RITCHIE BROS AUCTIONEERS INC, 10-Q filed on 8/9/2018
Quarterly Report
v3.10.0.1
Document and Entity Information - shares
6 Months Ended
Jun. 30, 2018
Aug. 08, 2018
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-Q  
Document Period End Date Jun. 30, 2018  
Document Fiscal Year Focus 2018  
Document Fiscal Period Focus Q2  
Amendment Flag false  
Entity Common Stock, Shares Outstanding   108,208,237
v3.10.0.1
Condensed Consolidated Income Statements - USD ($)
$ in Thousands
3 Months Ended 6 Months Ended
Jun. 30, 2018
Jun. 30, 2017
Jun. 30, 2018
Jun. 30, 2017
Total revenues $ 308,530 $ 252,613 $ 568,708 $ 452,040
Costs of services 43,033 36,292 79,690 60,632
Cost of inventory sold 81,702 71,726 157,493 135,127
Selling, general and administrative expenses 101,259 74,377 198,729 144,952
Acquisition-related costs 1,399 22,948 3,032 31,575
Depreciation and amortization expenses 16,537 11,872 32,728 22,210
Gain on disposition of property, plant and equipment (271) (308) (616) (1,029)
Impairment loss   8,911   8,911
Foreign exchange loss (gain) 76 (93) (16) (823)
Total operating expenses 243,735 225,725 471,040 401,555
Operating income 64,795 26,888 97,668 50,485
Interest expense (10,937) (8,620) (22,247) (16,753)
Other income, net 900 3,470 1,813 5,754
Income before income taxes 54,758 21,738 77,234 39,486
Income tax expense 9,031 4,025 14,300 11,340
Net income 45,727 17,713 62,934 28,146
Net income attributable to:        
Stockholders 45,717 17,635 62,855 28,012
Non-controlling interests $ 10 $ 78 $ 79 $ 134
Earnings per share attributable to stockholders:        
Basic $ 0.42 $ 0.16 $ 0.58 $ 0.26
Diluted $ 0.42 $ 0.16 $ 0.58 $ 0.26
Weighted average number of shares outstanding:        
Basic 107,864,030 107,004,902 107,610,679 106,928,672
Diluted 109,019,708 108,238,660 108,832,776 108,014,228
Service Revenues [Member]        
Total revenues $ 214,346 $ 172,749 $ 390,362 $ 296,128
Revenue from Inventory Sales [Member]        
Total revenues $ 94,184 $ 79,864 $ 178,346 $ 155,912
v3.10.0.1
Condensed Consolidated Statements of Comprehensive Income - USD ($)
$ in Thousands
3 Months Ended 6 Months Ended
Jun. 30, 2018
Jun. 30, 2017
Jun. 30, 2018
Jun. 30, 2017
Condensed Consolidated Statements of Comprehensive Income [Abstract]        
Net income $ 45,727 $ 17,713 $ 62,934 $ 28,146
Other comprehensive income (loss), net of income tax:        
Foreign currency translation adjustment (12,691) 9,373 (7,784) 16,813
Total comprehensive income 33,036 27,086 55,150 44,959
Total comprehensive income (loss) attributable to:        
Stockholders 33,056 26,976 55,089 44,789
Non-controlling interests $ (20) $ 110 $ 61 $ 170
v3.10.0.1
Condensed Consolidated Balance Sheets - USD ($)
$ in Thousands
Jun. 30, 2018
Dec. 31, 2017
Assets    
Cash and cash equivalents $ 210,566 $ 267,910
Restricted cash 118,714 63,206
Trade and other receivables 188,993 92,105
Inventory 63,636 38,238
Other current assets 28,765 27,610
Income taxes receivable 12,988 19,418
Total current assets 623,662 508,487
Property, plant and equipment 512,527 526,581
Equity-accounted investments 6,674 7,408
Other non-current assets 26,188 24,146
Intangible assets 253,036 261,094
Goodwill 672,909 670,922
Deferred tax assets 22,530 18,674
Total assets 2,117,526 2,017,312
Liabilities and Equity    
Auction proceeds payable 324,505 199,245
Trade and other payables 150,785 164,553
Income taxes payable 6,874 732
Short-term debt 4,056 7,018
Current portion of long-term debt 9,086 16,907
Total current liabilities 495,306 388,455
Long-term debt 741,278 795,985
Other non-current liabilities 39,130 46,773
Deferred tax liabilities 37,348 32,334
Total liabilities 1,313,062 1,263,547
Contingencies
Contingently redeemable performance share units 12,965 9,014
Share capital:    
Common stock; no par value, unlimited shares authorized, issued and outstanding shares: 108,202,351 (December 31, 2017: 107,269,783) 166,898 138,582
Additional paid-in capital 41,410 41,005
Retained earnings 628,341 602,609
Accumulated other comprehensive loss (50,280) (42,514)
Stockholders' equity 786,369 739,682
