RITCHIE BROS AUCTIONEERS INC, 10-K filed on 2/21/2017
Annual Report
Document and Entity Information (USD $)
12 Months Ended
Dec. 31, 2016
Feb. 17, 2017
Jun. 30, 2016
Document And Entity Information [Abstract]
 
 
 
Entity Registrant Name
Ritchie Bros Auctioneers Inc 
 
 
Entity Central Index Key
0001046102 
 
 
Current Fiscal Year End Date
--12-31 
 
 
Entity Filer Category
Large Accelerated Filer 
 
 
Document Type
10-K 
 
 
Document Period End Date
Dec. 31, 2016 
 
 
Document Fiscal Year Focus
2016 
 
 
Document Fiscal Period Focus
FY 
 
 
Amendment Flag
false 
 
 
Entity Well-known Seasoned Issuer
Yes 
 
 
Entity Voluntary Filers
No 
 
 
Entity Current Reporting Status
Yes 
 
 
Entity Public Float
 
 
$ 3,575,313,844 
Entity Common Stock, Shares Outstanding
 
106,822,475 
 
Consolidated Income Statements (USD $)
In Thousands, except Share data, unless otherwise specified
12 Months Ended
Dec. 31, 2016
Dec. 31, 2015
Dec. 31, 2014
Consolidated Income Statements [Abstract]
 
 
 
Revenues (note 5)
$ 566,395 
$ 515,875 
$ 481,097 
Costs of services, excluding depreciation and amortization (note 6)
66,062 
56,026 
57,884 
Gross revenue, net of expenses
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 
Other income (expense)
(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 
Income tax expense
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 
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 
Consolidated Statements of Comprehensive Income (USD $)
In Thousands, unless otherwise specified
12 Months Ended
Dec. 31, 2016
Dec. 31, 2015
Dec. 31, 2014
Consolidated Statements of Comprehensive Income [Abstract]
 
 
 
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 
Consolidated Balance Sheets (USD $)
In Thousands, unless otherwise specified
Dec. 31, 2016
Dec. 31, 2015
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 
Total Current Assets
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 
Total Assets
1,599,533 
1,120,115 
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 
Total Current Liabilities
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 
Total Liabilities
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 
 
Share capital:
 
 
Common shares; 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 
Total Equity
691,830 
707,359 
Total Liabilities and Equity
$ 1,599,533 
$ 1,120,115 
Consolidated Balance Sheets (Parenthetical) (USD $)
12 Months Ended
Dec. 31, 2016
Dec. 31, 2015
Consolidated Balance Sheets [Abstract]
 
 
Common shares, no par value
   
   
Common Stock, Shares Authorized, Unlimited
Unlimited 
Unlimited 
Common shares, issued shares
106,822,001 
107,200,470 
Common shares, outstanding shares
106,822,001 
107,200,470 
Consolidated Statements of Changes in Equity (USD $)
In Thousands, except Share data
Common stock [Member]
Additional paid-In capital [Member]
Retained earnings [Member]
Accumulated other comprehensive income (loss) [Member]
Non-controlling interest [Member]
Contingently redeemable non-controlling interest [Member]
Performance Share Units [Member]
Total
Contingently redeemable non-controlling interest, Balance at Dec. 31, 2013
 
 
 
 
 
$ 8,303 
 
 
Balance at Dec. 31, 2013
126,350 
30,238 
510,571 
18,936 
 
 
 
686,095 
Balance, shares at Dec. 31, 2013
107,024,783 
 
 
 
 
 
 
 
Net income
 
 
90,981 
 
 
 
 
90,981 
Change in value of redeemable NCI
 
 
(7,512)
 
 
 
 
(7,512)
Other comprehensive income (loss)
 
 
 
(35,686)
 
 
 
(35,686)
Comprehensive income
 
 
83,469 
(35,686)
 
 
 
47,783 
Net income
 
 
 
 
 
1,582 
 
 
Change in value of contingently redeemable NCI
 
 
 
 
 
7,512 
 
 
Other comprehensive income (loss)
 
 
 
 
 
(110)
 
 
Comprehensive Income attributable redeemable non-controlling interests
 
 
 
 
 
8,984 
 
 
Stock option exercises
14,907 
(2,786)
 
 
 
 
 
12,121 
Stock option exercises, shares
663,152 
 
 
 
 
 
 
 
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)
Contingently redeemable non-controlling interest, Balance at Dec. 31, 2014
 
 
 
 
 
17,287 
 
 
Balance at Dec. 31, 2014
141,257 
31,314 
536,111 
(16,750)
 
 
 
691,932 
Balance, shares at Dec. 31, 2014
107,687,935 
 
 
 
 
 
 
 
Net income
 
 
136,214 
 
64 
 
 
136,278 
Change in value of redeemable NCI
 
 
(6,934)
 
 
 
 
(6,934)
Other comprehensive income (loss)
 
 
 
(40,383)
 
 
 
(40,383)
Comprehensive income
 
 
136,214 
(40,383)
64 
 
 
95,895 
Net income
 
 
 
 
 
2,297 
 
 
Change in value of contingently redeemable NCI
 
 
 
 
 
6,934 
 
 
Other comprehensive income (loss)
 
