ITEM 7:
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MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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About Us
Ritchie Bros. Auctioneers Incorporated (“Ritchie Bros.”,
the “Company”, “we”, or “us”) (NYSE & TSX: RBA) is one of the world’s largest industrial
auctioneers and used equipment distributors, selling more than $4.3 billion of used equipment and other assets during 2016. Our
expertise, global reach, market insight and trusted brand provide us with a unique position in the used equipment market. We primarily
sell used equipment for our customers through live unreserved auctions at 45 auction sites worldwide, which are simulcast online
to reach a global bidding audience. During 2013, we added to our sales channels by launching EquipmentOne, an online-only used
equipment marketplace, in order to reach a broader customer base. These two complementary used equipment brand solutions provide
different value propositions to equipment owners and allow us to meet the needs and preferences of a wide spectrum of equipment
sellers. In the past two years, we have also added a private brokerage service and an online listing service.
Through our unreserved auctions, online marketplaces, and private
brokerage services, we sell a broad range of used and unused equipment, including trucks and other assets. Construction and heavy
machinery comprise the majority of the equipment sold through our multiple brand solutions. Customers selling equipment through
our sales channels include end users (such as construction companies), equipment dealers, and other equipment owners (such as
rental companies). Our customers participate in a variety of sectors, including heavy construction, transportation, agriculture,
energy, and mining.
Approximately half of what we sold during 2016 transacted online;
through either online simulcast auction participation, or through EquipmentOne. In 2016, of the $4.3 billion of all items sold
by us, $2.1 billion were sold to online buyers through these online solutions.
We operate worldwide with locations in more than 15 countries,
including the United States, Canada, Australia, the United Arab Emirates, and the Netherlands. Our corporate headquarters are
located near Vancouver, Canada. We are a public company listed on both the New York Stock Exchange (“NYSE”) and Toronto
Stock Exchange (“TSX”) under the ticker symbol “RBA” and, as of December 31, 2016, we had total equity
market capitalization of approximately $3.6 billion.
On November 4, 2015, we acquired a 75% interest in Xcira LLC
(“Xcira”), a Florida-based company specializing in software and technology solutions related to online auction bidding
and sales. Ritchie Bros. was one of Xcira’s first customers, and has worked very closely with Xcira over the past 14 years
to customize Xcira’s solutions to meet our needs. Xcira primarily operates in the industrial auction space, but also offers
solutions to auto, art, and other luxury item auctioneers.
On February 19, 2016, we acquired a 100% interest in Mascus
International Holding BV (“Mascus”), an Amsterdam-based company that operates a global online portal for the sale
and purchase of heavy equipment and vehicles, with the largest online market presence in Europe for heavy machinery and trucks.
Mascus offers subscriptions to equipment dealers, brokers, exporters, and equipment manufacturers to list equipment available
for sale. In addition to online listing services, they also provide online advertising services, business tools, and other software
solutions to many of the world’s leading equipment dealerships and equipment manufacturers. Founded in Scandinavia, Mascus
has expanded over the past several years and now includes operations across Europe, Asia, Africa, and North America, catering
to the construction, transport, agriculture, material handling, forestry, and grounds-care industries.
On July 12, 2016, we completed our acquisition of the 49% non-controlling
interest in Ritchie Bros. Financial Services (“RBFS”). RBFS provides equipment buyers with the confidence to make
offers on equipment, trucks and other industrial assets, with pre-approved loans and financing arrangements. The business finances
all brands of equipment and provides equipment buyers with the option to purchase assets at Ritchie Bros. auctions, Ritchie Bros.
EquipmentOne, or through other brand solutions.
RBFS has arrangements with a diverse group of financial partners
to provide lending solutions that meet the specific needs of equipment owners and dealers. Services offered include pre-approved
commercial equipment financing, re-financing, and leasing, as well as equipment dealer financing.
Also on July 12, 2016, we announced our minority investment
in Machinio Corp. (“Machinio”), a global search engine for finding, buying, and selling used machinery and equipment.
With more active listings than any other website, Machinio is the most comprehensive real-time database of for-sale listings.
Machinio connects hundreds of thousands of buyers each month with thousands of used machinery dealers from all over the world.
Having launched in late 2012, Machinio is now the fastest growing online platform for used machinery.
On August 1, 2016, we acquired substantially all of the assets
of Petrowsky Auctioneers (“Petrowsky”), a Connecticut-based company that sold nearly $50 million worth of equipment
and other assets at auctions in 2015, mostly in the New England, United States region.
On August 29, 2016, we entered into an Agreement and Plan of
Merger (the “Merger Agreement”) pursuant to which Ritchie Bros. agreed to acquire a 100% interest in IronPlanet Holdings,
Inc. (“IronPlanet”), a private company based in the United States, for approximately $740 million in cash plus the
assumption of unvested equity interests in IronPlanet, subject to adjustment. Under the terms of the Merger Agreement, a wholly-owned
subsidiary of the Company will merge with and into IronPlanet, with the latter surviving the Merger as a wholly-owned subsidiary
of the Company (the “Merger”). IronPlanet sold approximately $787 million worth of equipment and other assets through
its sales channels during 2015, and has achieved a 25.2% compounded growth rate in assets sold from 2013 through 2015.
Consummation of the Merger is subject to customary conditions,
including (i) the expiration or termination of the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended, and procurement of certain foreign antitrust clearances; (ii) the absence of a material adverse change
with respect to IronPlanet since the date of the Merger Agreement, as described in the Merger Agreement; (iii) the Committee on
Foreign Investment in the United States having provided written notice to the effect that review of the transactions contemplated
by the Merger Agreement has been concluded and has terminated all action under Section 721 of the Defense Production Act of 1950,
as amended; and (iv) absent termination of IronPlanet’s registrations or withdrawal of registrations under the International
Traffic in Arms Regulations, the United States Department of State having concluded its review and not taken action to block or
prevent the consummation of the Merger.
On August 29, 2016, we entered into a Strategic Alliance and
Remarketing Agreement (the “Alliance”) with IronPlanet, Inc. (“IronPlanet subsidiary”) and Caterpillar
Inc. (“Caterpillar”). The Alliance is subject to, contingent upon, and will not be effective until consummation of
the Merger. The Merger and Alliance are discussed further below under “strategy”.
On November 15, 2016, we acquired substantially all of the
assets of Kramer Auctions (“Kramer”), a leading Canadian agricultural auction company with exceptionally strong customer
relationships in central Canada. Kramer operates approximately 75 on-the-farm auctions, four on site auctions, and eight livestock
(bison) auctions each year, and sold more than 60 million Canadian dollars’ worth of agricultural equipment, real-estate,
and other assets during the 12 months ended September 30, 2016.
Overview
The following discussion and analysis summarizes significant
factors affecting our consolidated operating results and financial condition for the years ended December 31, 2016, 2015, and
2014. This discussion and analysis should be read in conjunction with the “Cautionary Note Regarding Forward-Looking Statements”,
“Part II, Item 6: Selected Financial Data”, and the consolidated financial statements and the notes thereto included
in “Part II, Item 8. Financial Statements and Supplementary Data” presented in our Annual Report on Form 10-K,
which is available on our website at
www.rbauction.com
, on EDGAR at
www.sec.gov
, or on SEDAR at
www.sedar.com
.
None of the information on our website, EDGAR, or SEDAR is incorporated by reference into this document by this or any other reference.
This discussion and analysis contains forward-looking statements that involve risks and uncertainties.
Our actual results could differ materially from those expressed
or implied in any forward-looking statements as a result of various factors, including those set forth under “Part I, Item
1A: Risk Factors” in our Annual Report on Form 10-K. The date of this discussion is as of February 21, 2017.
We prepare our consolidated financial statements in accordance
with United States generally accepted accounting principles (“US GAAP”). Except for Gross Auction Proceeds (“GAP”)
and Gross Transaction Value (“GTV”) (both described below), which are measures of operational performance and not
measures of financial performance, liquidity, or revenue, the amounts discussed below are based on our consolidated financial
statements and are presented in United States (“U.S.”) dollars. Unless indicated otherwise, all tabular dollar amounts,
including related footnotes, presented below are expressed in thousands of dollars.
We make reference to various non-GAAP financial measures throughout
this discussion and analysis. These measures do not have a standardized meaning, and are therefore unlikely to be comparable to
similar measures presented by other companies.
Consolidated Highlights
Key fiscal year 2016 financial results include:
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·
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Record
annual revenues grew 10% in 2016 compared to 2015
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·
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Record
annual Revenue Rate (as described below) of 13.07% in 2016, an increase of 93 basis points
(“bps”) over 2015, supported by growing fee-based revenue streams
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$11.8
million of acquisition-related costs booked during 2016 (including costs related to impending
acquisition of IronPlanet)
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Impairment
loss of $28.2 million recognized on EquipmentOne reporting unit goodwill and customer
relationships
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$6.8
million charge related to the early termination of pre-existing debt; replaced with new
$1.0 billion of credit facilities completed with bank syndicate in the fourth quarter
of 2016
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Diluted
earnings per share (“EPS”) attributable to stockholders of $0.85 in 2016,
a 33% decrease relative to diluted EPS of $1.27 in 2015
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$177.6
million of net cash provided by operating activities during 2016, a 10% decrease over
2015
|
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Record
annual GAP of $4.3 billion in 2016, a 2% increase over 2015
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Strategy
The following discussion highlights how we acted on the three
main drivers to our strategy during 2016.
GROW Revenues and Net Income
Our revenues are comprised of:
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commissions
earned at our auctions where we act as an agent for consignors of equipment and other
assets, as well as commissions on online marketplace sales; and
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fees
earned in the process of conducting auctions through all our auction channels and from
value-added service offerings, as well as subscription revenues from our listing and
software services.
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Commissions from sales at our auctions represent the percentage
we earn on GAP. GAP represents the total proceeds from all items sold at our auctions and the GTV of all items sold through our
online marketplaces
2
.
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2
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GAP
and GTV are measures of operational performance and are not measures of our financial
performance, liquidity or revenue. GAP and GTV are not presented in our consolidated
income statements. We believe that comparing GAP and GTV for different financial periods
provides useful information about the growth or decline of our revenue and net income
for the relevant financial period.
|
GTV represents total proceeds from all items sold at our online
marketplaces, as well as a buyers’ premium component applicable only to our online marketplace transactions. The majority
of commissions are earned as a pre-negotiated fixed rate of the gross selling price. Other commissions are earned from underwritten
contracts, when we guarantee a certain level of proceeds to a consignor or purchase inventory to be sold at auction. We believe
that revenues are best understood by considering their relationship to GAP. We use Revenue Rate, which is calculated by dividing
revenues by GAP, to determine the amount of GAP changes that flow through to our revenues.
We are committed to pursuing growth initiatives that will further
enhance our sector reach, drive geographic depth, meet a broader set of customer needs, and add scale to our operations.
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On August 1, 2016, we acquired Petrowsky, significantly enhancing
our market presence in the New England, United States region and providing Ritchie Bros.
with a new live reserve auction platform. Petrowsky’s auction sales are well aligned
with Ritchie Bros.’ sector focus as they cater largely to equipment sellers in
the construction and transportation industries. Petrowsky also serves customers selling
assets in the underground utility, waste recycling, marine, and commercial real estate
industries. The business operates one permanent auction site, in North Franklin, United
States, which will continue to hold auctions, and also specializes in off-site auctions
held on the land of the consignor. All Petrowsky auctions are also simulcast live online,
allowing online bidders to participate. The Petrowsky brand will be maintained as a brand
extension within the Ritchie Bros. family of brands, given its strong and loyal customer
base and its offering of reserve auction options.
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On August 29, 2016, we announced the Merger Agreement with
IronPlanet. We believe that the Merger will accelerate our customer-centric, multi-channel
diversification strategy by increasing customer choice, enhancing online offerings, and
providing penetration into large, additional sectors. The Merger is expected to significantly
increase revenue and net income by using the strength of our balance sheet. Founded in
1999, IronPlanet complements Ritchie Bros.’ primarily end-user customer base, as
it focuses largely on the needs of corporate accounts, equipment manufacturers, dealers,
and government entities in equipment disposition solutions. It conducts sales primarily
through online-only platforms, with weekly online auctions and in other equipment marketplaces.
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On August 29, 2016, we entered into the Alliance, which provides
that upon consummation of the Merger, Caterpillar shall designate Ritchie Bros. as a
‘preferred’ but nonexclusive provider of online and on-site auctions and
marketplaces (including those of IronPlanet) in the countries where we do business. In
exchange for this designation, Caterpillar will receive commission rate discounts to
our standard rates, as well access to certain data and information. We believe the Alliance
will significantly strengthen our relationship with Caterpillar dealers.
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On November 15, 2016, we acquired substantially all of the
assets of Kramer. This acquisition is expected to significantly strengthen our penetration
of Canada’s agricultural sector and add key talent to our Canadian Ag sales and
operations teams. Operating for more than 65 years, Kramer has established a leading
market position in Alberta, Saskatchewan, and Manitoba as a premier agricultural auctioneers,
offering both on-the-farm and on site live auctions for customers selling equipment,
livestock, and real-estate in the agricultural sector. The family-owned and operated
business has developed deep, loyal customer relationships over three generations of management
by the Kramer family. Like us, Kramer conducts its auctions on an unreserved basis.
|
EquipmentOne is a key part of a full-service offering to provide
our customers with a menu of options that cater to their needs at different points of their asset disposition journey. The strategy
of offering EquipmentOne and other sales channels alongside our core auction service is a key step in developing a truly multi-channel
offering to our market.
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During 2016, GTV at EquipmentOne increased 23% compared to
2015.
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Our EquipmentOne marketplace was expanded into Canada in the
third quarter of 2015, contributing full year revenues in 2016.
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EquipmentOne launched its Enterprise Software Solution (“ESS”)
in 2016, which provides a portal for dealer-to-dealer equipment sales. Dealer-to-dealer
sales accounted for $29.6 million of the total $148.0 million of GTV in 2016, generating
revenues of $0.6 million.
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The addition of Ritchie Bros. Private Treaty and Mascus (our
listing service), as well as the acquisition of the minority interest in Ritchie Bros. Financial Services, will also contribute
to revenue and earnings growth for the Company.
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On February 19, 2016, we acquired Mascus, a leading global
online equipment listing service. The acquisition expands the breadth of equipment disposition
and management solutions we can offer our customers. Mascus operates a vibrant online
equipment listing service with over 360,000 items for sale and 3.3 million monthly website
visits across 58 countries and in 42 languages. The business also provides equipment
sellers with a turn-key suite of business tools and software solutions. Mascus customers
will benefit from our deep equipment experience and extensive global buying audience,
providing further global exposure for Mascus equipment listings.
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On July 12, 2016, we completed our acquisition of the 49% non-controlling
interest in RBFS and announced our strategic investment in Machinio. In 2015, RBFS received
more than $1 billion of credit applications and facilitated $222 million in equipment
financing for Ritchie Bros. customers – representing 31% growth in funded loans
compared to 2014, and 116% growth compared to 2013. RBFS acts as an intermediary with
select lending partners to find financing solutions for customers purchasing equipment,
including loans and lease-to-own programs. RBFS does not utilize Ritchie Bros. capital
in its financing activities. These corporate development initiatives are expected to
help position us for future growth and further extend our involvement in the digital
innovation of the equipment industry.
|
We will also continue to focus on accelerating our strategic
accounts growth and improving the overall performance and use of our underwritten contracts.
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·
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Underwritten contract performance improved significantly in
2016 relative to 2015, with a year-over-year increase in Revenue Rate from underwritten
contracts.
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·
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During 2016, we continued to be diligent in our valuations
and methodology as it pertains to sectors that continue to experience pressure, including
oil and gas and mining, in order to compete effectively and grow the business in those
sectors.
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·
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New leadership was appointed to oversee the Strategic Accounts
team in order drive better results from this area of the business.
|
DRIVE Efficiencies and Effectiveness
We plan to take advantage of opportunities to improve the overall
effectiveness of our organization by enhancing sales productivity, modernizing and integrating our legacy IT systems and optimizing
business processes.
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·
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During 2016 we implemented many technology and business process
solutions to drive operational efficiency, which drove better auction site-to-head office
data sharing, improved the customer payment and load-out experience, and enhanced our
mobile bidding technology.
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o
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As an example, during the second quarter of 2016, our first
‘quick win’ project was successfully launched. This project involved an integration
of our auction site operational processes with our administrative office accounting procedures.
By automating the post-sale customer receipt process, we were able to greatly reduce
the amount of time and expense required to match customer receipts with sale invoices,
thereby ensuring timely release of customer equipment purchased at auction. These time
savings have enabled our personnel to focus on customer needs and improve the customer
experience. The project qualified as a ‘quick win’ due to the minimal capital
expenditure that was required, the short implementation timeframe, and the fact that
it drove significant efficiencies in our post-sale processes.
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·
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Also in early 2016, we implemented a new capital expenditure
approval process, which included the establishment of a Capital Committee to review and
approve all significant capital information technology projects. The primary goal of
the Capital Committee is to continue to control our capital expenditure, maximizing returns
on information technology investments and realizing ‘quick wins’ with respect
to process and customer service improvements.
|
We are also implementing formal performance measurement metrics
to gauge our effectiveness and progress, and will better align our executive compensation plans with our new strategy and key
targets.
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Scorecards of key performance metrics are consistently measured
and shared externally each quarter and internally more frequently.
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In early 2016, we initiated a revision to our short-term incentive
plans for all management levels. This revision simplified the plans to focus on three
rather than four financial measures. For directors and above, the revision prioritizes
financial measures above individual goals, with a minimum of 70% of the short-term incentive
based on financial results, as opposed to a 50% minimum. We believe that such a shift
will better align employee incentives with our objective of increasing shareholder value.
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We also continue to evaluate ways to most effectively structure
our organization to enhance the agility of our business, and speed up our decision making processes, to better serve our customers.
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Direct income statement responsibility has been allocated to
key leadership roles.
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A regional structure has provided enhanced agility to cater
to the unique regional preferences and needs of our customers.
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In addition, we announced the following appointments, which
improved the alignment of our organizational structure: Becky Alseth as Chief Marketing
Officer effective January 4, 2016; and Marianne Marck as Chief Information Officer effective
April 18, 2016.
|
OPTIMIZE our Balance Sheet
Our business model provides us with the ability to generate
strong cash flows. Cash flow represents our ability to convert revenue into cash, and provides a meaningful indication of the
strength of our business. During 2016, we continued to focus not only on profit growth but also on enhancing cash flow and optimizing
return on average invested capital by reviewing contract structures and evaluating auction site returns. We calculate the GAAP
measure return on average invested capital directly from our consolidated financial statements by dividing net income attributable
to stockholders by our average invested capital. During the fourth quarter of 2016, the Company closed its Beijing, China auction
site by terminating the lease early. Ritchie Bros. will continue to conduct off-site auctions in China, which drive better returns
than auctions that were held at the Beijing auction site.
During 2016 we also adjusted our capital structure, securing
additional long-term debt sufficient to finance the transactions contemplated by the Merger Agreement:
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On August 29 ,2016, in connection with the execution of the
Merger Agreement, we obtained a financing commitment (the “Commitment Letter”)
from Goldman Sachs Bank USA (“GS Bank”) pursuant to which GS Bank was committed
to provide (i) a senior secured revolving credit facility in an aggregate principal amount
of $150.0 million (the “Revolving Facility”), and (ii) a senior unsecured
bridge loan facility in an aggregate principal amount of $850.0 million (the “Bridge
Facility”, and together with the Revolving Facility, the “Facilities”).
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On October 27, 2016, we closed a new five-year credit agreement
(the “Credit Agreement”) with a syndicate of lenders, including Bank of America,
N.A. (“BofA”) and Royal Bank of Canada, which provides us with:
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1)
|
Multicurrency revolving facilities of up to $675.0 million
(the “Multicurrency Facilities”);
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2)
|
A delayed-draw term loan facility of up to $325.0 million
(the “Delayed-Draw Facility” and together, the “New Facilities”);
and
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3)
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At our election and subject to certain conditions, including
receipt of related commitments, incremental term loan facilities and/or increases to
the Multicurrency Facilities in an aggregate amount of up to $50 million.
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In conjunction with the closing of the Credit Agreement, we
terminated the entire $150 million Revolving Facility and $350 million of the $850 million
Bridge Facility. Debt from the Credit Agreement will initially be used to finance the
Merger with IronPlanet.
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On December 21, 2016, the Company completed an offering of
$500 million of senior unsecured notes (the “Notes”), due 2025. Proceeds
from the sale of the Notes will be primarily used to finance the Acquisition. Funds from
the Notes, a delayed-draw term loan under the Delayed-Draw Facility, the Multicurrency
Facilities, as well as any cash on hand may also be used to pay transaction fees and
expenses related the Acquisition.
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The gross proceeds from the Notes offering, together
with any prefunded accrued interest, will be held in an escrow account pending the consummation of the Acquisition. The Notes
were issued at par with a maturity date of January 15, 2025. The Notes accrue interest at a rate of 5.375% per year, with interest
to be paid semi-annually on each January 15 and July 15, commencing January 15, 2017.
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In conjunction with the issuance of the Notes, we terminated
the remaining $500 million of the Bridge Facility.
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On March 1, 2016, we were granted approval of a new normal
course issuer bid by the TSX to allow us to continue pursuing share repurchases through
both the NYSE and the TSX. In March 2016, we repurchased 1.46 million of our common shares
at a total cost of $36.7 million in order to address option dilution, consistent with
our capital allocation priorities.
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Also during 2016, we paid dividends of $70.5 million to our
stockholders. In total we returned $107.2 million to our stockholders as we executed
on our capital allocation strategy during 2016. We also managed our net capital spending
such that it remains well below our target of 10% of our revenues on a trailing 12-month
basis. We calculate the GAAP measure net capital spending directly from our consolidated
statement of cash flows by adding property, plant and equipment additions to intangible
asset additions, and subtracting proceeds on disposition of property, plant and equipment.
|
Used Equipment Market Update
The used equipment market remained stable until late in the
third quarter of 2016. At the end of the third quarter of 2016, we saw a marginal improvement in pricing, which continued into
the fourth quarter. However, pricing remained lower than the used equipment valuation peak that occurred in the first quarter
of 2015.
We continued to see performance vary among asset sectors and
geographies. Sectors that had been under extreme downward pressure in previous quarters, including those tied to commodities such
as the oil and gas and mining sectors, saw some positive movement in commodity pricing commencing late in the third quarter of
2016 and continuing into the fourth quarter. As a result, we started to see some assets that had been immobile since early 2015
slowly begin to be utilized in certain geographies. Comparatively, the transportation sector, especially in North America, has
remained under pressure since early 2016 when there was an excess of transportation assets that came to market. We believe this
excess fleet turnover was the source of some price deterioration for transportation assets in 2016.
In terms of equipment values, North America continued to be
our strongest geographical region for most of 2016, responding most favorably to changes in commodity pricing and the overall
economic environment. In early 2016, uncertainty in the macro economic environment negatively impacted both demand for equipment
as well as equipment values, particularly in North America. However, near the end of 2016, we saw some stabilization in that regard.
Australia responded favorably to the commodity price improvement that occurred late in the third quarter and into the fourth quarter
of 2016, experiencing some uplift in the value of assets tied to commodities.
We also continued to see an improvement in the overall age
of equipment coming to market relative to recent years; a trend that we believe results from the increase in OEM production that
began in 2010 and is generating more transactions in the current used equipment marketplace, as well as creating larger pools
of used equipment for future transactions. We continue to closely monitor new equipment production models, dealer and rental sales
performance, and pricing actions in light of pressures in the broader industrial equipment sector.
Results of Operations
Financial overview
|
|
Year ended December 31,
|
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|
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|
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Change
|
|
(in U.S.$000's, except EPS)
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
2016 over
2015
|
|
|
2015 over
2014
|
|
Revenues
|
|
$
|
566,395
|
|
|
$
|
515,875
|
|
|
$
|
481,097
|
|
|
|
10
|
%
|
|
|
7
|
%
|
Costs of services, excluding depreciation and amortization
|
|
|
66,062
|
|
|
|
56,026
|
|
|
|
57,884
|
|
|
|
18
|
%
|
|
|
(3
|
)%
|
Selling, general and administrative expenses
|
|
|
283,529
|
|
|
|
254,389
|
|
|
|
248,220
|
|
|
|
11
|
%
|
|
|
2
|
%
|
Acquisition-related costs
|
|
|
11,829
|
|
|
|
601
|
|
|
|
-
|
|
|
|
1868
|
%
|
|
|
100
|
%
|
Depreciation and amortization expenses
|
|
|
40,861
|
|
|
|
42,032
|
|
|
|
44,536
|
|
|
|
(3
|
)%
|
|
|
(6
|
)%
|
Gain on disposal of property, plant and equipment
|
|
|
(1,282
|
)
|
|
|
(9,691
|
)
|
|
|
(3,512
|
)
|
|
|
(87
|
)%
|
|
|
176
|
%
|
Impairment loss
|
|
|
28,243
|
|
|
|
-
|
|
|
|
8,084
|
|
|
|
100
|
%
|
|
|
(100
|
)%
|
Foreign exchange loss (gain)
|
|
|
1,431
|
|
|
|
(2,322
|
)
|
|
|
(2,042
|
)
|
|
|
(162
|
)%
|
|
|
14
|
%
|
Operating income
|
|
|
135,722
|
|
|
|
174,840
|
|
|
|
127,927
|
|
|
|
(22
|
)%
|
|
|
37
|
%
|
Operating income margin
|
|
|
24.0
|
%
|
|
|
33.9
|
%
|
|
|
26.6
|
%
|
|
|
-990
|
bps
|
|
|
730
|
bps
|
Other income (expense)
|
|
|
(5,228
|
)
|
|
|
1,596
|
|
|
|
1,111
|
|
|
|
(428
|
)%
|
|
|
44
|
%
|
Income tax expense
|
|
|
36,982
|
|
|
|
37,861
|
|
|
|
36,475
|
|
|
|
(2
|
)%
|
|
|
4
|
%
|
Net income attributable to stockholders
|
|
|
91,832
|
|
|
|
136,214
|
|
|
|
90,981
|
|
|
|
(33
|
)%
|
|
|
50
|
%
|
Diluted EPS attributable to stockholders
|
|
$
|
0.85
|
|
|
$
|
1.27
|
|
|
$
|
0.85
|
|
|
|
(33
|
)%
|
|
|
49
|
%
|
Effective tax rate
|
|
|
28.3
|
%
|
|
|
21.5
|
%
|
|
|
28.3
|
%
|
|
|
680
bps
|
|
|
|
-680
bps
|
|
GAP
|
|
$
|
4,334,815
|
|
|
$
|
4,247,635
|
|
|
$
|
4,212,641
|
|
|
|
2
|
%
|
|
|
1
|
%
|
Revenue Rate
|
|
|
13.07
|
%
|
|
|
12.14
|
%
|
|
|
11.42
|
%
|
|
|
93
|
bps
|
|
|
72
|
bps
|
Gross Auction Proceeds
2016 performance
GAP was $4.3 billion for 2016, a 2% increase over 2015. Included
in GAP for 2016 is $148.0 million of GTV from our online marketplaces, which represents a 23% increase over GTV of $120.0 million
in 2015. 2016 GTV includes $29.6 million of assets that transacted on a dealer-to-dealer basis on EquipmentOne’s online
marketplaces primarily due to the launch of EquipmentOne’s ESS in 2016. Revenues earned on these dealer-to-dealer transactions
were $0.6 million in 2016. Dealer-to-dealer transactions on EquipmentOne’s online marketplaces were not significant prior
to the introduction of ESS in 2016.
The increase in GAP is primarily due to an increase in the
number of core auction lots year-over-year. The total number of lots at industrial and agricultural auctions grew 12%, increasing
to 437,300 in 2016 from 390,300 in 2015. However, core auction GAP decreased 9% on a per-lot basis to $9,600 in 2016 from $10,600
in 2015. This decrease is primarily due to the mix and age of equipment that came to market in 2016. We also believe the macro
economic environment uncertainties, particularly in North America, negatively impacted equipment demand and pricing and contributed
to the decrease in core auction GAP per lot year-over-year. We saw a peak in used equipment values in the first quarter of 2015
that did not recur in 2016.
GAP, on a U.S. dollar basis, grew in Canada and the United
States in 2016 compared to 2015. However, this growth was partially offset by a reduction in GAP in Europe over the same comparative
period. GAP in the rest of the world grew during 2016 compared to 2015. GAP in 2016 would have been $58.4 million higher, resulting
in a 3% increase over 2015, if foreign exchange rates had remained consistent with those in 2015. This adverse effect on GAP is
primarily due to the declining value of the Canadian dollar and the Euro relative to the U.S. dollar.
During 2016, we continued to actively pursue the use of underwritten
contracts from a strategic perspective, entering into such contracts only when the risk/reward profile of the terms were agreeable.
The volume of underwritten contracts decreased to 25% of our GAP in 2016 from 29% in 2015, primarily due to the underwritten contracts
associated with the Casper, Wyoming, offsite auction that was held on March 25, 2015. Straight commission contracts continue to
account for the majority of our GAP.
2015 performance
GAP was $4.2 billion for the year ended December 31, 2015,
a 1% increase over 2014. Included in 2015 GAP is $120.0 million of GTV from our online marketplaces, which represents a 13% increase
over GTV of $106.1 million in 2014.
The increase in GAP is primarily due to an increase in the
number of core auction lots year-over-year. The total number of lots at industrial and agricultural auctions grew 10%, increasing
to 390,300 in 2015 from 355,200 in 2014. However, core auction GAP decreased 9% on a per-lot basis to $10,600 in 2015 from $11,600
in 2014.
GAP, on a U.S. dollar basis, grew in the United States and
Canada in 2015 compared to 2014. However, this growth was partially offset by reductions in GAP in Europe and the rest of the
world year-over-year. 2015 GAP would have been $319.4 million higher, resulting in an 8% increase over 2014, if foreign exchange
rates had remained consistent with those in 2014. This adverse effect on GAP is primarily due to the declining value of the Canadian
dollar and the Euro relative to the U.S. dollar.
The volume of underwritten contracts decreased to 29% of our
GAP in 2015 from 31% in 2014.
Revenues and Revenue Rate
|
|
Year ended December 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
Better/(Worse)
|
|
(in U.S. $000's)
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
2016 over
2015
|
|
|
2015 over 2014
|
|
United States
|
|
$
|
278,198
|
|
|
$
|
257,824
|
|
|
$
|
223,770
|
|
|
|
8
|
%
|
|
|
15
|
%
|
Canada
|
|
|
187,699
|
|
|
|
166,528
|
|
|
|
154,392
|
|
|
|
13
|
%
|
|
|
8
|
%
|
Europe
|
|
|
52,809
|
|
|
|
48,419
|
|
|
|
58,782
|
|
|
|
9
|
%
|
|
|
(18
|
)%
|
Other
|
|
|
47,689
|
|
|
|
43,104
|
|
|
|
44,153
|
|
|
|
11
|
%
|
|
|
(2
|
)%
|
Revenues
|
|
$
|
566,395
|
|
|
$
|
515,875
|
|
|
$
|
481,097
|
|
|
|
10
|
%
|
|
|
7
|
%
|
Our commission rate and overall Revenue Rate are presented
in the graph below:
Quarterly commission
rate and Revenue Rate five-year history
The distribution of our revenues across the geographic regions
in which we operate was as follows, where the geographic location of revenues corresponds to the location in which the sale occurred,
or in the case of online sales, where the company earning the revenues is incorporated:
Revenue distribution
|
|
Canada
|
|
|
Outside of
Canada
|
|
|
United
States
|
|
|
Europe
|
|
|
Other
|
|
Year ended December 31, 2016
|
|
|
33
|
%
|
|
|
67
|
%
|
|
|
49
|
%
|
|
|
9
|
%
|
|
|
9
|
%
|
Year ended December 31, 2015
|
|
|
32
|
%
|
|
|
68
|
%
|
|
|
50
|
%
|
|
|
9
|
%
|
|
|
9
|
%
|
Year ended December 31, 2014
|
|
|
32
|
%
|
|
|
68
|
%
|
|
|
47
|
%
|
|
|
12
|
%
|
|
|
9
|
%
|
2016 performance
Revenues increased 10% in 2016 compared to 2015, primarily
due to a strong Revenue Rate and volume increases in GAP. Included in 2016 revenues were $16.5 million of revenues from EquipmentOne,
which represents a 9% increase over EquipmentOne revenues of $15.1 million in 2015.
Our Revenue Rate increased 93 bps to an annual record 13.07%
in 2016 compared to 12.14% in 2015. This increase is primarily due to our underwritten contract performance combined with an increase
in fee revenue, which is not directly linked to GAP. Our overall average commission rate was 9.78% in 2016, compared to 9.54%
in 2015. This increase is primarily due to the performance of our underwritten business. While our underwritten contract volume
decreased during 2016 compared to 2015, our underwritten contract commission rates increased over the same comparative period.
Our fee revenue earned in 2016 represented 3.28% of GAP compared
to 2.60% of GAP in 2015. The increase was primarily due to an increase in financing and other fees resulting from the improved
performance of our value-added service offerings, combined with the mix of equipment sold at our auctions. Financing fees from
RBFS increased 30% to $12.8 million in 2016 from $9.8 million in 2015. Mascus contributed $7.5 million of subscription, license,
and other fee revenues in 2016. Xcira contributed $4.6 million of technology service fees in 2016, compared to $0.9 million on
2015.
Revenue grew in Canada, the United States, Europe, and the
rest of the world in 2016 compared to 2015, primarily as a result of increases in GAP, Revenue Rates, and the acquisition of new
businesses.
Foreign exchange rates had a negative impact on revenues in
2016 as a significant portion of revenues are in Canada and the Netherlands. Refer to the table under “Translational impact
of foreign exchange rates” below for details of the foreign exchange rate impact.
2015 performance
Revenues increased 7% in 2015 over 2014 primarily due to an
improved commission rate, increased fees, and volume increases in GAP. Included in 2015 revenues is $15.1 million of revenues
from our online marketplaces, which represents a 15% increase over revenues from online marketplaces of $13.2 million in 2014.
Our Revenue Rate increased 72 bps to 12.14% in 2015 compared
to 11.42% in 2014, and our overall average commission rate was 9.54% in 2015 compared to 9.00% in 2014. These increases are primarily
due to the disciplined execution of our underwritten contracts. Our underwritten contract commission rates and volume increased
in 2015 compared to 2014.
Our fee income earned in 2015 was 2.60% of GAP compared to
2.42% of GAP in 2014. The increase was primarily due to the mix of equipment sold at our auctions combined with an increase in
financing fees resulting from the improved performance of our value-added services. Financing fees from RBFS increased 33% to
$9.8 million in 2015 from $7.4 million in 2014. Xcira contributed $0.9 million of technology service fees to 2015 fee income.
Revenue grew in the United States in 2015 compared to 2014,
primarily as a result of increases in GAP and Revenue Rate in that region. Foreign exchange rates had a negative impact on revenues
in 2015. Refer to the table under “Translational impact of foreign exchange rates” below for details of the foreign
exchange rate impact.
Costs of services
Costs of services are comprised of expenses incurred in direct
relation to conducting auctions, earning online marketplace revenues, and earning other fee revenues. Costs incurred in direct
relation to conducting our auctions include labour, buildings, facilities and technology expenses, and travel, advertising and
promotion expenses. Typically, agricultural auctions and auctions located in frontier regions are costlier than auctions held
at our permanent and regional auction sites as they do not benefit from economies of scale and frequency.
Costs of services incurred to earn online marketplace revenues
include inventory management, referral, inspection, sampling, and appraisal fees. Costs of services incurred in earning other
fee revenues include labour, commissions on sales, software maintenance fees, and materials.
2016 performance
Costs of services increased $10.0 million or 18% in 2016 compared
to 2015. Costs of services related to our Core Auction reportable segment were $63.6 million, or 1.47% of GAP, in 2016 compared
to $56.0 million, or 1.32% of GAP, in 2015. This $7.5 million increase is primarily due to the increase in number of lots at our
auctions, the increase in the number of agricultural auctions and auctions located in frontier regions, the recognition of costs
of services from Xcira of $2.8 million, and a strategic increase in advertising and promotional expenditure targeted at our larger
auctions, including our five-day, premier global auction in Orlando, United States. We believe the targeted increase in advertising
and promotional expenditure contributed to the increase in GAP.
During 2016, 87% of our GAP was attributable to auctions held
at our permanent and regional auction sites, including those located in frontier regions, compared to 85% in 2015. We held 356
auctions in 2016, compared to 345 in 2015. The proportion of GAP earned at those sites decreased over the same comparative period.
EquipmentOne and Mascus contributed $1.7 million and $0.8 million,
respectively, to our total costs of services in 2016. Prior to fiscal 2016, costs of services generated by EquipmentOne were insignificant
and recorded within SG&A expenses.
2015 performance
Costs of services decreased $1.9 million or 3% in 2015 compared
to 2014. Costs of services related to our Core Auction reportable segment were $56.0 million, or 1.32% of GAP, in 2015 compared
to $57.9 million, or 1.37% of GAP, in 2014. This $1.9 million decrease is primarily due to the increase in number auctions held
at our permanent and regional auction sites year-over-year.
During 2015, 85% of our GAP was attributable to auctions held
at our permanent and regional auction sites, including those located in frontier regions, compared to 86% in 2014. We held 345
auctions in 2015, compared to 349 in 2014. The proportion of GAP earned at those sites increased over the same comparative period.
Selling, general and administrative expenses
SG&A expenses by nature are presented below:
|
|
Year ended December 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
% Change
|
|
(in U.S. $000's)
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
2016 over
2015
|
|
|
2015 over
2014
|
|
Employee compensation
|
|
$
|
180,929
|
|
|
$
|
166,227
|
|
|
$
|
159,398
|
|
|
|
9
|
%
|
|
|
4
|
%
|
Buildings, facilities and technology
|
|
|
49,219
|
|
|
|
41,404
|
|
|
|
41,725
|
|
|
|
19
|
%
|
|
|
(1
|
)%
|
Travel, advertising and promotion
|
|
|
24,384
|
|
|
|
22,307
|
|
|
|
22,454
|
|
|
|
9
|
%
|
|
|
(1
|
)%
|
Professional fees
|
|
|
13,344
|
|
|
|
12,500
|
|
|
|
11,480
|
|
|
|
7
|
%
|
|
|
9
|
%
|
Other SG&A expenses
|
|
|
15,653
|
|
|
|
11,951
|
|
|
|
13,163
|
|
|
|
31
|
%
|
|
|
(9
|
)%
|
|
|
$
|
283,529
|
|
|
$
|
254,389
|
|
|
$
|
248,220
|
|
|
|
11
|
%
|
|
|
2
|
%
|
Prior period acquisition-related costs have been reclassified
and presented separately from SG&A expenses to conform with current period presentation. In the fourth quarter of 2016, the
definition of acquisition-related costs was expanded to include continuing employment costs incurred to retain key employees for
a specified period of time following a business acquisition. This change was applied retrospectively and resulted in a further
reclassification of SG&A expenses to acquisition-related costs. The following table summarizes the amounts reclassified between
SG&A expenses and acquisition-related expenses on a retrospective basis:
|
|
Previously
|
|
|
|
|
|
Current
|
|
(in U.S.$000's)
|
|
reported
|
|
|
Reclassified
|
|
|
presentation
|
|
Year ended December 31, 2015:
|
|
|
|
|
|
|
|
|
|
|
|
|
SG&A expenses
|
|
$
|
254,990
|
|
|
$
|
(601
|
)
|
|
$
|
254,389
|
|
Acquisition-related costs
|
|
|
-
|
|
|
|
601
|
|
|
|
601
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31, 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
SG&A expenses
|
|
$
|
68,307
|
|
|
$
|
(1,197
|
)
|
|
$
|
67,110
|
|
Acquisition-related costs
|
|
|
-
|
|
|
|
1,197
|
|
|
|
1,197
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30, 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
SG&A expenses
|
|
$
|
74,595
|
|
|
$
|
(603
|
)
|
|
$
|
73,992
|
|
Acquisition-related costs
|
|
|
-
|
|
|
|
603
|
|
|
|
603
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30, 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
SG&A expenses
|
|
$
|
69,000
|
|
|
$
|
(707
|
)
|
|
$
|
68,293
|
|
Acquisition-related costs
|
|
|
4,691
|
|
|
|
707
|
|
|
|
5,398
|
|
2016 performance
Our SG&A expenses increased $29.1 million, or 11%, in 2016
compared to 2015. Foreign exchange rates had a positive impact on SG&A expenses in 2016 as a significant portion of administration
expenses are in Canada and the Netherlands. Refer to the table under “Translational impact of foreign exchange rates”
below for details of the foreign exchange rate impact.
Employee compensation expenses increased $14.7 million 2016
compared to 2015. This increase included a positive effect from foreign exchange rates of $2.6 million. Removing foreign exchange
impacts, the primary drivers of the increase in employee compensation were the 8% net growth of our headcount (excluding Mascus
and Xcira), $6.3 million mark-to-market fair value changes in our liability-classified share units, $3.1 million from Mascus,
and $2.1 million from Xcira, and $0.7 million from Petrowsky.
The overall increase in the fair value of our liability-classified
share units in 2016 compared to 2015 is related to the performance of our common share price. Our share price closed at $34.00
per common share on December 31, 2016 compared to $24.11 per common share on December 31, 2015.
Employee compensation expenses in 2016 included $0.7 million
in termination benefits resulting from the Separation Agreement with our former President, US & LATAM, which compares to $2.1
million in termination benefits in 2015 resulting from the Separation Agreement with our former Chief Sales Officer.
Buildings, facilities and technology costs increased $7.8 million
in 2016 compared to 2015. This increase is primarily attributable to our value-added service offerings, and in particular, the
costs required to support the growing fee revenues generated by that business. Mascus, Petrowsky, and Xcira contributed $0.7 million,
$0.2 million, and $0.2 million, respectively, in 2016.
Travel, advertising and promotion increased $2.1 million in
2016 compared to 2015, primarily due to an increase in rental fees as a result of a replacement of our aged and retired company
vehicles with new vehicles under operating leases. Mascus contributed $0.6 million of the increase, and we also participated in
more tradeshows in 2016 compared to 2015.
Other SG&A increased $3.7 million in 2016 compared to 2015,
primarily attributable to our value-added service offerings, and in particular, the costs required to support the growing fee
revenues generated by that business. During 2016, we also incurred higher value-added tax and surtaxes in Beijing, China, as well
as greater bank charges associated with the New Facilities and the Notes.
Included in SG&A expenses for 2016 are $12.9 million of
SG&A expenses from EquipmentOne, which decreased 6% over EquipmentOne SG&A expenses of $13.7 million in 2015.