Non-controlling interest 5,130 5,069
Total stockholders' equity 791,499 744,751
Total liabilities and equity $ 2,117,526 $ 2,017,312
v3.10.0.1
Condensed Consolidated Balance Sheets (Parenthetical) - $ / shares
6 Months Ended
Jun. 30, 2018
Dec. 31, 2017
Condensed Consolidated Balance Sheets [Abstract]    
Common stock, no par value
Common stock, Shares Authorized, Unlimited Unlimited  
Common stock, issued shares 108,202,351 107,269,783
Common stock, outstanding shares 108,202,351 107,269,783
v3.10.0.1
Condensed Consolidated Statements of Changes in Equity - 6 months ended Jun. 30, 2018 - USD ($)
$ in Thousands
Common stock [Member]
Additional paid-in capital ("APIC") [Member]
Retained earnings [Member]
Accumulated other comprehensive loss [Member]
Non-controlling interest ("NCI") [Member]
Contingently Redeemable Performance Share Units [Member]
Total
Balance at Dec. 31, 2017 $ 138,582 $ 41,005 $ 602,609 $ (42,514) $ 5,069   $ 744,751
Balance, shares at Dec. 31, 2017 107,269,783            
Contingently redeemable Performance share units, Balance at Dec. 31, 2017           $ 9,014 9,014
Net income     62,855   79   62,934
Other comprehensive loss       (7,766) (18)   (7,784)
Comprehensive income     62,855 (7,766) 61   55,150
Stock option exercises $ 23,155 (5,106)         18,049
Stock option exercises, shares 772,599            
Issuance of common stock related to vesting of share units $ 5,161 (1,662)       (6,856) 3,499
Issuance of common stock related to vesting of share units, shares 159,969            
Stock option compensation expense   4,483         4,483
Modification of PSUs   703 (134)     6,132 569
Equity-classified PSU expense   1,885       4,376 1,885
Equity-classified PSU dividend equivalents   102 (324)     222 (222)
Change in value of redeemable PSUs     (77)     77 (77)
Cash dividends paid     (36,588)       (36,588)
Balance at Jun. 30, 2018 $ 166,898 $ 41,410 $ 628,341 $ (50,280) $ 5,130   791,499
Balance, shares at Jun. 30, 2018 108,202,351            
Contingently redeemable Performance share units, Balance at Jun. 30, 2018           $ 12,965 $ 12,965
v3.10.0.1
Condensed Consolidated Statements of Cash Flows - USD ($)
$ in Thousands
6 Months Ended
Jun. 30, 2018
Jun. 30, 2017
Operating activities:    
Net income $ 62,934 $ 28,146
Adjustments for items not affecting cash:    
Depreciation and amortization expenses 32,728 22,210
Impairment loss   8,911
Stock option compensation expense 4,483 8,076
Equity-classified PSU expense 6,261 2,045
Deferred income tax expense (recovery) 922 (4,823)
Unrealized foreign exchange loss (gain) 92 (1,487)
Amortization of debt issuance costs 2,073 1,057
Other, net (4,879) (1,820)
Net changes in operating assets and liabilities 3,244 53,692
Net cash provided by operating activities 107,858 116,007
Investing activities:    
Acquisition   (674,080)
Property, plant and equipment additions (5,802) (4,274)
Intangible asset additions (12,273) (10,124)
Proceeds on disposition of property, plant and equipment 1,633 2,451
Other, net (4,674)  
Net cash used in investing activities (21,116) (686,027)
Financing activities:    
Dividends paid to stockholders (36,588) (36,348)
Dividends paid to NCI   (41)
Issuances of share capital 18,049 6,033
Payment of withholding taxes on issuance of shares (3,357)  
Proceeds from short-term debt 308 6,850
Repayment of short-term debt (3,372) (17,208)
Proceeds from long-term debt   325,000
Repayment of long-term debt (56,555) (100,575)
Debt issue costs   (12,388)
Repayment of finance lease obligations (1,774) (858)
Other, net (1,176) (1,350)
Net cash provided by (used in) financing activities (84,465) 169,115
Effect of changes in foreign currency rates on cash, cash equivalents, and restricted cash (4,113) 10,310
Decrease (1,836) (390,595)
Beginning of period 331,116 758,089
Cash, cash equivalents, and restricted cash, end of period $ 329,280 $ 367,494
v3.10.0.1
Summary of Significant Accounting Policies
6 Months Ended
Jun. 30, 2018
Summary of Significant Accounting Policies [Abstract]  
Summary of Significant Accounting Policies

