notes are an integral part of these unaudited condensed consolidated interim financial statements.
6
BRP Inc.
NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
For the three- and nine-month periods ended October 31, 2019 and 2018
[Unaudited]
[Tabular figures are in millions of Canadian dollars, unless otherwise indicated]
1. | NATURE OF OPERATIONS |
BRP Inc. (“BRP”) is incorporated under the laws of Canada. BRP’s multiple voting shares are owned by Beaudier Inc. and 4338618 Canada Inc. (collectively, “Beaudier Group”), Bain Capital Luxembourg Investments S.à r.l. (“Bain Capital”) and La Caisse de dépôt et placement du Québec (“CDPQ”), (collectively, the “Principal Shareholders”) whereas BRP’s subordinate voting shares are listed in Canada on the Toronto Stock Exchange under the symbol DOO and in the United States on the Nasdaq Global Select Market under the symbol DOOO.
BRP and its subsidiaries (the “Company”) design, develop, manufacture and sell powersports vehicles and marine products. The Company’s Powersports segment comprises “Year-Round Products” which consist ofall-terrain vehicles,side-by-side vehicles and three-wheeled vehicles; “Seasonal Products” which consist of snowmobiles and personal watercraft; and “Powersports PAC and OEM Engines” which consist of parts, accessories and clothing (“PAC”), engines for karts, motorcycles and recreational aircraft and other services. Additionally, the Company’s “Marine” segment consist of outboard and jet boat engines, boats and related PAC and other services. The Company’s products are sold mainly through a network of independent dealers, independent distributors and to original equipment manufacturers (the “Customers”). The Company distributes its products worldwide and manufactures them in Canada, Mexico, Austria, the United States, Finland and Australia.
The Company’s headquarters is located at 726 Saint-Joseph Street, Valcourt, Québec, J0E 2L0.
2. | BASIS OF PRESENTATION |
These unaudited condensed consolidated interim financial statements for the three- and nine-month periods ended October 31, 2019 and 2018 have been prepared using accounting policies consistent with International Financial Reporting Standards as issued by the International Accounting Standards Board (“IFRS”) and in accordance withIAS 34 “Interim Financial Reporting”. These unaudited condensed consolidated interim financial statements for the three- and nine-month periods ended October 31, 2019 and 2018 follow the same accounting policies as the audited consolidated financial statements for the year ended January 31, 2019, except for the adoption ofIFRS 16 “Leases” as described in note 8 and, as such, should be read in conjunction with them.
These unaudited condensed consolidated interim financial statements include the financial statements of BRP and its subsidiaries. BRP controls all of its subsidiaries that are wholly owned through voting equity interests, except for Regionales Innovations Centrum GmbH in Austria for which anon-controlling interest of 25% is recorded upon consolidation, BRP Commerce & Trade Co. Ltd in China for which anon-controlling interest of 20% is recorded upon consolidation and Telwater Pty Ltd in Australia for which there is anon-controlling interest of 20%. BRP is also part of joint ventures located in Austria. All inter-company transactions and balances have been eliminated upon consolidation.
The Company’s revenues and operating income experience substantial fluctuations from quarter to quarter. In general, wholesale of the Company’s products are higher in the period immediately preceding and during their particular 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.
On November 26, 2019, the Board of Directors of the Company approved these unaudited condensed consolidated interim financial statements for the three- and nine-month periods ended October 31, 2019 and 2018.
7
BRP Inc.
NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
For the three- and nine-month periods ended October 31, 2019 and 2018
[Unaudited]
[Tabular figures are in millions of Canadian dollars, unless otherwise indicated]
3. | FUTURE ACCOUNTING CHANGES |
Amendments to IFRS 3 Business combinations
In October 2018, the IASB issued amendments toIFRS 3 “Business combinations”. The amendments clarify the definition of a business, with the objective of assisting entities in determining whether a transaction should be accounted for as a business combination or as an asset acquisition. The amendments are effective for the Company to transactions for which the acquisition date is on or after February 1, 2020. The Company is currently assessing the impact of the adoption of these amendments on its consolidated financial statements.
Other standards or amendments
The IASB issued other standards or amendments to existing standards that are not expected to have a significant impact on the Company’s consolidated financial statements.
4. | BUSINESS COMBINATIONS |
On August 1, 2019, the Company acquired 80% of the outstanding shares of Telwater Pty Ltd (“Telwater”) for a purchase consideration of Australian $122.2 million ($114.4 million), paid in cash. Telwater is located in Coomera, Queensland (Australia) and is a manufacturer of boats under brands such as Quintrex, Stacer and Savage.
The acquisition allows the Company to pursue its growth strategy in the marine market, and to create synergies with the existing operations of the Company.
The preliminary value of the assets acquired, liabilities assumed andnon-controlling interest were as follows, as at the acquisition date:
Total | ||||
Assets acquired | ||||
Current assets | $14.4 | |||
Non-current assets | 1.7 | |||
Property, plant and equipment | 35.0 | |||
Trademarks | 19.7 | |||
Dealer network | 28.2 | |||
Goodwill[a][b] | 61.0 | |||
Total assets acquired | 160.0 | |||
Liabilities assumed | ||||
Current liabilities | (10.5 | ) | ||
Non-current liabilities | (15.7 | ) | ||
Total liabilities assumed | (26.2 | ) | ||
Non-controlling interest[c] | (19.4 | ) | ||
Total consideration paid in cash | $114.4 |
[a] | Goodwill arises principally from expected synergies and future growth. |
[b] | Goodwill is not deductible for tax purposes. |
[c] | Non-controlling interest is measured at fair value as at the acquisition date. |
8
BRP Inc.
NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
For the three- and nine-month periods ended October 31, 2019 and 2018
[Unaudited]
[Tabular figures are in millions of Canadian dollars, unless otherwise indicated]
4. | BUSINESS COMBINATIONS [CONTINUED] |
The Company’s unaudited condensed consolidated statement of net income include the operating results of Telwater since the acquisition date. For the the three- and nine-month periods ended October 31, 2019, it represents revenues of $19.8 million. Net income for the three- and nine-month periods ended October 31, 2019 was not significant.
If the Company had acquired Telwater at the beginning of the the nine-month period ended October 31, 2019, it would have increased revenues by approximately $28 million.
The Company incurred acquisition-related costs of $0.9 million, which have been recorded in general and administrative expenses.