2015 performance
Our SG&A expenses increased $6.2 million, or 2%, in 2015
compared to 2014, less than half the rate of our revenue growth. Foreign exchange rates had a positive impact on SG&A expenses
in 2015 as a significant portion of administration expenses are in Canada and the Netherlands. Refer to the table under “Translational
impact of foreign exchange rates” below for details of the foreign exchange rate impact.
Employee compensation expenses increased $6.8 million 2015
compared to 2014. This increase included a positive effect from foreign exchange rates of $14.5 million. Removing foreign exchange
impacts, the primary drivers of the increase in employee compensation were $12.0 million higher incentive compensation, 4% net
growth of our headcount (excluding Xcira), annual merit increases, $2.1 million in termination benefits resulting from the Separation
Agreement with our former Chief Sales Officer, $0.7 million higher stock option compensation and share unit expenses, and $0.6
million from Xcira. These increases were partially offset by $5.5 million of management reorganization costs in 2014.
The increase in incentive compensation in 2015 over 2014 is
a direct result of the improved performance of the business and achievement of key performance metrics targets. The majority of
this impact was realized in the fourth quarter of 2015 due to the fact that as a result of the seasonality of our business, we
accrue for incentive compensation at target levels during the first three quarters of the year, adjusting for actual performance
in the fourth quarter. This adjustment accounted for an increase in the quarterly incentive compensation accrual during the fourth
quarter of 2015 of approximately $3.2 million compared to the first, second, and third quarters of 2015.
Comparatively, the adjustment in the fourth quarter of 2014
accounted for a decrease in the quarterly incentive compensation accrual of approximately $0.7 million compared to the preceding
three quarters of 2014.
The increase in share-based payment expenses over the same
period is primarily due to increased grants related to certain new executives and the accelerated vesting of stock options and
share units related to executive departures in 2015. The increase was partially offset by a decrease in the fair value of our
share units related to the performance of our share price, which closed at $24.11 per common share on December 31, 2015 compared
to $26.89 per common share on December 31, 2014.
Included in 2015 SG&A expense is $13.7 million of SG&A
expenses from EquipmentOne, which decreased 7% over EquipmentOne SG&A expenses of $14.8 million in 2014.
Acquisition-related costs
Acquisition-related costs consist of operating expenses directly
incurred as part of a business combination, due diligence and integration planning related to the Acquisition, and continuing
employment costs that are recognized separately from our business combinations. Business combination, due diligence, and integration
operating expenses include advisory, legal, accounting, valuation, and other professional or consulting fees, as well as travel
and securities filing fees.
2016 performance
Acquisition-related costs for 2016 consisted of $8.2 million,
$1.7 million, $1.1 million, $0.6 million, and $0.2 million associated with IronPlanet, Mascus, Xcira, Petrowsky, and Kramer, respectively.
2015 performance
Acquisition-related costs for the 2015 consisted of $0.6 million
associated with Xcira.
Depreciation and amortization expenses
2016 performance
Our depreciation and amortization expenses decreased $1.2 million,
or 3%, in 2016 compared to 2015, primarily due to the positive impact of foreign exchange rate changes. Included in 2016 depreciation
and amortization expenses are $2.6 million of depreciation and amortization expenses from EquipmentOne, which represents a 12%
decrease over depreciation and amortization expenses from online marketplaces of $3.0 million in 2015.
2015 performance
Our depreciation and amortization expenses decreased $2.5 million,
or 6%, in 2015 compared to 2014, primarily due to the positive impact of foreign exchange rate changes combined with assets related
to our website development becoming fully depreciated in 2015. The positive impact from foreign exchange is primarily due to the
declining value of the Canadian dollar and the Euro relative to the U.S. dollar. Included in 2015 depreciation and amortization
expenses are $3.0 million of depreciation and amortization expenses from EquipmentOne, which represents an 18% decrease over depreciation
and amortization expenses from online marketplaces of $3.7 million in 2014.
Gain on disposal of property, plant and equipment
2016 performance
Gains on disposal of property, plant and equipment primarily
consist of $0.7 million in gains on the disposal of Company vehicles and yard equipment throughout 2016, as well as a $0.5 million
gain on the sale of excess land in Denver, United States, that was realized the third quarter of 2016.
2015 performance
Gains on disposal of property, plant and equipment primarily
consist of an $8.4 million gain on sale of excess land in Edmonton, Canada in the fourth quarter of 2015, a $3.4 million gain
on the sale of our former auction site in Grande Prairie, Canada in the third quarter of 2014, and a $9.2 million gain on the
sale of excess land in Prince Rupert, Canada in the fourth quarter of 2013. Due to their significance and the fact that they are
non-recurring, these gains have been presented as adjusting items and excluded from our adjusted results, where applicable.
Impairment loss
2016 performance
During the third quarter of 2016, we identified an indicator
of impairment on our EquipmentOne reporting unit. The indicator consisted of a decline in actual and forecasted revenue and operating
income compared with previously projected results, which was primarily due to the recent performance of the EquipmentOne reporting
unit. Accordingly, we performed an impairment test that resulted in the recognition of an impairment loss of $28.2 million on
our EquipmentOne reporting unit goodwill and customer relationships as at September 30, 2016. Refer to “Critical Accounting
Policies, Judgments, Estimates and Assumptions” below for details of the EquipmentOne reporting unit impairment testing.
This impairment loss has been presented as an adjusting item and excluded from our adjusted results, where applicable.
2015 performance
There was no impairment loss in 2015. In 2014, we recognized
an $8.1 million impairment loss on our property in Japan. This impairment loss has been presented as an adjusting item and excluded
from our adjusted results, where applicable.
Operating income
2016 performance
Operating income decreased $39.1 million, or 22% to $135.7
million in 2016 compared to $174.8 million in 2015. This decrease is primarily due to the impairment loss recognized on the EquipmentOne
reporting unit goodwill and customer relationships during the third quarter of 2016, combined with increases in SG&A expenses,
acquisition-related costs, and costs of services, as well as a decrease in gains on disposal of property, plant and equipment.
This decrease is partially offset by the increase in revenues year-over-year. Adjusted operating income
3
(non-GAAP measure) decreased $2.5 million, or 1%, to $164.0 million in 2016 compared to $166.5 million in 2015.
Operating income margin, which is our operating income divided
by revenues, decreased 990 bps to 24.0% in 2016 compared to 33.9% in 2015. This decrease is primarily due to the impairment loss
recognized on the EquipmentOne reporting unit goodwill and customer relationships during the third quarter of 2016, combined with
increases in SG&A expenses, acquisition-related costs, and costs of services, as well as a decrease in gains on disposal of
property, plant and equipment. This decrease is partially offset by the increase in revenues year-over-year. Adjusted operating
income margin
4
(non-GAAP measure) decreased 340 bps to 28.9% in 2016 from 32.3%
in 2015.
|
3
|
Adjusted
operating income is a non-GAAP measure. We use income statement and balance sheet performance
scorecards to align our operations with our strategic priorities. We concentrate on a
limited number of metrics to ensure focus and to facilitate quarterly performance discussions.
Our income statement scorecard includes the performance metric, adjusted operating income.
We believe that comparing adjusted operating income for different financial periods provides
useful information about the growth or decline of operating income for the relevant financial
period. We calculate adjusted operating income by eliminating from operating income the
pre-tax effects of significant non-recurring items that we do not consider to be part
of our normal
operating
results, such as management reorganization costs, severance, gains/losses on sale of
certain property, plant and equipment, impairment losses, and certain other items, which
we refer to as ‘adjusting items’. Adjusted operating income is reconciled
to the most directly comparable GAAP measures in our consolidated financial statements
under “Non-GAAP Measures” below.
|
|
4
|
Our
income statement scorecard includes the performance metric, adjusted operating income
margin, which is a non-GAAP measure. We believe that comparing adjusted operating income
margin for different financial periods provides useful information about the growth or
decline of our operating income for the relevant financial period. We calculate adjusted
operating income margin by dividing adjusted operating income (non-GAAP measure) by revenues.
Adjusted operating income margin is reconciled to the most directly comparable GAAP measures
in our consolidated financial statements under “Non-GAAP Measures” below.
|
Foreign exchange rates had a negative impact on operating income
in 2016. Refer to the table under “Translational impact of foreign exchange rates” below for details of the foreign
exchange rate impact.
2015 performance
Operating income increased 37% to $174.8 million in 2015 compared
to $127.9 million in 2014. This increase is primarily due to the GAP and revenue increases year-over-year, the pre-tax gain on
disposal of excess property in Edmonton, Canada, of $8.4 million in 2015, and the $8.1 million impairment loss on our property
in Japan in 2014. The increase is partially offset by increases in SG&A expenses in 2015 compared to 2014. Adjusted operating
income (non-GAAP measure) increased $28.3 million, or 20%, to $166.5 million in 2015 compared to $138.2 million in 2014.
Operating income margin, which is our operating income divided
by revenues, increased to 33.9% in 2015 compared to 26.6% in 2014. This increase is primarily due to the GAP and revenue increases
year-over-year, the pre-tax gain on disposal of excess property in Edmonton, Canada, of $8.4 million in 2015, and the $8.1 million
impairment loss on our property in Japan in 2014. The increase is partially offset by increases in SG&A expenses in 2015 compared
to 2014. Adjusted operating income margin (non-GAAP measure) increased 360 bps to 32.3% in 2015 from 28.7% in 2014.
Foreign exchange rates had a negative impact on operating income
in 2015. Refer to the table under “Translational impact of foreign exchange rates” below for details of the foreign
exchange rate impact.
Other income (expense)
Other income (expense) is comprised of the following:
|
|
Year ended December 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
% Change
|
|
(in U.S. $000's)
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
2016 over
2015
|
|
|
2015 over
2014
|
|
Interest income
|
|
$
|
1,863
|
|
|
$
|
2,660
|
|
|
$
|
2,222
|
|
|
|
(30
|
)%
|
|
|
20
|
%
|
Interest expense
|
|
|
(5,564
|
)
|
|
|
(4,962
|
)
|
|
|
(5,277
|
)
|
|
|
(12
|
)%
|
|
|
6
|
%
|
Equity income
|
|
|
1,028
|
|
|
|
916
|
|
|
|
458
|
|
|
|
12
|
%
|
|
|
100
|
%
|
Debt extinguishment costs
|
|
|
(6,787
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(100
|
)%
|
|
|
-
|
|
Other, net
|
|
|
4,232
|
|
|
|
2,982
|
|
|
|
3,708
|
|
|
|
42
|
%
|
|
|
(20
|
)%
|
Other income (expense)
|
|
$
|
(5,228
|
)
|
|
$
|
1,596
|
|
|
$
|
1,111
|
|
|
|
(428
|
)%
|
|
|
44
|
%
|
Debt extinguishment costs were incurred in the fourth quarter
of 2016 in association with the early termination of pre-existing long-term debt due in May 2022. 2016 interest expense includes
$0.8 million of interest on the Notes from December 21, 2016 through December 31, 2016. The Notes bear interest at a fixed rate
of 5.375% per annum on a principal balance of $500.0 million, which compares to the fixed rates of 4.225% and 3.59% per annum
that were associated with the early-terminated Canadian dollar 34 million term loan and $30 million term loan, respectively.
Income tax expense and effective tax rate
At the end of each interim period, we make our best estimate
of the effective tax rate expected to be applicable for the full fiscal year. The estimate reflects, among other items, our
best estimate of operating results. It does not include the estimated impact of foreign exchange rates or unusual and/or
infrequent items, which may cause significant variations in the customary relationship between income tax expense and income before
income taxes.
2016 performance
Income tax expense was $37.0 million in 2016, compared to an
income tax expense of $37.9 million in 2015. Our effective tax rate was 28.3% in 2016, compared to 21.5% in 2015. The increase
in the effective tax rate was primarily due to the higher estimate of non-deductible goodwill impairment loss and acquisition-related
costs, partially offset by a greater estimated proportion of annual earnings taxed in jurisdictions with lower tax rates for fiscal
2016 compared to fiscal 2015.
2015 performance
For the year ended December 31, 2015, income tax expense was
$37.9 million, compared to an income tax expense of $36.5 million in 2014 and $40.3 million in 2013. The 4% increase in income
tax expense from 2014 to 2015 is partly a result of the 37% increase in income before income taxes over the same period.
Our effective tax rate was 21.5% in 2015 compared to 28.3%
in 2014. The decrease in effective tax rate in 2015 over 2014 was primarily due to a decrease in the valuation allowance on our
tax assets, which resulted from a change in our assessment of our ability to realize deferred tax assets in light of new information
that arose during our tax planning initiatives in the fourth quarter of 2015. This new information allowed us to recognize tax
losses that had been carried forward from certain historical tax years. The utilization of these tax losses has been presented
as an adjusting item and excluded from our adjusted results, where applicable.
Net income
2016 performance
Net income attributable to stockholders decreased $44.4 million,
or 33%, to $91.8 million in 2016 compared to $136.2 million in 2015. This decrease is primarily due to the impairment loss recognized
on the EquipmentOne reporting unit goodwill and customer relationships during the third quarter of 2016, combined with increases
in SG&A expenses, acquisition-related costs, and costs of services, as well as a decrease in gains on disposal of property,
plant and equipment and the incurrence of debt extinguishment costs in the fourth quarter of 2016. This decrease is partially
offset by the increase in revenues year-over-year. Adjusted net income attributable to stockholders
5
(non-GAAP measure) increased $2.2 million, or 2%, to $123.3 million in 2016 from $121.1 million in 2015.
Primarily for the same reasons noted above, net income decreased
$45.1 million, or 33%, to $93.5 million in 2016 from $138.6 million in 2015. Adjusted Earnings Before Interest, Taxes, Depreciation
and Amortization (“EBITDA”)
6
(non-GAAP measure) decreased $2.3 million,
or 1%, to $210.1 million in 2016 from $212.4 million in 2015.
Net income margin decreased 1040 bps to 16.5% in 2016 from
26.9% in 2015. This decrease is primarily due to the impairment loss recognized on the EquipmentOne reporting unit goodwill and
customer relationships during the third quarter of 2016, combined with increases in SG&A expenses, acquisition-related costs,
and costs of services, as well as a decrease in gains on disposal of property, plant and equipment and the incurrence of debt
extinguishment costs in the fourth quarter of 2016. This decrease is partially offset by the increase in revenues year-over-year.
Adjusted EBITDA margin
7
(non-GAAP measure) decreased 410 bps to 37.1% in 2016
from 41.2% in 2015.
|
5
|
Adjusted
net income attributable to stockholders is a non-GAAP financial measure. We believe that
comparing adjusted net income attributable to stockholders for different financial periods
provides useful information about the growth or decline of our net income attributable
to stockholders for the relevant financial period, and eliminates the financial impact
of adjusting items we do not consider to be part of our normal operating results. Adjusted
net income attributable to stockholders represents net income attributable to stockholders
excluding the effects of adjusting items and is reconciled to the most directly comparable
GAAP measures in our consolidated financial statements under “Non-GAAP Measures”
below.
|
|
6
|
Adjusted
EBITDA is a non-GAAP financial measure that we believe provides useful information about
the growth or decline of our net income when compared between different financial periods.
Adjusted EBITDA is also an element of the performance criteria for certain performance
share units we granted to our employees and officers in 2013 and 2014. Adjusted EBITDA
is calculated by adding back depreciation and amortization expenses, interest expense,
and current income tax expense, and subtracting interest income and deferred income tax
recovery from net income excluding the pre-tax effects of adjusting items. Adjusted EBITDA
is reconciled to the most directly comparable GAAP measures in our consolidated financial
statements under “Non-GAAP Measures” below.
|
|
7
|
Adjusted
EBITDA margin is a non-GAAP financial measure that we believe provides useful information
about the growth or decline of our net income when compared between different financial
periods. Adjusted EBITDA margin presents adjusted EBITDA (non-GAAP measure) as a multiple
of revenues. Adjusted EBITDA margin is reconciled to the most directly comparable GAAP
measures in our consolidated financial statements under “Non-GAAP Measures”
below.
|
Debt at December 31, 2016 represented 6.6 times net income
as at and for the year ended December 31, 2016. This compares to debt at December 31, 2015, which represented 0.8 times net income
as at and for the year ended December 31, 2015. The increase in this debt/net income multiplier is primarily due to a net increase
in long-term debt from December 31, 2015 to December 31, 2016, combined with the decrease in net income for the year ended December
31, 2016 compared to the year ended December 31, 2015, as discussed above. The increase in debt is primarily due to the issuance
of the Notes for a principal amount of $500.0 million in December 2016. Adjusted debt/adjusted EBITDA
8
(non-GAAP measure) was 0.6 as at and for the year ended December 31, 2016 compared to 0.5 as at and for the year
ended December 31, 2015.
2015 performance
Net income attributable to stockholders increased $45.2 million,
or 50%, to $136.2 million in 2015 compared to $91.0 million in 2014. This increase is primarily due to the GAP and revenue increases
year-over-year, the pre-tax gain on disposal of excess property in Edmonton, Canada, of $8.4 million in 2015, and the $8.1 million
impairment loss on our property in Japan in 2014. The increase is partially offset by increases in SG&A expenses in 2015 compared
to 2014. Adjusted net income attributable to stockholders (non-GAAP measure) increased $20.7 million, or 21%, to $121.1 million
in 2015 from $100.3 million in 2014.
Primarily for the same reasons noted above, net income increased
$46.0 million, or 50%, to $138.6 million in 2015 from $92.6 million in 2014. Adjusted EBITDA (non-GAAP measure) decreased $25.5
million, or 14%, to $212.4 million in 2015 from $186.9 million in 2014.
Net income margin increased 770 bps to 26.9% in 2015 from 19.2%
in 2014. This increase is primarily due to the GAP and revenue increases year-over-year, the pre-tax gain on disposal of excess
property in Edmonton, Canada, of $8.4 million in 2015, and the $8.1 million impairment loss on our property in Japan in 2014.
The increase is partially offset by increases in SG&A expenses in 2015 compared to 2014. Adjusted EBITDA margin (non-GAAP
measure) increased 240 bps to 41.2% in 2015 from 38.8% in 2014.
Debt at December 31, 2015 represented 0.8 times net income
as at and for the year ended December 31, 2015. This compares to debt at December 31, 2014, which represented 1.3 times net income
as at and for the year ended December 31, 2014. The decrease in this debt/net income multiplier is primarily due to the increase
net income for the year ended December 31, 2015 compared to the year ended December 31, 2014, as discussed above, combined with
a net decrease in long-term debt at December 31, 2015 compared to December 31, 2014. Debt/adjusted EBITDA (non-GAAP measure) was
0.5 as at and for the year ended December 31, 2015 compared to 0.6 as at and for the year ended December 31, 2014.
|
8
|
Our
balance sheet scorecard includes the performance metric, adjusted debt/adjusted EBITDA,
which is a non-GAAP financial measure. We believe that comparing adjusted debt/adjusted
EBIDTA on a trailing 12-month basis for different financial periods provides useful information
about the performance of our operations, and in particular, it is an indicator of the
amount of time it would take for us to settle both our short and long-term debt. We do
not consider this to be a measure of our liquidity, which is our ability to settle only
short-term obligations, but rather a measure of how well we fund liquidity. Measures
of liquidity are discussed further below under “liquidity and capital resources”.
We calculate adjusted debt/adjusted EBITDA by dividing adjusted debt (non-GAAP measure)
by adjusted EBITDA (non-GAAP measure). Adjusted debt (non-GAAP measure) is calculated
as debt as reported in our consolidated financial statements reduced by long-term debt
held in escrow. Adjusted debt/adjusted EBITDA is reconciled to the most directly comparable
GAAP measures in our consolidated financial statements under “Non-GAAP Measures”
below. In prior periods, we calculated this metric as debt divided by adjusted EBITDA
and called it ‘debt/adjusted EBITDA (non-GAAP measure)’. In the current period,
we changed the title, definition, and calculation of this non-GAAP measure as a result
of the issue of the Notes, which are currently held in escrow and not currently accessible
by us and, therefore, not contributing to the generation of net income. There was no
impact on previously reported results of this metric since we have not historically been
subject to our debt being held in escrow. We believe that by adjusting debt to remove
funds we do not have access to, we are more accurately measuring our ability to fund
liquidity. We anticipate reverting back to the original title, definition, and calculation
of this metric when we no longer have debt in escrow.
|
Diluted EPS
2016 performance
Diluted EPS attributable to stockholders decreased 33% to $0.85
per share in 2016 from $1.27 per share in 2015. This decrease is primarily due to the decrease in net income attributable to stockholders,
combined with a 25,320 increase in the weighted average number of dilutive shares outstanding over the same comparative period.
Diluted adjusted EPS attributable to stockholders
9
(non-GAAP measure) increased
2% to $1.15 per share in 2016 from $1.13 per share in 2015.
2015 performance
Diluted EPS attributable to stockholders increased 49% to $1.27
per share in 2015 from $0.85 per share in 2014. This increase is primarily due to the increase in net income attributable to stockholders,
combined with a 222,354 decrease in the weighted average number of dilutive shares outstanding over the same comparative period.
Diluted adjusted EPS attributable to stockholders (non-GAAP measure) increased 22% to $1.13 per share in 2015 from $0.93 per share
in 2014.
Foreign exchange loss and effect of exchange rate movement
on income statement components
We conduct operations around the world in a number of different
currencies, but our presentation currency is the U.S. dollar. In 2016, approximately 48% of our revenues and 58% of our operating
expenses were denominated in currencies other than the U.S. dollar, compared to 45% and 58%, respectively in 2015.
Transactional impact of foreign exchange rates
We recognized $1.4 million of transactional foreign exchange
losses in 2016, compared to $2.3 million of transactional foreign exchange gains during 2015. Foreign exchange losses and gains
are primarily the result of settlement of foreign-denominated monetary assets and liabilities.
Translational impact of foreign exchange rates
Since late 2014, there has been significant weakening of the
Canadian dollar and the Euro relative to the U.S. dollar. This weakening of the Canadian dollar and Euro has affected our reported
operating income when non-U.S. dollar amounts were translated into U.S. dollars for financial statement reporting purposes.
Constant Currency amounts and Translational FX Impact are non-GAAP
financial measures. We calculate our Constant Currency amounts by applying prior period foreign exchange rates to current period
transactional currency amounts. We define Translational FX Impact as the amounts we report under GAAP, less Constant Currency
amounts. We believe that presenting Constant Currency amounts and Translational FX Impact, and comparing Constant Currency amounts
to prior period results, provides useful information regarding the potential effect of changes in foreign exchange rates on our
performance and the growth or decline in our operating income by eliminating the financial impact of items we do not consider
to be part of our normal operating results.
|
9
|
Diluted
adjusted EPS attributable to stockholders is a non-GAAP financial measure. We believe
that comparing diluted adjusted EPS attributable to stockholders for different financial
periods provides useful information about the growth or decline of our diluted EPS attributable
to stockholders for the relevant financial period, and eliminates the financial impact
of adjusting items we do not consider to be part of our normal operating results. Diluted
adjusted EPS attributable to stockholders is calculated by dividing adjusted net income
attributable to stockholders (non-GAAP measure) by the weighted average number of dilutive
shares outstanding. Diluted adjusted EPS attributable to stockholders is reconciled to
the most directly comparable GAAP measures in our consolidated financial statements under
“Non-GAAP Measures” below.
|
The following tables present our Constant Currency results
and Translational FX Impact for the years ended December 31, 2016, 2015, and 2014, as well as reconcile those metrics to revenues,
costs of services, SG&A expenses, acquisition-related costs, depreciation and amortization expenses, gain on disposition of
property, plant and equipment, impairment loss, foreign exchange loss/gain, and operating income, which are the most directly
comparable GAAP measures in our consolidated financial statements:
|
|
Year ended December 31,
|
|
|
2016 over 2015
|
|
|
Constant
|
|
|
|
2016
|
|
|
|
|
|
reported
|
|
|
Currency
|
|
|
|
|
|
|
Translational
|
|
|
Constant
|
|
|
2015
|
|
|
change
|
|
|
change
|
|
(in U.S. $000's)
|
|
As reported
|
|
|
FX Impact
|
|
|
Currency
|
|
|
as reported
|
|
|
$
|
|
|
%
|
|
|
$
|
|
|
%
|
|
GAP
|
|
$
|
4,334,815
|
|
|
$
|
58,421
|
|
|
$
|
4,393,236
|
|
|
$
|
4,247,635
|
|
|
$
|
87,180
|
|
|
|
2
|
%
|
|
$
|
145,601
|
|
|
|
3
|
%
|
Revenues
|
|
|
566,395
|
|
|
|
6,775
|
|
|
|
573,170
|
|
|
$
|
515,875
|
|
|
|
50,520
|
|
|
|
10
|
%
|
|
|
57,295
|
|
|
|
11
|
%
|
Costs of services, excluding depreciation and amortization
|
|
|
66,062
|
|
|
|
579
|
|
|
|
66,641
|
|
|
|
56,026
|
|
|
|
10,036
|
|
|
|
18
|
%
|
|
|
10,615
|
|
|
|
19
|
%
|
SG&A expenses
|
|
|
283,529
|
|
|
|
4,256
|
|
|
|
287,785
|
|
|
|
254,389
|
|
|
|
29,140
|
|
|
|
11
|
%
|
|
|
33,396
|
|
|
|
13
|
%
|
Acquisition-related costs
|
|
|
11,829
|
|
|
|
-
|
|
|
|
11,829
|
|
|
|
601
|
|
|
|
11,228
|
|
|
|
1868
|
%
|
|
|
11,228
|
|
|
|
1868
|
%
|
Depreciation and amortization expenses
|
|
|
40,861
|
|
|
|
658
|
|
|
|
41,519
|
|
|
|
42,032
|
|
|
|
(1,171
|
)
|
|
|
(3
|
)%
|
|
|
(513
|
)
|
|
|
(1
|
)%
|
Gain on disposition of property, plant and equipment
|
|
|
(1,282
|
)
|
|
|
-
|
|
|
|
(1,282
|
)
|
|
|
(9,691
|
)
|
|
|
8,409
|
|
|
|
(87
|
)%
|
|
|
8,409
|
|
|
|
(87
|
)%
|
Impairment loss
|
|
|
28,243
|
|
|
|
-
|
|
|
|
28,243
|
|
|
|
-
|
|
|
|
28,243
|
|
|
|
100
|
%
|
|
|
28,243
|
|
|
|
100
|
%
|
Foreign exchange loss (gain)
|
|
|
1,431
|
|
|
|
414
|
|
|
|
1,845
|
|
|
|
(2,322
|
)
|
|
|
3,753
|
|
|
|
(162
|
)%
|
|
|
4,167
|
|
|
|
(179
|
)%
|
Operating income
|
|
$
|
135,722
|
|
|
$
|
868
|
|
|
$
|
136,590
|
|
|
$
|
174,840
|
|
|
$
|
(39,118
|
)
|
|
|
(22
|
)%
|
|
$
|
(38,250
|
)
|
|
|
(22
|
)%
|
|
|
Year ended December 31,
|
|
|
2015 over 2014
|
|
|
Constant
|
|
|
|
2015
|
|
|
|
|
|
reported
|
|
|
Currency
|
|
|
|
|
|
|
Translational
|
|
|
Constant
|
|
|
2014
|
|
|
change
|
|
|
change
|
|
(in U.S. $000's)
|
|
As reported
|
|
|
FX Impact
|
|
|
Currency
|
|
|
as reported
|
|
|
$
|
|
|
%
|
|
|
$
|
|
|
%
|
|
GAP
|
|
$
|
4,247,635
|
|
|
$
|
319,420
|
|
|
$
|
4,567,055
|
|
|
$
|
4,212,641
|
|
|
$
|
34,994
|
|
|
|
1
|
%
|
|
$
|
354,414
|
|
|
|
8
|
%
|
Revenues
|
|
|
515,875
|
|
|
|
40,455
|
|
|
|
556,330
|
|
|
$
|
481,097
|
|
|
|
34,778
|
|
|
|
7
|
%
|
|
|
75,233
|
|
|
|
16
|
%
|
Costs of services, excluding depreciation and amortization
|
|
|
56,026
|
|
|
|
4,537
|
|
|
|
60,563
|
|
|
|
-57,884
|
|
|
|
(1,858
|
)
|
|
|
(3
|
)%
|
|
|
2,679
|
|
|
|
5
|
%
|
SG&A expenses
|
|
|
254,389
|
|
|
|
22,362
|
|
|
|
276,751
|
|
|
|
248,220
|
|
|
|
6,169
|
|
|
|
2
|
%
|
|
|
28,531
|
|
|
|
11
|
%
|
Acquisition-related costs
|
|
|
601
|
|
|
|
-
|
|
|
|
601
|
|
|
|
-
|
|
|
|
601
|
|
|
|
100
|
%
|
|
|
601
|
|
|
|
100
|
%
|
Depreciation and amortization expenses
|
|
|
42,032
|
|
|
|
3,788
|
|
|
|
45,820
|
|
|
|
-44,536
|
|
|
|
(2,504
|
)
|
|
|
(6
|
)%
|
|
|
1,284
|
|
|
|
3
|
%
|
Gain on disposition of property, plant and equipment
|
|
|
(9,691
|
)
|
|
|
(2,191
|
)
|
|
|
(11,882
|
)
|
|
|
(3,512
|
)
|
|
|
(6,179
|
)
|
|
|
176
|
%
|
|
|
(8,370
|
)
|
|
|
238
|
%
|
Impairment loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
8,084
|
|
|
|
(8,084
|
)
|
|
|
(100
|
)%
|
|
|
(8,084
|
)
|
|
|
(100
|
)%
|
Foreign exchange gain
|
|
|
(2,322
|
)
|
|
|
(143
|
)
|
|
|
(2,465
|
)
|
|
|
(2,042
|
)
|
|
|
(280
|
)
|
|
|
14
|
%
|
|
|
(423
|
)
|
|
|
21
|
%
|
Operating income
|
|
$
|
174,840
|
|
|
$
|
12,102
|
|
|
$
|
186,942
|
|
|
$
|
127,927
|
|
|
$
|
46,913
|
|
|
|
37
|
%
|
|
$
|
59,015
|
|
|
|
46
|
%
|
|
|
Year ended December 31,
|
|
|
2014 over 2013
|
|
|
Constant
|
|
|
|
2014
|
|
|
|
|
|
reported
|
|
|
Currency
|
|
|
|
|
|
|
Translational
|
|
|
Constant
|
|
|
2013
|
|
|
change
|
|
|
change
|
|
(in U.S. $000's)
|
|
As reported
|
|
|
FX Impact
|
|
|
Currency
|
|
|
as reported
|
|
|
$
|
|
|
%
|
|
|
$
|
|
|
%
|
|
GAP
|
|
$
|
4,212,641
|
|
|
$
|
106,861
|
|
|
$
|
4,319,502
|
|
|
$
|
3,817,769
|
|
|
$
|
394,872
|
|
|
|
10
|
%
|
|
$
|
501,733
|
|
|
|
13
|
%
|
Revenues
|
|
|
481,097
|
|
|
|
12,695
|
|
|
|
493,792
|
|
|
$
|
467,403
|
|
|
|
13,694
|
|
|
|
3
|
%
|
|
|
26,389
|
|
|
|
6
|
%
|
Costs of services, excluding depreciation and amortization
|
|
|
57,884
|
|
|
|
1,491
|
|
|
|
59,375
|
|
|
|
54,008
|
|
|
|
3,876
|
|
|
|
7
|
%
|
|
|
5,367
|
|
|
|
10
|
%
|
SG&A expenses
|
|
|
248,220
|
|
|
|
7,344
|
|
|
|
255,564
|
|
|
|
243,736
|
|
|
|
4,484
|
|
|
|
2
|
%
|
|
|
11,828
|
|
|
|
5
|
%
|
Depreciation and amortization expenses
|
|
|
44,536
|
|
|
|
1,317
|
|
|
|
45,853
|
|
|
|
43,280
|
|
|
|
1,256
|
|
|
|
3
|
%
|
|
|
2,573
|
|
|
|
6
|
%
|
Gain on disposition of property, plant and equipment
|
|
|
(3,512
|
)
|
|
|
(173
|
)
|
|
|
-
|
(3,685)
|
|
|
(10,552
|
)
|
|
|
7,040
|
|
|
|
(67
|
)%
|
|
|
6,867
|
|
|
|
(65
|
)%
|
Impairment loss
|
|
|
8,084
|
|
|
|
683
|
|
|
|
8,767
|
|
|
|
-
|
|
|
|
8,084
|
|
|
|
100
|
%
|
|
|
8,767
|
|
|
|
100
|
%
|
Foreign exchange gain
|
|
|
(2,042
|
)
|
|
|
183
|
|
|
|
(1,859
|
)
|
|
|
(28
|
)
|
|
|
(2,014
|
)
|
|
|
7193
|
%
|
|
|
(1,831
|
)
|
|
|
6539
|
%
|
Operating income
|
|
$
|
127,927
|
|
|
$
|
1,850
|
|
|
$
|
129,777
|
|
|
$
|
136,959
|
|
|
$
|
(9,032
|
)
|
|
|
(7
|
)%
|
|
$
|
(7,182
|
)
|
|
|
(5
|
)%
|
U.S. dollar exchange rate comparison
|
|
Year ended December 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
% Change
|
|
Value of one U.S. dollar3
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
2016 over
2015
|
|
|
2015 over
2014
|
|
Period-end exchange rate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Canadian dollar
|
|
$
|
1.3442
|
|
|
$
|
1.3839
|
|
|
$
|
1.1621
|
|
|
|
(3
|
)%
|
|
|
19
|
%
|
Euro
|
|
|
0.9506
|
|
|
|
0.9208
|
|
|
|
0.8265
|
|
|
|
3
|
%
|
|
|
11
|
%
|
Average exchange rate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Canadian dollar
|
|
$
|
1.3256
|
|
|
$
|
1.2788
|
|
|
$
|
1.1048
|
|
|
|
4
|
%
|
|
|
16
|
%
|
Euro
|
|
|
0.9042
|
|
|
|
0.9017
|
|
|
|
0.7538
|
|
|
|
-
|
|
|
|
20
|
%
|
The majority of the change in the value of the U.S. dollar
to the Canadian dollar and the Euro occurred during the first quarter of 2015. Since that time, the U.S. dollar continued a more
moderate appreciation against those currencies. The weakening of the U.S. dollar relative to the Canadian dollar and the Euro
between December 31, 2015 and December 31, 2016 substantially occurred during the third quarter of 2016.
Operations Update
The majority of our business continues to be generated by our
core auction operations. During 2016, we conducted 233 unreserved industrial auctions at locations in North America, Central America,
Europe, the Middle East, Australia, New Zealand, and Asia, compared to 229 during 2015. We also held 123 unreserved agricultural
auctions in 2016, compared to 116 in 2015.
Our key industrial auction metrics
10
are shown below:
|
|
Year ended December 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
% Change
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
2016 over
2015
|
|
|
2015 over
2014
|
|
Bidder registrations
|
|
|
549,000
|
|
|
|
507,500
|
|
|
|
463,500
|
|
|
|
8
|
%
|
|
|
9
|
%
|
Consignments
|
|
|
53,450
|
|
|
|
47,600
|
|
|
|
45,250
|
|
|
|
12
|
%
|
|
|
5
|
%
|
Buyers
|
|
|
138,400
|
|
|
|
123,700
|
|
|
|
112,850
|
|
|
|
12
|
%
|
|
|
10
|
%
|
Lots
|
|
|
398,500
|
|
|
|
354,500
|
|
|
|
319,500
|
|
|
|
12
|
%
|
|
|
11
|
%
|
We saw increases in all key industrial auction metrics in 2016
compared to 2015, primarily as a result of our focused efforts on growing the business combined with the performance of the used
equipment market, which remained stable during most of 2016 and improved marginally late in the third quarter and into the fourth
quarter of 2016.
Although our auctions vary in size, our average industrial
auction results for the years ended December 31, 2016, 2015, and 2014, are described in the following table:
|
|
Year ended December 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
Change
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
2016 over
2015
|
|
|
2015 over
2014
|
|
GAP
|
|
$
|
16.8 million
|
|
|
$
|
16.8 million
|
|
|
$
|
16.5 million
|
|
|
$
|
-
|
|
|
$
|
0.3 million
|
|
Bidder registrations
|
|
|
2,356
|
|
|
|
2,219
|
|
|
|
1,988
|
|
|
|
6
|
%
|
|
|
12
|
%
|
Consignors
|
|
|
229
|
|
|
|
209
|
|
|
|
195
|
|
|
|
10
|
%
|
|
|
7
|
%
|
Lots
|
|
|
1,711
|
|
|
|
1,551
|
|
|
|
1,370
|
|
|
|
10
|
%
|
|
|
13
|
%
|
For the same reasons discussed above, we saw improvements in
all of our average industrial auction metrics for the years ended December 31, 2016, 2015, and 2014, except for GAP per industrial
auction between 2016 and 2015. Average GAP per industrial auction did not change year-over-year primarily as a result of the decrease
in core auction GAP on a per-lot basis. GAP per lot decreased in 2016 compared to 2015 primarily in response to changes in the
mix and age of equipment that came to market. We also believe the macro economic environment uncertainties, particularly in North
America, negatively impacted equipment demand and pricing and contributed to the decrease in core auction GAP per lot year-over-year.
Website metrics
11
The Ritchie Bros. website (
www.rbauction.com
) is a gateway
to our online bidding system that allows bidders to participate in our auctions over the internet and showcases upcoming auctions
and equipment to be sold. This online bidding service gives our auction customers the choice of how they want to do business with
us and access to both live and online auction participation.
Internet bidders comprised 66% of the total bidder registrations
at our industrial auctions in 2016, compared to 63% in 2015. This increase in the level of internet bidders continues to demonstrate
our ability to drive multichannel participation at our auctions.
Our EquipmentOne website (
www.equipmentone.com
) provides
access to our online equipment marketplace.
|
10
|
For
a breakdown of these key industrial auction metrics by month, please refer to our website
at
www.rbauction.com
. None of the information in our website is incorporated by
reference into this document by this or any other reference.
|
|
11
|
None
of the information in our websites is incorporated by reference into this document by
this or any other reference.
|
The following table provides information about the average
monthly users of our websites:
|
|
As at December 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
% Change
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
2016 over
2015
|
|
|
2015 over
2014
|
|
www.rbauction.com
|
|
|
917,391
|
|
|
|
934,290
|
|
|
|
822,718
|
|
|
|
(2
|
)%
|
|
|
14
|
%
|
www.equipmentone.com
|
|
|
106,657
|
|
|
|
108,579
|
|
|
|
98,187
|
|
|
|
(2
|
)%
|
|
|
11
|
%
|
2016 performance
We saw a decrease in the number of average monthly users of
www.rbauction.com
between 2015 and 2016. We believe this decrease is primarily due to the decrease in core auction GAP
on a per lot basis. Lower valued lots are not advertised as heavily as higher value lots, and as such, attract less web traffic.
We also saw a decrease in the number of average monthly users
of
www.equipmentone.com
in 2016 compared to 2015. We believe the decrease is primarily due to a more targeted marketing
effort in 2016, which reached a smaller audience, but an audience that was more likely to transact on the online marketplace.
As such, we believe this targeted marketing, which focuses on the quality of web traffic rather than the quantity, contributed
to the increase in EquipmentOne revenues in 2016 compared to 2015.
During 2016, the average number of monthly visits to Mascus’
global websites was 3,256,071.
2015 performance
We saw a significant increase in the number of average monthly
users of
www.rbauction.com
between 2014 and 2015. This increase was primarily due to greater search traffic, which we believe
is a direct result of our search engine optimization efforts. Those efforts took effect in the latter half of 2014 and were focused
on adapting our website to mobile devices.
We also saw an increase in the number of average monthly users
of
www.equipmentone.com
in 2015 compared to 2014. We believe this increase was primarily due to cross-promotional efforts
that took place in 2015, and in particular, the addition of a link to
www.equipmentone.com
that we built onto our
www.rbauction.com
website in April 2015 that allows users to search both websites simultaneously for equipment listings. We also believe our
search engine optimization efforts in 2015, as well as a series of advertising and promotional efforts directed towards EquipmentOne,
modifications made to improve user experience, and a greater number of equipment listings on the website contributed to the increase
in average monthly users of
www.equipmentone.com
.
Online bidding and equipment marketplace purchase metrics
We continue to see an increase in the use and popularity of
both our online bidding system and our online equipment marketplace. During 2016, we attracted record online bidder registrations
and sold approximately $2.1 billion of equipment, trucks and other assets to online auction bidders and EquipmentOne customers.
This represents an 8% increase over the $1.9 billion of assets sold online in 2015, and an annual sales record.
Productivity
We
measure Sales Force Productivity as trailing 12-month core auction GAP
per
Revenue Producer
12
. It is an operational statistic that we believe provides
a gauge of the effectiveness of Revenue Producers in increasing our GAP, and ultimately our net income. Sales Force Productivity
decreased to $11.9 million per Revenue Producer at December 31, 2016 from $12.1 million per Revenue Producer at December 31, 2015.
|
12
|
Revenue
Producers is a term used to describe our revenue-producing sales personnel. This definition
is comprised of Regional Sales Managers and Territory Managers.
|
The decrease was primarily attributable to the addition of
three Revenue Producers from Kramer and one from Petrowsky, that were only contributing to our GAP for the portion of 2016 that
was post-acquisition.
Our headcount statistics, which exclude Xcira and Mascus employees,
as at the end of each period are presented below:
|
|
Q4 2016
|
|
|
Q3 2016
|
|
|
Q2 2016
|
|
|
Q1 2016
|
|
|
Q4 2015
|
|
|
Q3 2015
|
|
|
Q2 2015
|
|
|
Q1 2015
|
|
Total full-time employees
|
|
|
1,649
|
|
|
|
1,641
|
|
|
|
1,600
|
|
|
|
1,559
|
|
|
|
1,522
|
|
|
|
1,513
|
|
|
|
1,515
|
|
|
|
1,479
|
|
Regional Sales Managers
|
|
|
51
|
|
|
|
50
|
|
|
|
45
|
|
|
|
49
|
|
|
|
46
|
|
|
|
48
|
|
|
|
46
|
|
|
|
45
|
|
Territory Managers
|
|
|
301
|
|
|
|
304
|
|
|
|
304
|
|
|
|
296
|
|
|
|
296
|
|
|
|
307
|
|
|
|
307
|
|
|
|
308
|
|
Revenue Producers
|
|
|
352
|
|
|
|
354
|
|
|
|
349
|
|
|
|
345
|
|
|
|
342
|
|
|
|
355
|
|
|
|
353
|
|
|
|
353
|
|
Trainee Territory Managers
|
|
|
23
|
|
|
|
22
|
|
|
|
28
|
|
|
|
26
|
|
|
|
31
|
|
|
|
26
|
|
|
|
24
|
|
|
|
30
|
|
Other sales personnel
|
|
|
109
|
|
|
|
110
|
|
|
|
103
|
|
|
|
99
|
|
|
|
95
|
|
|
|
88
|
|
|
|
87
|
|
|
|
79
|
|
Sales personnel
|
|
|
484
|
|
|
|
486
|
|
|
|
480
|
|
|
|
470
|
|
|
|
468
|
|
|
|
469
|
|
|
|
464
|
|
|
|
462
|
|
Total headcount (excluding Xcira and Mascus employees) increased
by net 127 between December 31, 2015 and December 31, 2016, which consisted of increases of net 16 sales personnel and net 111
administrative and operational personnel.