1.  Summary of significant accounting policies

Ritchie Bros. Auctioneers Incorporated and its subsidiaries (collectively referred to as the “Company”) provide global asset management and disposition services, offering customers end-to-end solutions for buying and selling used industrial equipment and other durable assets through its live unreserved auctions and online reserved and unreserved marketplaces, listing services, and private brokerage services.  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”).



(a)

Basis of preparation

These unaudited condensed consolidated interim financial statements have been prepared in accordance with United States generally accepted accounting principles (“US GAAP”). They include the accounts of Ritchie Bros. Auctioneers Incorporated and its subsidiaries from their respective dates of formation or acquisition. All significant intercompany balances and transactions have been eliminated.



Certain information and footnote disclosure required by US GAAP for complete annual financial statements have been omitted and, therefore, these unaudited condensed consolidated interim financial statements should be read in conjunction with the Company’s audited consolidated financial statements for the year ended December 31, 2017, included in the Company’s Annual Report on Form 10-K, filed with the Securities and Exchange Commission (“SEC”). In the opinion of management, these unaudited condensed consolidated interim financial statements reflect all adjustments, consisting of normal recurring adjustments, which are necessary to present fairly, in all material respects, the Company’s consolidated financial position, results of operations, cash flows and changes in equity for the interim periods presented. The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.



(b)

 Revenue recognition

Effective January 1, 2018, the Company adopted ASU 2014-09, Revenue from Contracts with Customers (Topic 606) using the full retrospective method, which included restating prior years for comparative amounts. This new accounting policy resulted in a change in the financial statement presentation only on the income statement, as described in Note 1(i) New and amended accounting standards in this Quarterly Report on Form 10-Q.



Revenues are comprised of:

·

Service revenues, including the following:

i.

Revenue from auction and marketplace (“A&M”) activities, including commissions earned at our live auctions, online marketplaces, and private brokerage services where we act as an agent for consignors of equipment and other assets, and various auction-related fees, including listing and buyer transaction fees; and

ii.

Other services revenues, including revenues from listing services, refurbishment, logistical services, financing, appraisal fees and other ancillary service fees; and

·

Revenue from inventory sales as part of A&M activities

The Company recognizes revenue when control of the promised goods or services is transferred to our customers, or upon completion of the performance obligation, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services. A performance obligation is a promise in a contract to transfer a distinct good or service to the customer. A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. For live event-based auctions or online auctions, revenue is recognized when the auction 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. 

1.  Summary of significant accounting policies (continued)

(b)

Revenue recognition (continued)

Service revenues

Commissions from sales at the Company’s auctions represent the percentage earned by the Company on the gross proceeds from equipment and other assets sold at auction. The majority of the Company’s commissions are earned as a pre-negotiated fixed rate of the gross selling price. Other commissions from sales at the Company’s auctions are earned from underwritten commission contracts, when the Company guarantees a certain level of proceeds to a consignor. 



The Company accepts equipment and other assets on consignment stimulating buyer interest through professional marketing techniques, and matches sellers (also known as consignors) to buyers through the auction or private sale process.  Prior to offering an item for sale on its online marketplaces, the Company also performs inspections.



Following the sale of the item, the Company invoices the buyer for the purchase price of the asset, taxes, and, if applicable, the buyer transaction fee, collects payment from the buyer, and remits the proceeds to the seller, net of the seller commissions, applicable taxes, and applicable fees. Commissions are calculated as a percentage of the hammer price of the property sold at auction. Fees are also charged to sellers for listing and inspecting equipment. Other revenues earned in the process of conducting the Company’s auctions include administrative, documentation, and advertising fees.



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 and fee revenues are recognized on the date of the auction sale upon the fall of the auctioneer’s hammer. 



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 the property has not been released to the buyer. If the buyer defaults on its payment obligation, also referred to as a collapsed sale, the sale is cancelled in the period in which the determination is made, and the property is returned to the consignor or placed in a later event-based or online auction. Historically cancelled sales have not been material.