 
 
 
 
(393)
 
 
Comprehensive Income attributable redeemable non-controlling interests
 
 
 
 
 
1,904 
 
 
Stock option exercises
37,762 
(7,946)
 
 
 
 
 
29,816 
Stock option exercises, shares
1,412,535 
 
 
 
 
 
 
 
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)
(47,489)
 
 
 
 
 
 
(47,489)
Shares repurchased (note 25), shares
(1,900,000)
 
 
 
 
 
 
(1,900,000)
Cash dividends paid (note 25)
 
 
(64,340)
 
 
 
 
(64,340)
Cash dividends paid (note 25)
 
 
 
 
 
(1,340)
 
 
Contingently redeemable non-controlling interest, Balance at Dec. 31, 2015
 
 
 
 
 
24,785 
 
24,785 
Balance at Dec. 31, 2015
131,530 
27,728 
601,051 
(57,133)
4,183 
 
 
707,359 
Balance, shares at Dec. 31, 2015
107,200,470 
 
 
 
 
 
 
 
Net income
 
 
91,832 
 
346 
 
 
92,178 
Change in value of redeemable NCI
 
 
(21,186)
 
 
 
 
(21,186)
Other comprehensive income (loss)
 
 
 
(9,993)
(23)
 
 
(10,016)
Comprehensive income
 
 
91,832 
(9,993)
323 
 
 
82,162 
Net income
 
 
 
 
 
1,334 
 
 
Change in value of contingently redeemable NCI
 
 
 
 
 
21,186 
 
 
Other comprehensive income (loss)
 
 
 
 
 
169 
 
 
Comprehensive Income attributable redeemable non-controlling interests
 
 
 
 
 
1,503 
 
 
Stock option exercises
30,670 
(6,332)
 
 
 
 
 
24,338 
Stock option exercises, shares
1,081,531 
 
 
 
 
 
 
 
Stock option tax adjustment
 
443 
 
 
 
 
 
443 
Stock option compensation expense (note 26)
 
5,507 
 
 
 
 
 
5,507 
Modification of PSUs (note 26)
 
 
(70)
 
 
 
2,175 
(70)
Equity-classified PSU expense (note 26)
 
283 
 
 
 
 
1,698 
283 
Equity-classified PSU dividend equivalents
 
(62)
 
 
 
42 
(53)
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)
Acquisition of NCI
 
 
 
 
 
(44,141)
 
 
Shares repurchased (note 25)
(36,726)
 
 
 
 
 
 
(36,726)
Shares repurchased (note 25), shares
(1,460,000)
 
 
 
 
 
 
(1,460,000)
Cash dividends paid (note 25)
 
 
(70,459)
 
 
 
 
(70,562)
Cash dividends paid (note 25)
 
 
 
 
(103)
 
 
 
Cash dividends paid (note 25)
 
 
 
 
 
(3,333)
 
 
Balance at Dec. 31, 2016
125,474 
27,638 
601,071 
(67,126)
4,773 
 
 
691,830 
Balance, shares at Dec. 31, 2016
106,822,001 
 
 
 
 
 
 
 
Contingently redeemable Performance share units, Balance at Dec. 31, 2016
 
 
 
 
 
 
$ 3,950 
$ 3,950 
Consolidated Statements of Cash Flows (USD $)
In Thousands, unless otherwise specified
12 Months Ended
Dec. 31, 2016
Dec. 31, 2015
Dec. 31, 2014
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 contingently redeemable NCI (note 9)
(41,092)
 
 
Acquisition of NCI (note 30)
(226)
 
 
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
(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 
Mascus International Holdings BV [Member]
 
 
 
Investing activities:
 
 
 
Acquisitions (note 30)
(28,123)
 
 
Xcira LLC [Member]
 
 
 
Investing activities:
 
 
 
Acquisitions (note 30)
 
(12,107)
 
Petrowsky Auctioneers Inc. [Member]
 
 
 
Investing activities:
 
 
 
Acquisitions (note 30)
(6,250)
 
 
Kramer Auctions Ltd. [Member]
 
 
 
Investing activities:
 
 
 
Acquisitions (note 30)
$ (11,138)
 
 
General Information
General Information

1. General information

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”).



Significant Accounting Policies
Significant Accounting Policies

2. Significant accounting policies

(a)  Basis of preparation

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.



(c)  Revenue recognition

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.

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.

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. 



(d)  Share-based payments

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.



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.

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). 

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.



(h) Restricted 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.



(j)  Inventories

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.

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.



(n) Intangible assets

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. 





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.



(p)  Goodwill

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.



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.



(r) Taxes

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.

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.



(t)  Earnings per share

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.

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.

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.

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.

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.

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

Non-cash consideration

Contract modification at transition

Completed contracts at transition

Technical correction

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.



Significant Judgments, Estimates and Assumptions
Significant Judgments, Estimates and Assumptions

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.





Segmented Information
Segmented Information

4. Segmented  information

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.

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 

 





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.  

Revenues
Revenues

5. Revenues

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 



Operating Expenses
Operating Expenses

6. Operating expenses

Certain prior period operating expenses have been reclassified to conform with current presentation.



Costs of services, excluding depreciation and amortizationC



 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

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.

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)