Included in the administrative and operational personnel increase
was an increase of net 23 equipment inspectors, yard staff, and other personnel at our Edmonton, Canada, auction site to support
growth in that region. While some of this increase came from the addition of new employees, a portion of the headcount increase
in Edmonton was also the result of the conversion of part time employees to full time employees. The increase in administrative
and operational personnel also included net 18 from RBFS
13
and net five from
EquipmentOne to support growth of those businesses, as well as net nine and net eight as a result of our acquisition of Petrowsky
and Kramer, respectively. In addition, between December 31, 2015 and December 31, 2016, our finance team increased by net 13 as
a result of a restructure of the finance department for the strategic purpose of partnering finance personnel with the leaders
responsible for driving growth in the business.
Between December 31, 2015 and December 31, 2016, the number
of Revenue Producers increased by net 10 and the number of Trainee Territory Managers and other sales personnel increased by net
six, resulting in the overall net 16 increase in total sales personnel. The increase in Revenue Producers during that period includes
an increase in the number of Territory Managers by net five.
Xcira had a total headcount of 52 full time employees at December
31, 2016, which has increased by net two since December 31, 2015. Mascus had a total headcount of 49 at December 31, 2016.
Outstanding Share Data
We are a public company and our common shares are listed under
the symbol “RBA” on the NYSE and the TSX. On February 17, 2017, we had 106,822,475 common shares issued and outstanding,
555,028 share units awarded under our senior executive and employee performance share unit (“PSU”) plans, and stock
options outstanding to purchase a total of 3,364,903 common shares. No preferred shares have been issued or are outstanding. The
outstanding stock options had a weighted average exercise price of $24.02 per share and a weighted average remaining term of 7.4
years.
|
13
|
RBFS
account managers generate financing fee revenue but do not produce GAP. As such, they
are excluded from our definition of Revenue Producers and the measurement of Sales Force
Productivity, which is based on core auction GAP.
|
In respect of PSUs awarded under the senior executive and employee
PSU plans, performance and market conditions, depending on their outcome at the end of the contingency period, can reduce the
number of vested awards to nil or to a maximum of 200% of the number of outstanding PSUs. Certain of our PSUs are only cash-settled,
whereas others may be settled, at our discretion, in cash or through the issuance of shares, by open market purchases of shares.
Share repurchase program
In March 2016, we executed the following share repurchases
at a total cost of $36.7 million:
|
|
Issuer purchases of equity securities
|
|
|
|
(a) Total number
of shares
purchased
(2)
|
|
|
(b) Average
price paid per
share
(2)
|
|
|
(c) Total number of
shares purchased as part
of publically announced
program
(2)
|
|
|
(d) Maximum approximate
dollar value of shares that
may yet be purchased
under the program
(1)
|
|
March 2016
(3)
|
|
|
1,460,000
|
|
|
$
|
25.15
|
|
|
|
1,460,000
|
|
|
$
|
15.8 million
|
|
|
(1)
|
On January 12, 2015, we announced that our Board of Directors
had authorized a share repurchase program for the repurchase of up $100 million worth
of our common shares (subject to TSX approval) over the next three years. The initial
normal course issuer bid approved by the TSX (the “initial NCIB”) was for
a one-year period from March 3, 2015 through March 2, 2016. No purchases were made under
the initial NCIB during the first quarter of 2016, and the initial NCIB expired in accordance
with its terms on March 2, 2016.
|
|
(2)
|
On February 25, 2016, we announced our intention to renew our
normal course issuer bid on the expiry of the initial NCIB. On March 1, 2016, the TSX
approved a new normal course issuer bid (the “new NCIB”) for a one-year period
from March 3, 2016 to March 2, 2017. The information in the above table relates to purchases
made, and eligible to be made in the future, pursuant to the new NCIB.
|
|
(3)
|
Repurchases under the new NCIB during the month of March 2016
began on March 8, 2016 and ended on March 15, 2016. All repurchased shares were cancelled
on March 15, 2016. No further share repurchases were made pursuant to the new NCIB, or
by any other means, during 2016.
|
Liquidity and Capital Resources
Working capital
|
|
December 31,
|
|
|
December 31,
|
|
|
|
|
(in U.S. $000's)
|
|
2016
|
|
|
2015
|
|
|
% Change
|
|
Cash and cash equivalents
|
|
$
|
207,867
|
|
|
$
|
210,148
|
|
|
|
(1
|
)%
|
Current restricted cash
|
|
$
|
50,222
|
|
|
$
|
83,098
|
|
|
|
(40
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets
|
|
$
|
377,998
|
|
|
$
|
430,099
|
|
|
|
(12
|
)%
|
Current liabilities
|
|
|
252,834
|
|
|
|
289,966
|
|
|
|
(13
|
)%
|
Working capital
|
|
$
|
125,164
|
|
|
$
|
140,133
|
|
|
|
(11
|
)%
|
We believe that working capital is a more meaningful measure
of our liquidity than cash alone. Our working capital decreased during the year ended December 31, 2016, primarily due to the
payment of dividends of $73.9 million, the acquisition of the 49% non-controlling interest in RBFS for cash consideration of $41.1
million during the third quarter of 2016, and the repurchase of 1.46 million common shares for $36.7 million in the first quarter
of 2016. Net income generated during the period partially offset this decrease, as did the refinancing of our long-term loan that
fell due in May 2016, which resulted in the replacement of the current portion of long-term debt with non-current long-term debt.
Cash flows
|
|
Year ended December 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
% Change
|
|
(in U.S. $000's)
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
2016 over
2015
|
|
|
2015 over
2014
|
|
Cash provided by (used in):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities
|
|
$
|
177,558
|
|
|
$
|
196,459
|
|
|
$
|
149,019
|
|
|
|
(10
|
)%
|
|
|
32
|
%
|
Investing activities
|
|
|
(116,862
|
)
|
|
|
(29,348
|
)
|
|
|
(30,124
|
)
|
|
|
298
|
%
|
|
|
(3
|
)%
|
Financing activities
|
|
|
404,143
|
|
|
|
(80,689
|
)
|
|
|
(101,633
|
)
|
|
|
601
|
%
|
|
|
(21
|
)%
|
Effect of changes in foreign currency rates
|
|
|
4
|
|
|
|
(26,265
|
)
|
|
|
(18,534
|
)
|
|
|
100
|
%
|
|
|
42
|
%
|
Net increase in cash, cash equivalents, and restricted
cash
|
|
$
|
464,843
|
|
|
$
|
60,157
|
|
|
$
|
(1,272
|
)
|
|
|
673
|
%
|
|
|
(4829
|
)%
|
Operating activities
Cash provided by operating activities can fluctuate significantly
from period to period due to factors such as differences in the timing, size, and number of auctions during the period, the volume
of our underwritten contracts, the timing of the receipt of auction proceeds from buyers and of the payment of net amounts due
to consignors, as well as the location of the auction with respect to restrictions on the use of cash generated therein.
Cash provided by operating activities decreased $18.9 million,
or 10%, during 2016 compared to 2015. This decrease is primarily due to the decrease in net income over the same comparative period
after removing the impact of the $28.2 million non-cash impairment loss recognized on EquipmentOne goodwill and customer relationships,
combined with changes in certain of our operating assets and liabilities, including auction proceeds payable, income taxes payable,
and income taxes receivable. This decrease was partially offset by net changes in inventory that resulted in greater cash inflows.
Operating free cash flow (“OFCF”)
14
(non-GAAP measure) decreased
$34.5 million, or 19%, to $147.8 million in 2016 from $182.3 million in 2015.
Investing activities
Net cash used in investing activities increased $87.5 million,
or 298%, during 2016 compared to 2015. This increase is primarily due to the acquisition of the 49% non-controlling interest in
RBFS for cash consideration of $41.1 million, the acquisition of Mascus for cash consideration of $28.1 million (net of cash and
cash equivalents acquired), the acquisition of Kramer for $11.1 million, a $10.0 million decrease in proceeds on disposition of
property, plant and equipment, an increase in intangible asset additions of $8.8 million, and the acquisition of Petrowsky for
cash consideration of $6.3 million. The increase was partially offset by the acquisition of Xcira for $12.1 million (net of cash
and cash equivalents acquired), a decrease in property, plant and equipment additions of $3.1 million, and the acquisition of
equity investments for $3.0 million in 2015.
The increase in intangible asset additions is primarily due
to the capitalization of costs to assets under development. Significant software development projects include those related to
computer system transformation, customer experience and process improvements, website enhancement, adaptation of our website to
mobile devices including creation of a mobile bidding app, Xcira’s next-generation auction bidding platforms, enhanced wifi
access at many of our auction sites, and disaster recovery preparedness.
|
14
|
OFCF
is non-GAAP financial measure that we believe, when compared on a trailing 12-month basis
to different financial periods provides an effective measure of the cash generated by
our business and provides useful information regarding cash flows remaining for discretionary
return to stockholders, mergers and acquisitions, or debt reduction. Our balance sheet
scorecard includes the performance metric, OFCF. OFCF is also an element of the performance
criteria for certain annual short-term incentive awards we grant to our employees and
officers. We calculate OFCF by subtracting net capital spending from cash provided by
operating activities. OFCF is reconciled to the most directly comparable GAAP measures
in our consolidated financial statements under “Non-GAAP Measures” below.
|
CAPEX Intensity presents net capital spending as a percentage of
revenue. We believe that comparing CAPEX Intensity on a trailing 12-month basis for different financial periods provides useful
information as to the amount of capital expenditure that we require to generate revenues.
|
|
Year ended December 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
Change
|
|
(in U.S. $ millions)
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
2016 over
2015
|
|
|
2015 over
2014
|
|
Property, plant and equipment additions
|
|
$
|
18.9
|
|
|
$
|
22.1
|
|
|
$
|
25.0
|
|
|
|
(14)
|
%
|
|
|
(12)
|
%
|
Intangible asset additions
|
|
|
17.6
|
|
|
|
8.8
|
|
|
|
13.9
|
|
|
|
100
|
%
|
|
|
(37)
|
%
|
Proceeds on disposition of property
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
plant and equipment
|
|
|
(6.7
|
)
|
|
|
(16.7
|
)
|
|
|
(9.3
|
)
|
|
|
(60)
|
%
|
|
|
80
|
%
|
Net capital spending
|
|
$
|
29.8
|
|
|
$
|
14.2
|
|
|
$
|
29.6
|
|
|
|
110
|
%
|
|
|
(52)
|
%
|
Revenues
|
|
$
|
566.4
|
|
|
$
|
515.9
|
|
|
$
|
481.1
|
|
|
|
10
|
%
|
|
|
7
|
%
|
CAPEX intensity
|
|
|
5.3
|
%
|
|
|
2.8
|
%
|
|
|
6.2
|
%
|
|
|
250 bps
|
|
|
|
-340 bps
|
|
CAPEX Intensity increased in 2016 compared to 2015, primarily due
to the fact that the net capital spending increase of 110% exceeded the revenue increase of 10% year-over-year. The net capital
spending increase was primarily the result of a $10.0 million, or 60%, decrease in proceeds on disposition of property, plant and
equipment, combined with an $8.8 million increase in intangible asset additions, as discussed above. The decrease in proceeds on
disposition of property, plant and equipment year-over-year is primarily due to the $8.4 million gain on sale of excess land in
Edmonton, Canada in the fourth quarter of 2015.
Financing activities
Net cash provided by financing activities increased $484.8 million,
or 601%, in 2016 compared to 2015, primarily due to gross proceeds of $500.0 million received in exchange for the issue of the
Notes in December 2016. This increase was partially offset by the payment of $10.6 million in debt issue costs also in 2016.
The net increase in cash provided by financing activities was also
the result of $147.1 million in proceeds from our drawings on the Multicurrency Facilities to refinance pre-existing long-term
debt. The increase was offset by the use of the proceeds to repay existing indebtedness in the fourth quarter of 2016, which included
$55.9 million of pre-existing long-term debt due in May 2022 and $45.7 million of debt that was being refinanced on a long-term
basis under the pre-existing credit facilities. The increase was also offset by the repayment of long-term debt of $46.6 million
in the second quarter of 2016 related to the Canadian dollar 60 million term loan that fell due in May 2016, as well as payment
of $6.8 million in debt extinguishment costs in the fourth quarter of 2016 associated with the early termination of the $55.9 million
of long-term debt.
We declared and paid regular cash dividends of $0.16 per common
share for the quarters ended December 31, 2015 and March 31, 2016, and we declared and paid regular cash dividends of $0.17 per
common share for the quarters ended June 30, 2016 and September 30, 2016. We have declared, but not yet paid, a dividend of $0.17
per common share for the quarter ended December 31, 2016.
Total dividend payments during 2016 were $70.5 million to stockholders
and $3.4 million to non-controlling interests. This compares to total dividend payments of $64.3 million to stockholders and $1.3
million to non-controlling interests during 2015. All dividends we pay are “eligible dividends” for Canadian income
tax purposes unless indicated otherwise.
Our dividend payout ratio, which we calculate as dividends paid
to stockholders divided by net income attributable to stockholders, increased 2960 bps to 76.8% for the year ended December 31,
2016 from 47.2% for the year ended December 31, 2015. This increase is primarily the result of the decrease in net income attributable
to stockholders combined with the increase in our dividends paid to stockholders over the same comparative period.
Our adjusted dividend payout ratio
15
(non-GAAP measure)
increased 410 bps to 57.2% for the year ended December 31, 2016 from 53.1% for the year ended December 31, 2015.
Our return on average invested capital is calculated as net income
attributable to stockholders divided by our average invested capital. We calculate average invested capital over a trailing 12-month
period by adding the average long-term debt over that period to the average stockholders’ equity over that period. Return
on average invested capital decreased 820 bps to 8.8% during 2016 from 17.0% in 2015. This decrease is primarily due to a $239.8
million, or a 30%, increase in average invested capital year-over-year, which was primarily the result of the issuance of the Notes
in the fourth quarter of 2016. Also contributing to the decrease in return on average invested capital in 2016 compared to 2015
was a $44.4 million, or 33%, decrease in net income attributable to stockholders. Return on invested capital (“ROIC”)
16
(non-GAAP measure) decreased 330 bps to 11.8% during 2016 from 15.1% in 2015. ROIC excluding escrowed debt
17
(non-GAAP
measure) increased 40 bps to 15.5% during 2016 from 15.1% in 2015.
Debt and credit facilities
At December 31, 2016, our short-term debt of $23.9 million consisted
of borrowings under our committed, revolving credit facilities, and had a weighted average annual interest rate of 2.2%. This compares
to short-term debt of $12.4 million as at December 31, 2015, with a weighted average annual interest rate of 1.8%.
The $43.3 million current portion of long-term debt as at December
31, 2015 consisted entirely of our Canadian dollar 60 million term loan under our uncommitted, revolving credit facility. We refinanced
this term loan on a long-term basis when it fell due on May 4, 2016 by drawing on our committed, revolving credit facility.
At December 31, 2016, we had a total of $595.7 million long-term
debt, with a weighted average annual interest rate of 4.9%. This compares to long-term debt of $97.9 million as at December 31,
2015, with a weighted average annual interest rate of 5.0%.
|
15
|
Adjusted dividend payout ratio is non-GAAP financial
measure. We believe that comparing the adjusted dividend payout ratio for different financial periods provides useful information
about how well our net income supports our dividend payments. Adjusted dividend payout ratio is calculated by dividing dividends
paid to stockholders by adjusted net income attributable to stockholders (non-GAAP measure). Adjusted dividend payout ratio is
reconciled to the most directly comparable GAAP measures in our consolidated financial statements under “Non-GAAP Measures”
below.
|
|
16
|
ROIC is a non-GAAP financial measure that we believe,
by comparing on a trailing 12-month basis for different financial periods provides useful information about the after-tax return
generated by our investments. Our balance sheet scorecard includes the performance metric, ROIC. ROIC is also an element of the
performance criteria for certain PSUs we granted to our employees and officers in 2013 and 2014. We calculate ROIC as net income
attributable to stockholders excluding the effects of adjusting items divided by average invested capital. Average invested capital
is a GAAP measure calculated as the average long-term debt (including current and non-current portions) and stockholders’
equity over a trailing 12-month period. ROIC is reconciled to the most directly comparable GAAP measures in our consolidated financial
statements under “Non-GAAP Measures” below.
|
|
17
|
ROIC excluding escrowed debt is a non-GAAP financial measure that we believe, by comparing on
a trailing 12-month basis for different financial periods provides useful information about the after-tax return generated by our
investments by removing the impact of the issue of the Notes, which are currently held in escrow. While the Notes are in escrow
and not accessible by us, they are not contributing to the generation of net income. We believe that by adjusting debt to remove
funds we do not have access to, we are providing more accurate information about the after-tax return generated by our investments.
We calculate ROIC excluding escrowed debt as adjusted net income attributable to stockholders (non-GAAP measure) divided by adjusted
average invested capital (non-GAAP measure). We calculate adjusted average invested capital (non-GAAP measure) as the adjusted
average long-term debt (non-GAAP measure) and average stockholders’ equity over a trailing 12-month period. We calculate
adjusted average long-term debt (non-GAAP measure) as the average of adjusted opening long-term debt (non-GAAP measure) and adjusted
ending long-term debt (non-GAAP measure). Adjusted opening long-term debt (non-GAAP measure) and adjusted ending long-term debt
(non-GAAP measure) are calculated as opening or ending long-term debt, as applicable, as reported in our consolidated financial
statements reduced by long-term debt held in escrow.
ROIC excluding escrowed debt is reconciled
to the most directly comparable GAAP measures in our consolidated financial statements under “Non-GAAP Measures” below.
|
Our long-term debt and available credit facilities at December 31,
2016 and 2015 were as follows:
|
|
Year ended December 31,
|
|
(in U.S. $000's)
|
|
2016
|
|
|
2015
|
|
|
% Change
|
|
Long-term debt
|
|
$
|
595,706
|
|
|
$
|
97,915
|
|
|
|
508
|
%
|
Committed
|
|
|
|
|
|
|
|
|
|
|
|
|
Revolving credit facilities
|
|
|
687,000
|
|
|
|
312,693
|
|
|
|
120
|
%
|
Revolving credit facilities available
|
|
|
548,649
|
|
|
|
300,358
|
|
|
|
83
|
%
|
Delayed draw facility
|
|
|
325,000
|
|
|
|
-
|
|
|
|
100
|
%
|
Delayed draw facility available
|
|
|
325,000
|
|
|
|
-
|
|
|
|
100
|
%
|
Uncommitted
|
|
|
|
|
|
|
|
|
|
|
|
|
Revolving credit facilities
|
|
|
-
|
|
|
|
64,533
|
|
|
|
(100)
|
%
|
Revolving credit facilities available
|
|
|
-
|
|
|
|
42,973
|
|
|
|
(100)
|
%
|
Non-revolving credit facilities
|
|
|
-
|
|
|
|
225,000
|
|
|
|
(100)
|
%
|
Non-revolving credit facilities available
|
|
|
-
|
|
|
|
127,076
|
|
|
|
(100)
|
%
|
Total credit facilities
|
|
$
|
1,012,000
|
|
|
$
|
602,226
|
|
|
|
68
|
%
|
Total credit facilities available
|
|
|
873,649
|
|
|
|
470,407
|
|
|
|
86
|
%
|
Syndicated credit facility
As noted under “Strategy” above, on October 27, 2016,
we closed the new five-year Credit Agreement with a syndicate of lenders, including BofA and Royal Bank of Canada, which provides
us with:
|
1)
|
The $675.0 million Multicurrency Facilities;
|
|
2)
|
The $325.0 million Delayed-Draw Facility; and
|
|
3)
|
At our election and subject to certain conditions, including receipt of related commitments, incremental term loan facilities
and/or increases to the Multicurrency Facilities in an aggregate amount of up to $50 million.
|
We may use the proceeds from the Multicurrency Facilities to refinance
certain existing indebtedness and for other general corporate purposes. Proceeds from the Delayed-Draw Facility can only be used
to finance transactions contemplated by the Merger Agreement. The Multicurrency Facilities remain in place and outstanding even
if the Merger Agreement is terminated and the Merger is not consummated.
The New Facilities will remain unsecured until the closing of the
Merger, after which the New Facilities will be secured by various of our assets. The New Facilities may become unsecured again
after the Merger is consummated, subject to Ritchie Bros. meeting specified credit rating or leverage ratio conditions. The New
Facilities will mature five years after the closing date of the Credit Agreement. The Delayed-Draw Facility will amortize in equal
quarterly installments in an annual amount of 5% for the first two years after the closing of the Merger, and 10% in the third
through fifth years after the closing of the Merger, with the balance payable at maturity.
Borrowings under the Credit Agreement will bear floating rates of
interest, which, at our option, will be based on either a base rate (or Canadian prime rate for certain Canadian dollar borrowings)
or LIBOR (or such customary floating rate customarily used by BofA for currencies other than U.S. dollars). In either case, an
applicable margin is added to the rate. The applicable margin ranges from 0.25% to 1.50% for base rate loans, and 1.25% to 2.50%
for LIBOR (or the equivalent of such currency) loans, depending on our leverage ratio at the time of borrowing.
We must also pay quarterly in arrears a commitment fee equal to
the daily amount of the unused commitments under the New Facilities multiplied by an applicable percentage per annum (which ranges
from 0.25% to 0.50% depending on our leverage ratio).
We incurred debt issuance costs of $6.4 million in connection with
the Credit Agreement. At December 31, 2016, we had unamortized deferred debt issuance costs relating to the Credit Agreement of
$6.2 million.
On October 27, 2016, we terminated our pre-existing revolving bi-lateral
credit facilities, which consisted of $313.0 million of committed revolving credit facilities and $292.2 million of uncommitted
credit facilities, as well as the $50.0 million bulge credit facility (the “Old Credit Facilities”). On the same day,
we also prepaid all outstanding debt issued under the Old Credit Facilities using funds from the New Facilities, which resulted
in the fixed rate long-term debt being replaced by floating rate long-term debt and $6.8 million in early termination fees, which
were recognized in net income as debt extinguishment costs on the transaction date.
Senior unsecured notes
On December 21, 2016, we completed the offering of $500.0 million
aggregate principal amount of 5.375% Notes due January 15, 2025. The Notes were offered only to qualified institutional buyers
in reliance on Rule 144A under the Securities Act of 1933, as amended (the “Securities Act”), and outside the United
States, only to non-U.S. investors pursuant to Regulation S under the Securities Act. The Notes have not been registered under
the Securities Act or any state securities laws and may not be offered or sold in the United States absent an effective registration
statement or an applicable exemption from registration requirements or a transaction not subject to the registration requirements
of the Securities Act or any state securities laws.
We will use the proceeds of the offering to finance the transactions
contemplated by the Merger Agreement. Upon the closing of the offering, the gross proceeds from the offering together with certain
additional amounts including prepaid interest were deposited in to an escrow account. The funds will be held in escrow until the
completion of the transactions contemplated by the Merger Agreement. If the acquisition is not consummated on or before October
31, 2017, or the Merger Agreement is terminated prior to such date, we will redeem all of the outstanding Notes at a redemption
price equal to 100% of the original offering price of the Notes, plus accrued and unpaid interest. Until the release of the proceeds
in the escrow account, the Notes will be secured by a first priority security interest in the escrow account. Upon the completion
of the Acquisition, the Notes will be senior unsecured obligations. The Notes will be jointly and severally guaranteed on an unsecured,
unsubordinated basis, subject to certain exceptions, by each of our subsidiaries, which guarantees the obligations under the Credit
Agreement.
We incurred debt issuance costs of $4.2 million in connection with
the offering of the Notes. At December 31, 2016, we had unamortized deferred debt issuance costs relating to the Notes of $4.2
million.
GS Bank Facilities
As noted under “Strategy” above, on August 29 ,2016,
we obtained the Commitment Letter from GS Bank pursuant to which GS Bank was committed to provide the $150.0 million Revolving
Facility and the $850.0 million Bridge Facility. No draws were made against these Facilities in 2016. In conjunction with the closing
of the Credit Agreement in October 2016, we terminated the $150.0 million Revolving Facility and $350.0 million of the $850.0 million
Bridge Facility with GS Bank. In conjunction with the issuance of the Notes in December 2016, we terminated the remaining $500.0
million of the $850.0 million Bridge Facility with GS Bank.
Other credit facilities
As at December 31, 2016, we also have $12.0 million in committed,
revolving credit facilities, in certain foreign jurisdictions, which expire on May 31, 2018.
Debt covenants
The Credit Agreement contains certain covenants that could limit
the ability of the Company and certain of its subsidiaries to, among other things and subject to certain significant exceptions:
(i) incur, assume or guarantee additional indebtedness; (ii) declare or pay dividends or make other distributions with respect
to, or purchase or otherwise acquire or retire for value, equity interests; (iii) make loans, advances or other investments; (iv)
incur liens; (v) sell or otherwise dispose of assets; and (vi) enter into transactions with affiliates. The Credit Agreement also
provides for certain events of default, which, if any of them occurs, would permit or require the principal, premium, if any, interest
and any other monetary obligations on all the then outstanding under the Credit Agreement to be declared immediately due and payable.
The Notes were issued pursuant to an indenture, dated December 21,
2016, with U.S. Bank National Association, as trustee (the “Indenture”). The Indenture contains covenants that limit
our ability, and the ability of certain of our subsidiaries to, among other things and subject to certain significant exceptions:
(i) incur, assume or guarantee additional indebtedness; (ii) declare or pay dividends or make other distributions with respect
to, or purchase or otherwise acquire or retire for value, equity interests; (iii) make any principal payment on, or redeem or repurchase,
subordinated debt; (iv) make loans, advances or other investments; (v) incur liens; (vi) sell or otherwise dispose of assets; and
(vii) enter into transactions with affiliates. The Indenture also provides for certain events of default, which, if any of them
occurs, would permit or require the principal, premium, if any, interest and any other monetary obligations on all the then outstanding
Notes under the applicable indenture to be declared immediately due and payable.
We were in compliance with all financial and other covenants applicable
to our credit facilities at December 31, 2016.
Contractual obligations at December 31, 2016
|
|
Payments due by period
|
|
|
|
|
|
|
Less than
|
|
|
1 to 3
|
|
|
3 to 5
|
|
|
More than
|
|
(in U.S. $000's)
|
|
Total
|
|
|
1 year
|
|
|
years
|
|
|
years
|
|
|
5 years
|
|
Long-term debt obligations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal
|
|
$
|
623,838
|
|
|
$
|
23,912
|
|
|
$
|
-
|
|
|
$
|
99,926
|
|
|
$
|
500,000
|
|
Interest
|
|
|
220,812
|
|
|
|
10,205
|
|
|
|
58,482
|
|
|
|
58,062
|
|
|
|
94,063
|
|
Capital lease obligations
|
|
|
4,241
|
|
|
|
1,484
|
|
|
|
2,366
|
|
|
|
391
|
|
|
|
-
|
|
Operating lease obligations
|
|
|
105,436
|
|
|
|
12,664
|
|
|
|
21,433
|
|
|
|
14,623
|
|
|
|
56,716
|
|
Purchase obligations
|
|
|
3,197
|
|
|
|
3,197
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Share unit liabilities
|
|
|
14,665
|
|
|
|
10,422
|
|
|
|
4,243
|
|
|
|
-
|
|
|
|
-
|
|
Other non-current liabilities
|
|
|
7,344
|
|
|
|
-
|
|
|
|
5,485
|
|
|
|
-
|
|
|
|
1,859
|
|
Total contractual obligations
|
|
$
|
979,533
|
|
|
$
|
61,884
|
|
|
$
|
92,009
|
|
|
$
|
173,002
|
|
|
$
|
652,638
|
|
Our long-term debt obligations included in the table above consist
of draws under the New Facilities and our Notes. Our finance leases relate primarily to computer, automotive, and yard equipment.
Our operating leases relate primarily to land on which we operate regional auction sites and administrative buildings, located
in North America, Central America, Europe, the Middle East, and Asia. Other operating leases include leases of automotive, yard,
and office equipment. Purchase obligations relate to capital expenditure commitments we have made with respect to property, plant
and equipment and intangible assets. Share unit liabilities reflect the amounts of the future cash-settlement obligations of share
units earned that are expected to vest as at December 31, 2016.
In the normal course of our business, we may guarantee a minimum
level of proceeds in connection with the sale at auction of a consignor’s equipment. Our total exposure as at December 31,
2016 from these guarantee contracts was $15.2 million, compared to $55.8 million at December 31, 2015, which we anticipate will
be fully covered by the proceeds that we will receive from the sale at auction of the related equipment, plus our commission. We
do not record any liability in our financial statements in respect of these guarantee contracts, and they are not reflected in
the contractual obligations table above.
Going concern assessment
We believe our existing working capital and availability under our
credit facilities, including the New Facilities, the Notes, and our other credit facilities, are sufficient to satisfy our present
operating requirements and contractual obligations (detailed above), as well as to fund future growth including, but not limited
to, mergers and acquisitions, development of EquipmentOne and Mascus, and other growth opportunities.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements that have or are reasonably
likely to have a current or future material effect on our financial condition, changes in financial condition, revenues or expenses,
financial performance, liquidity, capital expenditures or capital resources.
Critical Accounting Policies,
Judgments, Estimates and Assumptions
In preparing our consolidated financial statements in conformity
with US GAAP, we must make decisions that impact the reported amounts and related disclosures. Such decisions include the selection
of the appropriate accounting principles to be applied and the assumptions on which to base accounting estimates. In reaching such
decisions, we apply judgments based on our understanding and analysis of the relevant circumstances and historical experience.
On an ongoing basis, we evaluate these judgments and estimates, including:
|
·
|
recognition of revenue from inventory sales net of cost of inventory
sold;
|
|
·
|
valuation of consignors’ equipment and other assets subject
to guarantee contracts;
|
|
·
|
consolidation of variable interest entities;
|
|
·
|
the grant date fair value of stock option and share unit awards;
|
|
·
|
the identification of reporting units and recoverability of goodwill;
|
|
·
|
recoverability of long-lived assets; and
|
|
·
|
recoverability of deferred income tax assets.
|
Actual amounts could differ materially from those estimated by us
at the time our consolidated financial statements are prepared.
The following discussion of critical accounting policies and estimates
is intended to supplement the significant accounting policies presented in the notes to our consolidated financial statements included
in “Part II, Item 8: Financial Statements and Supplementary Data” presented in our Annual Report on Form 10-K,
which summarize the accounting policies and methods used in the preparation of those consolidated financial statements. The policies
and the estimates discussed below are included here because they require more significant judgments and estimates in the preparation
and presentation of our consolidated financial statements than other policies and estimates.
Recognition of revenue from inventory sales net of cost of inventory
sold
We record revenues from inventory sales net of costs of inventory
sold within commission revenue on the consolidated income statement. This commission revenue, as well as commission revenues earned
on straight commission and guarantee contracts, is classified as revenues from the rendering of services as opposed to revenues
from the sale of goods.
All of the equipment sold at our auctions is sold to the highest
bidder on an unreserved basis. Although we take title to the equipment we sell under inventory contracts, the period of direct
ownership is relatively short, and the equipment is processed in the same manner as other consigned equipment such that the risks
and rewards of ownership are not substantially different from those in our guarantee contracts. As such, we have determined that
we are acting as an agent when we sell inventory, not as a principal. And in that capacity, we record revenue from inventory sales
on a net basis, as opposed to a gross basis.
We value each inventory contract at the lower of cost and net realizable
value. In addition, we monitor the results from the sale of this inventory at auction after the balance sheet date up to the release
of our financial statements and record any losses realized on inventory contracts.
Consolidation of variable interest entities
When we acquire a variable interest entity (“VIE”),
we must determine whether we are the primary beneficiary. If we determine that we are the primary beneficiary, we are required
to consolidate the VIE. The primary beneficiary determination requires us to make assumptions as to which activities most significantly
impact the VIE’s economic performance, identify the existence of any de facto related parties, and make an assessment as
to whether we have the power to direct the activities determined to most significantly impact the VIE’s economic performance.
Valuation of performance
share units subject to market conditions
We initially measure the cost of share units that are subject to
market vesting conditions using a binomial model to determine the fair value of the liability incurred. Estimating fair value for
share-based payment transactions requires determination of the most appropriate valuation model, which is dependent on the terms
and conditions of the grant. This estimate also requires determination of the most appropriate inputs to the valuation model, including
the expected life of the share unit, volatility and dividend yield, as well as making assumptions about them. For cash-settled
share-based payment transactions, the liability needs to be re-measured at the end of each reporting period up to the date of settlement.
This requires a reassessment of the estimates used at the end of each reporting period.
Identification of reporting units and recoverability of goodwill
We perform impairment tests on goodwill on an annual basis in accordance
with US GAAP, or more frequently if events or changes in circumstances indicate that those assets might be impaired. As permitted
by US GAAP, we performed a Step 0 qualitative assessment during our annual impairment test on December 31, 2016. We determined
that it was not more likely than not that the fair value of each reporting unit was less than its carrying amount, and, therefore,
the two-step impairment test (described below) was not required.
Impairment testing involves determination of reporting units, which
we determined to be at the same level as our reportable operating segment for core auction, and one below for EquipmentOne and
Mascus, which are included in our other reportable operating segment. One of the key judgments made in arriving at this determination
was that the business components of the core auction operating segment could be aggregated into a single reporting unit on the
basis of similarity in the nature of their services, the type of class of customer for their services, and the methods used to
provide their services. Goodwill related to the acquisition of auction businesses and Xcira, the provider of our online auction
bidding technology, have been assigned to the core auction reporting unit. Goodwill arising from the acquisition of AssetNation,
the provider of our online marketplaces, has been assigned to the EquipmentOne reporting unit.
Where Step 0 indicates that it is more likely than not that a reporting
unit’s fair value is less than its carrying amount, a two-step impairment test is performed. The first step of the two-step
impairment test prescribed by US GAAP is to identify potential impairment by comparing the reporting unit fair value with its carrying
amount, including goodwill. If the carrying amount of the reporting unit exceeds its fair value, the second step of the impairment
test is performed, wherein the carrying amount of the goodwill in the reporting unit is compared to its implied fair value. The
implied fair value is calculated by performing a hypothetical purchase price allocation in the same manner as if the reporting
unit was being acquired in a business combination. An impairment loss is recognized for the excess of the goodwill’s carrying
amount over its implied fair value.
We measure the fair value of our reporting units using a blended
analysis of the earnings approach, which employs a discounted cash flow methodology, and the market approach, which employs a multiple
of earnings methodology. We believe that using a blended approach compensates for the inherent risks associated with each model
if used on a stand-alone basis. In applying these approaches, management is required to make significant estimates and assumptions
about the timing and amount of future cash flows, revenue growth rates, and discount rates, which requires a significant amount
of judgment. As a result, actual results may differ from those used in the two-step goodwill impairment test.
Core Auction reporting unit
Significant estimates used in the earnings approach valuation of
our Core Auction reporting unit are our discount rate of 10%, which reflects the risk premium on this reporting unit based on assessments
of risks related to projected cash flows, and our long-term growth rate of 2%, which is used to extrapolate cash flows beyond the
five-year forecast.
EquipmentOne reporting unit goodwill
Goodwill arising from the acquisition of AssetNation, the provider
of our online marketplaces, forms part of the EquipmentOne reporting unit. During the three months ended September 30, 2016, an
indicator of impairment was identified with respect to the EquipmentOne reporting unit. The indicator consisted of a decline in
actual and forecasted revenue and operating income compared with previously projected results, which was primarily due to the recent
performance of the EquipmentOne reporting unit.
As a result of the identification of an indicator of impairment
of the EquipmentOne reporting unit, we performed the US GAAP two-step goodwill impairment test at September 30, 2016. Consistent
with our policy noted above, we measured the fair value of the EquipmentOne reporting unit using a blended analysis of the earnings
approach and the market approach, giving equal weighting to both.
Using the cash flow methodology of the earnings approach, the fair
value of the EquipmentOne reporting unit was measured based on the present value of the cash flows that we expect the reporting
unit to generate in the future. The earnings approach valuation was most sensitive to the following assumptions:
Cash flow forecasts estimate a compound
annual growth rate of 5.5% in fiscal 2017, 10% in each of fiscal 2018 through 2021, 8.3% in fiscal 2022, 6.5% in fiscal 2023, and
4.8% in fiscal 2023. The estimated growth rate used in determining the EquipmentOne reporting unit’s future cash flows is
based on our expectation of future growth rates resulting from application of our business strategy.
We applied a discount rate of 12%
based on the revenue growth rate for the EquipmentOne reporting unit, with this discount rate reflecting the risk premium based
on an assessment of risk related to projected cash flows. We have exercised significant judgment in determining that the discount
rate reflects investors’ expectations and takes into consideration market rates of return, capital structure, company size,
and industry risk.
Cash flows
beyond the five-year period were extrapolated using a long-term growth rate estimated to be 3.0%.
The most significant estimates used in the market approach were
(i) the determination of the most comparable publicly-traded firms in terms of the nature, size, growth, and profitability of the
business, (ii) the risk and return on the investment, and (iii) an assessment of comparable revenue and operating income multiples.
As step one of the goodwill impairment test indicated that the carrying
amount (including goodwill) of the EquipmentOne reporting unit exceeded its fair value, we proceeded to step two, wherein the step
one fair value of the EquipmentOne reporting unit was used to estimate the implied fair value of the goodwill.
The second step of the goodwill impairment test involved allocating
the EquipmentOne reporting unit fair value to all the assets and liabilities of that reporting unit, including identifiable intangible
assets, deferred tax assets, and deferred tax liabilities, based on their estimated fair values.
Based on the results of the goodwill impairment test, we recorded
an impairment loss on the EquipmentOne reporting unit goodwill of $23.6 million during the quarter ended September 30, 2016. Management
performed a qualitative assessment of impairment on the EquipmentOne reporting unit as part of the annual goodwill test on December
31, 2016, and concluded that there were no indicators of impairment that would require completion of the two-step quantitative
impairment test at that date.
Mascus reporting unit
Significant estimates used in the earnings approach valuation of
our Mascus reporting unit are our discount rate of 12%, which reflects the risk premium on this reporting unit based on assessments
of risks related to projected cash flows, and our long-term growth rate of 3.5%, which is used to extrapolate cash flows beyond
the five-year forecast.
Recoverability of long-lived assets
Long-lived assets, which are comprised of property, plant and equipment
and definite-lived intangible assets, are assessed for impairment whenever events or circumstances indicate that their carrying
amounts may not be recoverable, or earlier when the asset is classified as held for sale. For the purpose of impairment testing,
long-lived assets are grouped and tested for recoverability at the lowest level that generates independent cash flows from another
asset group. The carrying amount of the long-lived asset group is not recoverable if it exceeds the sum of the future undiscounted
cash flows expected to result from the long-lived asset group’s use and eventual disposition.
In order to determine the future undiscounted cash flows, we are
required to estimate the useful lives of the long-lived asset groups, as well as form expectations of future revenues and expenses,
including costs to maintain the long-lived asset groups over their respective useful lives. Forming such expectations involves
the use of significant judgments and estimates, which can vary depending on our intention with respect to the future use of the
long-lived asset group, the past performance of the asset group, and availability of approved budgets and forecasts.
Where the carrying amount of the long-lived asset group is not recoverable
because it exceeds the sum of the future undiscounted cash flows, the fair value of the long-lived asset group is determined in
order to calculate any impairment loss. An impairment loss is measured as the excess of the long-lived asset group’s carrying
amount over its fair value.
Fair value is based on valuation techniques or third party appraisals.
Significant judgments and estimates used in determining fair value vary depending on the valuation approach adopted, but can include
an assessment of who the comparable market participants are, which recent events impact the market the long-lived asset group operates
in, planned future use of the long-lived asset group, our experience with similar long-lived asset group sales and related selling
fees, as well as costs to prepare the long-lived asset group for sale.
At September 30, 2016, for the same reason noted above under the
goodwill impairment test, management determined that there was an indicator that the carrying amount of the long-lived assets arising
from our acquisition of AssetNation (the “EquipmentOne long-lived assets”) might not have been recoverable. As such,
we performed the recoverability test, for which purpose management determined that the asset group to which the EquipmentOne long-lived
assets belonged was the EquipmentOne reporting unit.
The results of the recoverability test indicated that the EquipmentOne
reporting unit carrying amount (including goodwill but excluding deferred tax assets, deferred tax liabilities, and income taxes
payable) exceeded the sum of its future undiscounted cash flows. As such, management then used an earnings approach to estimate
the fair values of the EquipmentOne long-lived assets and compared those fair values to their carrying amounts.
Based on the results of the long-lived asset impairment test, we
recorded a pre-tax impairment loss on the EquipmentOne reporting unit customer relationships of $4.7 million on September 30, 2016.
In connection with this impairment loss, we recorded a deferred tax benefit of $1.8 million to the income tax provision. The result
of this impairment test was reflected in the carrying value of the EquipmentOne reporting unit prior to the completion of the goodwill
impairment test described above.
Recoverability of indefinite-lived intangible assets
We perform impairment tests on indefinite-lived intangible assets
on an annual basis in accordance with US GAAP, or more frequently if events or changes in circumstances indicate that it is more
likely than not that those assets are impaired. Generally, a qualitative assessment is performed first and where there is an indication
that it is more likely than not that the asset is impaired, then a quantitative impairment test is performed. The quantitative
impairment test compares the fair value of the asset to its carrying amount. If the carrying amount exceeds the fair value, then
an impairment loss is recognized in an amount equal to that excess.
Management performed a qualitative assessment at September 30, 2016
on the trade names and trademarks arising from our acquisition of AssetNation (the “EquipmentOne trade names and trademarks”).
Referencing the same indicator of impairment identified as part of the goodwill impairment test described above, management determined
that it was more likely than not that the EquipmentOne trade names and trademarks were impaired at September 30, 2016 and proceeded
to the quantitative impairment test.
Management used an income approach to determine the fair value of
the EquipmentOne trade names and trademarks for purposes of conducting the quantitative impairment test. Based on the results of
this test, the fair value was determined to exceed the carrying amount at September 30, 2016, and accordingly, no impairment loss
was recognized.