Online marketplace commission revenue is reduced by a provision for disputes, which is an estimate of disputed items that are expected to be settled at a cost to the Company, related to settlements of discrepancies under the Company’s equipment condition certification program. The equipment condition certification refers to a written inspection report provided to potential buyers that reflects the condition of a specific piece of equipment offered for sale, and includes ratings, comments, and photographs of the equipment following inspection by one of the Company’s equipment inspectors. The equipment condition certification provides that a buyer may file a written dispute claim during an eligible dispute period for consideration and resolution at the sole determination of the Company if the purchased equipment is not substantially in the condition represented in the inspection report. Typically disputes under the equipment condition certification program are settled with minor repairs or additional services, such as washing or detailing the item; the estimated costs of such items or services are included in the provision for disputes.



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.



1.  Summary of significant accounting policies (continued)

(b)

Revenue recognition (continued)

Underwritten commission contracts can take the form of guarantee 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. 



Other services revenue also includes fees for refurbishment, logistical services, financing, appraisal fees and other ancillary service fees. Fees are recognized in the period in which the service is provided to the customer  



Revenue on inventory sales

Underwritten commission contracts can take the form of inventory contracts. 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. In its role as auctioneer, the Company auctions its inventory to equipment buyers through the auction process. Following the sale of the item, the Company invoices the buyer for the purchase price of the asset, taxes, and, if applicable, the buyer transaction fee, and collects payment from the buyer.

 

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. Title to the property is transferred in exchange for the hammer price, and if applicable, the buyer transaction fee plus applicable taxes.



(c)

 Cost of services

Costs of services are comprised of expenses incurred in direct relation to conducting auctions (“direct expenses”), earning online marketplace revenues, and earning other fee revenues. Direct expenses include direct labour, buildings and facilities charges, and travel, advertising and promotion costs.



Costs of services incurred to earn online marketplace revenues in addition to the costs listed above also include inspection costs.  Inspections are generally performed at the seller’s physical location. The cost of inspections includes payroll costs and related benefits for the Company’s employees that perform and manage field inspection services, the related inspection report preparation and quality assurance costs, fees paid to contractors who perform field inspections, related travel and incidental costs for the Company’s inspection service organization, and office and occupancy costs for its inspection services personnel. Costs of earning online marketplace revenues also include costs for the Company’s customer support, online marketplace operations, logistics, title and lien investigation functions, and lease and operations costs related to the Company’s third-party data centers at which its websites are hosted.



Costs of services incurred in earning other fee revenues include ancillary and logistical service expenses, direct labour (including commissions on sales), software maintenance fees, and materials. Costs of services exclude depreciation and amortization expenses.



(d)

Cost of inventory sold

Cost of inventory sold includes  the purchase price of assets sold for the Company’s own account and is determined using a specific identification basis. 

   

1.  Summary of significant accounting policies (continued)

(e)

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

Share unit plans

The Company has a senior executive performance share unit (“PSU”) plan and an employee PSU plan that provides for the award of PSUs to certain senior executives and employees, respectively, of the Company. The Company has the option to settle certain share unit 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 Monte-Carlo simulation model.  PSUs vest based on the passage of time and achievement of performance criteria. 



The Company also has a senior executive restricted share unit (“RSU”) plan and an employee RSU plan that provides for the award of RSUs to certain senior executives and employees, respectively, of the Company.  The Company has the option to settle certain share unit awards in cash or shares and expects to settle all grants on and after 2017 in shares.  The cost of RSUs granted is measured using the volume weighted average price of the Company’s common shares for the twenty days prior to the grant date.  RSUs vest based on the passage of time and include restrictions related to employment. 



This fair value of awards expected to vest under these plans is expensed over the respective remaining service period of the individual awards, on an accelerated recognition basis, with the corresponding increase to APIC recorded 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. Dividend equivalents on the equity-classified PSUs and RSUs are recognized as a reduction to retained earnings over the service period.



PSUs awarded under the senior executive and employee PSU plans (described in note 17) are contingently redeemable in cash in the event of death of the participant. The contingently redeemable portion of the senior executive and employee 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.



Stock option plans

The Company has three stock option compensation plans that provide 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 fair value of options expected to vest under these plans is expensed over the respective remaining service period of the individual awards, on an accelerated recognition basis, with the corresponding increase to APIC recorded in equity.  Upon exercise, any consideration paid on exercise of the stock options and amounts fully amortized in APIC are credited to the common shares.