The Company will finalize the accounting for this acquisition during the next quarters, specifically the assessment of the fair value of assets acquired and liabilities assumed, and goodwill related to this acquisition.
As part of the acquisition, the Company and thenon-controlling interest shareholders in Telwater (the “Parties”) entered into put and call options, exercisable by the Parties at any time after the second anniversary of the acquisition, allowing or requiring the Company to acquire all the remaining shares for cash consideration according to a predetermined purchase price formula based on Telwater performance. At the acquisition date, the Company recorded a financial liability and reduced thenon-controlling interests by $19.4 million, representing the estimated present value of the redemption amount. As a result, no profit is attributed to thenon-controlling interest. Subsequent remeasurement adjustments of the financial liability will be recorded in the consolidated statements of net income.
5. | OTHER FINANCIAL ASSETS |
The Company’s other financial assets were as follows, as at:
October 31, 2019 | January 31, 2019 | |||||||
Restricted investments[a] | $14.4 | $15.7 | ||||||
Derivative financial instruments | 2.7 | 3.4 | ||||||
Other | 11.6 | 13.7 | ||||||
Total other financial assets | $28.7 | $32.8 | ||||||
Current | 8.5 | 12.8 | ||||||
Non-current | 20.2 | 20.0 | ||||||
Total other financial assets | $28.7 | $32.8 |
[a] | The restricted investments are publicly traded bonds that can only be used for severance payments and pension costs associated with Austrian pension plans, and are not available for general corporate use. |
Thenon-current portion is mainly attributable to the restricted investments.
9
BRP Inc.
NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
For the three- and nine-month periods ended October 31, 2019 and 2018
[Unaudited]
[Tabular figures are in millions of Canadian dollars, unless otherwise indicated]
6. | INVENTORIES |
The Company’s inventories were as follows, as at:
October 31, 2019 | January 31, 2019 | |||||||
Materials and work in progress | $463.3 | $396.6 | ||||||
Finished products | 536.3 | 339.5 | ||||||
Parts, accessories and clothing | 252.7 | 210.1 | ||||||
Total inventories | $1,252.3 | $946.2 |
The Company recognized in the condensed consolidated interim statements of net income during the three- and nine-month periods ended October 31, 2019, a write-down on inventories of $7.4 million and $15.0 million respectively ($3.7 million and $10.3 million respectively during the three- and nine-month periods ended October 31, 2018).
7. | INTANGIBLE ASSETS |
The Company’s intangible assets were as follows, as at:
October 31, 2019 | January 31, 2019 | |||||||||||||||||||||||||||
Cost | Accumulated depreciation | Carrying amount | Cost | Accumulated depreciation | Carrying amount | |||||||||||||||||||||||
Goodwill | $231.3 | $— | $231.3 | $169.4 | $— | $169.4 | ||||||||||||||||||||||
Trademarks | 219.5 | — | 219.5 | 199.8 | — | 199.8 | ||||||||||||||||||||||
Software and licences | 160.7 | 91.9 | 68.8 | 131.5 | 84.3 | 47.2 | ||||||||||||||||||||||
Patents | 5.3 | 0.7 | 4.6 | — | — | — | ||||||||||||||||||||||
Dealer networks | 137.4 | 58.5 | 78.9 | 109.3 | 52.3 | 57.0 | ||||||||||||||||||||||
Customer relationships | 23.6 | 19.7 | 3.9 | 24.2 | 18.9 | 5.3 | ||||||||||||||||||||||
Total | $777.8 | $170.8 | $607.0 | $634.2 | $155.5 | $478.7 |
The following table explains the changes in Company’s intangible assets during the nine-month period ended October 31, 2019:
Carrying amount as at January 31, 2019 | Additions | Business combinations | Transfer to (Note 8) | Depreciation | Effect of foreign currency exchange rate changes | Carrying amount as at October 31, 2019[a] | ||||||||||||||||||||||
Goodwill | $169.4 | $— | $61.8 | [a] | $— | $— | $0.1 | $231.3 | ||||||||||||||||||||
Trademarks | 199.8 | — | 19.7 | — | — | — | 219.5 | |||||||||||||||||||||
Software and licences | 47.2 | 32.7 | — | (0.7 | ) | (9.9 | ) | (0.5 | ) | 68.8 | ||||||||||||||||||
Patents | — | 4.9 | — | — | (0.4 | ) | 0.1 | 4.6 | ||||||||||||||||||||
Dealer networks | 57.0 | — | 28.2 | — | (6.2 | ) | (0.1 | ) | 78.9 | |||||||||||||||||||
Customer relationships | 5.3 | — | — | — | (1.3 | ) | (0.1 | ) | 3.9 | |||||||||||||||||||
Total | $478.7 | $37.6 | $109.7 | $(0.7 | ) | $(17.8 | ) | $(0.5 | ) | $607.0 |
[a] | Includes $0.8 million of post-closing adjustments related to a previous business combination. |
10
BRP Inc.
NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
For the three- and nine-month periods ended October 31, 2019 and 2018
[Unaudited]
[Tabular figures are in millions of Canadian dollars, unless otherwise indicated]
8. | LEASES |
In January 2016, the International Accounting Standards Board issuedIFRS 16 “Leases” (“IFRS 16”) that sets out the principles for recognition, measurement, presentation and disclosure of leases for both lessee and lessor. IFRS 16 introduces a single lessee accounting model and requires lessees to recognize aright-of-use asset and a lease liability measured at the present value of the future lease payments on the statements of financial position for a majority of its leases that were considered operating leases underIAS 17 “Leases” (“IAS 17”). A depreciation expense on theright-of-use asset and an interest expense on the lease liability replace the operating lease expense. IFRS 16 changes the presentation of cash flows relating to leases in the statements of cash flows but does not cause a difference in the amount of cash transferred between the parties of a lease.
The Company decided to apply the standard retrospectively with the cumulative effect of initially applying the standard recognized as an adjustment to the opening balance of retained earnings as at February 1, 2019, the date of initial application, in accordance with the transition rules of IFRS 16. Therefore, the Company has not restated comparative information. The methodology consisted of measuring theright-of-use asset at the date of transition as if IFRS 16 had been applied since the commencement date of the lease but discounted using the incremental borrowing rate at the date of initial application.