Subsequent to performing this impairment test, management concluded
that an indefinite life for these assets could no longer be supported. Commencing September 30, 2016, we began amortizing the EquipmentOne
trade names and trademarks over their useful lives, which management has estimated to be 15 years.
Management performed the annual impairment test on indefinite-lived
intangible assets at December 31, 2016, and concluded that there were no indicators of impairment at that date.
Accounting for income taxes
Income taxes are accounted for using the asset and liability method.
Deferred income tax assets and liabilities are based on temporary differences (differences between the accounting basis and the
tax basis of the assets and liabilities) and non-capital loss, capital loss, and tax credits carryforwards are measured using the
enacted tax rates and laws expected to apply when these differences reverse. Deferred tax benefits, including non-capital loss,
capital loss, and tax credits carry-forwards, are recognized to the extent that realization of such benefits is considered more
likely than not. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in earnings in the period
that enactment occurs. When realization of deferred income tax assets does not meet the more-likely-than-not criterion for recognition,
a valuation allowance is provided.
Liabilities for uncertain tax positions are recorded based on a
two-step process. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence
indicates that it is more likely than not that the position will be sustained on audit, including resolution of related appeals
or litigation processes, if any. The second step is to measure the tax benefit as the largest amount that is more than 50% likely
of being realized upon settlement. We regularly assess the potential outcomes of examinations by tax authorities in determining
the adequacy of our provision for income taxes. We also continually assess the likelihood and amount of potential adjustments and
adjust the income tax provision, income taxes payable and deferred taxes in the period in which the facts that give rise to a revision
become known.
Recent Accounting Pronouncements
Recent accounting pronouncements that significantly impact our accounting
policies or the presentation of our consolidated financial position or performance have been disclosed in the notes to our consolidated
financial statements included in “Part II, Item 8: Financial Statements and Supplementary Data” presented elsewhere
in this Annual Report on Form 10-K.
Non-GAAP Measures
We make reference to various non-GAAP measures throughout this Annual
Report on Form 10-K. These measures do not have a standardized meaning and are, therefore, unlikely to be comparable to similar
measures presented by other companies. The presentation of this financial information, which is not prepared under any comprehensive
set of accounting rules or principles, is not intended to be considered in isolation of, or as a substitute for, the financial
information prepared and presented in accordance with generally accepted accounting principles.
The following tables present our adjusted operating income (non-GAAP
measure) and adjusted operating income margin (non-GAAP measure) results for the years ended December 31, 2016, 2015, and 2014,
as well as reconcile those metrics to operating income, revenues, and operating income margin, which are the most directly comparable
GAAP measures in, or calculated from, our consolidated income statements:
|
|
Year ended December 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
Change
|
|
(in U.S. $ thousands)
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
2016 over
2015
|
|
|
2015 over
2014
|
|
Operating income
|
|
$
|
135,722
|
|
|
$
|
174,840
|
|
|
$
|
127,927
|
|
|
|
(22)
|
%
|
|
|
37
|
%
|
Pre-tax adjusting items:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Management reorganization
|
|
|
-
|
|
|
|
-
|
|
|
|
5,533
|
|
|
|
-
|
|
|
|
(100)
|
%
|
Gain on sale of excess property
|
|
|
-
|
|
|
|
(8,384
|
)
|
|
|
(3,386
|
)
|
|
|
100
|
%
|
|
|
(148)
|
%
|
Impairment loss
|
|
|
28,243
|
|
|
|
-
|
|
|
|
8,084
|
|
|
|
100
|
%
|
|
|
(100)
|
%
|
Adjusted operating income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(non-GAAP measure)
|
|
|
163,965
|
|
|
|
166,456
|
|
|
|
138,158
|
|
|
|
(1)
|
%
|
|
|
20
|
%
|
Revenues
|
|
$
|
566,395
|
|
|
$
|
515,875
|
|
|
$
|
481,097
|
|
|
|
10
|
%
|
|
|
7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income margin
|
|
|
24.0
|
%
|
|
|
33.9
|
%
|
|
|
26.6
|
%
|
|
|
-990 bps
|
|
|
|
730 bps
|
|
Adjusted operating income margin
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(non-GAAP measure)
|
|
|
28.9
|
%
|
|
|
32.3
|
%
|
|
|
28.7
|
%
|
|
|
-340 bps
|
|
|
|
360 bps
|
|
The 2016 adjusting item was a $28.2 million ($26.4 million after
tax, or $0.25 per diluted share) impairment loss on the Company’s EquipmentOne reporting unit goodwill and customer relationships
recognized in the third quarter.
The 2015 adjusting item was an $8.4 million ($7.3 million after
tax, or $0.07 per diluted share) gain on the sale of excess property in Edmonton, Canada, recognized in the fourth quarter.
The 2014 adjusting items were a $5.5 million ($4.2 million after
tax, or $0.04 per diluted share) charge recorded in the fourth quarter to recognize termination benefits relating to the Company's
management reorganization, a $3.4 million ($2.9 million after tax, or $0.03 per diluted share) gain on the sale of the Company's
former permanent auction site in Grande Prairie, Canada, recognized in the third quarter, and an $8.1 million ($8.1 million after
tax, or $0.08 per diluted share) impairment loss recorded in the third quarter against the Company's land and improvements and
auction building in Narita, Japan.
The following tables present our adjusted net income attributable
to stockholders (non-GAAP measure) and diluted adjusted EPS attributable to stockholders (non-GAAP measure) results for the years
ended December 31, 2016, 2015, and 2014, as well as reconcile those metrics to net income (loss) attributable to stockholders,
the weighted average number of dilutive shares outstanding, and diluted EPS (loss per share) attributable to stockholders, which
are the most directly comparable GAAP measures in our consolidated income statements:
|
|
Year ended December 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
Change
|
|
(in U.S. $ thousands, except share and
per share data)
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
2016 over
2015
|
|
|
2015 over
2014
|
|
Net income attributable to stockholders
|
|
$
|
91,832
|
|
|
$
|
136,214
|
|
|
$
|
90,981
|
|
|
|
(33)
|
%
|
|
|
50
|
%
|
Pre-tax adjusting items:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Management reorganization
|
|
|
-
|
|
|
|
-
|
|
|
|
5,533
|
|
|
|
-
|
|
|
|
(100)
|
%
|
Debt extinguishment costs
|
|
|
6,787
|
|
|
|
-
|
|
|
|
-
|
|
|
|
100
|
%
|
|
|
-
|
|
Gain on sale of excess property
|
|
|
-
|
|
|
|
(8,384
|
)
|
|
|
(3,386
|
)
|
|
|
(100
|
)%
|
|
|
148
|
%
|
Impairment loss
|
|
|
28,243
|
|
|
|
-
|
|
|
|
8,084
|
|
|
|
100
|
%
|
|
|
(100)
|
%
|
Current income tax effect of adjusting
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
items:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Management reorganization
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,321
|
)
|
|
|
-
|
|
|
|
(100)
|
%
|
Debt extinguishment costs
|
|
|
(1,787
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(100)
|
%
|
|
|
-
|
|
Gain on sale of excess property
|
|
|
-
|
|
|
|
1,090
|
|
|
|
440
|
|
|
|
(100)
|
%
|
|
|
148
|
%
|
Deferred income tax effect of adjusting
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
items:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impairment loss
|
|
|
(1,798
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(100)
|
%
|
|
|
-
|
|
Deferred tax adjusting item:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax loss utilization
|
|
|
-
|
|
|
|
(7,862
|
)
|
|
|
-
|
|
|
|
100
|
%
|
|
|
(100)
|
%
|
Adjusted net income attributable to
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
stockholders (non-GAAP measure)
|
|
$
|
123,277
|
|
|
$
|
121,058
|
|
|
$
|
100,331
|
|
|
|
2
|
%
|
|
|
21
|
%
|
Weighted average number of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
dilutive shares outstanding
|
|
|
107,457,794
|
|
|
|
107,432,474
|
|
|
|
107,654,828
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted EPS attributable to stockholders
|
|
$
|
0.85
|
|
|
$
|
1.27
|
|
|
$
|
0.85
|
|
|
|
(33)
|
%
|
|
|
49
|
%
|
Diluted adjusted EPS attributable to
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
stockholders (non-GAAP measure)
|
|
$
|
1.15
|
|
|
$
|
1.13
|
|
|
$
|
0.93
|
|
|
|
2
|
%
|
|
|
22
|
%
|
The 2016 adjusting items were a $5.0 million ($6.8 million before
tax, or $0.05 per diluted share) charge related to the early termination of pre-existing debt recognized in the fourth quarter,
and a $26.4 million ($28.2 million before tax, or $0.25 per diluted share) impairment loss on the Company’s EquipmentOne
reporting unit goodwill and customer relationships recognized in the third quarter.
The 2015 adjusting items were a $7.3 million ($8.4 million before
tax, or $0.07 per diluted share) gain on the sale of excess property in Edmonton, Canada, recognized in the fourth quarter, and
$7.9 million ($7.9 million before tax, or $0.07 per diluted share) of tax savings generated by tax loss utilization recognized
in the fourth quarter.
The 2014 adjusting items were a $4.2 million ($5.5 million before
tax, or $0.04 per diluted share) charge recorded in the fourth quarter to recognize termination benefits relating to the Company's
management reorganization, a $2.9 million ($3.4 million before tax, or $0.03 per diluted share) gain on the sale of the Company's
former permanent auction site in Grande Prairie, Canada, recognized in the third quarter, and an $8.1 million ($8.1 million before
tax, or $0.08 per diluted share) impairment loss recorded in the third quarter against the Company's land and improvements and
auction building in Narita, Japan.
The following tables present our adjusted EBITDA (non-GAAP measure)
and adjusted EBITDA margin (non-GAAP measure) results for the years ended December 31, 2016, 2015, and 2014, as well as reconcile
those metrics to net income (loss), revenues, and net income margin, which are the most directly comparable GAAP measures in, or
calculated from, our consolidated income statements:
|
|
Year ended December 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
Change
|
|
(in U.S. $ thousands)
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
2016 over
2015
|
|
|
2015 over
2014
|
|
Net income
|
|
$
|
93,512
|
|
|
$
|
138,575
|
|
|
$
|
92,563
|
|
|
|
(33)
|
%
|
|
|
50
|
%
|
Add:
depreciation and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
amortization expenses
|
|
|
40,861
|
|
|
|
42,032
|
|
|
|
44,536
|
|
|
|
(3)
|
%
|
|
|
(6)
|
%
|
Less:
interest income
|
|
|
(1,863
|
)
|
|
|
(2,660
|
)
|
|
|
(2,222
|
)
|
|
|
(30)
|
%
|
|
|
20
|
%
|
Add:
interest expense
|
|
|
5,564
|
|
|
|
4,962
|
|
|
|
5,277
|
|
|
|
12
|
%
|
|
|
(6)
|
%
|
Add:
current income tax expense
|
|
|
40,341
|
|
|
|
42,420
|
|
|
|
33,321
|
|
|
|
(5)
|
%
|
|
|
27
|
%
|
Add:
deferred income tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
expense (recovery)
|
|
|
(3,359
|
)
|
|
|
(4,559
|
)
|
|
|
3,154
|
|
|
|
(26)
|
%
|
|
|
(245)
|
%
|
Pre-tax adjusting items:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Management reorganization
|
|
|
-
|
|
|
|
-
|
|
|
|
5,533
|
|
|
|
-
|
|
|
|
(100)
|
%
|
Debt extinguishment costs
|
|
|
6,787
|
|
|
|
-
|
|
|
|
-
|
|
|
|
100
|
%
|
|
|
-
|
|
Gain on sale of excess property
|
|
|
-
|
|
|
|
(8,384
|
)
|
|
|
(3,386
|
)
|
|
|
(100)
|
%
|
|
|
148
|
%
|
Impairment loss
|
|
|
28,243
|
|
|
|
-
|
|
|
|
8,084
|
|
|
|
100
|
%
|
|
|
(100)
|
%
|
Adjusted EBITDA
|
|
|
210,086
|
|
|
|
212,386
|
|
|
|
186,860
|
|
|
|
(1)
|
%
|
|
|
14
|
%
|
Revenues
|
|
$
|
566,395
|
|
|
$
|
515,875
|
|
|
$
|
481,097
|
|
|
|
10
|
%
|
|
|
7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income margin
|
|
|
16.5
|
%
|
|
|
26.9
|
%
|
|
|
19.2
|
%
|
|
|
-1040 bps
|
|
|
|
770 bps
|
|
Adjusted EBITDA margin (non-GAAP
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
measure)
|
|
|
37.1
|
%
|
|
|
41.2
|
%
|
|
|
38.8
|
%
|
|
|
-410 bps
|
|
|
|
240 bps
|
|
The 2016 adjusting items were a $6.8 million ($5.0 million after
tax, or $0.05 per diluted share) charge related to the early termination of pre-existing debt recognized in the fourth quarter,
and a $28.2 million ($26.4 million after tax, or $0.25 per diluted share) impairment loss on the Company’s EquipmentOne reporting
unit goodwill and customer relationships recognized in the third quarter.
The 2015 adjusting item was an $8.4 million ($7.3 million after
tax, or $0.07 per diluted share) gain on the sale of excess property in Edmonton, Canada, recognized in the fourth quarter.
The 2014 adjusting items were a $5.5 million ($4.2 million after
tax, or $0.04 per diluted share) charge recorded in the fourth quarter to recognize termination benefits relating to the Company's
management reorganization, a $3.4 million ($2.9 million after tax, or $0.03 per diluted share) gain on the sale of the Company's
former permanent auction site in Grande Prairie, Canada, recognized in the third quarter, and an $8.1 million ($8.1 million after
tax, or $0.08 per diluted share) impairment loss recorded in the third quarter against the Company's land and improvements and
auction building in Narita, Japan.
The following table presents our adjusted debt/adjusted EBITDA (non-GAAP
measures) results as at and for the years ended December 31, 2016, 2015, and 2014, as well as reconciles that metric to debt, net
income, and debt as a multiple of net income, which are the most directly comparable GAAP measures in, or calculated from, our
consolidated financial statements:
|
|
As at and for the year ended December 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
Change
|
|
(in U.S. $ millions)
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
2016 over
2015
|
|
|
2015 over
2014
|
|
Short-term debt
|
|
$
|
23.9
|
|
|
$
|
12.4
|
|
|
$
|
7.8
|
|
|
|
93
|
%
|
|
|
59
|
%
|
Long-term debt
|
|
|
595.7
|
|
|
|
97.9
|
|
|
|
110.8
|
|
|
|
508
|
%
|
|
|
(12
|
)%
|
Debt
|
|
|
619.6
|
|
|
|
110.3
|
|
|
|
118.6
|
|
|
|
462
|
%
|
|
|
(7
|
)%
|
Less:
long-term debt in escrow
|
|
|
(495.8
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(100)
|
%
|
|
|
-
|
|
Adjusted debt (non-GAAP measure)
|
|
|
123.8
|
|
|
|
110.3
|
|
|
|
118.6
|
|
|
|
12
|
%
|
|
|
(7
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
93.5
|
|
|
$
|
138.6
|
|
|
$
|
92.6
|
|
|
|
(33)
|
%
|
|
|
50
|
%
|
Add:
depreciation and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
amortization expenses
|
|
|
40.9
|
|
|
|
42.1
|
|
|
|
44.6
|
|
|
|
(3)
|
%
|
|
|
(6
|
)%
|
Less:
interest income
|
|
|
(1.9
|
)
|
|
|
(2.7
|
)
|
|
|
(2.2
|
)
|
|
|
(30)
|
%
|
|
|
23
|
%
|
Add:
interest expense
|
|
|
5.6
|
|
|
|
5.0
|
|
|
|
5.3
|
|
|
|
12
|
%
|
|
|
(6
|
)%
|
Add:
current income tax expense
|
|
|
40.3
|
|
|
|
42.4
|
|
|
|
33.3
|
|
|
|
(5)
|
%
|
|
|
27
|
%
|
Less:
deferred income tax recovery
|
|
|
(3.4
|
)
|
|
|
(4.6
|
)
|
|
|
3.2
|
|
|
|
(26)
|
%
|
|
|
(244
|
)%
|
Pre-tax adjusting items:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Management reorganization
|
|
|
-
|
|
|
|
-
|
|
|
|
5.5
|
|
|
|
-
|
|
|
|
(100
|
)%
|
Debt extinguishment costs
|
|
|
6.8
|
|
|
|
-
|
|
|
|
-
|
|
|
|
100
|
%
|
|
|
-
|
|
Gain on sale of excess property
|
|
|
-
|
|
|
|
(8.4
|
)
|
|
|
(3.4
|
)
|
|
|
(100)
|
%
|
|
|
147
|
%
|
Impairment loss
|
|
|
28.2
|
|
|
|
-
|
|
|
|
8.1
|
|
|
|
100
|
%
|
|
|
(100
|
)%
|
Adjusted EBITDA
|
|
$
|
210.0
|
|
|
$
|
212.4
|
|
|
$
|
187.0
|
|
|
|
(1)
|
%
|
|
|
14
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt/net income
|
|
|
6.6
|
x
|
|
|
0.8
|
x
|
|
|
1.3
|
x
|
|
|
725
|
%
|
|
|
(38
|
)%
|
Adjusted debt/adjusted EBITDA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(non-GAAP measure)
|
|
|
0.6
|
x
|
|
|
0.5
|
x
|
|
|
0.6
|
x
|
|
|
20
|
%
|
|
|
(17)
|
%
|
The deduction from long-term debt at December 31, 2016 of long-term
debt held in escrow consists entirely of the Notes that have a principal value of $500.0 million reduced by $4.2 million of unamortized
debt issue costs.
The 2016 adjusting items were a $6.8 million ($5.0 million after
tax, or $0.05 per diluted share) charge related to the early termination of pre-existing debt recognized in the fourth quarter,
and a $28.2 million ($26.4 million after tax, or $0.25 per diluted share) impairment loss on the Company’s EquipmentOne reporting
unit goodwill and customer relationships recognized in the third quarter.
The 2015 adjusting item was an $8.4 million ($7.3 million after
tax, or $0.07 per diluted share) gain on the sale of excess property in Edmonton, Canada, recognized in the fourth quarter.
The 2014 adjusting items were a $5.5 million ($4.2 million after
tax, or $0.04 per diluted share) charge recorded in the fourth quarter to recognize termination benefits relating to the Company's
management reorganization, a $3.4 million ($2.9 million after tax, or $0.03 per diluted share) gain on the sale of the Company's
former permanent auction site in Grande Prairie, Canada, recognized in the third quarter, and an $8.1 million ($8.1 million after
tax, or $0.08 per diluted share) impairment loss recorded in the third quarter against the Company's land and improvements and
auction building in Narita, Japan.
The following table presents our OFCF (non-GAAP measure) results
on a trailing 12-month basis, and reconciles that metric to cash provided by operating activities and net capital spending, which
are the most directly comparable GAAP measures in our consolidated statements of cash flows:
|
|
Year ended December 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
Change
|
|
(in U.S. $ millions)
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
2016 over
2015
|
|
|
2015 over
2014
|
|
Cash provided by operating activities
|
|
$
|
177.6
|
|
|
$
|
196.5
|
|
|
$
|
149.0
|
|
|
|
(10)
|
%
|
|
|
32
|
%
|
Property, plant and equipment additions
|
|
|
18.9
|
|
|
|
22.1
|
|
|
|
25.0
|
|
|
|
(14)
|
%
|
|
|
(12)
|
%
|
Intangible asset additions
|
|
|
17.6
|
|
|
|
8.8
|
|
|
|
13.9
|
|
|
|
100
|
%
|
|
|
(37)
|
%
|
Proceeds on disposition of property
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
plant and equipment
|
|
|
(6.7
|
)
|
|
|
(16.7
|
)
|
|
|
(9.3
|
)
|
|
|
(60)
|
%
|
|
|
80
|
%
|
Net capital spending
|
|
$
|
29.8
|
|
|
$
|
14.2
|
|
|
$
|
29.6
|
|
|
|
110
|
%
|
|
|
(52)
|
%
|
OFCF (non-GAAP measure)
|
|
$
|
147.8
|
|
|
$
|
182.3
|
|
|
$
|
119.4
|
|
|
|
(19)
|
%
|
|
|
53
|
%
|
The following table presents our adjusted net income attributable
to stockholders (non-GAAP measure) and adjusted dividend payout ratio (non-GAAP measure) results on a trailing 12-month basis,
and reconciles those metrics to dividends paid to stockholders, net income attributable to stockholders, and dividend payout ratio,
which are the most directly comparable GAAP measures in, or calculated from, our consolidated financial statements:
|
|
Year ended December 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
Change
|
|
(in U.S. $ millions)
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
2016 over
2015
|
|
|
2015 over
2014
|
|
Dividends paid to stockholders
|
|
$
|
70.5
|
|
|
$
|
64.3
|
|
|
$
|
57.9
|
|
|
|
10
|
%
|
|
|
11
|
%
|
Net income attributable to stockholders
|
|
$
|
91.8
|
|
|
$
|
136.2
|
|
|
$
|
91.0
|
|
|
|
(33
|
)%
|
|
|
50
|
%
|
Pre-tax adjusting items:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Management reorganization
|
|
|
-
|
|
|
|
-
|
|
|
|
5.5
|
|
|
|
-
|
|
|
|
(100)
|
%
|
Debt extinguishment costs
|
|
|
6.8
|
|
|
|
-
|
|
|
|
-
|
|
|
|
100
|
%
|
|
|
-
|
|
Gain on sale of excess property
|
|
|
-
|
|
|
|
(8.4
|
)
|
|
|
(3.4
|
)
|
|
|
100
|
%
|
|
|
(147)
|
%
|
Impairment loss
|
|
|
28.2
|
|
|
|
-
|
|
|
|
8.1
|
|
|
|
100
|
%
|
|
|
(100)
|
%
|
Current income tax effect of adjusting
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
items:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Management reorganization
|
|
|
-
|
|
|
|
-
|
|
|
|
(1.3
|
)
|
|
|
-
|
|
|
|
(100)
|
%
|
Debt extinguishment costs
|
|
|
(1.8
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(100)
|
%
|
|
|
-
|
|
Gain on sale of excess property
|
|
|
-
|
|
|
|
1.1
|
|
|
|
0.4
|
|
|
|
(100)
|
%
|
|
|
175
|
%
|
Deferred income tax effect of adjusting
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
items:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impairment loss
|
|
|
(1.8
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(100)
|
%
|
|
|
-
|
|
Deferred tax adjusting item:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax loss utilization
|
|
|
-
|
|
|
|
(7.9
|
)
|
|
|
-
|
|
|
|
100
|
%
|
|
|
(100)
|
%
|
Adjusted net income attributable to
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
stockholders (non-GAAP measure)
|
|
$
|
123.3
|
|
|
$
|
121.1
|
|
|
$
|
100.3
|
|
|
|
2
|
%
|
|
|
21
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividend payout ratio
|
|
|
76.8
|
%
|
|
|
47.2
|
%
|
|
|
63.6
|
%
|
|
|
2960 bps
|
|
|
|
-1640 bps
|
|
Adjusted dividend payout ratio
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(non-GAAP measure)
|
|
|
57.2
|
%
|
|
|
53.1
|
%
|
|
|
57.7
|
%
|
|
|
410 bps
|
|
|
|
-460 bps
|
|
The 2016 adjusting items were a $5.0 million ($6.8 million before
tax, or $0.05 per diluted share) charge related to the early termination of pre-existing debt recognized in the fourth quarter,
and a $26.4 million ($28.2 million before tax, or $0.25 per diluted share) impairment loss on the Company’s EquipmentOne
reporting unit goodwill and customer relationships recognized in the third quarter.
The 2015 adjusting items were a $7.3 million ($8.4 million before
tax, or $0.07 per diluted share) gain on the sale of excess property in Edmonton, Canada, recognized in the fourth quarter, and
$7.9 million ($7.9 million before tax, or $0.07 per diluted share) of tax savings generated by tax loss utilization recognized
in the fourth quarter.
The 2014 adjusting items were a $4.2 million ($5.5 million before
tax, or $0.04 per diluted share) charge recorded in the fourth quarter to recognize termination benefits relating to the Company's
management reorganization, a $2.9 million ($3.4 million before tax, or $0.03 per diluted share) gain on the sale of the Company's
former permanent auction site in Grande Prairie, Canada, recognized in the third quarter, and an $8.1 million ($8.1 million before
tax, or $0.08 per diluted share) impairment loss recorded in the third quarter against the Company's land and improvements and
auction building in Narita, Japan.
The following table presents our ROIC (non-GAAP measure) and ROIC
excluding escrowed debt (non-GAAP measure) results on a trailing 12-month basis, and reconciles those metrics to net income attributable
to stockholders, long-term debt, stockholders’ equity, and return on average invested capital, which are the most directly
comparable GAAP measures in, or calculated from, our consolidated financial statements. Adjusted opening long-term debt (non-GAAP
measure) is not presented due to the lack of adjusting items during the relevant periods:
|
|
Year ended December 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
Change
|
|
(in U.S. $ millions)
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
2016 over
2015
|
|
|
2015 over
2014
|
|
Net income attributable to stockholders
|
|
$
|
91.8
|
|
|
$
|
136.2
|
|
|
$
|
91.0
|
|
|
|
(33
|
%)
|
|
|
50
|
%
|
Pre-tax adjusting items:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Management reorganization
|
|
|
-
|
|
|
|
-
|
|
|
|
5.5
|
|
|
|
-
|
|
|
|
(100)
|
%
|
Debt extinguishment costs
|
|
|
6.8
|
|
|
|
-
|
|
|
|
-
|
|
|
|
100
|
%
|
|
|
-
|
|
Gain on sale of excess property
|
|
|
-
|
|
|
|
(8.4
|
)
|
|
|
(3.4
|
)
|
|
|
100
|
%
|
|
|
(147)
|
%
|
Impairment loss
|
|
|
28.2
|
|
|
|
-
|
|
|
|
8.1
|
|
|
|
100
|
%
|
|
|
(100)
|
%
|
Current income tax effect of adjusting
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
items:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Management reorganization
|
|
|
-
|
|
|
|
-
|
|
|
|
(1.3
|
)
|
|
|
-
|
|
|
|
(100)
|
%
|
Debt extinguishment costs
|
|
|
(1.8
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(100
|
)%
|
|
|
-
|
|
Gain on sale of excess property
|
|
|
-
|
|
|
|
1.1
|
|
|
|
0.4
|
|
|
|
(100
|
)%
|
|
|
175
|
%
|
Deferred income tax effect of adjusting
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
items:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impairment loss
|
|
|
(1.8
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(100)
|
%
|
|
|
-
|
|
Deferred tax adjusting item:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax loss utilization
|
|
|
-
|
|
|
|
(7.9
|
)
|
|
|
-
|
|
|
|
100
|
%
|
|
|
(100
|
)%
|
Adjusted net income attributable to
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
stockholders (non-GAAP measure)
|
|
$
|
123.3
|
|
|
$
|
121.1
|
|
|
$
|
100.3
|
|
|
|
2
|
%
|
|
|
21
|
%
|
Opening long-term debt
|
|
$
|
97.9
|
|
|
$
|
110.8
|
|
|
$
|
177.2
|
|
|
|
(12)
|
%
|
|
|
(37)
|
%
|
Ending long-term debt
|
|
|
595.7
|
|
|
|
97.9
|
|
|
|
110.8
|
|
|
|
508
|
%
|
|
|
(12)
|
%
|
Less:
long-term debt in escrow
|
|
|
(495.8
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(100)
|
%
|
|
|
-
|
|
Adjusted ending long-term debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(non-GAAP measure)
|
|
|
99.9
|
|
|
|
97.9
|
|
|
|
110.8
|
|
|
|
2
|
%
|
|
|
(12)
|
%
|
Average long-term debt
|
|
$
|
346.8
|
|
|
$
|
104.4
|
|
|
$
|
144.0
|
|
|
|
232
|
%
|
|
|
(28)
|
%
|
Adjusted average long-term debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(non-GAAP measure)
|
|
|
98.9
|
|
|
|
104.4
|
|
|
|
144.0
|
|
|
|
(5
|
)%
|
|
|
(28)
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Opening stockholders' equity
|
|
$
|
703.2
|
|
|
$
|
691.9
|
|
|
$
|
686.1
|
|
|
|
2
|
%
|
|
|
1
|
%
|
Ending stockholders' equity
|
|
|
687.1
|
|
|
|
703.2
|
|
|
|
691.9
|
|
|
|
(2
|
)%
|
|
|
2
|
%
|
Average stockholders' equity
|
|
|
695.2
|
|
|
|
697.6
|
|
|
|
689.0
|
|
|
|
-
|
|
|
|
1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average invested capital
|
|
$
|
1,042.0
|
|
|
$
|
802.0
|
|
|
$
|
833.0
|
|
|
|
30
|
%
|
|
|
(4)
|
%
|
Adjusted average invested
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
capital (non-GAAP measure)
|
|
|
794.1
|
|
|
|
802.0
|
|
|
|
833.0
|
|
|
|
(1)
|
%
|
|
|
(4)
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Return on average invested capital
(1)
|
|
|
8.8
|
%
|
|
|
17.0
|
%
|
|
|
10.9
|
%
|
|
|
-820 bps
|
|
|
|
610 bps
|
|
ROIC (non-GAAP measure)
(2)
|
|
|
11.8
|
%
|
|
|
15.1
|
%
|
|
|
12.0
|
%
|
|
|
-330 bps
|
|
|
|
310 bps
|
|
ROIC excluding escrowed debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(non-GAAP measure)
(3)
|
|
|
15.5
|
%
|
|
|
15.1
|
%
|
|
|
12.0
|
%
|
|
|
40 bps
|
|
|
|
310 bps
|
|
|
(1)
|
Calculated as net income attributable to stockholders divided by average invested capital.
|
|
(2)
|
Calculated as adjusted net income attributable to stockholders (non-GAAP measure) divided by average invested capital.
|
|
(3)
|
Calculated as adjusted net income attributable to stockholders (non-GAAP measure) divided by adjusted average invested capital
(non-GAAP measure).
|
The 2016 adjusting items were a $5.0 million ($6.8 million before
tax, or $0.05 per diluted share) charge related to the early termination of pre-existing debt recognized in the fourth quarter,
and a $26.4 million ($28.2 million before tax, or $0.25 per diluted share) impairment loss on the Company’s EquipmentOne
reporting unit goodwill and customer relationships recognized in the third quarter.
The 2015 adjusting items were a $7.3 million ($8.4 million before
tax, or $0.07 per diluted share) gain on the sale of excess property in Edmonton, Canada, recognized in the fourth quarter, and
$7.9 million ($7.9 million before tax, or $0.07 per diluted share) of tax savings generated by tax loss utilization recognized
in the fourth quarter.
The 2014 adjusting items were a $4.2 million ($5.5 million before
tax, or $0.04 per diluted share) charge recorded in the fourth quarter to recognize termination benefits relating to the Company's
management reorganization, a $2.9 million ($3.4 million before tax, or $0.03 per diluted share) gain on the sale of the Company's
former permanent auction site in Grande Prairie, Canada, recognized in the third quarter, and an $8.1 million ($8.1 million before
tax, or $0.08 per diluted share) impairment loss recorded in the third quarter against the Company's land and improvements and
auction building in Narita, Japan.
The deduction from ending long-term debt at December 31, 2016 of
long-term debt held in escrow consists entirely of the Notes that have a principal value of $500.0 million reduced by $4.2 million
of unamortized debt issue costs.
|
ITEM 8:
|
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
|
The following financial statements and supplementary data should
be read in conjunction with “Part II, Item 6: Selected Financial Data” of this Annual Report on Form 10-K.
REPORT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM
The Board of Directors and Shareholders of
Ritchie Bros.
Auctioneers Incorporated
We have audited the accompanying consolidated
balance sheets of
Ritchie Bros. Auctioneers Incorporated
(the “Company”) as of December 31, 2016 and 2015, and
the related consolidated statements of income, comprehensive income, changes in equity and cash flows for each of the three years
in the period ended December 31, 2016. These financial statements are the responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with
the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements
referred to above present fairly, in all material respects, the consolidated financial position of
Ritchie Bros. Auctioneers
Incorporated
at December 31, 2016 and 2015, and the consolidated results of its operations and its cash flows for each of the
three years in the period ended December 31, 2016, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with
the standards of the Public Company Accounting Oversight Board (United States),
Ritchie Bros. Auctioneers Incorporated’s
internal control over financial reporting as of December 31, 2016, based on criteria established in Internal Control-Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated
February 21, 2017 expressed an unqualified opinion thereon.
Vancouver, Canada
|
/s/Ernst & Young LLP
|
February 21, 2017
|
Chartered Professional Accountants
|
Consolidated Income Statements
(Expressed in thousands of United States dollars, except where
noted)
Year ended December 31,
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Revenues (note 5)
|
|
$
|
566,395
|
|
|
$
|
515,875
|
|
|
$
|
481,097
|
|
Costs of services, excluding depreciation and amortization (note 6)
|
|
|
66,062
|
|
|
|
56,026
|
|
|
|
57,884
|
|
|
|
|
500,333
|
|
|
|
459,849
|
|
|
|
423,213
|
|
Selling, general and administrative expenses (note 6)
|
|
|
283,529
|
|
|
|
254,389
|
|
|
|
248,220
|
|
Acquisition-related costs (note 6)
|
|
|
11,829
|
|
|
|
601
|
|
|
|
-
|
|
Depreciation and amortization expenses (note 6)
|
|
|
40,861
|
|
|
|
42,032
|
|
|
|
44,536
|
|
Gain on disposition of property, plant and equipment
|
|
|
(1,282
|
)
|
|
|
(9,691
|
)
|
|
|
(3,512
|
)
|
Impairment loss (note 7)
|
|
|
28,243
|
|
|
|
-
|
|
|
|
8,084
|
|
Foreign exchange loss (gain)
|
|
|
1,431
|
|
|
|
(2,322
|
)
|
|
|
(2,042
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
135,722
|
|
|
|
174,840
|
|
|
|
127,927
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
1,863
|
|
|
|
2,660
|
|
|
|
2,222
|
|
Interest expense
|
|
|
(5,564
|
)
|
|
|
(4,962
|
)
|
|
|
(5,277
|
)
|
Equity income (note 21)
|
|
|
1,028
|
|
|
|
916
|
|
|
|
458
|
|
Debt extinguishment costs (note 24)
|
|
|
(6,787
|
)
|
|
|
-
|
|
|
|
-
|
|
Other, net
|
|
|
4,232
|
|
|
|
2,982
|
|
|
|
3,708
|
|
|
|
|
(5,228
|
)
|
|
|
1,596
|
|
|
|
1,111
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
130,494
|
|
|
|
176,436
|
|
|
|
129,038
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense (recovery) (note 8):
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
40,341
|
|
|
|
42,420
|
|
|
|
33,321
|
|
Deferred
|
|
|
(3,359
|
)
|
|
|
(4,559
|
)
|
|
|
3,154
|
|
|
|
|
36,982
|
|
|
|
37,861
|
|
|
|
36,475
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
93,512
|
|
|
$
|
138,575
|
|
|
$
|
92,563
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to:
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders
|
|
$
|
91,832
|
|
|
$
|
136,214
|
|
|
$
|
90,981
|
|
Non-controlling interests
|
|
|
1,680
|
|
|
|
2,361
|
|
|
|
1,582
|
|
|
|
$
|
93,512
|
|
|
$
|
138,575
|
|
|
$
|
92,563
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share attributable to stockholders (note 10):
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.86
|
|
|
$
|
1.27
|
|
|
$
|
0.85
|
|
Diluted
|
|
$
|
0.85
|
|
|
$
|
1.27
|
|
|
$
|
0.85
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of shares outstanding (note 10):
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
106,630,323
|
|
|
|
107,075,845
|
|
|
|
107,268,425
|
|
Diluted
|
|
|
107,457,794
|
|
|
|
107,432,474
|
|
|
|
107,654,828
|
|
See accompanying notes to the consolidated financial statements.
Consolidated Statements of Comprehensive Income
(Expressed in thousands of United States dollars)
Year ended December 31,
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
93,512
|
|
|
$
|
138,575
|
|
|
$
|
92,563
|
|
Other comprehensive loss, net of income tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment
|
|
|
(9,847
|
)
|
|
|
(40,776
|
)
|
|
|
(35,796
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
$
|
83,665
|
|
|
$
|
97,799
|
|
|
$
|
56,767
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income attributable to:
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders
|
|
|
81,839
|
|
|
|
95,831
|
|
|
|
55,295
|
|
Non-controlling interests
|
|
|
1,826
|
|
|
|
1,968
|
|
|
|
1,472
|
|
|
|
$
|
83,665
|
|
|
$
|
97,799
|
|
|
$
|
56,767
|
|
See accompanying notes to the consolidated financial statements.
Consolidated Balance Sheets
(Expressed in thousands of United States dollars, except share
data)
December 31,
|
|
2016
|
|
|
2015
|
|
Assets
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
207,867
|
|
|
$
|
210,148
|
|
Restricted cash
|
|
|
50,222
|
|
|
|
83,098
|
|
Trade and other receivables (note 13)
|
|
|
52,979
|
|
|
|
59,412
|
|
Inventory (note 14)
|
|
|
28,491
|
|
|
|
58,463
|
|
Advances against auction contracts
|
|
|
5,621
|
|
|
|
4,797
|
|
Prepaid expenses and deposits (note 16)
|
|
|
19,005
|
|
|
|
11,057
|
|
Assets held for sale (note 17)
|
|
|
632
|
|
|
|
629
|
|
Income taxes receivable
|
|
|
13,181
|
|
|
|
2,495
|
|
|
|
|
377,998
|
|
|
|
430,099
|
|
Property, plant and equipment (note 18)
|
|
|
515,030
|
|
|
|
528,591
|
|
Equity-accounted investments (note 21)
|
|
|
7,326
|
|
|
|
6,487
|
|
Restricted cash (note 24)
|
|
|
500,000
|
|
|
|
-
|
|
Deferred debt issue costs (note 24)
|
|
|
6,182
|
|
|
|
-
|
|
Other non-current assets
|
|
|
4,027
|
|
|
|
3,369
|
|
Intangible assets (note 19)
|
|
|
72,304
|
|
|
|
46,973
|
|
Goodwill (note 20)
|
|
|
97,537
|
|
|
|
91,234
|
|
Deferred tax assets (note 8)
|
|
|
19,129
|
|
|
|
13,362
|
|
|
|
$
|
1,599,533
|
|
|
$
|
1,120,115
|
|
Liabilities and Equity
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Auction proceeds payable
|
|
$
|
98,873
|
|
|
$
|
101,215
|
|
Trade and other payables (note 22)
|
|
|
124,694
|
|
|
|
120,042
|
|
Income taxes payable
|
|
|
5,355
|
|
|
|
13,011
|
|
Short-term debt (note 24)
|
|
|
23,912
|
|
|
|
12,350
|
|
Current portion of long-term debt (note 24)
|
|
|
-
|
|
|
|
43,348
|
|
|
|
|
252,834
|
|
|
|
289,966
|
|
Long-term debt (note 24)
|
|
|
595,706
|
|
|
|
54,567
|
|
Share unit liabilities
|
|
|
4,243
|
|
|
|
5,633
|
|
Other non-current liabilities
|
|
|
14,583
|
|
|
|
6,735
|
|
Deferred tax liabilities (note 8)
|
|
|
36,387
|
|
|
|
31,070
|
|
|
|
|
903,753
|
|
|
|
387,971
|
|
Commitments (note 27)
|
|
|
|
|
|
|
|
|
Contingencies (note 28)
|
|
|
|
|
|
|
|
|
Contingently redeemable:
|
|
|
|
|
|
|
|
|
Non-controlling interest (note 9)
|
|
|
-
|
|
|
|
24,785
|
|
Performance share units (note 26)
|
|
|
3,950
|
|
|
|
-
|
|
Stockholders' equity (note 25):
|
|
|
|
|
|
|
|
|
Share capital:
|
|
|
|
|
|
|
|
|
Common stock; no par value, unlimited shares authorized,
issued and outstanding shares: 106,822,001 (December 31, 2015: 107,200,470)
|
|
|
125,474
|
|
|
|
131,530
|
|
Additional paid-in capital
|
|
|
27,638
|
|
|
|
27,728
|
|
Retained earnings
|
|
|
601,071
|
|
|
|
601,051
|
|
Accumulated other comprehensive loss
|
|
|
(67,126
|
)
|
|
|
(57,133
|
)
|
Stockholders' equity
|
|
|
687,057
|
|
|
|
703,176
|
|
Non-controlling interest
|
|
|
4,773
|
|
|
|
4,183
|
|
|
|
|
691,830
|
|
|
|
707,359
|
|
|
|
$
|
1,599,533
|
|
|
$
|
1,120,115
|
|
See accompanying notes to the consolidated financial statements.