1.  Summary of significant accounting policies (continued)

(e)

Share-based payments (continued)

Liability-classified share-based payments

The Company maintains other share unit compensation plans that vest over a period of up to three 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 17. 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 forfeitures and fair value revisions, if any, are recognized in earnings such that the cumulative expense reflects the revisions, 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.



(f)

Inventories

Inventory consists of equipment and other assets purchased for resale in an upcoming live on site auction or online marketplace event. The Company purchases inventory for resale through a competitive process where the consignor has determined this to be the preferred method of disposition through the auction process. In addition, certain jurisdictions require auctioneers to hold title to assets and facilitate title transfer on sale. Inventory is valued at the lower of cost and net realizable value where net realizable value represents the expected sale price upon disposition less make-ready costs and the costs of disposal and transportation. The significant elements of cost include the acquisition price of the inventory and make-ready costs to prepare the inventory for sale that are not selling expenses. Write-downs to the carrying value of inventory are recorded in cost of inventory sold on the consolidated income statement.



(g)

Impairment of long-lived and indefinite-lived assets

Long-lived assets, comprised of property, plant and equipment and intangible assets 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.



1.

Summary of significant accounting policies (continued)

(g)

Impairment of long-lived and indefinite-lived assets (continued)

Indefinite-lived intangible assets are tested annually for impairment as of December 31, and between annual tests if indicators of potential impairment exist. The Company has the option of performing a qualitative assessment to first determine whether the quantitative impairment test is necessary. This involves 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 indefinite-lived intangible asset is less than its fair value. If the qualitative assessment indicates it is not more likely than not that the carrying amount is less than its fair value, a quantitative impairment test is not required. Where a quantitative impairment test is required, the procedure is to compare the indefinite-lived intangible asset’s fair value with its carrying amount. An impairment loss is recognized as the difference between the indefinite-lived intangible asset’s carrying amount and its fair value.



(h)

Goodwill

Goodwill represents the excess of the purchase price of an acquired enterprise over the fair value assigned to the assets acquired and liabilities assumed in a business combination.



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 Company has the option of performing a qualitative assessment of a reporting unit to first determine whether the quantitative impairment test is necessary. This involves 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 assessment indicates it is not more likely than not that the reporting unit’s carrying amount is less than its fair value, a quantitative impairment test is not required.



If a quantitative impairment test is required, the procedure is to identify potential impairment by comparing the reporting unit’s fair value with its carrying amount, including goodwill. The reporting unit’s fair value is determined using various valuation approaches and techniques that involve assumptions based on what the Company believes a hypothetical marketplace participant would use in estimating fair value on the measurement date. An impairment loss is recognized as the difference between the reporting unit’s carrying amount and its fair value. If the difference between the reporting unit’s carrying amount and fair value is greater than the amount of goodwill allocated to the reporting unit, the impairment loss is restricted by the amount of the goodwill allocated to the reporting unit.



(i)

New and amended accounting standards

(i)

Effective January 1, 2018, the Company adopted ASU 2014-09, Revenue from Contracts with Customers (Topic 606).  The Company implemented the new standard using a full retrospective method, in order to provide more useful comparative information to financial statement users. 



The primary impact of the adoption of ASU 2014-09 is the change in the presentation of revenue from inventory, ancillary service, and logistical services contracts on a gross basis as a principal versus net as an agent. This is due to the new standard requiring an entity to determine whether the entity controls the specified good or service before transfer to the customer, with the entity being principal in these transactions. Prior to adopting ASU 2014-09, an entity evaluated indicators to determine if it was a principal or agent. As the Company determined that it controls the inventory and provision of ancillary and logistical services before transfer to its customers, the Company concluded that it was acting as a principal rather than an agent.  As a result of adoption of the new accounting standard there was no impact on the timing of recognition of revenue, operating income, net income, or on the consolidated balance sheet or consolidated statement of cash flows.



1Summary of significant accounting policies (continued)

(i)

New and amended accounting standards (continued)

Presenting revenue from inventory sales on a gross basis and presenting ancillary and logistical services revenues on a gross basis significantly changes the face of the Company’s consolidated income statement in two primary ways:

1)

Prior to the adoption of ASU 2014-09, all revenue from inventory sales were presented net of costs within service revenues on the income statement. With the adoption of ASU 2014-09, the Company has presented separately revenue from inventory sales and service revenue and accordingly service revenues exclude revenue from inventory sales and cost of inventory sold. Those amounts are now presented gross as separate line items on the face of the consolidated income statement; and

2)

Ancillary and logistical service revenues are presented within service revenues, now on a gross basis, with the related costs of services presented separately within costs of services.