The Company applied the standard to contracts that were previously identified as leases applying IAS 17 andIFRIC 4 “Determining Whether an Arrangement Contains a Lease” (“IFRIC 4”) at the date of initial application and maintained the lease assessments made under IAS 17 and IFRIC 4. Therefore, the definition of a lease under IFRS 16 was applied only to contracts signed or changed after February 1, 2019.
On initial application, the Company also applied the practical expedients to use hindsight in determining the lease term when the contract contains options to extend or terminate the lease, to rely on its assessment of whether leases are onerous immediately before the date of initial application instead of performing an impairment review, to exclude initial direct costs from the measurement of theright-of-use asset and to not separatenon-lease components from lease component and instead account for each lease component and any associatednon-lease components as a single lease component.
Following the adoption of IFRS 16, the Company revised its lease accounting policy. The revised policy is as follows:
At inception, the Company assesses whether the contract is or contains a lease. Leases are recognized asright-of-use assets and lease liabilities at the lease commencement date. Payments associated with short-term leases (defined as leases with a lease term of 12 months or less) and leases oflow-value assets are recognized as an expense.
11
BRP Inc.
NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
For the three- and nine-month periods ended October 31, 2019 and 2018
[Unaudited]
[Tabular figures are in millions of Canadian dollars, unless otherwise indicated]
8. | LEASES [CONTINUED] |
The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted by using the incremental borrowing rate at the lease commencement date if the interest rate implicit in the lease is not readily determinable. Lease liabilities include the net present value of the following lease payments (when applicable):
● | Fixed payments (includingin-substance fixed payments), less any lease incentives; |
● | Variable lease payments that are based on an index or a rate; |
● | Amounts expected to be payable under residual value guarantees; |
● | Exercise price of purchase options if the Company is reasonably certain to exercise that option; and |
● | Penalties for early termination of a lease, except if the Company is reasonably certain not to terminate early. |
The lease liability is subsequently measured at amortized cost using the effective interest rate method. The lease liability is remeasured, and a corresponding adjustment is made to the carrying amount of theright-of-use assets, when there is a change in future lease payments arising from a change in an index or rate, from a change in the estimation of a residual value guarantee or from a change in the assumption of purchase, extension or termination option. The lease liability is also remeasured when the underlying lease contract is amended.
Theright-of-use asset is initially measured at cost, which includes the initial measurement of the corresponding lease liability, lease payments made at or before the commencement date and any initial direct costs, less any incentives received. Theright-of-use assets are depreciated over the shorter period of lease term and useful life of the underlying asset. The depreciation starts at the commencement date of the lease.
Following the adoption of IFRS 16, management was required to make estimates and judgments, which are as follows:
Management makes estimates in the determination of the incremental borrowing rate used to measure the lease liability for each lease contract when the interest rate implicit in the lease is not readily available. The incremental borrowing rate should reflect the interest rate the Company’s would have to pay to borrow the same asset at a similar term and with a similar security.
On commencement date, when determining the lease term, management considers all facts and circumstances that create an economic incentive to exercise an extension option or not exercise a termination option. Extension options or periods subject to termination options are only included in the lease term if the lease is reasonably certain to be extended or not terminated. This assessment is reviewed if a significant change in circumstances occurs within the Company’s control.
12
BRP Inc.
NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
For the three- and nine-month periods ended October 31, 2019 and 2018
[Unaudited]
[Tabular figures are in millions of Canadian dollars, unless otherwise indicated]
8. | LEASES [CONTINUED] |
The effect of adoption of IFRS 16 on the condensed consolidated interim statements of financial position as at February 1, 2019 was as follows:
As reported as at January 31, 2019 | Effect of IFRS 16 transition | Subsequent to transition as at February 1, 2019 | ||||||||||
Cash | $100.0 | $— | $100.0 | |||||||||
Trade and other receivables | 388.3 | — | 388.3 | |||||||||
Income taxes and investment tax credits receivable | 13.6 | — | 13.6 | |||||||||
Other financial assets | 12.8 | — | 12.8 | |||||||||
Inventories | 946.2 | — | 946.2 | |||||||||
Other current assets | 24.9 | (0.9 | ) | 24.0 | ||||||||
Total current assets | 1,485.8 | (0.9 | ) | 1,484.9 | ||||||||
Investment tax credits receivable | 14.5 | — | 14.5 | |||||||||
Other financial assets | 20.0 | — | 20.0 | |||||||||
Property, plant and equipment | 905.1 | (7.3 | ) [a] | 897.8 | ||||||||
Intangible assets | 478.7 | (0.7 | ) [b] | 478.0 | ||||||||
Right-of-use assets | — | 192.4 | 192.4 | |||||||||
Deferred income taxes | 169.6 | 6.6 | 176.2 | |||||||||
Othernon-current assets | 3.5 | — | 3.5 | |||||||||
Totalnon-current assets | 1,591.4 | 191.0 | 1,782.4 | |||||||||
Total assets | $3,077.2 | $190.1 | $3,267.3 | |||||||||
Trade payables and accruals | $1,003.5 | $— | $1,003.5 | |||||||||
Provisions | 408.6 | — | 408.6 | |||||||||
Other financial liabilities | 108.3 | (0.1 | ) | 108.2 | ||||||||
Income tax payable | 68.3 | — | 68.3 | |||||||||
Deferred revenues | 71.3 | — | 71.3 | |||||||||
Current portion of long-term debt | 18.4 | (1.6 | ) [c] | 16.8 | ||||||||
Current portion of lease liabilities | — | 29.9 | 29.9 | |||||||||
Total current liabilities | 1,678.4 | 28.2 | 1,706.6 | |||||||||
Long-term debt | 1,197.1 | (7.5 | ) [c] | 1,189.6 | ||||||||
Lease liabilities | — | 187.2 | 187.2 | |||||||||
Provisions | 111.6 | — | 111.6 | |||||||||
Other financial liabilities | 28.4 | (1.0 | ) | 27.4 | ||||||||
Deferred revenues | 129.7 | — | 129.7 | |||||||||
Employee future benefit liabilities | 237.1 | — | 237.1 | |||||||||
Deferred income taxes | 0.9 | — | 0.9 | |||||||||
Othernon-current liabilities | 16.8 | — | 16.8 | |||||||||
Totalnon-current liabilities | 1,721.6 | 178.7 | 1,900.3 | |||||||||
Total liabilities | 3,400.0 | 206.9 | 3,606.9 | |||||||||
Deficit | (322.8 | ) | (16.8 | ) | (339.6 | ) | ||||||
Total liabilities and deficit | $3,077.2 | $190.1 | $3,267.3 |
[a] | Leased equipment of $4.7 million and leased building of $2.6 million under IAS 17 reclassified withinright-of-use assets under IFRS 16. |
[b] | Leased software and licences of $0.7 million under IAS 17 reclassified withinright-of-use assets under IFRS 16. |
[c] | Finance lease liabilities of $9.1 million under IAS 17 reclassified within lease liabilities under IFRS 16. |
13
BRP Inc.
NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
For the three- and nine-month periods ended October 31, 2019 and 2018
[Unaudited]
[Tabular figures are in millions of Canadian dollars, unless otherwise indicated]
8. | LEASES [CONTINUED] |
The weighted average incremental borrowing rate applied to the lease liabilities as at February 1, 2019 was 4.12%. Prior to adopting IFRS 16, the Company’s minimum commitments under operating lease agreements as at January 31, 2019 were $249.5 million. The difference between that amount and the lease liabilities of $217.1 million as at February 1, 2019 was mainly attributable to the effect of discounting on the minimum lease payments.
The main leasing activities of the Company are attributable to the Company’s manufacturing facilities located in Finland and in Mexico, to offices located in Canada and to warehouses used for the distribution of parts, accessories and clothing.
The following table explains the changes inright-of-use assets during the nine-month period ended October 31, 2019:
Carrying amount as at February 1, 2019 | Additions | Depreciation | Effect of foreign currency exchange rate changes | Other | Carrying amount as at October 31, 2019 | |||||||||||||||||||
Building & land | $171.4 | $13.4 | $(17.6 | ) | $(1.2 | ) | $3.1 | $169.1 | ||||||||||||||||
Equipment | 20.0 | 5.3 | (5.9 | ) | (0.2 | ) | (0.1 | ) | 19.1 | |||||||||||||||
Other | 1.0 | — | (0.1 | ) | (0.1 | ) | — | 0.8 | ||||||||||||||||
Total | $192.4 | $18.7 | $(23.6 | ) | $(1.5 | ) | $3.0 | $189.0 |
The following table explains the changes in lease liabilities during the nine-month period ended October 31, 2019:
Carrying amount as at February 1, 2019 | Issuance | Interest | Repayment [a] | Effect of foreign currency exchange rate changes | Other | Carrying amount as at October 31, 2019 | ||||||||||||||||||||||
Lease liabilities | $217.1 | $18.8 | $6.7 | $(29.7 | ) | $(1.1 | ) | $3.0 | $214.8 |
[a] | Includes $(6.7) million of interest paid. |
14
BRP Inc.
NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
For the three- and nine-month periods ended October 31, 2019 and 2018
[Unaudited]
[Tabular figures are in millions of Canadian dollars, unless otherwise indicated]
9. | REVOLVING CREDIT FACILITIES |
On March 14, 2019, the Company amended its $575.0 million revolving credit facilities to increase the availability by $125.0 million for a total availability of $700.0 million, to extend the maturity from May 2023 to May 2024 and to improve the pricing grid (the “Revolving Credit Facilities”). The Company incurred transaction fees of $1.5 million related to this amendment, which are amortized over the expected life of the 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:
(i) | U.S. dollars at either |
(a) | LIBOR plus 1.45% to 3.00% per annum; or |
(b) | U.S. Base Rate plus 0.45% to 2.00% per annum; or |
(c) | U.S. Prime Rate plus 0.45% to 2.00% per annum; |
(ii) | Canadian dollars at either |
(a) | Bankers’ Acceptance plus 1.45% to 3.00% per annum; or |
(b) | Canadian Prime Rate plus 0.45% to 2.00% per annum |
(iii) | Euros at Euro LIBOR 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, 2019, the cost of borrowing under the Revolving Credit Facilities was as follows:
(i) | U.S. dollars at either |
(a) | LIBOR plus 1.70% per annum; or |
(b) | U.S. Base Rate plus 0.70% per annum; or |
(c) | U.S. Prime Rate plus 0.70% per annum; |
(ii) | Canadian dollars at either |
(a) | Bankers’ Acceptance plus 1.70% per annum; or |
(b) | Canadian Prime Rate plus 0.70% per annum |
(iii) | Euros at Euro LIBOR plus 1.70% per annum. |
As at October 31, 2019, the commitment fees on the undrawn amount of the Revolving Credit Facilities were 0.25% per annum.
The Company is required to maintain, under certain conditions, a minimum fixed charge coverage ratio. 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.
During the nine-month period ended October 31, 2018, the Company refinanced its $475.0 million revolving credit facilities to increase the availability by $100.0 million for a total availability of $575.0 million, to extend the maturity from June 2021 to May 2023 and to reduce the cost of borrowing by 0.25%. The Company incurred transaction fees of $2.6 million related to this refinancing.
15
BRP Inc.
NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
For the three- and nine-month periods ended October 31, 2019 and 2018
[Unaudited]
[Tabular figures are in millions of Canadian dollars, unless otherwise indicated]
10. | PROVISIONS |
The Company’s provisions were as follows, as at:
October 31, 2019 | January 31, 2019 | |||||||
Product-related | $485.0 | $462.1 | ||||||
Restructuring | 2.1 | 0.6 | ||||||
Other | 58.6 | 57.5 | ||||||
Total provisions | $545.7 | $520.2 | ||||||
Current | 427.6 | 408.6 | ||||||
Non-current | 118.1 | 111.6 | ||||||
Total provisions | $545.7 | $520.2 |
Product-related provisions include provisions for regular warranty coverage on products sold, product liability provisions and provisions related to sales programs offered by the Company to its Customers in order to support the retail activity.
Thenon-current portion of provisions is mainly attributable to product-related provisions.
The changes in provisions were as follows:
Product-related | Restructuring | Other | Total | |||||||||||||
Balance as at January 31, 2019 | $462.1 | $0.6 | $57.5 | $520.2 | ||||||||||||
Expensed during the period | 489.5 | 2.4 | 13.8 | 505.7 | ||||||||||||
Additions through business combinations | 3.3 | — | — | 3.3 | ||||||||||||
Paid during the period | (469.3 | ) | (0.9 | ) | (12.7 | ) | (482.9 | ) | ||||||||
Reversed during the period | (0.2 | ) | — | (0.1 | ) | (0.3 | ) | |||||||||
Effect of foreign currency exchange rate changes | (1.7 | ) | — | 0.1 | (1.6 | ) | ||||||||||
Unwinding of discount and effect of changes in discounting estimates | 1.3 | — | — | 1.3 | ||||||||||||
Balance as at October 31, 2019 | $485.0 | $2.1 | $58.6 | $545.7 |
16
BRP Inc.
NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
For the three- and nine-month periods ended October 31, 2019 and 2018
[Unaudited]
[Tabular figures are in millions of Canadian dollars, unless otherwise indicated]
11. | OTHER FINANCIAL LIABILITIES |
The Company’s other financial liabilities were as follows, as at:
October 31, 2019 | January 31, 2019 | |||||||
Dealer holdback programs and customer deposits | $134.0 | $96.9 | ||||||
Due to Bombardier Inc. | 22.3 | 22.3 | ||||||
Derivative financial instruments | 6.0 | 8.9 | ||||||
Due to a pension management company | 1.0 | 2.3 | ||||||
Non-controlling interest liability (Note 4) | 19.4 | — | ||||||
Other | 11.6 | 6.3 | ||||||
Total other financial liabilities | $194.3 | $136.7 | ||||||
Current | 146.6 | 108.3 | ||||||
Non-current | 47.7 | 28.4 | ||||||
Total other financial liabilities | $194.3 | $136.7 |
Thenon-current portion is mainly comprised of the amount due to Bombardier Inc. in connection with indemnification related to income taxes and the amount of thenon-controlling interest liability.
12. | LONG-TERM DEBT |
As at October 31, 2019 and January 31, 2019, the maturity dates, interest rates, outstanding nominal amounts and carrying amounts of long-term debt were as follows:
October 31, 2019 | ||||||||||||||||||||
Maturity date | Contractual interest rate | Effective interest rate | Outstanding nominal amount | Carrying amount | ||||||||||||||||
Term Facility | May 2025 | 3.79% | 3.79% | U.S. $888.7 | $1,168.1 | |||||||||||||||
May 2025 | 4.29% | 4.58% | U.S. $334.2 | $433.1 | [a] | |||||||||||||||
Term Loans | Dec. 2019 to Dec. 2030 | 0.75% to 1.75% | 1.00% to 4.67% | Euro 31.1 | 40.4 | |||||||||||||||
Total long-term debt | $1,641.6 | |||||||||||||||||||
Current | 19.4 | |||||||||||||||||||
Non-current | 1,622.2 | |||||||||||||||||||
Total long-term debt | $1,641.6 |
[a] | Net of unamortized transaction costs of $6.2 million. |
January 31, 2019 | ||||||||||||||||||||
Maturity date | Contractual interest rate | Effective interest rate | Outstanding nominal amount | Carrying amount | ||||||||||||||||
Term Facility | May 2025 | 4.50% | 4.50% | U.S. $895.5 | $1,176.9 | |||||||||||||||
Term Loans | Dec. 2019 to Dec. 2028 | 0.75% to 1.75% | 1.00% to 4.67% | Euro 21.6 | 29.5 | |||||||||||||||
Finance lease liabilities | Jan. 2021 to Dec. 2030 | 8.00% | 8.00% | $11.7 | 9.1 | |||||||||||||||
Total long-term debt | $1,215.5 | |||||||||||||||||||
Current | 18.4 | |||||||||||||||||||
Non-current | 1,197.1 | |||||||||||||||||||
Total long-term debt | $1,215.5 |
17
BRP Inc.
NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
For the three- and nine-month periods ended October 31, 2019 and 2018
[Unaudited]
[Tabular figures are in millions of Canadian dollars, unless otherwise indicated]
12. | LONG-TERM DEBT [CONTINUED] |
The following table explains the changes in long-term debt during the nine-month period ended October 31, 2019:
Statements of cash flows | Non-cash changes | |||||||||||||||||||||||
Carrying amount as at January 31, 2019 | Issuance | Repayment | Effect of foreign currency exchange rate changes | Other | Carrying amount as at October 31, 2019 | |||||||||||||||||||
Term Facility | $1,176.9 | $440.1 | $(10.0 | ) | $0.4 | $(6.2 | ) | $1,601.2 | ||||||||||||||||
Term Loans | 29.5 | 17.2 | (2.9 | ) | (1.1 | ) | (2.3 | ) | 40.4 | |||||||||||||||
Finance lease liabilities | 9.1 | — | — | — | (9.1 | ) [a] | — | |||||||||||||||||
Total | $1,215.5 | $457.3 | $(12.9 | ) | $(0.7 | ) | $(17.6 | ) | $1,641.6 |
[a] | Finance lease liabilities were included in lease liabilities as part of the adoption of IFRS 16 (see Note 8). |
a) | Term Facility |
On July 23, 2019, the Company amended its term facility to add a new U.S. $335.0 million tranche for a total principal of U.S. $1,235.0 million (the “Term Facility”). The maturity remains unchanged to May 2025. The Company incurred transaction costs of $6.5 million, which have been incorporated in the carrying amount of the Term Facility and are amortized over its expected life using the effective interest rate method.
As at October 31, 2019, the cost of borrowing under the new tranche of the Term Facility was as follows:
(i) | LIBOR plus 2.50% per annum, with a LIBOR floor of 0.00%; or |
(ii) | U.S. Base Rate plus 1.50%; or |
(iii) | U.S. Prime Rate plus 1.50% |
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 in LIBOR.
The Company is required to repay a minimum of 0.25% of the nominal amount of U.S. $1,235.0 million each quarter. Consequently, the Company repaid an amount of U.S. $7.6 million ($10.0 million) during the nine-month period ended October 31, 2019. 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.
b) | Term Loans |
During the nine-month period ended October 31, 2019, the Company entered into term loan agreements at favourable interest rates under Austrian government programs. These programs support research and development projects based on the Company’s incurred expenses in Austria. The term loans have a total nominal amount of euro 11.5 million ($17.2 million), interest rates at 0.95% (1.12% starting in July 2024) or at Euribor three-months plus 0.99% with a floor at 1.00% and maturities between March 2024 and December 2030. The Company recognized a grant of euro 1.9 million ($2.9 million) as a reduction of research and development expenses representing the difference between the fair value of the term loans at inception and the cash received.