Consolidated Statements of Changes in Equity
(Expressed in thousands of United States dollars, except where
noted)
|
|
Attributable to stockholders
|
|
|
|
|
|
|
|
|
Contingently redeemable
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
Accumulated
|
|
|
Non-
|
|
|
|
|
|
Non-
|
|
|
Performance
|
|
|
|
Common stock
|
|
|
paid-In
|
|
|
|
|
|
other
|
|
|
controlling
|
|
|
|
|
|
controlling
|
|
|
share
|
|
|
|
Number of
|
|
|
|
|
|
capital
|
|
|
Retained
|
|
|
comprehensive
|
|
|
interest
|
|
|
Total
|
|
|
interest
|
|
|
units
|
|
|
|
shares
|
|
|
Amount
|
|
|
("APIC")
|
|
|
earnings
|
|
|
income (loss)
|
|
|
("NCI")
|
|
|
equity
|
|
|
("NCI")
|
|
|
("PSUs")
|
|
Balance, December 31, 2013
|
|
|
107,024,783
|
|
|
$
|
126,350
|
|
|
$
|
30,238
|
|
|
$
|
510,571
|
|
|
|
18,936
|
|
|
$
|
-
|
|
|
|
686,095
|
|
|
$
|
8,303
|
|
|
|
|
|
Net income
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
90,981
|
|
|
|
-
|
|
|
|
-
|
|
|
|
90,981
|
|
|
|
1,582
|
|
|
|
|
|
Change in value of contingently redeemable
non-controlling interest
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(7,512
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(7,512
|
)
|
|
|
7,512
|
|
|
|
|
|
Other comprehensive loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(35,686
|
)
|
|
|
-
|
|
|
|
(35,686
|
)
|
|
|
(110
|
)
|
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
83,469
|
|
|
|
(35,686
|
)
|
|
|
-
|
|
|
|
47,783
|
|
|
|
8,984
|
|
|
|
|
|
Stock option exercises
|
|
|
663,152
|
|
|
|
14,907
|
|
|
|
(2,786
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
12,121
|
|
|
|
-
|
|
|
|
|
|
Stock option tax adjustment
|
|
|
-
|
|
|
|
-
|
|
|
|
152
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
152
|
|
|
|
-
|
|
|
|
|
|
Stock option compensation expense (note 26)
|
|
|
-
|
|
|
|
-
|
|
|
|
3,710
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3,710
|
|
|
|
-
|
|
|
|
|
|
Cash dividends paid (note 25)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(57,929
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(57,929
|
)
|
|
|
-
|
|
|
|
|
|
Balance, December 31, 2014
|
|
|
107,687,935
|
|
|
$
|
141,257
|
|
|
$
|
31,314
|
|
|
$
|
536,111
|
|
|
$
|
(16,750
|
)
|
|
$
|
-
|
|
|
$
|
691,932
|
|
|
$
|
17,287
|
|
|
$
|
-
|
|
Net income
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
136,214
|
|
|
|
-
|
|
|
|
64
|
|
|
|
136,278
|
|
|
|
2,297
|
|
|
|
-
|
|
Other comprehensive loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(40,383
|
)
|
|
|
-
|
|
|
|
(40,383
|
)
|
|
|
(393
|
)
|
|
|
-
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
136,214
|
|
|
|
(40,383
|
)
|
|
|
64
|
|
|
|
95,895
|
|
|
|
1,904
|
|
|
|
-
|
|
Change in value of contingently redeemable
non-controlling interest
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(6,934
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(6,934
|
)
|
|
|
6,934
|
|
|
|
-
|
|
Stock option exercises
|
|
|
1,412,535
|
|
|
|
37,762
|
|
|
|
(7,946
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
29,816
|
|
|
|
-
|
|
|
|
-
|
|
Stock option tax adjustment
|
|
|
-
|
|
|
|
-
|
|
|
|
359
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
359
|
|
|
|
-
|
|
|
|
-
|
|
Stock option compensation expense (note 26)
|
|
|
-
|
|
|
|
-
|
|
|
|
4,001
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
4,001
|
|
|
|
-
|
|
|
|
-
|
|
NCI acquired in a business combination (note 30)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
4,119
|
|
|
|
4,119
|
|
|
|
-
|
|
|
|
-
|
|
Shares repurchased (note 25)
|
|
|
(1,900,000
|
)
|
|
|
(47,489
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(47,489
|
)
|
|
|
-
|
|
|
|
-
|
|
Cash dividends paid (note 25)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(64,340
|
)
|
|
|
|
|
|
|
-
|
|
|
|
(64,340
|
)
|
|
|
(1,340
|
)
|
|
|
-
|
|
Balance, December 31, 2015
|
|
|
107,200,470
|
|
|
$
|
131,530
|
|
|
$
|
27,728
|
|
|
$
|
601,051
|
|
|
$
|
(57,133
|
)
|
|
$
|
4,183
|
|
|
$
|
707,359
|
|
|
$
|
24,785
|
|
|
$
|
-
|
|
Net income
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
91,832
|
|
|
|
-
|
|
|
|
346
|
|
|
|
92,178
|
|
|
|
1,334
|
|
|
|
-
|
|
Other comprehensive income (loss)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(9,993
|
)
|
|
|
(23
|
)
|
|
|
(10,016
|
)
|
|
|
169
|
|
|
|
-
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
91,832
|
|
|
|
(9,993
|
)
|
|
|
323
|
|
|
|
82,162
|
|
|
|
1,503
|
|
|
|
-
|
|
Change in value of contingently redeemable NCI
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(21,186
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(21,186
|
)
|
|
|
21,186
|
|
|
|
-
|
|
Stock option exercises
|
|
|
1,081,531
|
|
|
|
30,670
|
|
|
|
(6,332
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
24,338
|
|
|
|
-
|
|
|
|
-
|
|
Stock option tax adjustment
|
|
|
-
|
|
|
|
-
|
|
|
|
443
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
443
|
|
|
|
-
|
|
|
|
-
|
|
Stock option compensation expense (note 26)
|
|
|
-
|
|
|
|
-
|
|
|
|
5,507
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
5,507
|
|
|
|
-
|
|
|
|
-
|
|
Modification of PSUs (note 26)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(70
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(70
|
)
|
|
|
-
|
|
|
|
2,175
|
|
Equity-classified PSU expense (note 26)
|
|
|
-
|
|
|
|
-
|
|
|
|
283
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
283
|
|
|
|
-
|
|
|
|
1,698
|
|
Equity-classified PSU dividend equivalents
|
|
|
-
|
|
|
|
-
|
|
|
|
9
|
|
|
|
(62
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(53
|
)
|
|
|
-
|
|
|
|
42
|
|
Change in value of contingently redeemable equity-classified
PSUs
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(35
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(35
|
)
|
|
|
-
|
|
|
|
35
|
|
NCI acquired in a business combination (note 30)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
596
|
|
|
|
596
|
|
|
|
-
|
|
|
|
-
|
|
Acquisition of NCI
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(226
|
)
|
|
|
(226
|
)
|
|
|
(44,141
|
)
|
|
|
-
|
|
Shares repurchased (note 25)
|
|
|
(1,460,000
|
)
|
|
|
(36,726
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(36,726
|
)
|
|
|
-
|
|
|
|
-
|
|
Cash dividends paid (note 25)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(70,459
|
)
|
|
|
-
|
|
|
|
(103
|
)
|
|
|
(70,562
|
)
|
|
|
(3,333
|
)
|
|
|
-
|
|
Balance, December 31, 2016
|
|
|
106,822,001
|
|
|
$
|
125,474
|
|
|
$
|
27,638
|
|
|
$
|
601,071
|
|
|
$
|
(67,126
|
)
|
|
$
|
4,773
|
|
|
$
|
691,830
|
|
|
$
|
-
|
|
|
$
|
3,950
|
|
See accompanying notes to the consolidated financial statements.
Consolidated Statements of Cash Flows
(Expressed in thousands of United States dollars)
Year ended December 31,
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Cash provided by (used in):
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
93,512
|
|
|
$
|
138,575
|
|
|
$
|
92,563
|
|
Adjustments for items not affecting cash:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization expenses (note 6)
|
|
|
40,861
|
|
|
|
42,032
|
|
|
|
44,536
|
|
Inventory write down (note 14)
|
|
|
3,084
|
|
|
|
480
|
|
|
|
2,177
|
|
Impairment loss (note 7)
|
|
|
28,243
|
|
|
|
-
|
|
|
|
8,084
|
|
Stock option compensation expense (note 26)
|
|
|
5,507
|
|
|
|
4,001
|
|
|
|
3,710
|
|
Equity-classified PSU expense (note 26)
|
|
|
1,981
|
|
|
|
-
|
|
|
|
-
|
|
Deferred income tax recovery
|
|
|
(3,359
|
)
|
|
|
(4,559
|
)
|
|
|
3,154
|
|
Equity income less dividends received
|
|
|
(1,028
|
)
|
|
|
(916
|
)
|
|
|
(458
|
)
|
Unrealized foreign exchange loss
|
|
|
1,947
|
|
|
|
1,403
|
|
|
|
562
|
|
Change in fair value of earn-outs
|
|
|
(2,044
|
)
|
|
|
-
|
|
|
|
-
|
|
Gain on disposition of property, plant and equipment
|
|
|
(1,282
|
)
|
|
|
(9,691
|
)
|
|
|
(3,512
|
)
|
Other, net
|
|
|
(546
|
)
|
|
|
-
|
|
|
|
-
|
|
Net changes in operating assets and liabilities (note
11)
|
|
|
10,682
|
|
|
|
25,134
|
|
|
|
(1,797
|
)
|
Net cash provided by operating activities
|
|
|
177,558
|
|
|
|
196,459
|
|
|
|
149,019
|
|
Investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition of Mascus (note 30)
|
|
|
(28,123
|
)
|
|
|
-
|
|
|
|
-
|
|
Acquisition of Xcira (note 30)
|
|
|
-
|
|
|
|
(12,107
|
)
|
|
|
-
|
|
Acquisition of Petrowsky (note 30)
|
|
|
(6,250
|
)
|
|
|
-
|
|
|
|
-
|
|
Acquisition of contingently redeemable NCI (note 9)
|
|
|
(41,092
|
)
|
|
|
-
|
|
|
|
-
|
|
Acquisition of NCI (note 30)
|
|
|
(226
|
)
|
|
|
-
|
|
|
|
-
|
|
Acquisition of Kramer (note 30)
|
|
|
(11,138
|
)
|
|
|
-
|
|
|
|
-
|
|
Acquisition of equity investments
|
|
|
-
|
|
|
|
(3,000
|
)
|
|
|
-
|
|
Property, plant and equipment additions
|
|
|
(18,918
|
)
|
|
|
(22,055
|
)
|
|
|
(24,990
|
)
|
Intangible asset additions
|
|
|
(17,558
|
)
|
|
|
(8,764
|
)
|
|
|
(13,935
|
)
|
Proceeds on disposition of property, plant and equipment
|
|
|
6,691
|
|
|
|
16,667
|
|
|
|
9,330
|
|
Other, net
|
|
|
(248
|
)
|
|
|
(89
|
)
|
|
|
(529
|
)
|
Net cash used in investing activities
|
|
|
(116,862
|
)
|
|
|
(29,348
|
)
|
|
|
(30,124
|
)
|
Financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuances of share capital
|
|
|
24,338
|
|
|
|
29,816
|
|
|
|
12,121
|
|
Share repurchase (note 25)
|
|
|
(36,726
|
)
|
|
|
(47,489
|
)
|
|
|
-
|
|
Dividends paid to stockholders (note 25)
|
|
|
(70,459
|
)
|
|
|
(64,340
|
)
|
|
|
(57,929
|
)
|
Dividends paid to contingently redeemable NCI
|
|
|
(3,436
|
)
|
|
|
(1,340
|
)
|
|
|
-
|
|
Proceeds from short-term debt
|
|
|
67,584
|
|
|
|
11,223
|
|
|
|
45,751
|
|
Repayment of short-term debt
|
|
|
(57,516
|
)
|
|
|
(6,558
|
)
|
|
|
(41,066
|
)
|
Proceeds from long-term debt
|
|
|
647,091
|
|
|
|
-
|
|
|
|
-
|
|
Repayment of long-term debt
|
|
|
(148,158
|
)
|
|
|
-
|
|
|
|
(58,409
|
)
|
Debt issue costs (note 24)
|
|
|
(10,644
|
)
|
|
|
-
|
|
|
|
-
|
|
Debt extinguishment costs (note 24)
|
|
|
(6,787
|
)
|
|
|
-
|
|
|
|
-
|
|
Repayment of finance lease obligations
|
|
|
(1,655
|
)
|
|
|
(2,073
|
)
|
|
|
(1,953
|
)
|
Other, net
|
|
|
511
|
|
|
|
72
|
|
|
|
(148
|
)
|
Net cash provided by (used in) financing activities
|
|
|
404,143
|
|
|
|
(80,689
|
)
|
|
|
(101,633
|
)
|
Effect of changes in foreign currency rates on cash and cash equivalents
|
|
|
4
|
|
|
|
(26,265
|
)
|
|
|
(18,534
|
)
|
Cash, cash equivalents, and restricted cash:
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease)
|
|
|
464,843
|
|
|
|
60,157
|
|
|
|
(1,272
|
)
|
Beginning of period
|
|
|
293,246
|
|
|
|
233,089
|
|
|
|
234,361
|
|
Cash, cash equivalents, and restricted cash, end of period (note 11)
|
|
$
|
758,089
|
|
|
|
293,246
|
|
|
$
|
233,089
|
|
See accompanying notes to the consolidated financial statements.
Notes
to the Consolidated Financial Statements
|
(Tabular amounts expressed in thousands
of United States dollars, except where noted)
|
|
Ritchie Bros. Auctioneers Incorporated and
its subsidiaries (collectively referred to as the “Company”) sell industrial equipment and other assets for the construction,
agricultural, transportation, energy, mining, forestry, material handling, marine and real estate industries at its unreserved
auctions and online marketplaces. Ritchie Bros. Auctioneers Incorporated is a company incorporated in Canada under the Canada
Business Corporations Act, whose shares are publicly traded on the Toronto Stock Exchange (“TSX”) and the New York
Stock Exchange (“NYSE”).
|
2.
|
Significant accounting policies
|
These financial statements have been prepared
in accordance with United States generally accepted accounting principles (“US GAAP”) and the following accounting
policies have been consistently applied in the preparation of the consolidated financial statements. Previously, the Company prepared
its consolidated financial statements under International Financial Reporting Standards (“IFRS”) as permitted by securities
regulators in Canada, as well as in the United States under the status of a Foreign Private Issuer as defined by the United States
Securities and Exchange Commission (“SEC”). At the end of the second quarter of 2015, the Company determined that
it no longer qualified as a Foreign Private Issuer under the SEC rules. As a result, beginning January 1, 2016 the Company is
required to report with the SEC on domestic forms and comply with domestic company rules in the United States. The transition
to US GAAP was made retrospectively for all periods from the Company’s inception.
|
(b)
|
Basis of consolidation
|
The consolidated financial statements include
the accounts of the Company and its wholly-owned and non-wholly owned subsidiaries in which the Company has a controlling financial
interest either through voting rights or means other than voting rights. All inter-company transactions and balances have been
eliminated on consolidation. Where the Company’s ownership interest in a consolidated subsidiary is less than 100%, the
non-controlling interests’ share of these non-wholly owned subsidiaries is reported in the Company’s consolidated
balance sheets as a separate component of equity or within temporary equity. The non-controlling interests’ share of the
net income of these non-wholly owned subsidiaries is reported in the Company’s consolidated income statements as a deduction
from the Company’s net earnings to arrive at net earnings attributable to stockholders of the Company.
The Company consolidates variable interest
entities (“VIEs”) if the Company has (a) the power to direct matters that most significantly impact the VIEs economic
performance and (b) the obligation to absorb losses or the right to receive benefits of the VIE that could potentially be significant
to the VIE. For VIEs where the Company has shared power with unrelated parties, the Company uses the equity method of accounting
to report their results. The determination of the primary beneficiary involves judgment.
Revenues are comprised of:
|
·
|
commissions
earned at our auctions through the Company acting as an agent for consignors of equipment
and other assets, as well as commissions on online marketplace sales, and
|
|
·
|
fees
earned in the process of conducting auctions, fees from value-added services, as well
as fees paid by buyers on online marketplace sales.
|
Notes
to the Consolidated Financial Statements
|
(Tabular amounts expressed in thousands
of United States dollars, except where noted)
|
|
|
2.
|
Significant accounting policies
(continued)
|
|
(c)
|
Revenue recognition (continued)
|
The Company recognizes revenue when persuasive
evidence of an arrangement exists, delivery has occurred or services have been rendered, the price is fixed or determinable, and
collectability is reasonably assured. For auction or online marketplace sales, revenue is recognized when the auction or online
marketplace sale is complete and the Company has determined that the sale proceeds are collectible. Revenue is measured at the
fair value of the consideration received or receivable and is shown net of value-added tax and duties.
Commissions from sales at our auctions represent
the percentage earned by the Company on the gross auction proceeds from equipment and other assets sold at auction. The majority
of commissions are earned as a pre-negotiated fixed rate of the gross selling price. Other commissions from sales at our auctions
are earned from underwritten commission contracts, when the Company guarantees a certain level of proceeds to a consignor or purchases
inventory to be sold at auction. Commissions also include those earned on online marketplace sales.
Commissions from sales at auction
The Company accepts equipment and other
assets on consignment or takes title for a short period of time prior to auction, stimulates buyer interest through professional
marketing techniques, and matches sellers (also known as consignors) to buyers through the auction or private sale process.
In its role as auctioneer, the Company
matches buyers to sellers of equipment on consignment, as well as to inventory held by the Company, through the auction process.
Following the auction, the Company invoices the buyer for the purchase price of the property, collects payment from the buyer,
and where applicable, remits to the consignor the net sale proceeds after deducting its commissions, expenses and applicable taxes.
Commissions are calculated as a percentage of the hammer price of the property sold at auction.
On the fall of the auctioneer’s
hammer, the highest bidder becomes legally obligated to pay the full purchase price, which is the hammer price of the property
purchased and the seller is legally obligated to relinquish the property in exchange for the hammer price less any seller’s
commissions. Commission revenue is recognized on the date of the auction sale upon the fall of the auctioneer’s hammer,
which is the point in time when the Company has substantially accomplished what it must do to be entitled to the benefits represented
by the commission revenue. Subsequent to the date of the auction sale, the Company’s remaining obligations for its auction
services relate only to the collection of the purchase price from the buyer and the remittance of the net sale proceeds to the
seller. These remaining service obligations are not an essential part of the auction services provided by the Company.
Under the standard terms and conditions
of its auction sales, the Company is not obligated to pay a consignor for property that has not been paid for by the buyer, provided
that the property has not been released to the buyer. In the rare event where a buyer refuses to take title of the property, the
sale is cancelled in the period in which the determination is made, and the property is returned to the consignor. Historically,
cancelled sales have not been material in relation to the aggregate hammer price of property sold at auction.
Commission revenues are recorded net of
commissions owed to third parties, which are principally the result of situations when the commission is shared with a consignor
or with the counterparty in an auction guarantee risk and reward sharing arrangement. Additionally, in certain situations, commissions
are shared with third parties who introduce the Company to consignors who sell property at auction.
Notes
to the Consolidated Financial Statements
|
(Tabular amounts expressed in thousands
of United States dollars, except where noted)
|
|
|
2.
|
Significant accounting policies
(continued)
|
|
(c)
|
Revenue recognition (continued)
|
Underwritten commission contracts can
take the form of guarantee or inventory contracts. Guarantee contracts typically include a pre-negotiated percentage of the guaranteed
gross proceeds plus a percentage of proceeds in excess of the guaranteed amount. If actual auction proceeds are less than the
guaranteed amount, commission is reduced; if proceeds are sufficiently lower, the Company can incur a loss on the sale. Losses,
if any, resulting from guarantee contracts are recorded in the period in which the relevant auction is completed. If a loss relating
to a guarantee contract held at the period end to be sold after the period end is known or is probable and estimable at the financial
statement reporting date, the loss is accrued in the financial statements for that period. The Company’s exposure from these
guarantee contracts fluctuates over time (note 28).
Revenues related to inventory contracts
are recognized in the period in which the sale is completed, title to the property passes to the purchaser and the Company has
fulfilled any other obligations that may be relevant to the transaction, including, but not limited to, delivery of the property.
Revenue from inventory sales is presented net of costs within revenues on the income statement, as the Company takes title only
for a short period of time and the risks and rewards of ownership are not substantially different than the Company’s other
underwritten commission contracts.
Fees
Fees earned in the process of conducting
our auctions include administrative, documentation, and advertising fees. Fees from value-added services include financing and
technology service fees. Fees also include amounts paid by buyers (a “buyer’s premium”) on online marketplace
sales. Fees are recognized in the period in which the service is provided to the customer.
The Company classifies a share-based payment
award as an equity or liability payment based on the substantive terms of the award and any related arrangement.
Equity-classified share-based payments
The Company has a stock option compensation
plan that provides for the award of stock options to selected employees, directors and officers of the Company. The cost of options
granted is measured at the fair value of the underlying option at the grant date using the Black-Scholes option pricing model.
The Company also has a senior executive performance share unit (“PSU”) plan that provides for the award of PSUs to
selected senior executives of the Company. The Company has the option to settle executive PSU awards in cash or shares and expects
to settle them in shares. The cost of PSUs granted is measured at the fair value of the underlying PSUs at the grant date using
a binomial model.
This fair value of awards expected to vest
under these plans is expensed over the respective remaining service period of the individual awards, on a straight-line basis,
with recognition of a corresponding increase to APIC in equity. At the end of each reporting period, the Company revises its estimate
of the number of equity instruments expected to vest. The impact of the revision of the original estimates, if any, is recognized
in earnings, such that the consolidated expense reflects the revised estimate, with a corresponding adjustment to equity.
Any consideration paid on exercise of the
stock options is credited to the common shares together with any related compensation recognized for the award. Dividend equivalents
on the senior executive plan PSUs are recognized as a reduction to retained earnings over the service period.
Notes
to the Consolidated Financial Statements
|
(Tabular amounts expressed in thousands
of United States dollars, except where noted)
|
|
|
2.
|
Significant accounting policies
(continued)
|
|
(d)
|
Share-based payments (continued)
|
Equity-classified share-based payments
(continued)
PSUs awarded under the senior executive and
employee PSU plans (described in note 26) are contingently redeemable in cash in the event of death of the participant. The contingently
redeemable portion of the senior executive PSU awards, which represents the amount that would be redeemable based on the conditions
at the date of grant, to the extent attributable to prior service, is recognized as temporary equity. The balance reported in
temporary equity increases on the same basis as the related compensation expense over the service period of the award, with any
excess of the temporary equity value over the amount recognized in compensation expense charged against retained earnings. In
the event it becomes probable an award is going to become eligible for redemption by the holder, the award would be reclassified
to a liability award.
Liability-classified share-based payments
The Company maintains other share unit compensation
plans that vest over a period of up to five years after grant. Under those plans, the Company is either required or expects to
settle vested awards on a cash basis or by providing cash to acquire shares on the open market on the employee’s behalf,
where the settlement amount is determined using the volume weighted average price of the Company’s common shares for the
twenty days prior to the vesting date or, in the case of deferred share unit (“DSU”) recipients, following cessation
of service on the Board of Directors.
These awards are classified as liability
awards, measured at fair value at the date of grant and re-measured at fair value at each reporting date up to and including the
settlement date. The determination of the fair value of the share units under these plans is described in note 26. The fair value
of the awards is expensed over the respective vesting period of the individual awards with recognition of a corresponding liability.
Changes in fair value after vesting are recognized through compensation expense. Compensation expense reflects estimates of the
number of instruments expected to vest.
The impact of fair value and forfeiture estimate
revisions, if any, are recognized in earnings such that the cumulative expense reflects the revised estimates, with a corresponding
adjustment to the settlement liability. Liability-classified share unit liabilities due within 12 months of the reporting date
are presented in trade and other payables while settlements due beyond 12 months of the reporting date are presented in non-current
liabilities.
The awards are classified as liability awards,
measured at fair value at the date of grant and re-measured at fair value at each reporting date up to and including the settlement
date. The fair value of the share unit grants is calculated on the valuation date using the 20-day volume weighted average share
price of the Company‘s common shares listed on the New York Stock Exchange. The fair value of the awards is expensed over
the respective vesting period of the individual awards with recognition of a corresponding liability, with changes in fair value
after vesting being recognized through compensation expense. Compensation expense reflects estimates the number of instruments
expected to vest.
The impacts of fair value and forfeiture
estimate revisions, if any, are recognized in earnings such that the cumulative expense reflects the revised estimates, with a
corresponding adjustment to the settlement liability. Short-term cash-settled share-based liabilities are presented in trade and
other payables while long-term settlements are presented in non-current liabilities.
Notes
to the Consolidated Financial Statements
|
(Tabular amounts expressed in thousands
of United States dollars, except where noted)
|
|
|
2.
|
Significant accounting policies
(continued)
|
|
(d)
|
Share-based payments (continued)
|
Employee share purchase plan
The Company matches employees’ contributions
to the share purchase plan, which is described in more detail in note 26. The Company’s contributions are expensed as share-based
compensation.
|
(e)
|
Fair value measurement
|
Fair value is the exit 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 Company measures financial instruments or discloses select non-financial assets at fair value at each balance sheet
date. Also, fair values of financial instruments measured at amortized cost are disclosed in note 12.
The Company uses valuation techniques that
are appropriate in the circumstances and for which sufficient data is available to measure fair value, maximizing the use of relevant
observable inputs and minimizing the use of unobservable inputs.
All assets and liabilities for which fair
value is measured or disclosed in the financial statements at fair value are categorized within a fair value hierarchy, as disclosed
in note 12, based on the lowest level input that is significant to the fair value measurement or disclosure. This fair value hierarchy
gives the highest priority to quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority
to unobservable inputs (Level 3).
For assets and liabilities that are recognized
in the financial statements at fair value on a recurring basis, the Company determines whether transfers have occurred between
levels in the hierarchy by re-assessing categorization at the end of each reporting period.
For the purposes of fair value disclosures,
the Company has determined classes of assets and liabilities on the basis of the nature, characteristics and risks of the assets
or liability and the level of the fair value hierarchy as explained above.
|
(f)
|
Foreign currency translation
|
The parent entity‘s presentation and
functional currency is the United States dollar. The functional currency for each of the parent entity‘s subsidiaries is
the currency of the primary economic environment in which the entity operates, which is usually the currency of the country of
residency.
Accordingly, the financial statements of
the Company‘s subsidiaries that are not denominated in United States dollars have been translated into United States dollars
using the exchange rate at the end of each reporting period for asset and liability amounts and the monthly average exchange rate
for amounts included in the determination of earnings. Any gains or losses from the translation of asset and liability amounts
are included in foreign currency translation adjustment in accumulated other comprehensive income.
In preparing the financial statements of
the individual subsidiaries, transactions in currencies other than the entity‘s functional currency are recognized at the
rates of exchange prevailing at the dates of the transaction. At the end of each reporting period, monetary assets and liabilities
denominated in foreign currencies are retranslated at the rates prevailing at that date. Foreign currency differences arising
on retranslation of monetary items are recognized in earnings. Foreign currency translation adjustment includes intra-entity foreign
currency transactions that are of a long-term investment nature of $1,967,000 for 2016 (2015: $19,636,000; 2014: $18,273,000).
Notes
to the Consolidated Financial Statements
|
(Tabular amounts expressed in thousands
of United States dollars, except where noted)
|
|
|
2.
|
Significant accounting policies
(continued)
|
|
(g)
|
Cash and cash equivalents
|
Cash and cash equivalents is comprised of
cash on hand, deposits with financial institutions, and other short-term, highly liquid investments with original maturity of
three months or less when acquired, that are readily convertible to known amounts of cash.
In certain jurisdictions, local laws require
the Company to hold cash in segregated accounts, which are used to settle auction proceeds payable resulting from auctions conducted
in those regions. In addition, the Company also holds cash generated from its EquipmentOne online marketplace sales in separate
escrow accounts, for settlement of the respective online marketplace transactions as a part of its secured escrow service. Non-current
restricted cash consists of funds held in escrow pursuant to the offering of senior unsecured notes (note 24), which are only
available to the Company if and when the Company receives approval to acquire IronPlanet Holdings, Inc. (“IronPlanet”)
and whose use is restricted to the funding of the IronPlanet acquisition (note 28).
|
(i)
|
Trade and other receivables
|
Trade receivables principally include amounts
due from customers as a result of auction and online marketplace transactions. The recorded amount reflects the purchase price
of the item sold, including the Company’s commission. The allowance for doubtful accounts is the Company’s best estimate
of the amount of probable credit losses in existing accounts receivable. The Company determines the allowance based on historical
write-off experience and customer economic data. The Company reviews the allowance for doubtful accounts regularly and past due
balances are reviewed for collectability. Account balances are charged against the allowance when the Company believes that the
receivable will not be recovered.
Inventory is recorded at cost and is represented
by goods held for auction. Each inventory contract has been valued at the lower of cost and net realizable value.
|
(k)
|
Equity-accounted investments
|
Investments in entities that the Company
has the ability to exercise significant influence over, but not control, are accounted for using the equity method of accounting.
Under the equity method of accounting, investments are stated at initial costs and are adjusted for subsequent additional investments
and the Company’s share of earnings or losses and distributions. The Company evaluates its equity-accounted investments
for impairment when events or circumstances indicate that the carrying value of such investments may have experienced an other-than-temporary
decline in value below their carrying value. If the estimated fair value is less than the carrying value and is considered an
other than temporary decline, the carrying value is written down to its estimated fair value and the resulting impairment is recorded
in the consolidated income statement.
|
(l)
|
Property,
plant and equipment
|
All property, plant and equipment are stated
at cost less accumulated depreciation. Cost includes all expenditures that are directly attributable to the acquisition or development
of the asset, net of any amounts received in relation to those assets, including scientific research and experimental development
tax credits.
Notes
to the Consolidated Financial Statements
|
(Tabular amounts expressed in thousands
of United States dollars, except where noted)
|
|
|
2.
|
Significant accounting policies
(continued)
|
|
(l)
|
Property,
plant and equipment (continued)
|
The cost of self-constructed assets includes
the cost of materials and direct labour, any other costs directly attributable to bringing the assets to working condition for
their intended use, the costs of dismantling and removing items and restoring the site on which they are located (if applicable)
and capitalized interest on qualifying assets. Subsequent costs are included in the asset’s carrying amount or recognized
as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow
to the Company and the cost of the item can be measured reliably.
All repairs and maintenance costs are charged
to earnings during the financial period in which they are incurred. Gains and losses on disposal of an item of property, plant
and equipment are determined by comparing the proceeds from disposal with the carrying amount of the item, and are recognized
net within operating income on the income statement.
Depreciation is provided to charge the cost
of the assets to operations over their estimated useful lives based on their usage as follows:
Asset
|
|
Basis
|
|
Rate
/ term
|
|
Land improvements
|
|
Declining balance
|
|
10%
|
|
Buildings
|
|
Straight-line
|
|
15 - 30 years
|
|
Yard equipment
|
|
Declining balance
|
|
20 - 30%
|
|
Automotive equipment
|
|
Declining balance
|
|
30%
|
|
Computer software and equipment
|
|
Straight-line
|
|
3 - 5 years
|
|
Office equipment
|
|
Declining balance
|
|
20%
|
|
Leasehold improvements
|
|
Straight-line
|
|
Lesser of lease term or economic life
|
|
No depreciation is provided on freehold land or on assets in
the course of construction or development. Depreciation of property, plant and equipment under capital leases is recorded in depreciation
expense.
Legal obligations to retire and to restore
property, plant and equipment and assets under operating leases are recorded at management‘s best estimate in the period
in which they are incurred, if a reasonable estimate can be made, with a corresponding increase in asset carrying value. The liability
is accreted to face value over the remaining estimated useful life of the asset. The Company does not have any significant asset
retirement obligations.
|
(m)
|
Long-lived
assets held for sale
|
Long-lived assets, or disposal groups comprising
assets and liabilities, that are expected to be recovered primarily through sale rather than through continuing use, are classified
as assets held for sale. Immediately before classification as held for sale, the assets, or components of a disposal group, are
measured at carrying amount in accordance with the Company’s accounting policies. Thereafter the assets, or disposal group,
are measured at the lower of their carrying amount and fair value less cost to sell and are not depreciated. Impairment losses
on initial classification as held for sale and subsequent gains or losses on re-measurement are recognized in operating income
on the income statement.
Intangible assets have finite useful lives
and are measured at cost less accumulated amortization and accumulated impairment losses, except trade names and trademarks as
they have indefinite useful lives. Cost includes all expenditures that are directly attributable to the acquisition or development
of the asset, net of any amounts received in relation to those assets, including scientific research and experimental development
tax credits.
Notes to the Consolidated
Financial Statements
|
(Tabular amounts expressed in thousands of United States dollars,
except where noted)
|
|
|
2.
|
Significant accounting policies
(continued)
|
|
(n)
|
Intangible
assets (continued)
|
Costs of internally developed software are
amortized on a straight-line basis over the remaining estimated economic life of the software product.
Costs related to software incurred prior
to establishing technological feasibility or the beginning of the application development stage of software are charged to operations
as such costs are incurred. Once technological feasibility is established or the application development stage has begun, directly
attributable costs are capitalized until the software is available for use.
Amortization is recognized in net earnings
on a straight-line basis over the estimated useful lives of intangible assets from the date that they are available for use. The
estimated useful lives are:
Asset
|
|
Basis
|
|
Rate
/ term
|
|
Customer relationships
|
|
Straight-line
|
|
10 - 20 years
|
|
Software assets
|
|
Straight-line
|
|
3 - 5 years
|
|
Amortization of intangible assets under capital
leases has been recorded in amortization expense.
|
(o)
|
Impairment of long-lived
assets
|
Long-lived assets, comprised of property,
plant and equipment and intangibles subject to amortization, are assessed for impairment whenever events or circumstances indicate
that their carrying value may not be recoverable. For the purpose of impairment testing, long-lived assets are grouped and tested
for recoverability at the lowest level that generates independent cash flows. An impairment loss is recognized when the carrying
value of the assets or asset groups is greater than the future projected undiscounted cash flows. The impairment loss is calculated
as the excess of the carrying value over the fair value of the asset or asset group. Fair value is based on valuation techniques
or third party appraisals. Significant estimates and judgments are applied in determining these cash flows and fair values.
Goodwill represents the excess of the purchase
price of an acquired enterprise over the fair value assigned to assets acquired and liabilities assumed in a business combination.
Goodwill is allocated to either the Core Auction, the EquipmentOne, or the Mascus reporting unit.
Goodwill is not amortized, but it is tested
annually for impairment at the reporting unit level as of December 31 and between annual tests if indicators of potential impairment
exist. The first step of the impairment test for goodwill is an assessment of qualitative factors to determine the existence of
events or circumstances that would indicate whether it is more likely than not that the carrying amount of the reporting unit
to which goodwill belongs is less than its fair value. If the qualitative test indicates it is not more likely than not that the
reporting unit’s carrying amount is less than its fair value, a quantitative assessment is not required.
Where a quantitative assessment is required
the next step is to compare the fair value of the reporting unit to the reporting unit’s carrying value. The fair value
calculated in the impairment test is determined using a discounted cash flow or another model involving assumptions that are based
upon what we believe a hypothetical marketplace participant would use in estimating fair value on the measurement date. In developing
these assumptions, we compare the resulting estimated enterprise value to our observable market enterprise value. If the fair
value of the reporting unit is lower than the reporting unit’s carrying value an impairment loss is recognized for any amount
by which the carrying value of goodwill exceeds its implied fair value.
Notes to the Consolidated
Financial Statements
|
(Tabular amounts expressed in thousands of United States dollars,
except where noted)
|
|
|
2.
|
Significant accounting policies
(continued)
|
|
(q)
|
Deferred financing costs
|
Deferred financing costs represent the unamortized
costs incurred on the issuance of the Company’s long-term debt. Amortization of deferred financing costs is provided on
the effective interest rate method over the term of the facility. Deferred financing costs relating to the Company’s term
debt are presented in the consolidated balance sheet as a direct reduction of the carrying amount of the long-term debt. Deferred
financing costs relating to the Company’s revolving loans are presented on the balance sheet as a deferred charge.
Income tax expense represents the sum of
current tax expense and deferred tax expense.
Current tax
The current tax expense is based on taxable
profit for the period and includes any adjustments to tax payable in respect of previous years. Taxable profit differs from earnings
before income taxes as reported in the consolidated income statement because it excludes items of income or expense that are taxable
or deductible in other years and it further excludes items that are never taxable or deductible. The Company‘s liability
for current tax is calculated using tax rates that have been enacted by the balance sheet date.
Deferred tax
Income taxes are accounted for using the
asset and liability method. Deferred income tax assets and liabilities are based on temporary differences (differences between
the accounting basis and the tax basis of the assets and liabilities) and non-capital loss, capital loss, and tax credits carryforwards
are measured using the enacted tax rates and laws expected to apply when these differences reverse. Deferred tax benefits, including
non-capital loss, capital loss, and tax credits carryforwards, are recognized to the extent that realization of such benefits
is considered more likely than not. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in
earnings in the period that enactment occurs. When realization of deferred income tax assets does not meet the more-likely-than-not
criterion for recognition, a valuation allowance is provided.
Interest and penalties related to income
taxes, including unrecognized tax benefits, are recorded in income tax expense in the income statement.
Liabilities for uncertain tax positions are
recorded based on a two-step process. The first step is to evaluate the tax position for recognition by determining if the weight
of available evidence indicates that it is more likely than not that the position will be sustained on audit, including resolution
of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount that is
more than 50% likely of being realized upon settlement. The Company regularly assesses the potential outcomes of examinations
by tax authorities in determining the adequacy of our provision for income taxes. The Company continually assesses the likelihood
and amount of potential adjustments and adjust the income tax provision, income taxes payable and deferred taxes in the period
in which the facts that give rise to a revision become known.
Notes to the Consolidated
Financial Statements
|
(Tabular amounts expressed in thousands of United States dollars,
except where noted)
|
|
|
2.
|
Significant accounting policies
(continued)
|
|
(s)
|
Contingently redeemable
non-controlling interest
|
Contingently redeemable equity instruments
are initially recorded at their fair value on the date of issue within temporary equity on the balance sheet. When the equity
instruments become redeemable or redemption is probable, the Company recognizes changes in the estimated redemption value immediately
as they occur, and adjusts the carrying amount of the redeemable equity instrument to equal the estimated redemption value at
the end of each reporting period. Changes to the carrying value are charged or credited to retained earnings attributable to stockholders
on the balance sheet.
Redemption value determinations require high
levels of judgment (“Level 3” on the fair value hierarchy) and are based on various valuation techniques, including
market comparables and discounted cash flow projections.
Basic earnings per share has been calculated
by dividing the net income for the year attributable to equity holders of the parent by the weighted average number of common
shares outstanding. Diluted earnings per share has been calculated after giving effect to outstanding dilutive options calculated
by adjusting the net earnings attributable to equity holders of the parent and the weighted average number of shares outstanding
for all dilutive shares.
|
(u)
|
Defined contribution plans
|
The employees of the Company are members
of retirement benefit plans to which the Company matches up to a specified percentage of employee contributions or, in certain
jurisdictions, contributes a specified percentage of payroll costs as mandated by the local authorities. The only obligation of
the Company with respect to the retirement benefit plans is to make the specified contributions.
(v)
Advertising costs
Advertising costs are expensed as incurred.
Advertising expense is included in direct expenses and selling, general and administrative expense on the accompanying consolidated
statements of operations.
|
(w)
|
Early adoption of new accounting
pronouncements
|
|
(i)
|
In
November 2016, the FASB issued Accounting Standards Update (“ASU”) 2016-18,
Statement of Cash Flows (Topic 230), Restricted Cash,
which requires
that the change in the total of cash, cash equivalents, and restricted cash during a
reporting period be explained in the statement of cash flows (“SCF”). Therefore,
restricted cash is included with cash and cash equivalents when reconciling the total
beginning and end of period amounts shown on the face of the SCF. ASU 2016-18 is effective
for fiscal years, and interim periods within those fiscal years, beginning after December
15, 2017. Early adoption is permitted, including adoption in an interim period. If adopted
during an interim period, any adjustments are reflected as of the beginning of the fiscal
year that includes the interim period. The amendments are applied using a retrospective
transition method to each period presented.
|
The treatment of restricted cash
in the SCF under ASU 2016-18 is similar to the treatment under IFRS, which was the basis of preparation of the Company’s
reporting basis prior to its recent transition to US GAAP. As such, management believes this presentation is more familiar to
readers of the Company’s financial statements, making the financial statements easier to understand. Also, the Company’s
restricted cash balance, and therefore, its SCF performance metrics, are subject to a significant level of fluctuation because
the restricted cash balance varies according to both the timing and location of auctions in any given period. Management believes
that ASU 2016-18 will help reduce these fluctuations, providing more useful information to financial statement users. For all
these reasons, the Company early adopted ASU 2016-18 in the fourth quarter of 2016, applying the amendments on a retrospective transition method
basis. The effect of this retrospective application of ASU 2016-18 has been disclosed in note 11.
Notes to the Consolidated
Financial Statements
|
(Tabular amounts expressed in thousands of United States dollars,
except where noted)
|
|
|
2.
|
Significant accounting policies
(continued)
|
|
(x)
|
New and
amended accounting standards
|
|
(ii)
|
Effective
January 1, 2016, the Company adopted ASU 2014-12,
Compensation – Stock
Compensation (Topic 718), Accounting for Share-Based Payments When the Terms of an Award
Provide That a Performance Target Could Be Achieved after the Requisite Service Period
,
which requires that a performance target that (1) affects vesting of an award, and (2)
could be achieved after the requisite service period of the employee be treated as a
performance condition. The adoption of this standard did not have an impact on the Company’s
consolidated financial statements.
|
|
(iii)
|
Effective
January 1, 2016, the Company adopted ASU 2015-02,
Consolidation
(Topic 810), Amendments to the Consolidation Analysis
,
which changes the evaluation of whether limited partnerships and similar legal entities
are variable interest entities (“VIEs”), and eliminates the presumption that
a general partner should consolidate a limited partnership that is a voting interest
entity. The new guidance also alters the analysis for determining when fees paid to a
decision maker or service provider represent a variable interest in a VIE and how interests
of related parties affect the primary beneficiary determination.
The adoption of this standard did not have an impact on
the Company’s consolidated financial statements.
|
|
(iv)
|
Effective
January 1, 2016, the Company adopted ASU 2015-05,
Intangibles – Goodwill
and Other – Internal-Use Software (Subtopic 350-40), Customer’s Accounting
for Fees Paid in a Cloud Computing Arrangement
,
which provides clarity around a customer’s accounting for fees paid in a cloud
computing arrangement. The amendments in ASU 2015-05 add guidance to assist customers
in determining whether a cloud computing arrangement includes a software license. Software
license elements of cloud computing arrangements are accounted for consistent with the
acquisition of other intangible asset licenses. Where there is no software license element,
the cloud computing arrangement is accounted for as a service contract. The standard
was applied prospectively and did not have an impact on the Company’s consolidated
financial statements.
|
|
(v)
|
Effective
January 1, 2016, the Company adopted Accounting Standards Update (“ASU”)
2015-16,
Business Combinations (Topic 805), Simplifying the Accounting for
Measurement-Period Adjustments
,
which requires that an acquirer recognize adjustments to provisional amounts that are
identified during the measurement period in the reporting period in which the adjustment
amounts are determined. The adoption of this standard did not have an impact on the Company’s
consolidated financial statements with respect to the acquisition of Xcira (note 30(d))
as no adjustments to provisional amounts were identified during the measurement period.