Impact to reported results

The new presentation based on ASU 2014-09 results in an increase the amount of revenue reported but there is no change in the operating income compared to the prior presentation:



 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

Three months ended June 30, 2017

Consolidated income statement line item

As reported

 

New Revenue Standard Adjustment

 

Consolidated income statement line item

As Adjusted

Revenues

$

166,186 

 

$

6,563 

 

Service revenues

$

172,749 



 

 

 

 

79,864 

 

Revenue from inventory sales

 

79,864 



 

 

 

 

86,427 

 

Total revenues

 

252,613 

Costs of services

 

(21,591)

 

 

(14,701)

 

Costs of services

 

(36,292)



 

 

 

 

(71,726)

 

Cost of inventory sold

 

(71,726)



$

144,595 

 

$

 -

 

 

$

144,595 





 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

Six months ended June 30, 2017

Consolidated income statement line item

As reported

 

New Revenue Standard Adjustment

 

Consolidated income statement line item

As Adjusted

Revenues

$

290,685 

 

$

5,443 

 

Service revenues

$

296,128 



 

 

 

 

155,912 

 

Revenue from inventory sales

 

155,912 



 

 

 

 

161,355 

 

Total revenues

 

452,040 

Costs of services

 

(34,404)

 

 

(26,228)

 

Costs of services

 

(60,632)



 

 

 

 

(135,127)

 

Cost of inventory sold

 

(135,127)



$

256,281 

 

$

 -

 

 

$

256,281 



(ii)

 Effective January 1, 2018, the Company adopted ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments. ASU 2016-15 identifies how certain cash receipts and cash payments are presented and classified in the statement of cash flows. The amendments are applied retrospectively on the amendment date. The adoption of ASU 2016-15 resulted in the $1,302,000 Mascus contingent consideration paid in the second quarter of 2017 to be reclassified from operating to financing cash flows.



1.

Summary of significant accounting policies (continued)

(j)

Recent accounting standards not yet adopted

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.



Management continues to perform an analysis of all the Company’s leases, of which there are approximately 570 operating and 135 finance leases for which the Company is a lessee at the reporting date. The most significant operating leases in terms of the amount of rental charges and duration of the contract are for various auction sites and offices located in North America, Europe, the Middle East, and Asia. However, in terms of the number of leases, the majority consist of leases for computer, automotive, and yard equipment.



The Company continues to evaluate the new guidance to determine the impact it will have on its consolidated financial statements but has not yet completed its analysis.  At June 30, 2018, the Company expects that the majority, if not all, of the operating leases will be brought onto the Company’s balance sheet on adoption of ASU 2016-02. Management has evaluated alternative software solutions together with the functionality within the Company’s financial system to automate the lease accounting process. The Company has determined that implementation of a lease accounting module within its current financial system will facilitate an effective adoption of the standard. The Company has developed a detailed project plan and key implementation milestones as part of this process. The Company expects to complete the majority of its implementation of the new lease accounting module during the second half of 2018.



The adoption of ASU 2016-02 is expected to add complexity to the accounting for leases, as well as require system and process changes to manage the large number of operating leases that the Company anticipates will be brought onto its balance sheet. As a result, management has determined that the Company will not early adopt ASU 2016-02, and will continue to evaluate the elections available to the Company involving the application of practical expedients on transition.



v3.10.0.1
Significant Judgments, Estimates and Assumptions
6 Months Ended
Jun. 30, 2018
Significant Judgments, Estimates and Assumptions [Abstract]  
Significant Judgments, Estimates and Assumptions

2.    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.



2.    Significant judgments, estimates and assumptions (continued)

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 items subject to estimates include purchase price allocations, the carrying amounts of goodwill, the useful lives of long-lived assets, share based compensation, deferred income taxes, reserves for tax uncertainties, and other contingencies.



v3.10.0.1
Seasonality
6 Months Ended
Jun. 30, 2018
Seasonality [Abstract]  
Seasonality

3.  Seasonality

The Company’s operations are both seasonal and event driven. Revenues tend to be the highest during the second and fourth calendar quarters. The Company generally conducts more live, on site auctions during these quarters than during the first and third calendar quarters. Late December through mid-February and mid-July through August are traditionally less active periods. Online volumes are similarly affected as supply of used equipment is lower in the third quarter as it is actively being used and not available for sale.