18
BRP Inc.
NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
For the three- and nine-month periods ended October 31, 2019 and 2018
[Unaudited]
[Tabular figures are in millions of Canadian dollars, unless otherwise indicated]
13. | CAPITAL STOCK |
The changes in capital stock issued and outstanding were as follows:
Number of shares | Carrying Amount | |||||||
Subordinate voting shares | ||||||||
Balance as at January 31, 2019 | 43,040,023 | $213.4 | ||||||
Issued upon exercise of stock options | 289,300 | 10.4 | ||||||
Issued in exchange of multiple voting shares | 3,239,713 | 0.3 | ||||||
Repurchased under the substantial issuer bid offer | (6,342,494 | ) | (30.3 | ) | ||||
Repurchased under the normal course issuer bid program | (2,457,255 | ) | (11.7 | ) | ||||
Balance as at October 31, 2019 | 37,769,287 | $182.1 | ||||||
Multiple voting shares |
| |||||||
Balance as at January 31, 2019 | 54,101,384 | $4.4 | ||||||
Exchanged for subordinate voting shares | (3,239,713 | ) | (0.3 | ) | ||||
Balance as at October 31, 2019 | 50,861,671 | $4.1 | ||||||
Total outstanding as at October 31, 2019 | 88,630,958 | $186.2 |
a) | Substantial issuer bid offer (“SIB”) |
On July 23, 2019, the Company repurchased 6,342,494 subordinate voting shares following the completion of its SIB for a total consideration of $300.0 million, of which $29.4 million represents the carrying amount of the shares repurchased and $270.6 million represents the amount charged to retained losses. Prior to the completion of the SIB, Beaudier group and Bain Capital converted respectively 1,836,170 and 1,403,543 of multiple voting shares into an equivalent number of subordinate voting shares. These converted shares were repurchased in the SIB. The Company incurred $1.0 million of fees and expenses ($0.9 million net of income tax recovery of $0.1 million) related to the SIB, which were recorded in capital stock.
b) | Normal course issuer bid program (“NCIB”) |
On March 22, 2019, the Company announced the renewal of its NCIB to repurchase for cancellation up to 4,170,403 of its outstanding subordinate voting shares. During the nine-month period ended October 31, 2019, the Company repurchased a total of 2,457,255 subordinate voting shares for a total consideration of $120.1 million.
Of the total consideration of $120.1 million, $11.7 million represents the carrying amount of the shares repurchased and $108.4 million represents the amount charged to retained losses.
19
BRP Inc.
NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
For the three- and nine-month periods ended October 31, 2019 and 2018
[Unaudited]
[Tabular figures are in millions of Canadian dollars, unless otherwise indicated]
14. | STOCK OPTION PLAN |
During the nine-month periods ended October 31, 2019 and 2018, the Company granted respectively 1,184,200 and 862,750 stock options to eligible officers and employees to acquire subordinated voting shares at an average exercise price of $46.15 and $61.88 respectively. The fair value of the options at the grant date was respectively $13.36 and $18.72. 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 aten-year term at the end of which the options expire.
15. | SEGMENTED INFORMATION |
Details of segment information were as follows:
For the three-month period ended October 31, 2019 | Powersports segment | Marine segment | Inter- segment eliminations | Total | ||||||||||||
Revenues | $1,506.4 | $142.4 | $(5.2 | ) | $1,643.6 | |||||||||||
Cost of sales | 1,083.6 | 123.3 | (5.2 | ) | 1,201.7 | |||||||||||
Gross profit | 422.8 | 19.1 | — | 441.9 | ||||||||||||
Total operating expenses | 233.9 | |||||||||||||||
Operating income | 208.0 | |||||||||||||||
Financing costs | 24.1 | |||||||||||||||
Financing income | (0.3 | ) | ||||||||||||||
Income before income taxes | 184.2 | |||||||||||||||
Income tax expense | 48.9 | |||||||||||||||
Net income | $135.3 | |||||||||||||||
For the three-month period ended October 31, 2018 | Powersports segment | Marine segment | Inter- segment eliminations | Total | ||||||||||||
Revenues | $1,255.5 | $145.8 | $(7.1 | ) | $1,394.2 | |||||||||||
Cost of sales | 924.7 | 119.8 | (7.1 | ) | 1,037.4 | |||||||||||
Gross profit | 330.8 | 26.0 | — | 356.8 | ||||||||||||
Total operating expenses | 199.7 | |||||||||||||||
Operating income | 157.1 | |||||||||||||||
Financing costs | 17.3 | |||||||||||||||
Financing income | (0.4 | ) | ||||||||||||||
Foreign exchange loss on long-term debt | 10.2 | |||||||||||||||
Income before income taxes | 130.0 | |||||||||||||||
Income tax expense | 39.8 | |||||||||||||||
Net income | $90.2 |
20
BRP Inc.
NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
For the three- and nine-month periods ended October 31, 2019 and 2018
[Unaudited]
[Tabular figures are in millions of Canadian dollars, unless otherwise indicated]
15. | SEGMENTED INFORMATION [CONTINUED] |
For the nine-month period ended October 31, 2019 | Powersports segment | Marine segment | Inter- segment eliminations | Total | ||||||||||||
Revenues | $4,031.2 | $420.1 | $(14.5 | ) | $4,436.8 | |||||||||||
Cost of sales | 3,011.2 | 369.8 | (14.5 | ) | 3,366.5 | |||||||||||
Gross profit | 1,020.0 | 50.3 | — | 1,070.3 | ||||||||||||
Total operating expenses | 663.4 | |||||||||||||||
Operating income | 406.9 | |||||||||||||||
Financing costs | 66.0 | |||||||||||||||
Financing income | (1.9 | ) | ||||||||||||||
Foreign exchange loss on long-term debt | 0.4 | |||||||||||||||
Income before income taxes | 342.4 | |||||||||||||||
Income tax expense | 90.0 | |||||||||||||||
Net income | $252.4 | |||||||||||||||
For the nine-month period ended October 31, 2018 | Powersports segment | Marine segment | Inter- segment eliminations | Total | ||||||||||||
Revenues | $3,374.8 | $388.0 | $(24.9 | ) | $3,737.9 | |||||||||||
Cost of sales | 2,526.1 | 318.2 | (24.9 | ) | 2,819.4 | |||||||||||
Gross profit | 848.7 | 69.8 | — | 918.5 | ||||||||||||
Total operating expenses | 572.4 | |||||||||||||||
Operating income | 346.1 | |||||||||||||||
Financing costs | 57.0 | |||||||||||||||
Financing income | (2.3 | ) | ||||||||||||||
Foreign exchange loss on long-term debt | 69.0 | |||||||||||||||
Income before income taxes | 222.4 | |||||||||||||||
Income tax expense | 77.8 | |||||||||||||||
Net income | $144.6 |
21
BRP Inc.
NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
For the three- and nine-month periods ended October 31, 2019 and 2018
[Unaudited]
[Tabular figures are in millions of Canadian dollars, unless otherwise indicated]
16. | EARNINGS PER SHARE |
a) | Basic earnings per share |
Details of basic earnings per share were as follows:
Three-month periods ended | Nine-month periods ended | |||||||||||||||
October 31, 2019 | October 31, 2018 | October 31, 2019 | October 31, 2018 | |||||||||||||
Net income attributable to shareholders | $135.6 | $90.3 | $253.0 | $144.3 | ||||||||||||
Weighted average number of shares | 89,684,315 | 97,112,503 | 94,157,306 | 98,681,732 | ||||||||||||
Earnings per share – basic | $1.51 | $0.93 | $2.69 | $1.46 |
b) | Diluted earnings per share |
Details of diluted earnings per share were as follows:
Three-month periods ended | Nine-month periods ended | |||||||||||||||
October 31, 2019 | October 31, 2018 | October 31, 2019 | October 31, 2018 | |||||||||||||
Net income attributable to shareholders | $135.6 | $90.3 | $253.0 | $144.3 | ||||||||||||
Weighted average number of shares | 89,684,315 | 97,112,503 | 94,157,306 | 98,681,732 | ||||||||||||
Dilutive effect of stock options | 1,144,915 | 1,506,898 | 964,199 | 1,459,799 | ||||||||||||
Weighted average number of diluted shares | 90,829,230 | 98,619,401 | 95,121,505 | 100,141,531 | ||||||||||||
Earnings per share – diluted | $1.49 | $0.92 | $2.66 | $1.44 |
17. | REVENUES |
Details of revenues were as follows:
Three-month periods ended | Nine-month periods ended | |||||||||||||||
October 31, 2019 | October 31, 2018 | October 31, 2019 | October 31, 2018 | |||||||||||||
Powersports | ||||||||||||||||
Year-Round Products | $725.0 | $562.4 | $2,086.6 | $1,643.0 | ||||||||||||
Seasonal Products | 554.8 | 490.9 | 1,358.7 | 1,225.9 | ||||||||||||
Powersports PAC and OEM Engines | 225.7 | 201.8 | 584.4 | 504.8 | ||||||||||||
Marine | 138.1 | 139.1 | 407.1 | 364.2 | ||||||||||||
Total | $1,643.6 | $1,394.2 | $4,436.8 | $3,737.9 |
22
BRP Inc.
NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
For the three- and nine-month periods ended October 31, 2019 and 2018
[Unaudited]
[Tabular figures are in millions of Canadian dollars, unless otherwise indicated]
17. | REVENUES [CONTINUED] |
The following table provides geographic information on Company’s revenues. The attribution of revenues was based on customer locations.
Three-month periods ended | Nine-month periods ended | |||||||||||||||
October 31, 2019 | October 31, 2018 | October 31, 2019 | October 31, 2018 | |||||||||||||
United States | $890.5 | $705.5 | $2,465.0 | $2,016.3 | ||||||||||||
Canada | 281.6 | 285.0 | 712.9 | 636.1 | ||||||||||||
Western Europe | 78.3 | 72.5 | 305.8 | 274.5 | ||||||||||||
Scandinavia | 138.5 | 117.2 | 301.6 | 258.4 | ||||||||||||
Asia Pacific | 106.3 | 90.7 | 266.0 | 247.6 | ||||||||||||
Eastern Europe | 70.6 | 54.7 | 185.7 | 121.0 | ||||||||||||
Latin America | 45.4 | 37.5 | 107.1 | 94.3 | ||||||||||||
Mexico | 30.8 | 28.9 | 86.9 | 83.1 | ||||||||||||
Other | 1.6 | 2.2 | 5.8 | 6.6 | ||||||||||||
$1,643.6 | $1,394.2 | $4,436.8 | $3,737.9 |
18. | OTHER OPERATING EXPENSES (INCOME) |
Details of other operating expenses (income) were as follows:
Three-month periods ended | Nine-month periods ended | |||||||||||||||
October 31, 2019 | October 31, 2018 | October 31, 2019 | October 31, 2018 | |||||||||||||
Loss on litigation | $— | $0.3 | $0.4 | $1.1 | ||||||||||||
Restructuring costs | 0.1 | — | 2.4 | — | ||||||||||||
Foreign exchange loss on working capital elements | 1.1 | 3.8 | 9.6 | 24.6 | ||||||||||||
Gain on forward exchange contracts | (1.1 | ) | (1.1 | ) | (4.6 | ) | (16.5 | ) | ||||||||
Other | (1.4 | ) | 0.3 | (0.1 | ) | 0.4 | ||||||||||
Total | $(1.3 | ) | $3.3 | $7.7 | $9.6 |
19. | FINANCING COSTS AND INCOME |
Details of financing costs and financing income were as follows:
Three-month periods ended | Nine-month periods ended | |||||||||||||||
October 31, 2019 | October 31, 2018 | October 31, 2019 | October 31, 2018 | |||||||||||||
Interest on long-term debt | $18.3 | $13.0 | $46.3 | $36.6 | ||||||||||||
Transaction costs on long-term debt | — | — | — | 8.9 | ||||||||||||
Interest and commitment fees on revolving credit facilities | 1.0 | 1.7 | 5.3 | 3.3 | ||||||||||||
Interest on lease liabilities | 2.3 | — | 6.7 | — | ||||||||||||
Net interest on employee future benefit liabilities | 1.5 | 1.4 | 4.6 | 4.3 | ||||||||||||
Financial guarantee losses | — | 0.2 | 0.2 | 1.0 | ||||||||||||
Unwinding of discount of provisions | 0.4 | 0.7 | 1.5 | 1.8 | ||||||||||||
Other | 0.6 | 0.3 | 1.4 | 1.1 | ||||||||||||
Financing costs | 24.1 | 17.3 | 66.0 | 57.0 | ||||||||||||
Financing income | (0.3 | ) | (0.4 | ) | (1.9 | ) | (2.3 | ) | ||||||||
Total | $23.8 | $16.9 | $64.1 | $54.7 |
23
BRP Inc.
NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
For the three- and nine-month periods ended October 31, 2019 and 2018
[Unaudited]
[Tabular figures are in millions of Canadian dollars, unless otherwise indicated]
20. | INCOME TAXES |
Details of income tax expense were as follows:
Three-month periods ended | Nine-month periods ended | |||||||||||||||
October 31, 2019 | October 31, 2018 | October 31, 2019 | October 31, 2018 | |||||||||||||
Current income tax expense | ||||||||||||||||
Related to current year | $63.1 | $31.6 | $115.4 | $87.6 | ||||||||||||
Related to prior years | 0.6 | 2.2 | 1.9 | 2.4 | ||||||||||||
63.7 | 33.8 | 117.3 | 90.0 | |||||||||||||
Deferred income tax expense (recovery) | ||||||||||||||||
Temporary differences | (15.3 | ) | 4.9 | (27.2 | ) | (21.5 | ) | |||||||||
Effect of income tax rate changes on deferred income taxes | 0.4 | (0.1 | ) | (0.4 | ) | 0.3 | ||||||||||
Increase in valuation allowance | 0.1 | 1.2 | 0.3 | 9.0 | ||||||||||||
(14.8 | ) | 6.0 | (27.3 | ) | (12.2 | ) | ||||||||||
Income tax expense | $48.9 | $39.8 | $90.0 | $77.8 |
The reconciliation of income taxes computed at the Canadian statutory rates to income tax expense recorded was as follows:
Three-month periods ended | Nine-month periods ended | |||||||||||||||||||||||||||||||
October 31, 2019 | October 31, 2018 | October 31, 2019 | October 31, 2018 | |||||||||||||||||||||||||||||
Income taxes calculated at statutory rates | $49.0 | 26.6% | $34.7 | 26.7% | $91.1 | 26.6% | $59.4 | 26.7% | ||||||||||||||||||||||||
Increase (decrease) resulting from: | ||||||||||||||||||||||||||||||||
Income tax rate differential of foreign subsidiaries | (1.0 | ) | (4.3 | ) | (4.1 | ) | (6.7 | ) | ||||||||||||||||||||||||
Effect of income tax rate changes on deferred income taxes | 0.4 | (0.1 | ) | (0.4 | ) | 0.3 | ||||||||||||||||||||||||||
Increase in valuation allowance | 0.1 | 1.2 | 0.3 | 9.0 | ||||||||||||||||||||||||||||
Recognition of income taxes on foreign currency translation | 0.7 | 1.5 | 0.1 | 0.3 | ||||||||||||||||||||||||||||
Permanent differences[a] | 0.8 | 3.7 | 2.8 | 12.4 | ||||||||||||||||||||||||||||
Adjustments in respect of prior years | (1.5 | ) | 2.6 | (1.0 | ) | 1.9 | ||||||||||||||||||||||||||
Other | 0.4 | 0.5 | 1.2 | 1.2 | ||||||||||||||||||||||||||||
Income tax expense | $48.9 | $39.8 | $90.0 | $77.8 |
[a] | The permanent differences result mainly from the foreign exchange loss on the long-term debt denominated in U.S. dollars. |
24
BRP Inc.
NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
For the three- and nine-month periods ended October 31, 2019 and 2018
[Unaudited]
[Tabular figures are in millions of Canadian dollars, unless otherwise indicated]
21. | FINANCIAL INSTRUMENTS |
a) | Fair value |
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 level, carrying amount and fair value of restricted investments,non-controlling interest liability, derivative financial instruments and long-term debt were as follows:
As at October 31, 2019 | ||||||||||||
Fair value level | Carrying amount | Fair value | ||||||||||
Restricted investments (Note 5) | Level 2 | $14.4 | $14.4 | |||||||||
Non-controlling interest liability (Note 11) | Level 3 | $19.4 | $19.4 | |||||||||
Derivative financial instruments | ||||||||||||
Forward exchange contracts | ||||||||||||
Favourable (Note 5) | $2.7 | $2.7 | ||||||||||
(Unfavourable) | (4.2 | ) | (4.2 | ) | ||||||||
Inflation rate swap | (1.8 | ) | (1.8 | ) | ||||||||
Level 2 | $(3.3 | ) | $(3.3 | ) | ||||||||
Long-term debt (including current portion) | ||||||||||||
Term Facility (Note 12) | Level 1 | $(1,601.2 | ) | $(1,604.5 | ) | |||||||
Term Loans (Note 12) | Level 2 | (40.4 | ) | (43.4 | ) | |||||||
$(1,641.6 | ) | $(1,647.9 | ) |
For cash, trade and other receivables, revolving credit facilities, trade payables and accruals, dealer holdback programs and customer deposits, the carrying amounts reported on the condensed consolidated interim statements of financial position or in the notes approximate the fair values of these items due to their short-term nature.
25
BRP Inc.
NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
For the three- and nine-month periods ended October 31, 2019 and 2018
[Unaudited]
[Tabular figures are in millions of Canadian dollars, unless otherwise indicated]
21. | FINANCIAL INSTRUMENTS [CONTINUED] |
b) | Liquidity risk |
The following table summarizes the financial liabilities instalments payable when contractually due as at October 31, 2019:
Less than 1 year | 1-3 years | 4-5 years | More than 5 years | Total amount | ||||||||||||||||
Trade payables and accruals | $1,178.2 | $— | $— | $— | $1,178.2 | |||||||||||||||
Long-term debt (including interest) | 83.6 | 164.6 | 165.1 | 1,588.9 | 2,002.2 | |||||||||||||||
Lease liabilities (including interest) | 37.2 | 67.8 | 49.6 | 104.9 | 259.5 | |||||||||||||||
Derivative financial instruments | 4.2 | 1.8 | — | — | 6.0 | |||||||||||||||
Other financial liabilities (including interest) | 142.5 | 21.4 | 0.1 | 24.4 | 188.4 | |||||||||||||||
Total | $1,445.7 | $255.6 | $214.8 | $1,718.2 | $3,634.3 |
26