During the period from February 19, 2016 to December 31, 2016, the Company recognized
working capital adjustments related to the Mascus acquisition (note 30(a)), which resulted
in a net $343,000 increase in goodwill.
|
|
(y)
|
Recent
accounting standards not yet adopted
|
|
(i)
|
In
May 2014, the FASB issued ASU 2014-09,
Revenue from Contracts with Customers
(Topic 606)
, which requires
an entity to recognize revenue when it transfers promised goods or services to customers
in an amount that reflects the consideration to which the entity expects to be entitled
in exchange for those goods or services. In particular, it moves away from the current
industry and transaction specific requirements.
|
Notes to the Consolidated
Financial Statements
|
(Tabular amounts expressed in thousands of United States dollars,
except where noted)
|
|
|
2.
|
Significant
accounting policies (continued)
|
|
(y)
|
Recent
accounting standards not yet adopted (continued)
|
ASU 2014-09 creates a five-step
model that requires entities to exercise judgment when considering the terms of the contract(s) which include:
|
1.
|
Identifying the contract(s) with
the customer,
|
|
2.
|
Identifying the separate performance
obligations in the contract,
|
|
3.
|
Determining the transaction price,
|
|
4.
|
Allocating the transaction price to
the separate performance obligations, and
|
|
5.
|
Recognizing revenue as each performance
obligation is satisfied.
|
The amendments also contain extensive
disclosure requirements designed to enable users of the financial statements to understand the nature, amount, timing and uncertainty
of revenue and cash flows arising from contracts with customers. In July 2015, the FASB delayed the effective date of ASU 2014-09
by one year so that ASU 2014-09 is effective for fiscal years, and interim periods within those fiscal years, beginning after
December 15, 2017. ASU 2014-09 permits the use of either the retrospective or modified retrospective (cumulative effect) transition
method.
In 2015, the Company established
a global new revenue accounting standard adoption team, consisting of financial reporting and accounting advisory representatives
from across all geographical regions and business operations. The team developed an adoption framework that continues to be used
as guidance in identifying the Company’s significant contracts with customers. In 2016, the team commenced its analysis,
with the initial focus being on the impact of the amendments on accounting for the Company’s straight commission contracts,
underwritten (inventory and guarantee) commission contracts, and ancillary service contracts. The team is currently in the process
of identifying the appropriate changes to our business processes, systems, and controls required to adopt the amendments based
on preliminary findings.
Since its inception, the team has
regularly reported the findings and progress of the adoption project to management and the Audit Committee. The team is also working
closely with management and the Audit Committee to determine the most appropriate method of adoption of ASU 2014-09, which has
not yet been selected primarily due to the uncertainty over if and when the Company will receive approval to acquire IronPlanet.
Due to the complexity of applying the amendments retrospectively in the event the acquisition is approved, the Company is evaluating
recently issued guidance on practical expedients as part of the adoption method decision.
The
team has been closely monitoring FASB activity related to ASU 2014-09 in order to conclude on specific interpretative issues.
In early 2016, the team’s progress was aided by the FASB issuing ASU 2016-08,
Revenue from Contracts with Customers
(Topic 606), Principal versus Agent Considerations (Reporting Revenue Gross versus Net)
,
which clarifies the implementation guidance on principal versus agent considerations, focusing on whether an entity controls a
specified good or service before that good or service is transferred to a customer. The team continues to assess the potential
effect that these amendments are expected to have on the accounting for inventory commission and ancillary service contracts,
which are currently accounted for on a net as an agent basis within commission and fee revenues, respectively.
Notes to the Consolidated
Financial Statements
|
(Tabular amounts expressed in thousands of United States dollars,
except where noted)
|
|
|
2.
|
Significant
accounting policies (continued)
|
|
(y)
|
Recent
accounting standards not yet adopted (continued)
|
|
(ii)
|
In
January 2016, the FASB issued ASU 2016-01,
Financial Instruments – Overall
(Subtopic 825-10), Recognition and Measurement of Financial Assets and Financial Liabilities
,
the first of three standards related to financial instrument accounting. The amendments
of ASU 2016-01 require equity method investments (except for equity-method accounted
investments and those resulting in consolidation of the investee) to be measured at fair
value with changes recognized in net income. For equity investments that do not have
readily determinable fair values, the entity may elect to measure the investment at cost
less any impairment, plus or minus changes resulting from observable price changes in
orderly transactions for the identical or a similar investment of the same issuer. The
amendments also:
|
|
·
|
Simplify
the impairment assessment of equity investments that do not have readily determinable
fair values, by requiring a qualitative assessment to identify impairment. The entity
is only required to measure the investment at fair value if the qualitative assessment
indicates that impairment exists.
|
|
·
|
Eliminate
the requirement to disclose the method(s) and significant assumptions used to estimate
the fair value that is required to be disclosed for financial instruments measured at
amortized cost.
|
|
·
|
Require
the exit price notion to be used when measuring the fair value of financial instruments
for disclosure purposes.
|
|
·
|
Require
separate presentation of financial assets and liabilities by measurement category and
form of financial asset (i.e. securities or loans & receivables) on the balance sheet
or the accompanying notes to the financial statements.
|
ASU 2016-01 is effective for fiscal
years, and interim periods within those fiscal years, beginning after December 15, 2017. Early adoption is only permitted for
the provisions under ASU 2016-01 related to the recognition of changes in fair value of financial liabilities. The Company is
evaluating the new guidance to determine the impact it will have on its consolidated financial statements.
|
(iii)
|
In
February 2016, the FASB issued ASU 2016-02,
Leases (Topic 842)
,
which requires lessees to recognize almost all leases, including operating leases, on
the balance sheet through a right-of-use asset and a corresponding lease liability. For
short-term leases, defined as those with a term of 12 months or less, the lessee is permitted
to make an accounting policy election not to recognize the lease assets and liabilities,
and instead recognize the lease expense generally on a straight-line basis over the lease
term. The accounting treatment under this election is consistent with current operating
lease accounting. No extensive amendments were made to lessor accounting, but amendments
of note include changes to the definition of initial direct costs and accounting for
collectability uncertainties in a lease. ASU 2016-02 is effective for fiscal years, and
interim periods within those fiscal years, beginning after December 15, 2018, with early
adoption permitted. Both lessees and lessors must apply ASU 2016-02 using a “modified
retrospective transition”, which reflects the new guidance from the beginning of
the earliest period presented in the financial statements. However, lessees and lessors
can elect to apply certain practical expedients on transition.
The Company is evaluating the new guidance to determine the impact it will have
on its consolidated financial statements.
|
Notes to the Consolidated
Financial Statements
|
(Tabular amounts expressed in thousands of United States dollars,
except where noted)
|
|
|
2.
|
Significant
accounting policies (continued)
|
|
(y)
|
Recent
accounting standards not yet adopted (continued)
|
|
(iv)
|
In
March 2016, the FASB issued ASU 2016-06,
Derivatives and Hedging (Topic 815),
Contingent Put and Call Options on Debt Instruments
.
The amendments in
ASU 2016-06, which impacts entities that are issuers of or investors in debt instruments
– or hybrid financial instruments determined to have a debt host – with embedded
call (put) options. One of the criteria for bifurcating an embedded derivative is assessing
whether the economic characteristics and risks of call (put) options are clearly and
closely related to those of their debt hosts. The amendments of ASU 2016-06 clarify the
steps required in making this assessment for contingent call (put) options that can accelerate
the payment of principal on debt instruments. Specifically, ASU 2016-06 requires the
call (or put) options to be assessed solely in accordance with a four-step decision sequence.
As a consequence, when a call (put) option is contingently exercisable, an entity does
not have to assess whether the triggering event is related to interest rates or credit
risks. ASU 2016-06 is effective for fiscal years, and interim periods within those fiscal
years, beginning after December 15, 2016, with early adoption permitted. The amendments
are applied using a modified retrospective basis to existing debt instruments as of the
beginning of the fiscal year for which the amendments are effective. The Company is evaluating
the new guidance to determine the impact it will have on its consolidated financial statements.
|
|
(v)
|
In
March 2016, the FASB issued ASU 2016-08,
Revenue from Contracts with Customers
(Topic 606), Principal versus Agent Considerations (Reporting Revenue Gross versus Net)
.
The amendments in ASU 2016-08 clarify the implementation guidance on principal versus
agent considerations, focusing on whether an entity controls a specified good or service
before that good or service is transferred to a customer. Where such control exists –
i.e. where the entity is required to provide the specified good or service itself –
the entity is a ‘principal’. Where the entity is required to arrange for
another party to provide the good or service, it is an agent. The effective date and
transition requirements of ASU 2016-08 are the same as for ASU 2014-09, which is for
fiscal years, and interim periods within those fiscal years, beginning after December
15, 2017. The Company is evaluating the new guidance to determine the impact it will
have on its consolidated financial statements.
|
|
(vi)
|
In
March 2016, the FASB issued ASU No. 2016-09,
Compensation—Stock Compensation
(Topic 718)
, which makes
several modifications to Topic 718 related to the accounting for forfeitures, employer
tax withholding on share-based compensation and the financial statement presentation
of excess tax benefits or deficiencies. ASU 2016-09 also clarifies the statement of cash
flows presentation for certain components of share-based awards. Specifically, ASU 2016-09
requires an entity to recognize share-based payment award income tax effects in the income
statement when the awards vest or are settled, and as a result, the requirement for entities
to track APIC pools is eliminated. In addition, the amendments allow entities to make
a policy election to either estimate forfeiture or recognize forfeitures as they occur.
ASC 2016-09 is effective for fiscal years, and interim periods within those fiscal years,
beginning after December 15, 2016, with early adoption permitted. The Company is evaluating
the new guidance to determine the impact it will have on its consolidated financial statements.
|
|
(vii)
|
In
April 2016, the FASB issued ASU 2016-10,
Identifying Performance Obligations
and Licensing
, which clarifies
the following two aspects of ASU 2014-09 (Topic 606): identifying performance obligations
and the licensing implementation guidance. ASC 2016-10 affects the guidance in ASU 2014-09,
and so has the same effective date and transition requirements. ASU 2016-10 is effective
for fiscal years, and interim periods within those fiscal years, beginning after December
15, 2017. The Company is evaluating the new guidance to determine the impact it will
have on its consolidated financial statements.
|
Notes to the Consolidated
Financial Statements
|
(Tabular amounts expressed in thousands of United States dollars,
except where noted)
|
|
|
2.
|
Significant
accounting policies (continued)
|
|
(y)
|
Recent
accounting standards not yet adopted (continued)
|
|
(viii)
|
In
May 2016, the FASB issued ASU 2016-12,
Narrow Scope Improvements and Practical
Expedients
, which makes
narrow scope improvements and practical expedients to the following aspects of ASU 2014-09
(Topic 606):
|
|
·
|
Assessing
one specific collectability criterion and accounting for contracts that do not meet certain
criteria
|
|
·
|
Presentation
for sales taxes and other similar taxes collected from customers
|
|
·
|
Contract
modification at transition
|
|
·
|
Completed
contracts at transition
|
ASC 2016-10 affects the guidance
in ASU 2014-09, and so has the same effective date and transition requirements. ASU 2016-10 is effective for fiscal years, and
interim periods within those fiscal years, beginning after December 15, 2017. The Company is evaluating the new guidance to determine
the impact it will have on its consolidated financial statements.
|
(ix)
|
In
June 2016, the FASB issued ASU 2016-13,
Financial Instruments – Credit
Losses (Topic 326), Measurement of Credit Losses on Financial Statements
,
which replaces the ‘incurred loss methodology’ credit impairment model with
a new forward-looking “methodology that reflects expected credit losses and requires
consideration of a broader range of reasonable and supportable information to inform
credit loss estimates.” ASU 2016-13 is effective for fiscal years, and interim
periods within those fiscal years, beginning after December 15, 2019. Early adoption
is only permitted for fiscal years beginning after December 15, 2018, including interim
periods within those years. The Company is evaluating the new guidance to determine the
impact it will have on its consolidated financial statements.
|
|
(x)
|
In
October 2016, the FASB issued ASU 2016-16,
Income Taxes (Topic 740), Intra-Entity
Transfers of Assets Other Than Inventory
,
which requires the recognition of current and deferred income taxes resulting from intra-entity
transfers of assets other than inventory when the transfer occurs. ASU 2016-16 is effective
for fiscal years, and interim periods within those fiscal years, beginning after December
15, 2017. Early adoption is permitted as of the beginning of an annual reporting period
for which financial statements have not been issued or made available for issue. The
amendments are applied using a modified retrospective basis through a cumulative-effect
adjustment directly to retained earnings as of the beginning of the period of adoption.
The Company is evaluating the new guidance to determine the impact it will have on its
consolidated financial statements.
|
|
(xi)
|
In
August 2016, the FASB issued ASU 2016-15,
Statement of Cash Flows (Topic 230)
– Classification of Certain Cash Receipts and Cash Payments
,
which addresses eight specific cash flow issues with the objective of reducing diversity
in practice. ASU 2016-15 is effective for fiscal years, and interim periods within those
fiscal years, beginning after December 15, 2017. The amendments are applied using a retrospective
transition method to each period presented, unless impracticable to do so, in which case
they are applied prospectively as of the earliest date practicable. The Company is evaluating
the new guidance to determine the impact it will have on its consolidated financial statements.
|
Notes to the Consolidated
Financial Statements
|
(Tabular amounts expressed in thousands of United States dollars,
except where noted)
|
|
|
3.
|
Significant judgments, estimates and assumptions
|
The preparation of financial statements in conformity with
US GAAP requires management to make judgments, estimates and assumptions that affect the reported amounts of assets and liabilities
and the disclosure of contingent liabilities at the date of the financial statements, and the reported amounts of revenues and
expenses during the reporting period.
Future differences arising between actual results and the judgments,
estimates and assumptions made by the Company at the reporting date, or future changes to estimates and assumptions, could necessitate
adjustments to the underlying reported amounts of assets, liabilities, revenues and expenses in future reporting periods.
Judgments, estimates and underlying assumptions are evaluated
on an ongoing basis by management, and are based on historical experience and other factors including expectations of future events
that are believed to be reasonable under the circumstances. Existing circumstances and assumptions about future developments,
however, may change due to market changes or circumstance and such changes are reflected in the assumptions when they occur. Significant
estimates include the estimated useful lives of long-lived assets, as well as valuation of goodwill, underwritten commission contracts,
contingently redeemable non-controlling interest and share-based compensation.
The Company’s principal business activity
is the sale of industrial equipment and other assets at auctions. The Company’s operations are comprised of one reportable
segment and other business activities that are not reportable as follows:
|
·
|
Core
Auction segment, a network of auction locations that conduct live, unreserved auctions
with both on-site and online bidding; and
|
|
·
|
Other
includes the results of the Company’s EquipmentOne and Mascus online services,
which are not material to the Company’s consolidated financial statements. On February
19, 2016, the Company acquired Mascus and updated its segment reporting such that the
results of EquipmentOne and Mascus (subsequent to acquisition) are reported as “Other.”
|
The accounting policies of the segments are
similar to those described in the significant accounting policies in note 2. The Chief Operating Decision Maker evaluates each
segment‘s performance based on earnings (loss) from operations, which is calculated as revenues less costs of services,
selling, general and administrative (“SG&A”) expenses, depreciation and amortization expenses, and impairment
loss.
The significant non-cash items included in
segment earnings (loss) from operations are depreciation and amortization expenses and impairment loss.
Notes to the Consolidated
Financial Statements
|
(Tabular amounts expressed in thousands of United States dollars,
except where noted)
|
|
|
4.
|
Segmented information (continued)
|
|
|
Core
|
|
|
|
|
|
|
|
Year ended December 31, 2016
|
|
Auction
|
|
|
Other
|
|
|
Consolidated
|
|
Revenues
|
|
$
|
542,423
|
|
|
$
|
23,972
|
|
|
$
|
566,395
|
|
Costs of services, excluding depreciation and amortization
|
|
|
(63,566
|
)
|
|
|
(2,496
|
)
|
|
|
(66,062
|
)
|
SG&A expenses
|
|
|
(265,860
|
)
|
|
|
(17,669
|
)
|
|
|
(283,529
|
)
|
Depreciation and amortization expenses
|
|
|
(37,496
|
)
|
|
|
(3,365
|
)
|
|
|
(40,861
|
)
|
Impairment loss
|
|
|
-
|
|
|
|
(28,243
|
)
|
|
|
(28,243
|
)
|
|
|
$
|
175,501
|
|
|
$
|
(27,801
|
)
|
|
$
|
147,700
|
|
Acquisition-related costs
|
|
|
|
|
|
|
|
|
|
|
(11,829
|
)
|
Gain on disposition of property, plant and equipment
|
|
|
|
|
|
|
|
|
|
|
1,282
|
|
Foreign exchange loss
|
|
|
|
|
|
|
|
|
|
|
(1,431
|
)
|
Operating income
|
|
|
|
|
|
|
|
|
|
$
|
135,722
|
|
Equity income
|
|
|
|
|
|
|
|
|
|
|
1,028
|
|
Other and income tax expenses
|
|
|
|
|
|
|
|
|
|
|
(43,238
|
)
|
Net income
|
|
|
|
|
|
|
|
|
|
$
|
93,512
|
|
|
|
Core
|
|
|
|
|
|
|
|
Year ended December 31, 2015
|
|
Auction
|
|
|
Other
|
|
|
Consolidated
|
|
Revenues
|
|
$
|
500,764
|
|
|
$
|
15,111
|
|
|
$
|
515,875
|
|
Costs of services, excluding depreciation and amortization
|
|
|
(56,026
|
)
|
|
|
-
|
|
|
|
(56,026
|
)
|
SG&A expenses
|
|
|
(240,673
|
)
|
|
|
(13,716
|
)
|
|
|
(254,389
|
)
|
Depreciation and amortization expenses
|
|
|
(39,016
|
)
|
|
|
(3,016
|
)
|
|
|
(42,032
|
)
|
|
|
$
|
165,049
|
|
|
$
|
(1,621
|
)
|
|
$
|
163,428
|
|
Acquisition-related costs
|
|
|
|
|
|
|
|
|
|
|
(601
|
)
|
Gain on disposition of property, plant and equipment
|
|
|
|
|
|
|
|
|
|
|
9,691
|
|
Foreign exchange gain
|
|
|
|
|
|
|
|
|
|
|
2,322
|
|
Operating income
|
|
|
|
|
|
|
|
|
|
$
|
174,840
|
|
Equity income
|
|
|
|
|
|
|
|
|
|
|
916
|
|
Other and income tax expenses
|
|
|
|
|
|
|
|
|
|
|
(37,181
|
)
|
Net income
|
|
|
|
|
|
|
|
|
|
$
|
138,575
|
|
Notes
to the Consolidated Financial Statements
|
(Tabular amounts expressed in thousands
of United States dollars, except where noted)
|
|
|
4.
|
Segmented information (continued)
|
|
|
Core
|
|
|
|
|
|
|
|
Year ended December 31, 2014
|
|
Auction
|
|
|
Other
|
|
|
Consolidated
|
|
Revenues
|
|
$
|
467,919
|
|
|
$
|
13,178
|
|
|
$
|
481,097
|
|
Cost of services, excluding depreciation and amortization
|
|
|
(57,884
|
)
|
|
|
-
|
|
|
|
(57,884
|
)
|
SG&A expenses
|
|
|
(233,438
|
)
|
|
|
(14,782
|
)
|
|
|
(248,220
|
)
|
Depreciation and amortization expenses
|
|
|
(40,872
|
)
|
|
|
(3,664
|
)
|
|
|
(44,536
|
)
|
Impairment loss
|
|
|
(8,084
|
)
|
|
|
-
|
|
|
|
(8,084
|
)
|
|
|
$
|
127,641
|
|
|
$
|
(5,268
|
)
|
|
$
|
122,373
|
|
Gain on disposition of property, plant and equipment
|
|
|
|
|
|
|
|
|
|
|
3,512
|
|
Foreign exchange gain
|
|
|
|
|
|
|
|
|
|
|
2,042
|
|
Operating income
|
|
|
|
|
|
|
|
|
|
$
|
127,927
|
|
Equity income
|
|
|
|
|
|
|
|
|
|
|
458
|
|
Other and income tax expenses
|
|
|
|
|
|
|
|
|
|
|
(35,822
|
)
|
Net income
|
|
|
|
|
|
|
|
|
|
$
|
92,563
|
|
The Chief Operating Decision Maker does not
evaluate the performance of its operating segments based on segment assets and liabilities. The Company does not classify liabilities
on a segmented basis.
The Company‘s geographic information
as determined by the revenue and location of assets is as follows:
|
|
United
States
|
|
|
Canada
|
|
|
Europe
|
|
|
Other
|
|
|
Consolidated
|
|
Revenues for the year ended:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
$
|
278,198
|
|
|
$
|
187,699
|
|
|
$
|
52,809
|
|
|
$
|
47,689
|
|
|
$
|
566,395
|
|
December 31, 2015
|
|
|
257,824
|
|
|
|
166,528
|
|
|
|
48,419
|
|
|
|
43,104
|
|
|
|
515,875
|
|
December 31, 2014
|
|
|
223,770
|
|
|
|
154,392
|
|
|
|
58,782
|
|
|
|
44,153
|
|
|
|
481,097
|
|
|
|
United
States
|
|
|
Canada
|
|
|
Europe
|
|
|
Other
|
|
|
Consolidated
|
|
Long-lived assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
$
|
282,103
|
|
|
$
|
108,693
|
|
|
$
|
74,491
|
|
|
$
|
49,743
|
|
|
$
|
515,030
|
|
December 31, 2015
|
|
|
289,126
|
|
|
|
106,924
|
|
|
|
79,578
|
|
|
|
52,963
|
|
|
|
528,591
|
|
Revenue information is based on the locations
of the auction and the assets at the time of sale.
Notes to the Consolidated
Financial Statements
|
(Tabular amounts expressed in thousands of United States dollars,
except where noted)
|
|
The Company’s revenue from the rendering
of services is as follows:
Year ended December 31,
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Commissions
|
|
$
|
424,128
|
|
|
$
|
405,308
|
|
|
$
|
379,340
|
|
Fees
|
|
|
142,267
|
|
|
|
110,567
|
|
|
|
101,757
|
|
|
|
$
|
566,395
|
|
|
$
|
515,875
|
|
|
$
|
481,097
|
|
Net profits on inventory sales included in commissions are:
Year ended December 31,
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Revenue from inventory sales
|
|
$
|
571,134
|
|
|
$
|
555,827
|
|
|
$
|
758,437
|
|
Cost of inventory sold
|
|
|
(513,348
|
)
|
|
|
(511,892
|
)
|
|
|
(709,072
|
)
|
|
|
$
|
57,786
|
|
|
$
|
43,935
|
|
|
$
|
49,365
|
|
Certain prior period operating expenses have
been reclassified to conform with current presentation.
Costs of
services, excluding depreciation and amortization
.
Year ended December 31,
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Employee compensation expenses
|
|
$
|
27,856
|
|
|
$
|
22,855
|
|
|
$
|
22,857
|
|
Buildings, facilities and technology expenses
|
|
|
7,966
|
|
|
|
7,179
|
|
|
|
7,609
|
|
Travel, advertising and promotion expenses
|
|
|
23,688
|
|
|
|
22,150
|
|
|
|
23,006
|
|
Other costs of services
|
|
|
6,552
|
|
|
|
3,842
|
|
|
|
4,412
|
|
|
|
$
|
66,062
|
|
|
$
|
56,026
|
|
|
$
|
57,884
|
|
SG&A expenses
Year ended December 31,
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Employee compensation expenses
|
|
$
|
180,929
|
|
|
$
|
166,227
|
|
|
$
|
159,398
|
|
Buildings, facilities and technology expenses
|
|
|
49,219
|
|
|
|
41,404
|
|
|
|
41,725
|
|
Travel, advertising and promotion expenses
|
|
|
24,384
|
|
|
|
22,307
|
|
|
|
22,454
|
|
Professional fees
|
|
|
13,344
|
|
|
|
12,500
|
|
|
|
11,480
|
|
Other SG&A expenses
|
|
|
15,653
|
|
|
|
11,951
|
|
|
|
13,163
|
|
|
|
$
|
283,529
|
|
|
$
|
254,389
|
|
|
$
|
248,220
|
|
Transactions with management
In December 2016, the Company entered into
a separation agreement with the President, US & LATAM in respect of his departure in 2017. Pursuant to that separation agreement,
additional short-term benefits in the amount of $737,000 and accelerated vesting of share-based payments in the amount of $202,000
were recognized in SG&A expenses during the year ended December 31, 2016.
During the year ended December 31, 2015,
the Company recognized $2.1 million in termination benefits resulting from a separation agreement with the former Chief Sales
Officer.
Notes to the Consolidated
Financial Statements
|
(Tabular amounts expressed in thousands of United States dollars,
except where noted)
|
|
|
6.
|
Operating expenses (continued)
|
SG&A expenses (continued)
Transactions with management (continued)
During the year ended December 31, 2014,
the Company initiated a management reorganization impacting various members of senior management. In total, $5,533,000 of termination
benefits were recognized in SG&A expenses during the year ended December 31, 2014 in relation to the management reorganization.
Acquisition-related costs
Acquisition-related costs consist of operating expenses directly
incurred as part of a business combination, due diligence and integration planning related to the IronPlanet acquisition (note
28), and continuing employment costs that are recognized separately from our business combinations. In the fourth quarter of 2016,
the definition of acquisition-related costs was expanded to include continuing employment costs incurred to retain key employees
for a specified period of time following a business acquisition. This change was applied retrospectively and resulted in a further
reclassification of SG&A expenses to acquisition-related costs.
Year ended December 31,
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
IronPlanet (note 28)
|
|
$
|
8,202
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Mascus: (note 30)
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing employment costs
|
|
|
954
|
|
|
|
-
|
|
|
|
-
|
|
Other acquisition-related costs
|
|
|
766
|
|
|
|
-
|
|
|
|
-
|
|
Xcira: (note 30)
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing employment costs
|
|
|
1,111
|
|
|
|
191
|
|
|
|
-
|
|
Other acquisition-related costs
|
|
|
-
|
|
|
|
410
|
|
|
|
-
|
|
Petrowsky: (note 30)
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing employment costs
|
|
|
350
|
|
|
|
-
|
|
|
|
-
|
|
Other acquisition-related costs
|
|
|
254
|
|
|
|
-
|
|
|
|
-
|
|
Kramer: (note 30)
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing employment costs
|
|
|
76
|
|
|
|
-
|
|
|
|
-
|
|
Other acquisition-related costs
|
|
|
116
|
|
|
|
-
|
|
|
|
-
|
|
|
|
$
|
11,829
|
|
|
$
|
601
|
|
|
$
|
-
|
|
Depreciation and amortization expenses
Year ended December 31,
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Depreciation expense
|
|
$
|
30,983
|
|
|
$
|
35,374
|
|
|
$
|
39,966
|
|
Amortization expense
|
|
|
9,878
|
|
|
|
6,658
|
|
|
|
4,570
|
|
|
|
$
|
40,861
|
|
|
$
|
42,032
|
|
|
$
|
44,536
|
|
During the year ended December 31, 2016,
depreciation expense of $2,880,000 (2015: $4,340,000; 2014: $5,949,000) and amortization expense of $7,218,000 (2015: $4,680,000;
2014: $2,620,000) was recorded relating to software.
Notes to the Consolidated
Financial Statements
|
(Tabular amounts expressed in thousands of United States dollars,
except where noted)
|
|
Goodwill impairment
The Company performs impairment tests
on goodwill on an annual basis in accordance with US GAAP, or more frequently if events or changes in circumstances indicate that
those assets might be impaired. Goodwill is tested for impairment at a reporting unit level, which is at the same level or one
level below an operating segment. A goodwill impairment loss is recognized when the carrying amount of the reporting unit is greater
than its fair value. The goodwill impairment loss is calculated as the excess of the carrying amount of the goodwill over its
implied fair value.
Goodwill arising from the acquisition
of AssetNation, the provider of our online marketplaces, forms part of the EquipmentOne reporting unit. During the year ended
December 31, 2016, an indicator of impairment was identified with respect to the EquipmentOne reporting unit. The indicator consisted
of a decline in actual and forecasted revenue and operating income compared with previously projected results, which was primarily
due to the recent performance of the EquipmentOne reporting unit.
As a result of the identification of an
indicator of impairment of the EquipmentOne reporting unit, a US GAAP two-step goodwill impairment test was performed at September
30, 2016. Step one of the goodwill impairment test indicated that the carrying amount (including goodwill) of the EquipmentOne
reporting unit exceeded its fair value. Accordingly, the impairment test proceeded to step two, wherein the step one fair value
of the EquipmentOne reporting unit was used to estimate the implied fair value of the goodwill.
The second step of the goodwill impairment
test involved allocating the EquipmentOne reporting unit fair value to all the assets and liabilities of that reporting unit based
on their estimated fair values. Management used a blended analysis of the earnings approach, which employs a discounted cash flow
methodology, and the market approach, which employs a multiple of earnings methodology, to determine the fair values of the intangible
assets and to measure the goodwill impairment loss.
Based on the results of the goodwill impairment
test, the Company recorded an impairment loss on the EquipmentOne reporting unit goodwill of $23,574,000 in the year ended December
31, 2016.
Long-lived asset impairment
Long-lived assets, which are comprised of property, plant and
equipment and definite-lived intangible assets, are assessed for impairment whenever events or circumstances indicate that their
carrying amounts may not be recoverable. For the purpose of impairment testing, long-lived assets are grouped and tested for recoverability
at the lowest level that generates independent cash flows from another asset group. The carrying amount of the long-lived asset
group is not recoverable if it exceeds the sum of the future undiscounted cash flows expected to result from the long-lived asset
group’s use and eventual disposition. Where the carrying amount of the long-lived asset group is not recoverable, its fair
value is determined in order to calculate any impairment loss. An impairment loss is measured as the excess of the long-lived
asset group’s carrying amount over its fair value.
At September 30, 2016, for the same reason noted above under
the goodwill impairment test, management determined that there was an indicator that the carrying amount of the long-lived assets
arising from our acquisition of AssetNation (the “EquipmentOne long-lived assets”) might not have been recoverable.
As such, the Company performed the recoverability test, for which purpose management determined that the asset group to which
the EquipmentOne long-lived assets belonged was the EquipmentOne reporting unit.
Notes to the Consolidated
Financial Statements
|
(Tabular amounts expressed in thousands of United States dollars,
except where noted)
|
|
|
7.
|
Impairment
loss (continued)
|
Long-lived asset impairment (continued)
The results of the recoverability test indicated that the EquipmentOne
reporting unit carrying amount (including goodwill but excluding deferred tax assets, deferred tax liabilities, and income taxes
payable) exceeded the sum of its future undiscounted cash flows. As such, management then used an earnings approach to estimate
the fair values of the EquipmentOne long-lived assets and compared those fair values to their carrying amounts.
Based on the results of the long-lived asset impairment test,
the Company recorded a pre-tax impairment loss on the EquipmentOne reporting unit customer relationships of $4,669,000 in the
year ended December 31, 2016. In connection with this impairment loss, the Company recorded a deferred tax benefit of $1,798,000
to the income tax provision. The result of this impairment test was reflected in the carrying value of the EquipmentOne reporting
unit prior to the completion of the goodwill impairment test described above.
During the year ended December 31, 2014, the Company recognized
a total impairment loss of $8,084,000 on its auction site property located in Narita, Japan. The impairment loss consisted of
$6,094,000 on the land and improvements and $1,990,000 on the auction building (the ”Japanese assets“). Management
assessed the recoverable amounts of the Japanese assets when results of an assessment of the Japan auction operations and performance
of that auction site indicated impairment, and management concluded that the undiscounted cash flows resulted in recoverable amounts
below the carrying value of the Japanese assets. The fair values of the Japanese assets were determined to be $16,150,000 for
the land and improvements and $4,779,000 for the auction building based on the fair value less costs of disposal.
The Company performed a valuation of the Japanese assets as
at September 30, 2014. The fair value of the land and improvements was determined based on comparable data in similar regions
and relevant information regarding recent events impacting the local real-estate market (Level 3 inputs). The fair value of the
auction building was determined based on a depreciated asset cost model with adjustments for relevant market participant data
based on the Company‘s experience with disposing of similar auction buildings and current real estate transactions in similar
regions (Level 3 inputs).
Determination of the recoverable amount of
the Japanese assets involved estimating any costs that would be incurred if the assets were disposed of, including brokers‘
fees, costs to prepare the Japanese assets for sale and other selling fees. In determining these costs, management assumed that
any costs required to prepare the Japanese assets for sale could be estimated based on current market rates for brokers‘
fees and management‘s experience with disposing of similar auction sites, taking into consideration the relative newness
of the Japan auction site (Level 3 inputs).
The impaired Narita land and improvements
and auction building form part of the Company‘s Core Auction reportable segment.
Notes to the Consolidated
Financial Statements
|
(Tabular amounts expressed in thousands of United States dollars,
except where noted)
|
|
The expense for the year can be reconciled
to income before income taxes as follows:
Year ended December 31,
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Income before income taxes
|
|
$
|
130,494
|
|
|
$
|
176,436
|
|
|
$
|
129,038
|
|
Statutory federal and provincial
tax rate in Canada
|
|
|
26.00
|
%
|
|
|
26.00
|
%
|
|
|
26.00
|
%
|
Expected income tax expense
|
|
$
|
33,928
|
|
|
$
|
45,873
|
|
|
$
|
33,550
|
|
Impairment of Goodwill
|
|
|
6,129
|
|
|
|
-
|
|
|
|
-
|
|
Non-deductible expenses
|
|
|
3,891
|
|
|
|
2,579
|
|
|
|
2,392
|
|
Non-taxable income
|
|
|
(624
|
)
|
|
|
-
|
|
|
|
-
|
|
Sale of capital property
|
|
|
-
|
|
|
|
(1,291
|
)
|
|
|
(407
|
)
|
Changes in the valuation of deferred tax assets
|
|
|
(259
|
)
|
|
|
(5,828
|
)
|
|
|
7,083
|
|
Different tax rates of subsidiaries operating in foreign
jurisdictions
|
|
|
(3,786
|
)
|
|
|
(3,426
|
)
|
|
|
(4,773
|
)
|
Deductions for tax purposes in excess of accounting
expenses
|
|
|
(490
|
)
|
|
|
(266
|
)
|
|
|
(82
|
)
|
Provincial government income tax exemption
|
|
|
(352
|
)
|
|
|
(265
|
)
|
|
|
(92
|
)
|
Other
|
|
|
(1,455
|
)
|
|
|
485
|
|
|
|
(1,196
|
)
|
|
|
$
|
36,982
|
|
|
$
|
37,861
|
|
|
$
|
36,475
|
|
The income tax expense (recovery) consists
of:
Year ended December 31,
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Canadian:
|
|
|
|
|
|
|
|
|
|
|
|
|
Current tax expense
|
|
$
|
30,525
|
|
|
$
|
27,623
|
|
|
$
|
21,712
|
|
Deferred tax expense
|
|
|
(2,068
|
)
|
|
|
1,880
|
|
|
|
1,680
|
|
Foreign:
|
|
|
|
|
|
|
|
|
|
|
|
|
Current tax expense before application of operating
loss carryforwards
|
|
|
12,126
|
|
|
|
16,707
|
|
|
|
12,236
|
|
Tax benefit of operating loss
carryforwards
|
|
|
(2,310
|
)
|
|
|
(1,910
|
)
|
|
|
(627
|
)
|
Total foreign current tax expense
|
|
|
9,816
|
|
|
|
14,797
|
|
|
|
11,609
|
|
Deferred tax expense before adjustment to opening
valuation allowance
|
|
|
(1,291
|
)
|
|
|
(273
|
)
|
|
|
1,474
|
|
Adjustment to opening valuation
allowance
|
|
|
-
|
|
|
|
(6,166
|
)
|
|
|
-
|
|
Total foreign deferred tax expense
|
|
|
(1,291
|
)
|
|
|
(6,439
|
)
|
|
|
1,474
|
|
|
|
$
|
36,982
|
|
|
$
|
37,861
|
|
|
$
|
36,475
|
|
Notes to the Consolidated
Financial Statements
|
(Tabular amounts expressed in thousands of United States dollars,
except where noted)
|
|
|
8.
|
Income
taxes (continued)
|
The tax effects of temporary differences
that give rise to significant deferred tax assets and deferred tax liabilities were as follows:
As at December 31,
|
|
2016
|
|
|
2015
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Working capital
|
|
$
|
3,991
|
|
|
$
|
4,082
|
|
Property, plant and equipment
|
|
|
5,475
|
|
|
|
5,236
|
|
Goodwill
|
|
|
341
|
|
|
|
286
|
|
Share-based compensation
|
|
|
3,154
|
|
|
|
3,243
|
|
Unused tax losses
|
|
|
17,790
|
|
|
|
17,079
|
|
Other
|
|
|
18,286
|
|
|
|
14,704
|
|
|
|
|
49,037
|
|
|
|
44,630
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Property, plant and equipment
|
|
$
|
(10,019
|
)
|
|
$
|
(11,292
|
)
|
Goodwill
|
|
|
(12,976
|
)
|
|
|
(12,587
|
)
|
Intangible assets
|
|
|
(11,062
|
)
|
|
|
(9,370
|
)
|
Other
|
|
|
(21,827
|
)
|
|
|
(17,308
|
)
|
|
|
|
(55,884
|
)
|
|
|
(50,557
|
)
|
Net deferred tax assets (liabilities)
|
|
$
|
(6,847
|
)
|
|
$
|
(5,927
|
)
|
|
|
|
|
|
|
|
|
|
Valuation allowance
|
|
|
(10,411
|
)
|
|
|
(11,781
|
)
|
|
|
$
|
(17,258
|
)
|
|
$
|
(17,708
|
)
|
At December 31, 2016, the Company had non-capital
loss carryforwards that are available to reduce taxable income in the future years. These non-capital loss carryforwards expire
as follows:
2017
|
|
$
|
656
|
|
2018
|
|
|
489
|
|
2019
|
|
|
159
|
|
2020
|
|
|
5,452
|
|
2021 and thereafter
|
|
|
43,573
|
|
|
|
$
|
50,329
|
|
The Company has capital loss carryforwards
of approximately $16,564,000 available to reduce future capital gains which carryforward indefinitely.
Tax losses are denominated in the currency
of the countries in which the respective subsidiaries are located and operate. Fluctuations in currency exchange rates could reduce
the U.S. dollar equivalent value of these tax loss and research tax credit carryforwards in future years.
In assessing the realizability of our deferred
tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not
be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during
periods in which temporary differences become deductible and the loss carryforwards or tax credits can be utilized. Management
considers projected future taxable income and tax planning strategies in making our assessment.
Notes to the Consolidated
Financial Statements
|
(Tabular amounts expressed in thousands of United States dollars,
except where noted)
|
|
|
8.
|
Income
taxes (continued)
|
The foreign provision for income taxes is
based on foreign pre-tax earnings of $25,139,000, $64,139,000, and $42,221,000 in 2016, 2015 and 2014, respectively. The Company’s
consolidated financial statements provide for any related tax liability on undistributed earnings. As of December 31, 2016, income
taxes have not been provided on a cumulative total of $375,000,000 of such earnings. The amount of unrecognized deferred tax liability
related to these temporary differences is estimated to be approximately $4,200,000. Earnings retained by subsidiaries and equity-accounted
investments amount to approximately $450,000,000 (2015: $411,000,000; 2014: $380,000,000). The Company accrues withholding and
other taxes that would become payable on the distribution of earnings only to the extent that either the Company does not control
the relevant entity or it is expected that these earnings will be remitted in the foreseeable future.
Uncertain tax positions
Tax positions are evaluated in a two-step
process. The Company first determines whether it is more likely than not that a tax position will be sustained upon examination.
If a tax position meets the more-likely-than-not recognition threshold it is then measured to determine the amount of the benefit
to recognize in the financial statements. The tax position is measured as the largest amount of the benefit that is greater than
50% likely of being realized upon ultimate settlement. The Company classifies unrecognized tax benefits that are not expected
to result in the payment or receipt of cash within one year as non-current liabilities in the consolidated balance sheets.
At December 31, 2016, the Company had gross
unrecognized tax benefits of $19,262,000 (2015: $15,904,000). Of this total, $9,227,000 (2015: $8,419,000) represents the amount
of unrecognized tax benefits that, if recognized, would favorably impact the effective tax rate.
Reconciliation of unrecognized tax benefits:
As at December 31,
|
|
2016
|
|
|
2015
|
|
Unrecognized tax benefits, beginning of year
|
|
$
|
15,904
|
|
|
$
|
16,131
|
|
Increases - tax positions taken in prior period
|
|
|
846
|
|
|
|
800
|
|
Decreases - tax positions taken in prior period
|
|
|
-
|
|
|
|
(30
|
)
|
Increases - tax positions taken in current period
|
|
|
2,785
|
|
|
|
1,770
|
|
Settlement and lapse of statute of limitations
|
|
|
(273
|
)
|
|
|
(2,767
|
)
|
Unrecognized tax benefits, end of year
|
|
$
|
19,262
|
|
|
$
|
15,904
|
|
Interest expense and penalties related to
unrecognized tax benefits are recorded within the provision for income tax expense on the consolidated income statement. At December
31, 2016, the Company had accrued $2,695,000 (2015: $2,102,000) for interest and penalties.
In the normal course of business, the Company
is subject to audit by the Canadian federal and provincial taxing authorities, by the U.S. federal and various state taxing authorities
and by the taxing authorities in various foreign jurisdictions. Tax years ranging from 2011 to 2016 remain subject to examination
in Canada, the United States, and Luxembourg.
Notes to the Consolidated
Financial Statements
|
(Tabular amounts expressed in thousands of United States dollars,
except where noted)
|
|
|
9.
|
Contingently redeemable non-controlling interest in Ritchie Bros.
Financial Services
|
Until July 12, 2016, the Company held a 51% interest in Ritchie
Bros. Financial Services (”RBFS”), an entity that provides loan origination services to enable the Company’s
auction customers to obtain financing from third party lenders. As a result of the Company’s involvement with RBFS, the
Company is exposed to risks related to the recovery of the net assets of RBFS as well as liquidity risks associated with the put
option discussed below.
Management determined that RBFS was a variable
interest entity because the Company provided subordinated financial support to RBFS and because the Company’s voting interest
was disproportionately low in relation to its economic interest in RBFS while substantially all the activities of RBFS involved
or were conducted on behalf of the Company. Management also determined that the Company was the primary beneficiary of RBFS as
the Company was part of a related party group that had the power to direct the activities that most significantly impacted RBFS’s
economic performance, and although no individual member of that group had such power, the Company represented the member of the
related party group that was most closely associated with RBFS.
Until July 12, 2016, the Company and the non-controlling interest
(“NCI”) holders each held options pursuant to which the Company could acquire, or be required to acquire, the NCI
holders’ 49% interest in RBFS. These call and put options became exercisable on April 6, 2016, and the Company had the option
to elect to pay the purchase price in either cash or shares of the Company, subject to the Company obtaining all relevant security
exchange and regulatory consents and approvals. As a result of the existence of the put option, the NCI was accounted for as a
contingently redeemable equity instrument (the “contingently redeemable NCI”). The NCI could be redeemed at a purchase
price to be determined through an independent appraisal process conducted in accordance with the terms of the agreement, or at
a negotiated price (the “redemption value”).
For the comparative reporting period presented, management
determined that redemption was probable and measured the carrying amount of the contingently redeemable NCI at its estimated December
31, 2015 redemption value of $24,785,000. The estimation of redemption value at that date required management to make significant
judgments, estimates, and assumptions.