v3.10.0.1
Segment Information
6 Months Ended
Jun. 30, 2018
Segment Information [Abstract]  
Segment Information

4.  Segment information

The Company’s principal business activity is the management and disposition of used industrial equipment and other durable assets. The Company’s operations are comprised of one reportable segment and other business activities that are not reportable as follows:

·

Auctions and Marketplaces – This is the Company’s only reportable segment, which consists of the Company’s live on site auctions, its online auctions and marketplaces, and its brokerage service;

·

Other includes the results of Ritchie Bros. Financial Services (“RBFS”), Mascus online services, and the results from various value-added services and make-ready activities, including the Company’s equipment refurbishment services, Asset Appraisal Services, and Ritchie Bros. Logistical Services.  

4.  Segment information (continued)



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

Three months ended June 30, 2018

 

 

Six months ended June 30, 2018



A&M

 

Other

 

Consolidated

 

A&M

 

Other

 

Consolidated

 

Service revenues

$

180,067 

 

$

34,279 

 

$

214,346 

 

$

328,472 

 

$

61,890 

 

$

390,362 

 

Revenue from inventory sales

 

94,184 

 

 

 -

 

 

94,184 

 

 

178,346 

 

 

 -

 

 

178,346 

 

Total revenues

 

274,251 

 

 

34,279 

 

 

308,530 

 

 

506,818 

 

 

61,890 

 

 

568,708 

 

Costs of services

 

21,381 

 

 

21,652 

 

 

43,033 

 

 

42,829 

 

 

36,861 

 

 

79,690 

 

Cost of inventory sold

 

81,702 

 

 

 -

 

 

81,702 

 

 

157,493 

 

 

 -

 

 

157,493 

 

Selling, general and administrative

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

      expenses ("SG&A")

 

95,959 

 

 

5,300 

 

 

101,259 

 

 

188,961 

 

 

9,768 

 

 

198,729 

 

Segment profit

$

75,209 

 

$

7,327 

 

$

82,536 

 

$

117,535 

 

$

15,261 

 

$

132,796 

 

Acquisition-related costs

 

 

 

 

 

 

 

1,399 

 

 

 

 

 

 

 

 

3,032 

 

Depreciation and amortization

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

      expenses ("D&A")

 

 

 

 

 

 

 

16,537 

 

 

 

 

 

 

 

 

32,728 

 

Gain on disposition of property, plant

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

      and equipment ("PPE")

 

 

 

 

 

 

 

(271)

 

 

 

 

 

 

 

 

(616)

 

Foreign exchange loss (gain)

 

 

 

 

 

 

 

76 

 

 

 

 

 

 

 

 

(16)

 

Operating income

 

 

 

 

 

 

$

64,795 

 

 

 

 

 

 

 

$

97,668 

 

Interest expense

 

 

 

 

 

 

 

(10,937)

 

 

 

 

 

 

 

 

(22,247)

 

Other income, net

 

 

 

 

 

 

 

900 

 

 

 

 

 

 

 

 

1,813 

 

Income tax expense

 

 

 

 

 

 

 

(9,031)

 

 

 

 

 

 

 

 

(14,300)

 

Net income

 

 

 

 

 

 

$

45,727 

 

 

 

 

 

 

 

$

62,934 

 



4.  Segment information (continued)



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

Three months ended June 30, 2017

 

 

Six months ended June 30, 2017



A&M

 

Other

 

Consolidated

 

A&M

 

Other

 

Consolidated

 

Service revenues

$

146,509 

 

$

26,240 

 

$

172,749 

 

$

249,539 

 

$

46,589 

 

$

296,128 

 

Revenue from inventory sales

 

79,864 

 

 

 -

 

 

79,864 

 

 

155,912 

 

 

 -

 

 

155,912 

 

Total revenues

 

226,373 

 

 

26,240 

 

 

252,613 

 

 

405,451 

 

 

46,589 

 

 

452,040 

 

Costs of services

 

20,978 

 

 

15,314 

 

 

36,292 

 

 

33,565 

 

 

27,067 

 

 

60,632 

 

Cost of inventory sold

 

71,726 

 

 

 -

 

 

71,726 

 

 

135,127 

 

 

 -

 

 

135,127 

 

SG&A expenses

 

70,977 

 

 

3,400 

 

 

74,377 

 

 

138,088 

 

 

6,864 

 

 

144,952 

 

Impairment loss

 

8,911 

 

 

 -

 

 

8,911 

 

 

8,911 

 