On July 12, 2016 the Company completed its acquisition of the
NCI. On that date, the Company acquired the NCI holders’ 49% interest in RBFS for total consideration of 57,900,000 Canadian
dollars ($44,141,000). That purchase price consisted of cash consideration of 53,900,000 Canadian dollars ($41,092,000) and 4,000,000
Canadian dollars ($3,049,000) representing the acquisition date fair value of contingent consideration payable to the former shareholders
of RBFS. The contingent payment is payable if RBFS achieves a specified annual revenue growth rate over a three-year post-acquisition
period, and is calculated as a specified percentage of the accumulated earnings of RBFS after the three-year post-acquisition
period. The maximum amount payable under the contingent payment arrangement is 10,000,000 Canadian dollars. The Company may pay
an additional amount not exceeding 1,500,000 Canadian dollars over a three-year period based on the former NCI holders providing
continued management services to RBFS.
Notes to the Consolidated
Financial Statements
|
(Tabular amounts expressed in thousands of United States dollars,
except where noted)
|
|
|
10.
|
Earnings per share
attributable to stockholders
|
|
|
Net income
|
|
|
WA
|
|
|
|
|
|
|
attributable to
|
|
|
number
|
|
|
Per share
|
|
Year ended December 31, 2016
|
|
stockholders
|
|
|
of shares
|
|
|
amount
|
|
Basic
|
|
$
|
91,832
|
|
|
|
106,630,323
|
|
|
$
|
0.86
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
PSUs
|
|
|
-
|
|
|
|
91,997
|
|
|
|
-
|
|
Stock options
|
|
|
-
|
|
|
|
735,474
|
|
|
|
(0.01
|
)
|
Diluted
|
|
$
|
91,832
|
|
|
|
107,457,794
|
|
|
$
|
0.85
|
|
|
|
Net income
|
|
|
WA
|
|
|
|
|
|
|
attributable to
|
|
|
number
|
|
|
Per share
|
|
Year ended December 31, 2015
|
|
stockholders
|
|
|
of shares
|
|
|
amount
|
|
Basic
|
|
$
|
136,214
|
|
|
|
107,075,845
|
|
|
$
|
1.27
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options
|
|
|
-
|
|
|
|
356,629
|
|
|
|
-
|
|
Diluted
|
|
$
|
136,214
|
|
|
|
107,432,474
|
|
|
$
|
1.27
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
attributable to
|
|
|
|
|
|
Per share
|
|
Year ended December 31, 2014
|
|
stockholders
|
|
|
Shares
|
|
|
amount
|
|
Basic
|
|
$
|
90,981
|
|
|
|
107,268,425
|
|
|
$
|
0.85
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options
|
|
|
-
|
|
|
|
386,403
|
|
|
|
-
|
|
Diluted
|
|
$
|
90,981
|
|
|
|
107,654,828
|
|
|
$
|
0.85
|
|
In respect of PSUs awarded under the senior
executive and employee PSU plans (described in note 26), performance and market conditions, depending on their outcome at the
end of the contingency period, can reduce the number of vested awards to nil or to a maximum of 200% of the number of outstanding
PSUs. For the year ended December 31, 2016, PSUs to purchase 173,754 common shares were outstanding but excluded from the calculation
of diluted EPS attributable to stockholders as they were anti-dilutive (2015 and 2014: nil). For the year ended December 31, 2016,
stock options to purchase 752,197 common shares were outstanding but were excluded from the calculation of diluted earnings per
share as they were anti-dilutive (2015: 253,839; 2014: 962,121).
Notes to the Consolidated
Financial Statements
|
(Tabular amounts expressed in thousands of United States dollars,
except where noted)
|
|
|
11.
|
Supplemental cash
flow information
|
Year ended December 31,
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Trade and other receivables
|
|
|
6,419
|
|
|
|
12,757
|
|
|
|
(113
|
)
|
Inventory
|
|
|
26,557
|
|
|
|
(17,635
|
)
|
|
|
4,109
|
|
Advances against auction contracts
|
|
|
(1,012
|
)
|
|
|
20,804
|
|
|
|
(14,230
|
)
|
Prepaid expenses and deposits
|
|
|
(7,443
|
)
|
|
|
(307
|
)
|
|
|
(3,873
|
)
|
Income taxes receivable
|
|
|
(10,686
|
)
|
|
|
742
|
|
|
|
(958
|
)
|
Auction proceeds payable
|
|
|
550
|
|
|
|
5,151
|
|
|
|
(3,855
|
)
|
Trade and other payables
|
|
|
5,627
|
|
|
|
(7,654
|
)
|
|
|
13,826
|
|
Income taxes payable
|
|
|
(8,657
|
)
|
|
|
3,481
|
|
|
|
2,408
|
|
Share unit liabilities
|
|
|
4,503
|
|
|
|
5,397
|
|
|
|
5,699
|
|
Other
|
|
|
(5,176
|
)
|
|
|
2,398
|
|
|
|
(4,810
|
)
|
Net changes in operating assets and liabilities
|
|
$
|
10,682
|
|
|
$
|
25,134
|
|
|
$
|
(1,797
|
)
|
Net capital spending, which consists of
property, plant and equipment and intangible asset additions, net of proceeds on disposition of property, plant and equipment,
was $29,785,000 for the year ended December 31, 2016 (2015: $14,152,000; 2014: $29,595,000).
Year ended December 31,
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Interest paid, net of interest capitalized
|
|
$
|
5,792
|
|
|
$
|
4,989
|
|
|
$
|
4,823
|
|
Interest received
|
|
|
1,861
|
|
|
|
2,657
|
|
|
|
2,218
|
|
Net income taxes paid
|
|
|
54,037
|
|
|
|
34,661
|
|
|
|
29,089
|
|
Non-cash transactions:
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash purchase of property, plant and equipment
under capital lease
|
|
|
3,376
|
|
|
|
943
|
|
|
|
2,143
|
|
As at December 31,
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Cash and cash equivalents
|
|
$
|
207,867
|
|
|
$
|
210,148
|
|
|
$
|
139,815
|
|
Restricted cash:
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
50,222
|
|
|
|
83,098
|
|
|
|
93,274
|
|
Non-current
|
|
|
500,000
|
|
|
|
-
|
|
|
|
-
|
|
Cash, cash equivalents, and restricted cash
|
|
$
|
758,089
|
|
|
$
|
293,246
|
|
|
$
|
233,089
|
|
Notes to the Consolidated
Financial Statements
|
(Tabular amounts expressed in thousands of United States dollars,
except where noted)
|
|
|
11.
|
Supplemental
cash flow information (continued)
|
As
described in note 2, the Company early adopted ASU 2016-18,
Statement of Cash Flows (Topic 230), Restricted Cash
,
which requires that the change in the total of cash, cash
equivalents, and restricted cash during a reporting period be explained in the SCF. Therefore, the Company has included its restricted
cash balances when reconciling the total beginning and end of period amounts shown on the face of the SCF. The effect of these
changes is detailed below.
|
|
2016
|
|
|
Year ended December 31,
|
|
|
|
Q3
|
|
|
Q2
|
|
|
Q1
|
|
|
2015
|
|
|
2014
|
|
Net changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As reported
|
|
$
|
91,913
|
|
|
$
|
(147,664
|
)
|
|
$
|
94,733
|
|
|
$
|
25,032
|
|
|
$
|
20,550
|
|
Current presentation
|
|
|
(20,646
|
)
|
|
|
(68,768
|
)
|
|
|
126,394
|
|
|
|
25,134
|
|
|
|
(1,797
|
)
|
Net cash provided by (used in) operating
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As reported
|
|
|
125,868
|
|
|
|
(96,459
|
)
|
|
|
134,014
|
|
|
|
196,357
|
|
|
|
171,366
|
|
Current presentation
|
|
|
13,309
|
|
|
|
(17,563
|
)
|
|
|
165,675
|
|
|
|
196,459
|
|
|
|
149,019
|
|
Effect of changes in foreign currency rates
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
on cash:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As reported
|
|
|
(1,738
|
)
|
|
|
(2,861
|
)
|
|
|
8,938
|
|
|
|
(15,987
|
)
|
|
|
(14,390
|
)
|
Current presentation
|
|
|
(1,937
|
)
|
|
|
(3,530
|
)
|
|
|
12,123
|
|
|
|
(26,265
|
)
|
|
|
(18,534
|
)
|
Increase (decrease) in cash:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As reported
|
|
|
64,483
|
|
|
|
(127,573
|
)
|
|
|
83,926
|
|
|
|
70,333
|
|
|
|
25,219
|
|
Current presentation
|
|
|
(48,275
|
)
|
|
|
(49,346
|
)
|
|
|
118,772
|
|
|
|
60,157
|
|
|
|
(1,272
|
)
|
Cash and cash equivalents
|
|
|
230,984
|
|
|
|
166,501
|
|
|
|
294,074
|
|
|
|
210,148
|
|
|
|
139,815
|
|
Total cash, cash equivalents and restricted cash
|
|
|
314,397
|
|
|
|
362,672
|
|
|
|
412,018
|
|
|
|
293,246
|
|
|
|
233,089
|
|
12.
Fair value measurement
All assets and liabilities for which fair
value is measured or disclosed in the consolidated financial statements are categorized within the fair value hierarchy, described
as follows, based on the lowest level input that is significant to the fair value measurement or disclosure:
●
Level 1:
|
Unadjusted quoted prices
in active markets for identical assets or liabilities that the entity can access at measurement date;
|
|
|
● Level 2:
|
Inputs other than quoted
prices included in Level 1 that are observable for the asset or liability, either directly or indirectly; and
|
|
|
● Level 3:
|
Unobservable inputs
for the asset or liability.
|
Notes to the Consolidated
Financial Statements
|
(Tabular amounts expressed in thousands of United States dollars,
except where noted)
|
|
|
12.
|
Fair value measurement
(continued)
|
|
|
|
|
December 31, 2016
|
|
|
December 31, 2015
|
|
|
|
Category
|
|
Carrying
amount
|
|
|
Fair value
|
|
|
Carrying
amount
|
|
|
Fair value
|
|
Fair values disclosed, recurring:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
Level 1
|
|
$
|
207,867
|
|
|
$
|
207,867
|
|
|
$
|
210,148
|
|
|
$
|
210,148
|
|
Restricted cash
|
|
Level 1
|
|
|
550,222
|
|
|
|
550,222
|
|
|
|
83,098
|
|
|
|
83,098
|
|
Short-term debt (note 24)
|
|
Level 2
|
|
|
23,912
|
|
|
|
23,912
|
|
|
|
12,350
|
|
|
|
12,350
|
|
Current portion of long-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
term debt (note 24)
|
|
Level 2
|
|
|
-
|
|
|
|
-
|
|
|
|
43,348
|
|
|
|
43,348
|
|
Long-term debt (note 24)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior unsecured notes
|
|
Level 1
|
|
|
495,780
|
|
|
|
509,500
|
|
|
|
-
|
|
|
|
-
|
|
Revolving loans
|
|
Level 2
|
|
|
99,926
|
|
|
|
99,926
|
|
|
|
-
|
|
|
|
-
|
|
Term loans
|
|
Level 2
|
|
|
-
|
|
|
|
-
|
|
|
|
54,567
|
|
|
|
56,126
|
|
The carrying value of the Company‘s
cash and cash equivalents, trade and other current receivables, advances against auction contracts, auction proceeds payable,
trade and other payables, and current borrowings approximate their fair values due to their short terms to maturity.
The fair values of the revolving loans
approximate their fair values due to their short terms to maturity. The fair values of the term loans are determined through the
calculation of each liability‘s present value using market rates of interest at period close. The fair value of the senior
unsecured notes is determined by reference to a quoted market price.
|
13.
|
Trade and other
receivables
|
As at December 31,
|
|
2016
|
|
|
2015
|
|
Trade receivables
|
|
$
|
45,317
|
|
|
$
|
50,388
|
|
Consumption taxes receivable
|
|
|
5,575
|
|
|
|
8,178
|
|
Other receivables
|
|
|
2,087
|
|
|
|
846
|
|
|
|
$
|
52,979
|
|
|
$
|
59,412
|
|
Trade receivables are generally secured
by the equipment that they relate to as it is Company policy that equipment is not released until payment has been collected.
Trade receivables are due for settlement within seven days of the date of sale, after which they are interest bearing. Other receivables
are unsecured and non-interest bearing.
As at December 31, 2016, trade receivables
of $45,317,000 were more than seven days past due but not considered impaired (December 31, 2015: $50,388,000). As at December
31, 2016, there were $6,581,000 of impaired receivables that have been provided for in the balance sheet because they are over
six months old, or specific situations where recovering the debt is considered unlikely (December 31, 2015: $4,639,000).
Consumption taxes receivable are deemed
fully recoverable unless disputed by the relevant tax authority. The other classes within trade and other receivables do not contain
impaired assets.
Notes to the Consolidated
Financial Statements
|
(Tabular amounts expressed in thousands of United States dollars,
except where noted)
|
|
At each period end, inventory is reviewed
to ensure that it is recorded at the lower of cost and net realizable value. During the year ended December 31, 2016, the Company
recorded inventory write downs of $3,084,000 (2015: $480,000; 2014: $2,177,000).
Of inventory held at December 31, 2016, 93%
is expected to be sold prior to the end of March 2017, with the remainder to be sold by the end of June 2017 (December 31, 2015:
91% sold by the end of March 2015). During the year ended December 31, 2016, inventory was held for an average of approximately
31 days (2015: 31 days; 2014: 30 days).
|
15.
|
Advances against
auction contracts
|
Advances against auction contracts arise
when the Company pays owners, in advance, a portion of the expected gross auction proceeds from the sale of the related assets
at future auctions. The Company‘s policy is to limit the amount of advances to a percentage of the estimated gross auction
proceeds from the sale of the related assets, and before advancing funds, require proof of owner‘s title to and equity in
the assets, as well as receive delivery of the assets and title documents at a specified auction site, by a specified date and
in a specified condition of repair.
Advances against auction contracts are generally
secured by the assets to which they relate, as the Company requires owners to provide promissory notes and security instruments
registering the Company as a charge against the asset. Advances against auction contracts are usually settled within two weeks
of the date of sale, as they are netted against the associated auction proceeds payable to the owner.
|
16.
|
Prepaid expenses
and deposits
|
As at December 31,
|
|
2016
|
|
|
2015
|
|
Prepaid expenses
|
|
$
|
17,926
|
|
|
$
|
10,347
|
|
Refundable deposits
|
|
|
1,079
|
|
|
|
710
|
|
|
|
$
|
19,005
|
|
|
$
|
11,057
|
|
Balance, December 31, 2014
|
|
$
|
1,668
|
|
Reclassified from property, plant and equipment
|
|
|
2,719
|
|
Site preparation costs
|
|
|
1,079
|
|
Disposal
|
|
|
(4,624
|
)
|
Foreign exchange movement
|
|
|
(213
|
)
|
Balance, December 31, 2015
|
|
$
|
629
|
|
Reclassified from property, plant and equipment
|
|
|
237
|
|
Disposal
|
|
|
(242
|
)
|
Site preparation costs
|
|
|
8
|
|
Balance, December 31, 2016
|
|
$
|
632
|
|
As at December 31, 2016 and December 31,
2015, the Company’s assets held for sale consisted of land located in Denver, United States, and Orlando, United States,
representing excess auction site acreage.
Notes to the Consolidated
Financial Statements
|
(Tabular amounts expressed in thousands of United States dollars,
except where noted)
|
|
|
17.
|
Assets
held for sale (continued)
|
During the year ended December 31, 2016 the
Company sold excess auction site acreage in Denver and reclassified an additional parcel relating to the Denver auction site to
assets held for sale. Management made the strategic decision to sell this excess acreage to maximize the Company’s return
on invested capital. As at December 31, 2016, the properties are being actively marketed for sale through an independent real
estate broker, and management expects the sales to be completed within 12 months of that date. These land assets belong to the
Core Auction reportable segment.
During the year ended December 31, 2016,
the Company sold property located in Denver, United States, recognizing a net gain on disposition of property, plant and equipment
of $493,000 (2015: $8,485,000 gain related to the sale, of property in Edmonton, Canada and London, Canada; 2014: $3,386,000 gain
related to the sale of property in Grande Prairie, Canada).
|
18.
|
Property, plant
and equipment
|
As at December 31, 2016
|
|
Cost
|
|
|
Accumulated
depreciation
|
|
|
Net book value
|
|
Land and improvements
|
|
$
|
362,283
|
|
|
$
|
(60,576
|
)
|
|
$
|
301,707
|
|
Buildings
|
|
|
256,168
|
|
|
|
(91,323
|
)
|
|
|
164,845
|
|
Yard and automotive equipment
|
|
|
55,352
|
|
|
|
(38,560
|
)
|
|
|
16,792
|
|
Computer software and equipment
|
|
|
66,265
|
|
|
|
(57,624
|
)
|
|
|
8,641
|
|
Office equipment
|
|
|
22,963
|
|
|
|
(16,706
|
)
|
|
|
6,257
|
|
Leasehold improvements
|
|
|
20,199
|
|
|
|
(12,541
|
)
|
|
|
7,658
|
|
Assets under development
|
|
|
9,130
|
|
|
|
-
|
|
|
|
9,130
|
|
|
|
$
|
792,360
|
|
|
$
|
(277,330
|
)
|
|
$
|
515,030
|
|
As at December 31, 2015
|
|
Cost
|
|
|
Accumulated
depreciation
|
|
|
Net book value
|
|
Land and improvements
|
|
$
|
356,905
|
|
|
$
|
(54,551
|
)
|
|
$
|
302,354
|
|
Buildings
|
|
|
254,760
|
|
|
|
(82,100
|
)
|
|
|
172,660
|
|
Yard and automotive equipment
|
|
|
59,957
|
|
|
|
(38,848
|
)
|
|
|
21,109
|
|
Computer software and equipment
|
|
|
60,586
|
|
|
|
(50,754
|
)
|
|
|
9,832
|
|
Office equipment
|
|
|
22,432
|
|
|
|
(15,660
|
)
|
|
|
6,772
|
|
Leasehold improvements
|
|
|
20,893
|
|
|
|
(12,160
|
)
|
|
|
8,733
|
|
Assets under development
|
|
|
7,131
|
|
|
|
-
|
|
|
|
7,131
|
|
|
|
$
|
782,664
|
|
|
$
|
(254,073
|
)
|
|
$
|
528,591
|
|
During the year ended December 31, 2016,
interest of $95,000 (2015: $86,000; 2014: $904,000) was capitalized to the cost of assets under development. These interest costs
relating to qualifying assets are capitalized at a weighted average rate of 3.99% (2015: 6.27% %; 2014: 4.71%).
Additions during the year include $3,376,000
(2015: $943,000; 2014: $2,143,000) of property, plant and equipment under capital leases.
Notes to the Consolidated
Financial Statements
|
(Tabular amounts expressed in thousands of United States dollars,
except where noted)
|
|
|
18.
|
Property,
plant and equipment (continued)
|
During the year ended December 31, 2014,
the Company recognized impairment loss consisted of $6,094,000 on land and improvements and $1,990,000 on the auction building
which was recorded as a reduction of asset costs (note 7).
As at December 31, 2016
|
|
Cost
|
|
|
Accumulated
amortization
|
|
|
Net book value
|
|
Trade names and trademarks
|
|
$
|
5,585
|
|
|
$
|
(50
|
)
|
|
$
|
5,535
|
|
Customer relationships
|
|
|
25,618
|
|
|
|
(1,072
|
)
|
|
|
24,546
|
|
Software
|
|
|
36,566
|
|
|
|
(13,116
|
)
|
|
|
23,450
|
|
Software under development
|
|
|
18,773
|
|
|
|
-
|
|
|
|
18,773
|
|
|
|
$
|
86,542
|
|
|
$
|
(14,238
|
)
|
|
$
|
72,304
|
|
As at December 31, 2015
|
|
Cost
|
|
|
Accumulated
amortization
|
|
|
Net book value
|
|
Trade names and trademarks
|
|
$
|
800
|
|
|
$
|
-
|
|
|
$
|
800
|
|
Customer relationships
|
|
|
22,800
|
|
|
|
(7,097
|
)
|
|
|
15,703
|
|
Software
|
|
|
23,269
|
|
|
|
(5,848
|
)
|
|
|
17,421
|
|
Software under development
|
|
|
13,049
|
|
|
|
-
|
|
|
|
13,049
|
|
|
|
$
|
59,918
|
|
|
$
|
(12,945
|
)
|
|
$
|
46,973
|
|
At December 31, 2016, a net carrying amount
of $22,665,000 (December 31, 2015: $13,849,000) included in intangible assets was not subject to amortization. During the year
ended December 31, 2016, the cost of additions was reduced by $1,094,000 for recognition of tax credits (2015: $1,678,000;
2014: $297,000)
During the year ended December 31, 2016,
interest of $356,000 (2015: $772,000; 2014: $1,258,000) was capitalized to the cost of software under development. These interest
costs relating to qualifying assets are capitalized at a weighted average rate of 4.91% (2015: 6.39%; 2014: 6.39%).
During the year ended December 31, 2016,
the weighted average amortization period for all classes of intangible assets was 8.2 years (2015: 7.9 years; 2014: 7.9 years).
As at December 31, 2016, estimated annual
amortization expense for the next five years ended December 31 are as follows:
2016
|
|
$
|
10,878
|
|
2017
|
|
|
9,609
|
|
2018
|
|
|
7,954
|
|
2019
|
|
|
5,030
|
|
2020
|
|
|
3,422
|
|
|
|
$
|
36,893
|
|
Notes to the Consolidated
Financial Statements
|
(Tabular amounts expressed in thousands of United States dollars,
except where noted)
|
|
Balance, December 31, 2014
|
|
$
|
82,354
|
|
Additions
|
|
|
10,659
|
|
Foreign exchange movement
|
|
|
(1,779
|
)
|
Balance, December 31, 2015
|
|
$
|
91,234
|
|
Additions (note 30)
|
|
|
30,794
|
|
Impairment loss (note 7)
|
|
|
(23,574
|
)
|
Foreign exchange movement
|
|
|
(917
|
)
|
Balance, December 31, 2016
|
|
$
|
97,537
|
|
The carrying value of goodwill has been allocated
to reporting units for impairment testing purposes as follows:
As at December 31,
|
|
2016
|
|
|
2015
|
|
Core Auction
|
|
$
|
64,577
|
|
|
$
|
53,303
|
|
EquipmentOne
|
|
|
14,357
|
|
|
|
37,931
|
|
Mascus
|
|
|
18,603
|
|
|
|
-
|
|
|
|
$
|
97,537
|
|
|
$
|
91,234
|
|
|
21.
|
Equity-accounted
investments
|
The Company holds a 48% share interest in
a group of companies detailed below (together, the Cura Classis entities), which have common ownership. The Cura Classis entities
provide dedicated fleet management services in three jurisdictions to a common customer unrelated to the Company. The Company
has determined the Cura Classis entities are variable interest entities and the Company is not the primary beneficiary, as it
does not have the power to make any decisions that significantly affect the economic results of the Cura Classis entities. Accordingly,
the Company accounts for its investments in the Cura Classis entities following the equity method.
A condensed summary of the Company's investments
in and advances to equity-accounted investees are as follows (in thousands of U.S. dollars, except percentages):
|
|
Ownership
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
percentage
|
|
|
2016
|
|
|
2015
|
|
Cura Classis entities
|
|
|
48
|
%
|
|
$
|
4,594
|
|
|
$
|
3,487
|
|
Other equity investments
|
|
|
32
|
%
|
|
|
2,732
|
|
|
|
3,000
|
|
|
|
|
|
|
|
|
7,326
|
|
|
|
6,487
|
|
As a result of the Company’s investments, the Company
is exposed to risks associated with the results of operations of the Cura Classis entities. The Company has no other business
relationships with the Cura Classis entities. The Company’s maximum risk of loss associated with these entities is the investment
carrying amount.
Notes to the Consolidated
Financial Statements
|
(Tabular amounts expressed in thousands of United States dollars,
except where noted)
|
|
|
22.
|
Trade and other
payables
|
As at December 31,
|
|
2016
|
|
|
2015
|
|
Trade payables
|
|
$
|
38,686
|
|
|
$
|
38,239
|
|
Accrued liabilities
|
|
|
44,775
|
|
|
|
47,193
|
|
Social security and sales taxes payable
|
|
|
14,759
|
|
|
|
15,208
|
|
Net consumption taxes payable
|
|
|
12,631
|
|
|
|
9,759
|
|
Share unit liabilities
|
|
|
10,422
|
|
|
|
6,204
|
|
Other payables
|
|
|
3,421
|
|
|
|
3,439
|
|
|
|
$
|
124,694
|
|
|
$
|
120,042
|
|
|
23.
|
Deferred compensation
arrangement
|
The Company established a non-qualified deferred
compensation arrangement (the “Deferred Compensation Arrangement”) which is available to certain US employees. The
Deferred Compensation Arrangement permits the deferral of up to 10% of base salary with the Company matching 100% of such contributions.
Employees will receive the benefit, including a return on investment, on termination, retirement or other specified departures.
The Company funds the deferred compensation obligations by investing in a non-qualified corporate owned life insurance policy
(“COLI”), whereby funds are invested and the account balance fluctuates with the investment returns on those funds.
The expected benefit to be paid on termination
of $1,838,000 (2015: $1,030,000) is presented in other non-current liabilities. The cash surrender value of the COLI asset of
$1,777,000 (2015: $1,138,000) is classified within other non-current assets, with changes in the deferred compensation liability
and COLI asset charged to selling, general and administrative expenses (note 6).
Notes to the Consolidated
Financial Statements
|
(Tabular amounts expressed in thousands of United States dollars,
except where noted)
|
|
|
Carrying amount
|
|
As at December 31,
|
|
2016
|
|
|
2015
|
|
Short-term debt
|
|
$
|
23,912
|
|
|
$
|
12,350
|
|
|
|
|
|
|
|
|
|
|
Long-term debt:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Term loan, denominated in Canadian dollars, unsecured, bearing interest
at 4.225%, due in quarterly installments of interest only, with the full amount of the principal due in May 2022.
|
|
|
-
|
|
|
|
24,567
|
|
|
|
|
|
|
|
|
|
|
Term loan, denominated in United States dollars, unsecured, bearing interest
at 3.59%, due in quarterly installments of interest only, with the full amount of the principal due in May 2022.
|
|
|
-
|
|
|
|
30,000
|
|
|
|
|
|
|
|
|
|
|
Term loan, denominated in Canadian dollars, unsecured, bearing interest
at 6.385%, due in quarterly installments of interest only, with the full amount of the principal due in May 2016.
|
|
|
-
|
|
|
|
43,348
|
|
|
|
|
|
|
|
|
|
|
Revolving loan, denominated in Canadian dollars, unsecured, bearing interest
at a weighted average rate of 2.380%, due in monthly installments of interest only, with the committed, revolving credit facility
available until October 2021
|
|
|
69,926
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Revolving loan, denominated in United States dollars, unsecured, bearing
interest at a weighted average rate of 2.075%, due in monthly installments of interest only, with the committed, revolving
credit facility available until October 2021
|
|
|
30,000
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Senior unsecured notes, bearing interest at 5.375%
due in semi-annual installments, with the full amount of principal due in January 2025
|
|
|
500,000
|
|
|
|
-
|
|
Less: unamortized debt issue costs
|
|
|
(4,220
|
)
|
|
|
-
|
|
|
|
|
595,706
|
|
|
|
97,915
|
|
|
|
|
|
|
|
|
|
|
Total debt
|
|
$
|
619,618
|
|
|
$
|
110,265
|
|
|
|
|
|
|
|
|
|
|
Long-term debt:
|
|
|
|
|
|
|
|
|
Current portion
|
|
$
|
-
|
|
|
$
|
43,348
|
|
Non-current portion
|
|
|
595,706
|
|
|
|
54,567
|
|
|
|
$
|
595,706
|
|
|
$
|
97,915
|
|
On August 29, 2016, the Company obtained a financing commitment
(the “Commitment Letter”) from Goldman Sachs Bank USA (“GS Bank”) pursuant to which GS Bank is committing
to provide (i) a senior secured revolving credit facility in an aggregate principal amount of $150,000,000 (the “Revolving
Facility”) and (ii) a senior unsecured bridge loan facility in an aggregate principal amount of up to $850,000,000 (the
“Bridge Loan Facility”, and together with the Revolving Facility, the “Facilities”). Under the terms of
the Commitment Letter, the Company may replace all or a portion of the Bridge Loan Facility with senior unsecured debt securities
or certain other bank loan facilities. Debt issue costs related to these Facilities are discussed in note 28.
Notes to the Consolidated
Financial Statements
|
(Tabular amounts expressed in thousands of United States dollars,
except where noted)
|
|
On October 27, 2016, the Company entered into a credit agreement
(the “Credit Agreement”) with a syndicate of lenders, including Bank of America, N.A. (“BofA”) and Royal
Bank of Canada, which provides the Company with:
|
·
|
Multicurrency
revolving facilities of up to $675,000,000 (the “Multicurrency Facilities”);
|
|
·
|
A
delayed-draw term loan facility of up to $325,000,000 (the “Delayed-Draw Facility”
and together, the “New Facilities”); and
|
|
·
|
At
the Company’s election and subject to certain conditions, including receipt of
related commitments, incremental term loan facilities and/or increases to the Multicurrency
Facilities in an aggregate amount of up to $50,000,000.
|
The Company may use the proceeds from the Multicurrency Facilities
to refinance certain existing indebtedness and for other general corporate purposes. Proceeds from the Delayed-Draw Facility can
only be used to finance transactions contemplated by the Merger Agreement (note 28). The Multicurrency Facilities remain in place
and outstanding even if the Merger Agreement is terminated and the Merger is not consummated.
The New Facilities will remain unsecured until the closing
of the Merger, after which the New Facilities will be secured by certain Company assets. The New Facilities may become unsecured
again after the Merger is consummated, subject to the Company meeting specified credit rating or leverage ratio conditions. The
New Facilities will mature five years after the closing date of the Credit Agreement. The Delayed-Draw Facility will amortize
in equal quarterly installments in an annual amount of 5% for the first two years after the closing of the Merger, and 10% in
the third through fifth years after the closing of the Merger, with the balance payable at maturity.
Borrowings under the Credit Agreement will bear interest, at
the Company’s option, at a rate equal to either a base rate (or Canadian prime rate for certain Canadian dollar borrowings)
or LIBOR (or such floating rate customarily used by BofA for currencies other than U.S. dollars). In either case, an applicable
margin is added to the rate. The applicable margin ranges from 0.25% to 1.50% for base rate loans, and 1.25% to 2.50% for LIBOR
(or the equivalent of such currency) loans, depending on the Company’s leverage ratio at the time of borrowing. The Company
must also pay quarterly in arrears a commitment fee equal to the daily amount of the unused commitments under the New Facilities
multiplied by an applicable percentage per annum (which ranges from 0.25% to 0.50% depending on the Company’s leverage ratio).
The Company incurred debt issue costs of $6,410,000 in connection
with the Credit Agreement. At December 31, 2016, the Company had unamortized deferred debt issue costs relating to the Credit
Agreement of $6,182,000.
On October 27, 2016, the Company terminated its pre-existing
revolving bi-lateral credit facilities, which consisted of $312,961,000 of committed revolving credit facilities and $292,159,000
of uncommitted credit facilities, as well as the $50,000,000 bulge credit facility. On the same day, the Company also prepaid
all outstanding debt issued under the terminated facilities using funds from the New Facilities, which resulted in the fixed rate
long-term debt being replaced by floating rate long-term debt and $6,787,000 in early termination fees, which were recognized
in net income as a debt extinguishment cost on the transaction date. In conjunction with the closing of the Credit Agreement,
the Company terminated the entire $150,000,000 Revolving Facility and $350,000,000 of the $850,000,000 Bridge Loan Facility with
GS Bank (note 28).
On December 21, 2016, the Company completed
the offering of $500,000,000 aggregate principal amount of 5.375% senior unsecured notes due January 15, 2025 (the “Notes”).
The Notes were offered only to qualified institutional buyers in reliance on Rule 144A under the Securities Act of 1933, as amended
(the “Securities Act”), and outside the United States, only to non-U.S. investors pursuant to Regulation S under the
Securities Act. The Notes have not been registered under the Securities Act or any state securities laws and may not be offered
or sold in the United States absent an effective registration statement or an applicable exemption from registration requirements
or a transaction not subject to the registration requirements of the Securities Act or any state securities laws.
Notes to the Consolidated
Financial Statements
|
(Tabular amounts expressed in thousands of United States dollars,
except where noted)
|
|
The Company will use the proceeds of the
offering to finance in part the transactions contemplated by the Merger Agreement (note 28). Upon the closing of the offering,
the gross proceeds from the offering together with certain additional amounts including prepaid interest were deposited in to
an Escrow account. The funds will be held in escrow until the completion of the transactions contemplated by the Merger agreement.
If the acquisition is not consummated on or before October 31, 2017 or the related agreement and plan of merger is terminated
prior to such date, the Company will redeem all of the outstanding Notes at a redemption price equal to 100% of the original offering
price of the Notes, plus accrued and unpaid interest. Until the release of the proceeds in the escrow account, the Notes will
be secured by a first priority security interest in the escrow account. Upon the completion of the acquisition of IronPlanet,
the Notes will be senior unsecured obligations. The Notes will be jointly and severally guaranteed on an unsecured, subordinated
basis, subject to certain exceptions, by each of the Company’s subsidiaries which guarantees the obligations under the Company’s
Credit Agreement. Upon consummation of the acquisition, IronPlanet and its subsidiaries are expected to become guarantors.
The Company incurred debt issue costs of $4,234,000 in connection
with the offering of the Notes. At December 31, 2016, the Company had unamortized deferred debt issue costs relating to the Notes
of $4,220,000.
On December 21, 2016, in conjunction with the closing of the
offering of the Notes, the Company terminated the remaining $500,000,000 of the $850,000,000 Bridge Loan Facility with GS Bank.
The Company also has $12,000,000 million in committed revolving
credit facilities in certain foreign jurisdictions which expire on May 31, 2018.
At December 31, 2015, the current portion of long-term debt
consisted of a Canadian dollar 60,000,000 term loan under the Company’s uncommitted, non-revolving credit facility.
Short-term debt at December 31, 2016 is comprised of drawings
in different currencies on the Company’s committed revolving credit facilities of $687,000,000 (2015: $312,693,000), and
have a weighted average interest rate of 2.2% (December 31, 2015: 1.8%).
As at December 31, 2016, principal repayments for the remaining
period to the contractual maturity dates are as follows:
|
|
Face value
|
|
2017
|
|
$
|
23,912
|
|
2018
|
|
|
-
|
|
2019
|
|
|
-
|
|
2020
|
|
|
-
|
|
2021
|
|
|
99,926
|
|
Thereafter
|
|
|
500,000
|
|
|
|
$
|
623,838
|
|
As at December 31, 2016, the Company had available committed
revolving credit facilities aggregating $548,649,000, of which $538,574,000 is available until October 27, 2021. The Company also
had available $325,000,000 under the delayed draw term loan facility.
Notes to the Consolidated
Financial Statements
|
(Tabular amounts expressed in thousands of United States dollars,
except where noted)
|
|
The Company is required to meet financial covenants established
by its lenders. These include fixed charge coverage ratio and leverage ratio measurements. As at December 31, 2016 and 2015, the
Company is in compliance with these covenants. The Company is not subject to any statutory capital requirements, and has not made
any changes with respect to its overall capital management strategy during the years ended December 31, 2016 and 2015.
Share capital
Preferred stock
Unlimited number of senior preferred shares,
without par value, issuable in series.
Unlimited number of junior preferred shares,
without par value, issuable in series.
All issued shares are fully paid. No preferred
shares have been issued.
Share repurchase
During March 2016, 1,460,000 common shares
(March 2015: 1,900,000) were repurchased at a weighted average (“WA”) share price of $25.16 (2015: $24.98) per common
share. The repurchased shares were cancelled on March 15, 2016 (2015: March 26, 2015).
Dividends
Declared and paid
The
Company declared and paid the following dividends during the years ended December 31, 2016, 2015 and 2014:
|
|
Declaration date
|
|
Dividend per
share
|
|
|
Record date
|
|
Total
dividends
|
|
|
Payment date
|
Year ended December 31, 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fourth quarter 2015
|
|
January 15, 2016
|
|
$
|
0.1600
|
|
|
February 12, 2016
|
|
$
|
17,154
|
|
|
March 4, 2016
|
First quarter 2016
|
|
May 9, 2016
|
|
|
0.1600
|
|
|
May 24, 2016
|
|
|
17,022
|
|
|
June 14, 2016
|
Second quarter 2016
|
|
August 5, 2016
|
|
|
0.1700
|
|
|
September 2, 2016
|
|
|
18,127
|
|
|
September 23, 2016
|
Third quarter 2016
|
|
November 8, 2016
|
|
|
0.1700
|
|
|
November 28, 2016
|
|
|
18,156
|
|
|
December 19, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fourth quarter 2014
|
|
January 12, 2015
|
|
$
|
0.1400
|
|
|
February 13, 2015
|
|
$
|
15,089
|
|
|
March 6, 2015
|
First quarter 2015
|
|
May 7, 2015
|
|
|
0.1400
|
|
|
May 29, 2015
|
|
|
14,955
|
|
|
June 19, 2015
|
Second quarter 2015
|
|
August 6, 2015
|
|
|
0.1600
|
|
|
September 4, 2015
|
|
|
17,147
|
|
|
September 25, 2015
|
Third quarter 2015
|
|
November 5, 2015
|
|
|
0.1600
|
|
|
November 27, 2015
|
|
|
17,149
|
|
|
December 18, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2014:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fourth quarter 2013
|
|
January 20, 2014
|
|
$
|
0.1300
|
|
|
February 14, 2014
|
|
$
|
13,915
|
|
|
March 7, 2014
|
First quarter 2014
|
|
May 2, 2014
|
|
|
0.1300
|
|
|
May 23, 2014
|
|
|
13,942
|
|
|
June 13, 2014
|
Second quarter 2014
|
|
August 5, 2014
|
|
|
0.1400
|
|
|
August 22, 2014
|
|
|
15,028
|
|
|
September 12, 2014
|
Third quarter 2014
|
|
November 4, 2014
|
|
|
0.1400
|
|
|
November 21, 2014
|
|
|
15,044
|
|
|
December 12, 2014
|
Notes to the Consolidated
Financial Statements
|
(Tabular amounts expressed in thousands of United States dollars,
except where noted)
|
|
|
25.
|
Equity
and dividends (continued)
|
Declared and undistributed
In addition to the above dividends, since
the end of the year the Directors have recommended the payment of a final dividend of $0.17 cents per common share, accumulating
to a total dividend of $18,160,000. The aggregate amount of the proposed final dividend is expected to be paid out of retained
earnings on March 3, 2017 to stockholders of record on February 10, 2017. This dividend payable has not been recognized as a liability
in the financial statements. The payment of this dividend will not have any tax consequence for the Company.
Share-based payments consisted of the following
compensation costs recognized in selling, general and administrative expenses:
Year ended December 31,
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Stock option compensation expense
|
|
$
|
5,507
|
|
|
$
|
4,001
|
|
|
$
|
3,710
|
|
Share unit expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity-classified PSUs
|
|
|
1,981
|
|
|
|
-
|
|
|
|
-
|
|
Liability-classified share units
|
|
|
10,512
|
|
|
|
5,673
|
|
|
|
5,864
|
|
Employee share purchase plan -
employer contributions
|
|
|
1,597
|
|
|
|
1,332
|
|
|
|
1,272
|
|
|
|
$
|
19,597
|
|
|
$
|
11,006
|
|
|
$
|
10,846
|
|
Stock option plan
The Company has a stock option plan that
provides for the award of stock options to selected employees, directors and officers of the Company.
Stock options are granted with an exercise
price equal to the fair market value of the Company‘s common shares at the grant date, with vesting periods ranging from
immediate to five years and terms not exceeding 10 years. At December 31, 2016, there were 4,202,631 (December 31, 2015: 1,874,798)
shares authorized and available for grants of options under the stock option plan.
Notes to the Consolidated
Financial Statements
|
(Tabular amounts expressed in thousands of United States dollars,
except where noted)
|
|
|
26.
|
Share-based
payments (continued)
|
Stock option plan (continued)
Stock option activity for the years ended
December 31, 2016, 2015, and 2014 is presented below:
|
|
|
|
|
|
|
|
WA
|
|
|
|
|
|
|
Common
|
|
|
WA
|
|
|
remaining
|
|
|
Aggregate
|
|
|
|
shares under
|
|
|
exercise
|
|
|
contractual
|
|
|
intrinsic
|
|
|
|
option
|
|
|
price
|
|
|
life (in years)
|
|
|
value
|
|
Outstanding, December 31, 2013
|
|
|
3,749,574
|
|
|
$
|
21.09
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
837,364
|
|
|
|
23.60
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(663,152
|
)
|
|
|
18.28
|
|
|
|
|
|
|
$
|
4,304
|
|
Forfeited
|
|
|
(25,995
|
)
|
|
|
23.26
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, December 31, 2014
|
|
|
3,897,791
|
|
|
|
22.09
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
880,706
|
|
|
|
25.50
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(1,412,535
|
)
|
|
|
21.11
|
|
|
|
|
|
|
$
|
9,426
|
|
Forfeited
|
|
|
(89,884
|
)
|
|
|
23.10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, December 31, 2015
|
|
|
3,276,078
|
|
|
|
23.40
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
1,268,101
|
|
|
|
24.34
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(1,081,531
|
)
|
|
|
22.50
|
|
|
|
|
|
|
$
|
9,380
|
|
Forfeited
|
|
|
(95,934
|
)
|
|
|
24.32
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, December 31, 2016
|
|
|
3,366,714
|
|
|
$
|
24.02
|
|
|
|
7.5
|
|
|
$
|
33,601
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable, December 31, 2016
|
|
|
1,319,750
|
|
|
$
|
23.20
|
|
|
|
5.8
|
|
|
$
|
14,258
|
|
The options outstanding at December 31, 2016
expire on dates ranging to August 11, 2026. The WA share price of options exercised during the year ended December 31, 2016 was
$31.18 (2015: $27.78; 2014: $24.77). The WA grant date fair value of options granted during the year ended December 31, 2016 was
$4.72 per option (2015: $5.39; 2014: $5.35).
The fair value
of the stock option grants was estimated on the date of the grant using the Black-Scholes option pricing model. The significant
assumptions used to estimate the fair value of stock options granted during the year ended December 31, 2016, 2015, and 2014 are
presented in the following table on a weighted average basis:
Year ended December 31,
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Risk free interest rate
|
|
|
1.2
|
%
|
|
|
1.8
|
%
|
|
|
1.8
|
%
|
Expected dividend yield
|
|
|
2.66
|
%
|
|
|
2.18
|
%
|
|
|
2.31
|
%
|
Expected lives of the stock options
|
|
|
5
years
|
|
|
|
5
years
|
|
|
|
5
years
|
|
Expected volatility
|
|
|
26.5
|
%
|
|
|
26.4
|
%
|
|
|
29.3
|
%
|
Risk free interest rate is the US Treasury
Department five-year treasury yield curve rate on the date of the grant. Expected dividend yield assumes a continuation of the
most recent quarterly dividend payments. Expected life of options is based on the age of the options on the exercise date over
the past five years. Expected volatility is based on the historical common share price volatility over the past five years.
Notes to the Consolidated
Financial Statements
|
(Tabular amounts expressed in thousands of United States dollars,
except where noted)
|
|
|
26.
|
Share-based
payments (continued)
|
Stock option plan (continued)
The compensation expense arising from option grants is amortized
over the relevant vesting periods of the underlying options. As at December 31, 2016, the unrecognized stock-based compensation
cost related to the non-vested stock options was $3,976,000, which is expected to be recognized over a weighted average period
of 2.1 years. Cash received from stock-based award exercises for the year ended December 31, 2016 was $24,338,000 (2015: $29,816,000;
2014: $12,121,000). The actual tax benefit realized for the tax deductions from option exercise of the share based payment arrangements
totaled $1,464,000 for the year ended December 31, 2016 (2015: $1,150,000; 2014: $476,000).
Share unit plans
Share unit activity for the years ended December
31, 2016, 2015, and 2014 is presented below:
|
|
Equity-classified awards
|
|
|
Liability-classified awards
|
|
|
|
PSUs
|
|
|
PSUs (1)
|
|
|
Restricted share units
|
|
|
DSUs
|
|
|
|
|
|
|
WA grant
|
|
|
|
|
|
WA grant
|
|
|
|
|
|
WA grant
|
|
|
|
|
|
WA grant
|
|
|
|
|
|
|
date fair
|
|
|
|
|
|
date fair
|
|
|
|
|
|
date fair
|
|
|
|
|
|
date fair
|
|
|
|
Number
|
|
|
value
|
|
|
Number
|
|
|
value
|
|
|
Number
|
|
|
value
|
|
|
Number
|
|
|
value
|
|
Outstanding, December 31, 2013
|
|
|
-
|
|
|
$
|
-
|
|
|
|
76,227
|
|
|
$
|
21.99
|
|
|
|
271,924
|
|
|
$
|
21.78
|
|
|
|
19,624
|
|
|
$
|
21.99
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
|
|
186,554
|
|
|
|
23.82
|
|
|
|
237,645
|
|
|
|
22.86
|
|
|
|
22,665
|
|
|
|
22.66
|
|
Vested and settled
|
|
|
-
|
|
|
|
-
|
|
|
|
(3,702
|
)
|
|
|
22.22
|
|
|
|
(65,293
|
)
|
|
|
22.01
|
|
|
|
-
|
|
|
|
-
|
|
Forfeited
|
|
|
-
|
|
|
|
-
|
|
|
|
(20,506
|
)
|
|
|
22.38
|
|
|
|
(40,689
|
)
|
|
|
22.32
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, December 31, 2014
|
|
|
-
|
|
|
$
|
-
|
|
|
|
238,573
|
|
|
$
|
23.38
|
|
|
|
403,587
|
|
|
$
|
22.32
|
|
|
|
42,289
|
|
|
$
|
22.33
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
|
|
218,699
|
|
|
|
24.57
|
|
|
|
20,528
|
|
|
|
26.38
|
|
|
|
29,072
|
|
|
|
26.07
|
|
Vested and settled
|
|
|
-
|
|
|
|
-
|
|
|
|
(6,870
|
)
|
|
|
22.22
|
|
|
|
(28,887
|
)
|
|
|
22.53
|
|
|
|
(13,365
|
)
|
|
|
22.34
|
|
Forfeited
|
|
|
-
|
|
|
|
-
|
|
|
|
(28,817
|
)
|
|
|
23.23
|
|
|
|
(62,274
|
)
|
|
|
21.56
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, December 31, 2015
|
|
|
-
|
|
|
$
|
-
|
|
|
|
421,585
|
|
|
$
|
24.03
|
|
|
|
332,954
|
|
|
$
|
22.70
|
|
|
|
57,996
|
|
|
$
|
24.21
|
|
Granted
|
|
|
7,714
|
|
|
|
31.40
|
|
|
|
257,117
|
|
|
|
23.32
|
|
|
|
4,543
|
|
|
|
29.33
|
|
|
|
17,371
|
|
|
|
29.41
|
|
Transferred to (from) equity awards on modification
|
|
|
257,934
|
|
|
|
27.34
|
|
|
|
(257,934
|
)
|
|
|
23.86
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Vested and settled
|
|
|
-
|
|
|
|
-
|
|
|
|
(68,683
|
)
|
|
|
23.08
|
|
|
|
(162,306
|
)
|
|
|
22.23
|
|
|
|
(1,847
|
)
|
|
|
25.28
|
|
Forfeited
|
|
|
(21,680
|
)
|
|
|
27.43
|
|
|
|
(40,756
|
)
|
|
|
22.75
|
|
|
|
(15,182
|
)
|
|
|
22.68
|
|
|
|
-
|
|
|
|
-
|
|
Outstanding, December 31, 2016
|
|
|
243,968
|
|
|
$
|
27.48
|
|
|
|
311,329
|
|
|
$
|
23.96
|
|
|
|
160,009
|
|
|
$
|
23.37
|
|
|
|
73,520
|
|
|
$
|
25.41
|
|
|
(1)
|
Liability-classified PSUs include
PSUs awarded under the employee PSU plan, the sign-on grant PSU plan, and other PSUs
plans in place prior to 2015 that are cash-settled and not subject to market vesting
conditions.
|
The total market value of share units vested
and released during the year ended December 31, 2016 was $4,463,000 (2015: $1,253,000; 2014: $1,578,000). As at December
31, 2016, the Company had a total share unit liability of $14,665,000 (December 31, 2015: $11,836,000) in respect of share units
under the PSU, Restricted Share Unit (“RSU”), and DSU plans described herein. The compensation expense arising from
share unit grants is amortized over the relevant vesting periods of the underlying units.
Notes to the Consolidated
Financial Statements
|
(Tabular amounts expressed in thousands of United States dollars,
except where noted)
|
|
|
26.
|
Share-based
payments (continued)
|
Share unit plans (continued)
Senior executive and employee PSU plans
In 2015 and 2016, the Company granted share
units under two new PSU plans, a senior executive PSU plan and an employee PSU plan (the “new plans”). Under the new
plans, the number of PSUs that vest is conditional upon specified market, service, and performance vesting conditions being met.
The market vesting condition is based on
the relative performance of the Company’s share price in comparison to the performance of a pre-determined portfolio of
other companies’ share prices. The non-market vesting conditions are based on the achievement of specific performance measures
and can result in participants earning between 0% and 200% of the target number of PSUs granted.
Prior to May 2, 2016, the Company was only
able to settle the PSU awards under the new plans in cash, and as such, both new plans were classified as liability awards. On
May 2, 2016 (the “modification date”), the shareholders approved amendments to the new plans, allowing the Company
to choose whether to settle the awards in cash or in shares. With respect to settling in shares, the new settlement options allow
the Company to either (i) arrange for the purchase shares on the open market on the employee’s behalf based on the cash
value that otherwise would be delivered, or (ii) to issue a number of shares equal to the number of units that vest.
Under the first option, the shareholders
authorized an unlimited number of open-market purchases of common shares for settlement of the PSUs. Under the second option,
the shareholders authorized 1,000,000 shares to be issued for settlement of the PSUs.
On the modification date, the employee PSU
plan remained classified as a liability and the senior executive PSU plan awards were reclassified to equity awards, based on
the Company’s settlement intentions for each plan. The fair value of the senior executive awards outstanding on the modification
date was $27.34. The share unit liability, representing the portion of the fair value attributable to past service, was $2,105,000,
which was reclassified to equity on that date. No incremental compensation was recognized as a result of the modification. Unrecognized
compensation expense based on the fair value of the senior executive PSU awards on the modification date will be amortized over
the remaining service period.
Because the PSUs awarded under the new plans
are contingently redeemable in cash in the event of death of the participant, on the modification date, the Company reclassified
$2,175,000 to temporary equity, representing the portion of the contingent redemption amount of the senior executive PSU awards
as if redeemable on May 2, 2016, to the extent attributable to prior service.
PSUs awarded under the new plans are subject
to market vesting conditions. The fair value of the liability-classified PSUs awarded under the employee PSU plan is estimated
on the date of grant and at each reporting date using a binomial model. The significant assumptions used to estimate the fair
value of the liability-classified PSUs awarded under the employee PSU plan during 2016 and 2015 are presented in the following
table on a weighted average basis:
Year ended December 31,
|
|
2016
|
|
|
2015
|
|
Risk free interest rate
|
|
|
1.2
|
%
|
|
|
1.3
|
%
|
Expected dividend yield
|
|
|
2.40
|
%
|
|
|
2.17
|
%
|
Expected lives of the PSUs
|
|
|
3
years
|
|
|
|
3
years
|
|
Expected volatility
|
|
|
29.7
|
%
|
|
|
29.4
|
%
|
Average expected volatility of comparable companies
|
|
|
37.0
|
%
|
|
|
32.8
|
%
|
Notes to the Consolidated
Financial Statements
|
(Tabular amounts expressed in thousands of United States dollars,
except where noted)
|
|
|
26.
|
Share-based
payments (continued)
|
Share unit plans (continued)
Senior executive and employee PSU plans
(continued)
Risk free interest rate is estimated using
Bloomberg’s U.S. dollar Swap Rate as of the valuation date. Expected dividend yield assumes a continuation of the most recent
quarterly dividend payments. Given the limited historical information available for the PSUs, the Company estimated the expected
life of PSUs with reference to the expected life of stock options. Stock options have five-year expected lives, whereas PSUs vest
after three years. As such, the Company estimates the expected life of the PSUs to equal the three-year vesting period. Expected
volatility is estimated from Bloomberg’s volatility surface of the common shares as of the valuation date.
The fair value of the equity-classified PSUs
awarded under the senior executive PSU plan is estimated on modification date and on the date of grant using a binomial model.
The significant assumptions used to estimate the fair value of the equity-classified PSUs awarded under the senior executive PSU
plan during 2016 are presented in the following table on a weighted average basis:
Year ended December 31,
|
|
2016
|
|
Risk free interest rate
|
|
|
1.2
|
%
|
Expected dividend yield
|
|
|
2.50
|
%
|
Expected lives of the PSUs
|
|
|
3
years
|
|
Expected volatility
|
|
|
29.9
|
%
|
Average expected volatility of comparable companies
|
|
|
37.0
|
%
|
As at December 31, 2016, the unrecognized
share unit expense related to equity-classified PSUs was $4,694,000, which is expected to be recognized over a weighted average
period of 1.7 years. The unrecognized share unit expense related to liability-classified PSUs was $5,351,000, which is expected
to be recognized over a weighted average period of 1.8 years.
Sign-on grant PSUs
On August 11, 2014, the Company awarded 102,375
one-time sign-on grant PSUs (the “SOG PSUs”). The SOG PSUs are cash-settled and subject to market vesting conditions
related to the Company’s share performance over rolling two, three, four, and five-year periods.
The fair value of the liability-classified
SOG PSUs is estimated on the date of grant and at each reporting date using a binomial model. The significant assumptions used
to estimate the fair value of the SOG PSUs during the years ended December 31, 2016, 2015, and 2014 are presented in the following
table on a weighted average basis:
Year ended December 31,
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Risk free interest rate
|
|
|
1.1
|
%
|
|
|
1.4
|
%
|
|
|
1.8
|
%
|
Expected dividend yield
|
|
|
2.23
|
%
|
|
|
2.19
|
%
|
|
|
2.09
|
%
|
Expected volatility
|
|
|
28.2
|
%
|
|
|
32.6
|
%
|
|
|
27.8
|
%
|
Risk free interest rate is estimated using
Bloomberg’s U.S. dollar Swap Rate as of the valuation date. Expected dividend yield assumes a continuation of the most recent
quarterly dividend payments. Given the limited historical information available for the SOG PSUs, the Company estimated the expected
life of PSUs with reference to the expected life of stock options. Stock options have five-year expected lives. Comparatively,
the SOG PSUs vest in four tranches with the last tranche vesting five years after the grant date. As such, the Company estimates
the expected lives of each tranche of SOG PSUs to equal the respective vesting period for the tranche, which is two, three, four,
or five years. Expected volatility is estimated from Bloomberg’s volatility surface of the common shares as of the valuation
date.
Notes to the Consolidated
Financial Statements
|
(Tabular amounts expressed in thousands of United States dollars,
except where noted)
|
|
|
26.
|
Share-based
payments (continued)
|
Share unit plans (continued)
Other PSUs
The Company also has other liability-classified
PSUs granted under plans in place prior to 2015 that are cash-settled and not subject to market vesting conditions. The fair values
of these liability-classified PSUs is estimated on grant date and at each reporting date using the 20-day volume weighted average
price of the Company’s common shares listed on the New York Stock Exchange.
RSUs and DSUs
The Company has Restricted Share Unit (“RSU”)
and DSU plans that are cash-settled and not subject to market vesting conditions. Fair values of share units under these plans
are estimated on grant date and at each reporting date using the 20-day volume weighted average price of the Company’s common
shares listed on the New York Stock Exchange. DSUs are granted under the DSU plan to members of the Board of Directors.
As at December 31, 2016, the unrecognized
share unit expense related to liability-classified restricted share units (“RSUs”) was $549,000, which is expected
to be recognized over a weighted average period of 0.6 years. There is no unrecognized share unit expense related to liability-classified
DSUs as they vest immediately upon grant.
Employee
share purchase plan
The Company has an employee share purchase
plan that allows all employees that have completed one year of service to contribute funds to purchase common shares at the current
market value at the time of share purchase. Employees may contribute up to 4% of their salary. The Company will match between
50% and 100% of the employee‘s contributions, depending on the employee‘s length of service with the Company.
Commitments
for expenditures
As at December 31, 2016, the Company had
committed to, but not yet incurred, $3,197,000 in capital expenditures for property, plant and equipment and intangible assets
(December 31, 2015: $1,820,000).
Operating
lease commitments – the Company as lessee
The Company has entered into commercial leases
for various auction sites and offices located in North America, Central America, Europe, the Middle East and Asia. The majority
of these leases are non-cancellable. The Company also has further operating leases for certain motor vehicles and small office
equipment where it is not in the best interest of the Company to purchase these assets.
The majority of the Company‘s operating
leases have a fixed term with a remaining life between one month and 20 years with renewal options included in the contracts.
The leases have varying contract terms, escalation clauses and renewal rights. There are no restrictions placed upon the lessee
by entering into these leases, other than restrictions on use of property, sub-letting and alterations. In certain leases there
are options to purchase; if the intention to take this option changes subsequent to the commencement of the lease, the Company
re-assesses the classification of the lease as operating.
Notes to the Consolidated
Financial Statements
|
(Tabular amounts expressed in thousands of United States dollars,
except where noted)
|
|
|
27.
|
Commitments
(continued)
|
Operating
lease commitments – the Company as lessee (continued)
The future aggregate minimum lease payments
under non-cancellable operating leases, excluding reimbursed costs to the lessor, are as follows:
2017
|
|
$
|
12,664
|
|
2018
|
|
|
11,531
|
|
2019
|
|
|
9,902
|
|
2020
|
|
|
8,180
|
|
2021
|
|
|
6,443
|
|
Thereafter
|
|
|
56,716
|
|
|
|
$
|
105,436
|
|
As at December 31, 2016, the total future
minimum sublease payments expected to be received under non-cancellable subleases is $577,000 (December 31, 2015: $1,077,000).
The lease expenditure charged to earnings during the year ended December 31, 2016 was $20,075,000 (2015: $17,367,000; 2014: $18,139,000).
Capital
lease commitments – the Company as lessee
The Company has entered into capital lease
arrangements for computer and yard equipment. The majority of the leases have a fixed term with a remaining life of one month
to four years with renewal options included in the contracts. In certain of these leases, the Company has the option to purchase
the leased asset at fair market value or a stated residual value at the end of the lease term.
As at December 31, 2016, the net carrying
amount of computer and yard equipment under capital leases is $3,968,000 (December 31, 2015: $2,192,000), and is included in the
total property, plant and equipment as disclosed on the consolidated balance sheets.
The future aggregate minimum lease payments
under non-cancellable finance leases are as follows:
2017
|
|
$
|
1,484
|
|
2018
|
|
|
1,228
|
|
2019
|
|
|
1,138
|
|
2020
|
|
|
391
|
|
2021
|
|
|
-
|
|
Thereafter
|
|
|
-
|
|
|
|
$
|
4,241
|
|
Assets recorded under capital leases are
as follows:
As at December 31, 2016
|
|
Cost
|
|
|
Accumulated
depreciation
|
|
|
Net book
value
|
|
Computer equipment
|
|
$
|
8,511
|
|
|
$
|
(4,990
|
)
|
|
$
|
3,521
|
|
Yard and auto equipment
|
|
|
589
|
|
|
|
(142
|
)
|
|
|
447
|
|
|
|
$
|
9,100
|
|
|
$
|
(5,132
|
)
|
|
$
|
3,968
|
|
Notes to the Consolidated
Financial Statements
|
(Tabular amounts expressed in thousands of United States dollars,
except where noted)
|
|
|
27.
|
Commitments (continued)
|
As at December 31, 2015
|
|
Cost
|
|
|
Accumulated
depreciation
|
|
|
Net book
value
|
|
Computer equipment
|
|
$
|
6,080
|
|
|
$
|
(4,132
|
)
|
|
$
|
1,948
|
|
Yard and auto equipment
|
|
|
315
|
|
|
|
(71
|
)
|
|
|
244
|
|
|
|
$
|
6,395
|
|
|
$
|
(4,203
|
)
|
|
$
|
2,192
|
|
Costs contingent on consummation of
IronPlanet acquisition
On August 29, 2016, the Company entered into
an Agreement and Plan of Merger (the “Merger Agreement”) pursuant to which it agreed to acquire IronPlanet (the “Merger”).
Under the terms of Merger Agreement, the Company will acquire 100% of the equity of IronPlanet for approximately $740,000,000
in cash plus the assumption of unvested equity interests in IronPlanet, subject to adjustment, which brings the total transaction
value to approximately $758,500,000. The Merger is subject to customary conditions, including (i) the expiration or termination
of the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, as well as the obtaining
of certain foreign antitrust
clearances, and (ii) the Committee on Foreign
Investment in the United States having provided written notice to the effect that review of the transactions contemplated by the
Merger Agreement has been concluded and has terminated all action under the Section 721 of the Defence Production Act of 1950,
as amended.
Debt issue costs
In connection with the execution of the Merger
Agreement, the Company obtained the Commitment Letter, dated August 29, 2016, from GS Bank pursuant to which GS Bank committed
to providing the Facilities (discussed in note 24). Consideration for GS Bank’s services in this regard include one-time
fees totalling $13,750,000 that are contingent upon consummation of the Merger. These debt issue costs have not been recognized
at December 31, 2016.
Advisory costs
The Company has entered into various contractual
arrangements with Goldman, Sachs & Co. and GS Bank (together, “Goldman Sachs”) whereby Goldman Sachs has provided
financial structuring and acquisition advisory services in relation to the Company’s agreement to acquire IronPlanet. Consideration
for Goldman Sach’s services in this regard, for which the maximum amount payable by the Company at December 31, 2016 is
$8,625,000, is contingent upon consummation of the Merger. These advisory costs have not been recognized at December 31, 2016.
They will be expensed as acquisition-related costs when they are recognized.
Legal and other claims
The Company is subject to legal and other
claims that arise in the ordinary course of its business. The Company does not believe that the results of these claims will have
a material effect on the Company’s balance sheet or income statement.
Guarantee contracts
In the normal course of business, the Company
will in certain situations guarantee to a consignor a minimum level of proceeds in connection with the sale at auction of that
consignor’s equipment.
Notes to the Consolidated
Financial Statements
|
(Tabular amounts expressed in thousands of United States dollars,
except where noted)
|
|
|
28
.
|
Contingencies
(continued)
|
Guarantee contracts (continued)
At December 31, 2016 there was $3,813,000
of industrial assets guaranteed under contract, of which 100% is expected to be sold prior to the end of March 2017 (December
31, 2015: $25,267,000 of which 100% sold prior to the end of May 2016).
At December 31, 2016 there was $11,415,000
of agricultural assets guaranteed under contract, of which 100% is expected to be sold prior to the end of July 2017 (December
31, 2015: $30,509,000 of which 100% sold prior to the end of August 2016).
The outstanding guarantee amounts are
undiscounted and before estimated proceeds from sale at auction.
|
29.
|
Selected quarterly financial data (unaudited)
|
The following is a summary of selected quarterly
financial information (unaudited):
|
|
|
|
|
|
|
|
|
|
|
Attributable to stockholders
|
|
|
|
|
|
|
Operating
|
|
|
Net
income
|
|
|
Net
income
|
|
|
Earnings (loss) per share
|
|
2016
|
|
Revenues
|
|
|
income
|
|
|
(loss)
|
|
|
(loss)
|
|
|
Basic
|
|
|
Diluted
|
|
First quarter
|
|
$
|
131,945
|
|
|
$
|
39,174
|
|
|
$
|
29,994
|
|
|
$
|
29,406
|
|
|
$
|
0.28
|
|
|
$
|
0.27
|
|
Second quarter
|
|
|
158,805
|
|
|
|
53,635
|
|
|
|
40,591
|
|
|
|
39,710
|
|
|
|
0.37
|
|
|
|
0.37
|
|
Third quarter
|
|
|
128,876
|
|
|
|
2,285
|
|
|
|
(5,000
|
)
|
|
|
(5,137
|
)
|
|
|
(0.05
|
)
|
|
|
(0.05
|
)
|
Fourth quarter
|
|
|
146,769
|
|
|
|
40,628
|
|
|
|
27,927
|
|
|
|
27,853
|
|
|
|
0.26
|
|
|
|
0.26
|
|
|
|
|
|
|
|
|
|
|
|
|
Attributable to stockholders
|
|
|
|
|
|
|
Operating
|
|
|
Net
|
|
|
Net
|
|
|
Earnings per share
|
|
2015
|
|
Revenues
|
|
|
income
|
|
|
income
|
|
|
income
|
|
|
Basic
|
|
|
Diluted
|
|
First quarter
|
|
$
|
115,618
|
|
|
$
|
33,019
|
|
|
$
|
24,110
|
|
|
$
|
23,777
|
|
|
$
|
0.22
|
|
|
$
|
0.22
|
|
Second quarter
|
|
|
155,477
|
|
|
|
62,795
|
|
|
|
45,846
|
|
|
|
45,083
|
|
|
|
0.42
|
|
|
|
0.42
|
|
Third quarter
|
|
|
109,318
|
|
|
|
28,602
|
|
|
|
21,247
|
|
|
|
20,825
|
|
|
|
0.19
|
|
|
|
0.19
|
|
Fourth quarter
|
|
|
135,462
|
|
|
|
50,424
|
|
|
|
47,372
|
|
|
|
46,529
|
|
|
|
0.43
|
|
|
|
0.43
|
|
|
|
|
|
|
|
|
|
|
|
|
Attributable to stockholders
|
|
|
|
|
|
|
Operating
|
|
|
Net
|
|
|
Net
|
|
|
Earnings per share
|
|
2014
|
|
Revenues
|
|
|
income
|
|
|
income
|
|
|
income
|
|
|
Basic
|
|
|
Diluted
|
|
First quarter
|
|
$
|
98,588
|
|
|
$
|
19,081
|
|
|
$
|
13,435
|
|
|
$
|
13,174
|
|
|
$
|
0.12
|
|
|
$
|
0.12
|
|
Second quarter
|
|
|
141,835
|
|
|
|
51,773
|
|
|
|
37,536
|
|
|
|
37,008
|
|
|
|
0.35
|
|
|
|
0.34
|
|
Third quarter
|
|
|
102,217
|
|
|
|
15,903
|
|
|
|
9,643
|
|
|
|
9,382
|
|
|
|
0.09
|
|
|
|
0.09
|
|
Fourth quarter
|
|
|
138,457
|
|
|
|
41,170
|
|
|
|
31,949
|
|
|
|
31,417
|
|
|
|
0.29
|
|
|
|
0.29
|
|
Notes to the Consolidated
Financial Statements
|
(Tabular amounts expressed in thousands of United States dollars,
except where noted)
|
|
|
30.
|
Business combinations
|
On February 19, 2016 (the “Mascus Acquisition Date”),
the Company acquired 100% of the issued and outstanding shares of Mascus for cash consideration of €26,553,000 ($29,580,000).
In addition to cash consideration, consideration of up to €3,198,000 ($3,563,000) is contingent on Mascus achieving certain
operating performance targets over the three-year period following acquisition. Mascus is based in Amsterdam and provides an online
equipment listing service for used heavy machines and trucks. The acquisition expands the breadth and depth of equipment disposition
and management solutions the Company can offer its customers.
The acquisition was accounted for in accordance
with ASC 805,
Business Combinations
. The assets acquired and liabilities assumed were recorded at their estimated fair
values at the Mascus Acquisition Date. Goodwill of $19,664,000 was calculated as the fair value of consideration over the estimated
fair value of the net assets acquired.
Mascus provisional purchase price allocation
|
|
February 19, 2016
|
|
Purchase price
|
|
$
|
29,580
|
|
Fair value of contingent consideration
|
|
|
3,431
|
|
Non-controlling
interests
(1)
|
|
|
596
|
|
Total fair value at Mascus Acquisition Date
|
|
|
33,607
|
|
|
|
|
|
|
Fair value of assets acquired:
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
1,457
|
|
Trade and other receivables
|
|
|
1,290
|
|
Prepaid expenses
|
|
|
528
|
|
Property, plant and equipment
|
|
|
104
|
|
Intangible assets
(2)
|
|
|
14,817
|
|
|
|
|
|
|
Fair value of liabilities assumed:
|
|
|
|
|
Trade and other payables
|
|
|
1,533
|
|
Other non-current liabilities
|
|
|
37
|
|
Deferred tax liabilities
|
|
|
2,683
|
|
Fair value of identifiable net assets acquired
|
|
|
13,943
|
|
Goodwill acquired on acquisition
|
|
$
|
19,664
|
|
|
(1)
|
The Company acquired 100% of Mascus and within the Mascus group
of entities there were two subsidiaries that were not wholly-owned, one domiciled in
the United States and one domiciled in Denmark. As such, the Company acquired non-controlling
interests. The fair value of each non-controlling interest was determined using an income
approach based on cash flows of the respective entities that were attributable to the
non-controlling interest. On May 27, 2016, Ritchie Bros. Holdings (America) Inc. acquired
the remaining issued and outstanding shares of the Mascus subsidiary domiciled in the
United States for cash consideration of $226,000.
|
|
(2)
|
Intangible assets consist of customer relationships with estimated
useful lives of 17 years, indefinite-lived trade names, and software assets with estimated
useful lives of five years.
|
Notes to the Consolidated
Financial Statements
|
(Tabular amounts expressed in thousands of United States dollars,
except where noted)
|
|
|
30.
|
Business combinations
(continued)
|
|
(a)
|
Mascus acquisition (continued)
|
The amounts included in the Mascus provisional
purchase price allocation are preliminary in nature and are subject to adjustment as additional information is obtained about
the facts and circumstances that existed as of the Mascus Acquisition Date. The final determination of the fair values of certain
assets and liabilities will be completed within the measurement period of up to one year from the Mascus Acquisition Date. Adjustments
to the preliminary values during the measurement period will be recorded in the operating results of the period in which the adjustments
are determined. Changes to the amounts recorded as assets and liabilities will result in a corresponding adjustment to goodwill.
Goodwill
Goodwill
has been allocated entirely to the Mascus reporting unit and included in “Other” for segmented information
purposes and is based on an analysis of the fair value of net assets acquired. The main drivers generating goodwill are the
anticipated synergies from (1) the Company's core auction expertise and transactional capabilities to Mascus'
existing customer base, and (2) Mascus' providing existing technology to the Company's current customer base. Other factors
generating goodwill include the acquisition of Mascus' assembled work force and their associated technical
expertise.
Contributed revenue and net income
The results of Mascus’ operations are
included in these consolidated financial statements from Mascus’ Acquisition Date. Mascus’ contribution
to the Company’s revenues and net income for the period from February 19, 2016 to December 31, 2016 was $7,473,000 and $808,000,
respectively. Pro forma results of operations have not been presented as such pro forma financial information would not be materially
different from historical results.
Contingent consideration
The Company may pay an additional amount
not exceeding €3,198,000 ($3,563,000) contingent upon the achievement of certain operating performance targets over the
next three-year period. The Company has recognized a liability equal to the estimated fair value of the contingent payments
the Company expects to make as of the acquisition date, which was €3,080,000 ($3,431,000) on February 19, 2016. The Company
will re-measure this liability each reporting period and record changes in the fair value in the consolidated income
statement. For the period ending December 31, 2016, the Company recognized $14,000 in other expense associated with the
change in fair value.
Transactions recognized separately
from the acquisition of assets and assumptions of liabilities
Acquisition-related costs
Expenses totalling $1,720,000 for legal fees,
continuing employment costs, and other acquisition-related costs are included in the consolidated income statement for
the period ended December 31, 2016.
Employee compensation in exchange for
continued services
The Company
may pay additional amounts not exceeding €1,625,000 ($1,849,000) over three-year periods based on key employees’ continuing
employment with Mascus
.
Notes to the Consolidated
Financial Statements
|
(Tabular amounts expressed in thousands of United States dollars,
except where noted)
|
|
|
30.
|
Business combinations
(continued)
|
|
(b)
|
Petrowsky acquisition
|
On August 1, 2016 (the “Petrowsky Acquisition Date”),
the Company acquired the assets of Petrowsky for cash consideration of $6,250,000. An additional $750,000 was paid for the retention
of certain key employees. In addition to cash consideration, consideration of up to $3,000,000 is contingent on Petrowsky achieving
certain revenue growth targets over the three-year period following acquisition.
Based in North Franklin, Connecticut, Petrowsky caters largely
to equipment sellers in the construction and transportation industries. Petrowsky also serves customers selling assets in the
underground utility, waste recycling, marine, and commercial real estate industries. The business operates one permanent auction
site, in North Franklin, which will continue to hold auctions, and also specializes in off-site auctions held on the land of the
consignor.
The acquisition was accounted for in accordance
with ASC 805. The assets acquired were recorded at their estimated fair values at the Petrowsky Acquisition Date. Goodwill of
$4,308,000 was calculated as the fair value of consideration over the estimated fair value of the net assets acquired.
Petrowsky provisional purchase price allocation
|
|
August 1, 2016
|
|
Purchase price
|
|
$
|
6,250
|
|
Fair value of contingent consideration
|
|
|
1,433
|
|
Total fair value at Petrowsky Acquisition Date
|
|
|
7,683
|
|
|
|
|
|
|
Assets acquired:
|
|
|
|
|
Property, plant and equipment
|
|
$
|
441
|
|
Intangible assets ~
|
|
|
2,934
|
|
Fair value of identifiable net assets acquired
|
|
|
3,375
|
|
Goodwill acquired on acquisition
|
|
$
|
4,308
|
|
|
~
|
Consists of customer relationships with estimated useful lives
of 10 years.
|
The amounts included in the Petrowsky provisional
purchase price allocation are preliminary in nature and are subject to adjustment as additional information is obtained about
the facts and circumstances that existed as of the Petrowsky
Acquisition Date. The final determination
of the fair values of certain assets and liabilities will be completed within the measurement period of up to one year from the
Petrowsky Acquisition Date.
Adjustments to the preliminary values during
the measurement period will be recorded in the operating results of the period in which the adjustments are determined. Changes
to the amounts recorded as assets and liabilities will result in a corresponding adjustment to goodwill.
Assets acquired and liabilities assumed
At the date of the acquisition, the carrying
amounts of the assets and liabilities acquired approximated their fair values, except customer relationships, whose fair value
was determined using appropriate valuation techniques.
Goodwill
Goodwill has been allocated entirely
to the Company’s Core Auction segment and is based on an analysis of the fair value of net assets acquired. Petrowsky
is a highly complementary business that will broaden the Company’s base of equipment sellers, one of the main
drivers generating goodwill. Petrowsky’s sellers are primarily in the construction and transportation industries, which
are also well aligned with the Company’s sector focus.
Notes to the Consolidated
Financial Statements
|
(Tabular amounts expressed in thousands of United States dollars,
except where noted)
|
|
|
30.
|
Business
combinations (continued)
|
|
(b)
|
Petrowsky acquisition (continued)
|
Contributed revenue and net loss
The results of Petrowsky’s operations
are included in these consolidated financial statements from Petrowsky Acquisition Date. Petrowksy’s contribution
to the Company’s revenues and net income for the period from August 1, 2016 to December 31, 2016 was $882,000 of revenues
and a $218,000 net loss, excluding continuing employment costs. Pro forma results of operations have not been
presented as such pro forma financial information would not be materially different from historical results.
Contingent consideration
As part of the acquisition, contingent consideration
of up to $3,000,000 is payable to Petrowsky if certain revenue growth targets are achieved. The contingent consideration is based
on the cumulative revenue growth during a three-year period ending July 31, 2019. Based on the Company’s current three-year
forecast for this new business, it is determined that the fair value of the contingent consideration is $1,433,000.
Transactions recognized separately
from the acquisition of assets and assumptions of liabilities
Acquisition-related costs
Expenses totalling $604,000 for legal fees,
continuing employment costs, and other acquisition-related costs are included in the consolidated income statement for
the year ended December 31, 2016.
Employee compensation in exchange for
continued services
As noted above,
$750,000 was paid on the Petrowsky Acquisition Date in exchange for the continuing services of certain key employees. In addition,
the Company may pay an amount not exceeding $1,000,000 over a three-year period based on the founder of Petrowsky’s continuing
employment with the Company.
On November 15, 2016 (the “Kramer Acquisition
Date”), the Company purchased the assets of Kramer Auctions Ltd. for cash consideration of Canadian dollar 15,300,000 ($11,361,000)
comprised of Canadian dollar 15,000,000 ($11,138,000) paid at acquisition date and Canadian dollar 300,000 ($223,000) deferred
payments over three years. In addition to cash consideration, consideration of up to Canadian dollar 2,500,000 ($1,856,000) is
contingent on Kramer achieving certain operating performance targets over the three-year period following acquisition.
Kramer is a leading Canadian agricultural
auction company with exceptionally strong customer relationships in central Canada. This acquisition is expected to significantly
strengthen Ritchie Bros.’ penetration of Canada’s agricultural sector and add key talent to our Canadian Agricultural
sales and operations team.
The
acquisition was accounted for in accordance with ASC 805
Business Combinations
.
The assets acquired were recorded at their estimated fair values at the Kramer Acquisition Date. Goodwill of $6,822,000 was calculated
as the fair value of consideration over the estimated fair value of the net assets acquired.
Notes to the Consolidated
Financial Statements
|
(Tabular amounts expressed in thousands of United States dollars,
except where noted)
|
|
|
30.
|
Business
combinations (continued)
|
|
(c)
|
Kramer acquisition (continued)
|
Kramer provisional purchase price allocation
|
|
November 15, 2016
|
|
Purchase price
|
|
$
|
11,138
|
|
Deferred purchase note consideration
|
|
|
223
|
|
Fair value of contingent consideration
|
|
|
538
|
|
Total fair value at Petrowsky Acquisition Date
|
|
|
11,899
|
|
|
|
|
|
|
Assets acquired:
|
|
|
|
|
Property, plant and equipment
|
|
$
|
399
|
|
Intangible assets ~
|
|
|
4,678
|
|
Fair value of identifiable net assets acquired
|
|
|
5,077
|
|
Goodwill acquired on acquisition
|
|
$
|
6,822
|
|
|
~
|
Consists of customer relationships and trade
names with estimated useful lives of 10 and three years, respectively.
|
The amounts included in the Kramer provisional
purchase price allocation are preliminary in nature and are subject to adjustment as additional information is obtained about
the facts and circumstances that existed as of the Kramer Acquisition Date. The final determination of the fair values of certain
assets and liabilities will be completed within the measurement period of up to one year from the Kramer Acquisition Date. Adjustments
to the preliminary values during the measurement period will be recorded in the operating results of the period in which the adjustments
are determined. Changes to the amounts recorded as assets and liabilities will result in a corresponding adjustment to goodwill.
Assets acquired
At the date of acquisition, the Company determined
the fair value of the assets acquired using appropriate valuation techniques.
Goodwill
Goodwill has been allocated entirely
to the Company’s Core Auction segment and is based on an analysis of the fair value of net assets acquired. Kramer is a
highly complementary business that will broaden the Company’s base in the agriculture sector in Canada, one of the
main drivers generating goodwill.
Contributed revenue and net loss
The results of Kramer’s operations
are included in these consolidated financial statements from the Kramer Acquisition Date. Kramer’s contribution to the Company’s
revenues and net income for the period from November 15, 2016 to December 31, 2016 was $58,000 of revenues and a $199,000 net
loss, excluding continuing employment costs. Pro forma results of operations have not been presented as such pro
forma financial information would not be materially different from historical results.
Contingent consideration
As part of the acquisition, contingent consideration
of up to Canadian dollar 2,500,000 ($1,856,000) is payable to Kramer Auctioneers if certain revenue growth targets are achieved.
The contingent consideration is based on the cumulative revenue growth during a three-year period ending November 15, 2019. Based
on the Company’s current three-year forecast of this new business, it is determined the fair value of the contingent consideration
is Canadian dollar 725,000 ($538,000).
Notes to the Consolidated
Financial Statements
|
(Tabular amounts expressed in thousands of United States dollars,
except where noted)
|
|
30. Business
combinations (continued)
|
(c)
|
Kramer acquisition (continued)
|
Transactions recognized separately
from the acquisition of assets and assumptions of liabilities
Acquisition-related costs
Expenses totalling $192,000 for legal fees,
continuing employment costs, and other acquisition-related costs are included in the consolidated income statements for the year
ended December 31, 2016.
Employee compensation in exchange for
continued services
The Company may pay an additional amount
not exceeding Canadian dollar 1,000,000 ($743,000) over a three-year period based on the continuing employment of four key leaders
of Kramer Auctions with the Company.
On November 4, 2015 (the “Xcira Acquisition Date”),
the Company acquired 75% of the issued and outstanding shares of Xcira for cash consideration of $12,359,000. The remaining 25%
interests remain with the two founders of Xcira. Xcira is a Florida-based company, incorporated in the United States and its principal
activity is the provision of software and technology solutions to auction companies. By acquiring Xcira, the Company acquired
information technology capability and platform to build on its strong online bidding customer experience, and further differentiate
itself from other industrial auction companies.
The Company has the option to buy out the
remaining interest of the Xcira sellers subject to the terms of the Xcira Purchase Agreement. The acquisition was accounted for
in accordance with ASC 805. The assets acquired, liabilities assumed, and the non-controlling interest were recorded at their
estimated fair values at the Xcira Acquisition Date. Goodwill of $10,659,000 was calculated as the fair value of consideration
over the estimated fair value of the net assets acquired.
Xcira purchase price allocation
|
|
November 4, 2015
|
|
Purchase price
|
|
$
|
12,359
|
|
Non-controlling interest
|
|
|
4,119
|
|
Total fair value at Xcira Acquisition Date
|
|
|
16,478
|
|
|
|
|
|
|
Assets acquired:
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
252
|
|
Trade and other receivables
|
|
|
1,382
|
|
Prepaid expenses
|
|
|
62
|
|
Property, plant and equipment
|
|
|
314
|
|
Other non-current assets
|
|
|
11
|
|
Intangible assets ~
|
|
|
4,300
|
|
|
|
|
|
|
Liabilities assumed:
|
|
|
|
|
Trade and other payables
|
|
|
502
|
|
Fair value of identifiable net assets acquired
|
|
|
5,819
|
|
Goodwill acquired on acquisition
|
|
$
|
10,659
|
|
|
~
|
Consists of existing technology and customer
relationships with estimated useful lives of five and 20 years, respectively
|
Notes to the Consolidated
Financial Statements
|
(Tabular amounts expressed in thousands of United States dollars,
except where noted)
|
|
|
30.
|
Business
combination (continued)
|
|
(d)
|
Xcira acquisition (continued)
|
There was no contingent consideration under
the terms of the acquisition, and as such no acquisition provisions were created.
Assets acquired and liabilities assumed
At the date of acquisition, the carrying
amounts of the assets and liabilities acquired approximated their fair values, except intangible assets, whose fair values were
determined using appropriate valuation techniques.
Goodwill
Goodwill has been allocated entirely
to the Company’s Core Auction segment and is based on an analysis of the fair value of net assets acquired. The main
drivers generating goodwill are the Company’s ability to utilize Xcira’s experience to differentiate the
Company’s online bidding service from other industrial auction companies, as well as to secure Xcira’s bidding
technology. Online bidding represents a significant and growing portion of all bidding conducted at the Company’s
auctions.
Non-controlling interests
The fair value of the 25% non-controlling interest in Xcira
is estimated to be $4,119,000.
Contributed revenue and net income
The results of Xcira’s operations are
included in these consolidated financial statements from the date of acquisition. For the year ended December 31, 2016,
Xcira recorded revenues of $8,261,000 and net income of $1,225,000, respectively. On consolidation, $3,634,000 of inter entity
revenues recorded by Xcira during the year ended December 31, 2016, respectively, were eliminated against the same amounts of
inter-entity expenses recorded by another subsidiary within the wholly-owned group. Pro forma results of operations have not been
presented as such pro forma financial information would not be materially different from historical results.
Transactions recognized separately
from the acquisition of assets and assumptions of liabilities
Acquisition-related costs
Expenses totalling $1,111,000 for continuing
employment costs are included in the consolidated income statement for the year ended December 31, 2016 (2015: $191,000).
There were no other acquisition-related costs for Xcira in 2016 (2015: $410,000).
Employee compensation in exchange for
continued services
The Company may pay an additional
amount not exceeding $2,000,000 over a three-year period based on the Founder’s continuing employment with Xcira. For
the year ending December 31, 2016, the Company paid $667,000 relating to this compensation.
Future development of internally-generated
software
The Company may pay an additional amount
not exceeding $2,700,000 over a two-year period upon achievement of certain conditions related to the delivery of an upgrade to
its existing technology. The Company did not make any payments related to this software development in 2016.