 

 -

 

 

8,911 

 

Segment profit

$

53,781 

 

$

7,526 

 

$

61,307 

 

$

89,760 

 

$

12,658 

 

$

102,418 

 

Acquisition-related costs

 

 

 

 

 

 

 

22,948 

 

 

 

 

 

 

 

 

31,575 

 

D&A expenses

 

 

 

 

 

 

 

11,872 

 

 

 

 

 

 

 

 

22,210 

 

Gain on disposition of PPE

 

 

 

 

 

 

 

(308)

 

 

 

 

 

 

 

 

(1,029)

 

Foreign exchange gain

 

 

 

 

 

 

 

(93)

 

 

 

 

 

 

 

 

(823)

 

Operating income

 

 

 

 

 

 

$

26,888 

 

 

 

 

 

 

 

$

50,485 

 

Interest expense

 

 

 

 

 

 

 

(8,620)

 

 

 

 

 

 

 

 

(16,753)

 

Other income, net

 

 

 

 

 

 

 

3,470 

 

 

 

 

 

 

 

 

5,754 

 

Income tax expense

 

 

 

 

 

 

 

(4,025)

 

 

 

 

 

 

 

 

(11,340)

 

Net income

 

 

 

 

 

 

$

17,713 

 

 

 

 

 

 

 

$

28,146 

 



The Company‘s geographic breakdown of total revenue is as follows:



 

 

 

 

 

 

 

 

 

 



 

 

 

 

 



 

United
States

 

Canada

 

Europe

 

Other

 

Consolidated

Total revenues for the three months ended:

 

 

 

 

 

 

 

 

 

 

June 30, 2018

$

142,931 

$

82,776 

$

44,826 

$

37,997 

$

308,530 

June 30, 2017

 

107,943 

 

78,366 

 

34,598 

 

31,706 

 

252,613 

Total revenues for the six months ended:

 

 

 

 

 

 

 

 

 

 

June 30, 2018

 

278,499 

 

148,585 

 

79,398 

 

62,226 

 

568,708 

June 30, 2017

 

220,027 

 

119,859 

 

52,865 

 

59,289 

 

452,040 



A

v3.10.0.1
Total Revenues
6 Months Ended
Jun. 30, 2018
Total Revenues [Abstract]  
Total Revenues

5.   Total revenues 



 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 



Three months ended June 30,

 

Six months ended June 30,



 

2018 

 

 

2017 

 

 

2018 

 

 

2017 

Service revenues:

 

 

 

 

 

 

 

 

 

 

 

     Commissions

$

124,697 

 

$

112,242 

 

$

225,991 

 

$

191,539 

     Fees

 

89,649 

 

 

60,507 

 

 

164,371 

 

 

104,589 



 

214,346 

 

 

172,749 

 

 

390,362 

 

 

296,128 

Revenue from inventory sales

 

94,184 

 

 

79,864 

 

 

178,346 

 

 

155,912 



$

308,530 

 

$

252,613 

 

$

568,708 

 

$

452,040 



v3.10.0.1
Operating Expenses
6 Months Ended
Jun. 30, 2018
Operating Expenses [Abstract]  
Operating Expenses

6.    Operating expenses

Costs of services



 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 



Three months ended

 

Six months ended

 



June 30,

 

June 30,



 

2018 

 

 

2017 

 

 

2018 

 

 

2017 

 

Ancillary and logistical service expenses

$

19,980 

 

$

14,701 

 

$

34,560 

 

$

26,228 

 

Employee compensation expenses

 

10,931 

 

 

8,813 

 

 

19,950 

 

 

14,289 

 

Buildings, facilities and technology expenses

 

2,663 

 

 

2,401 

 

 

5,290 

 

 

3,947 

 

Travel, advertising and promotion expenses

 

7,806 

 

 

7,426 

 

 

14,614 

 

 

12,082 

 

Other costs of services

 

1,653 

 

 

2,951 

 

 

5,276 

 

 

4,086 

 



$

43,033 

 

$

36,292 

 

$

79,690 

 

$

60,632 

 



SG&A expenses



 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 



Three months ended

 

Six months ended

 



June 30,

 

June 30,



 

2018 

 

 

2017 

 

 

2018 

 

 

2017 

 

Employee compensation expenses

$

66,699 

 

 

47,405 

 

$

129,992 

 

$

91,860 

 

Buildings, facilities and technology expenses

 

15,436 

 

 

13,319 

 

 

30,709 

 

 

25,594