RITCHIE BROS AUCTIONEERS INC, 10-Q filed on 11/9/2016
Quarterly Report
Document and Entity Information
9 Months Ended
Sep. 30, 2016
Nov. 8, 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-Q 
 
Document Period End Date
Sep. 30, 2016 
 
Document Fiscal Year Focus
2016 
 
Document Fiscal Period Focus
Q3 
 
Amendment Flag
false 
 
Entity Common Stock, Shares Outstanding
 
106,679,740 
Condensed Consolidated Income Statements (USD $)
In Thousands, except Share data, unless otherwise specified
3 Months Ended 9 Months Ended
Sep. 30, 2016
Sep. 30, 2015
Sep. 30, 2016
Sep. 30, 2015
Condensed Consolidated Income Statements [Abstract]
 
 
 
 
Revenues (note 6)
$ 128,876 
$ 109,318 
$ 419,626 
$ 380,413 
Costs of services, excluding depreciation and amortization (note 7)
14,750 
12,045 
49,821 
40,681 
Gross revenue, net of expenses
114,126 
97,273 
369,805 
339,732 
Selling, general and administrative expenses (note 7)
69,000 
58,170 
211,153 
187,165 
Acquisition-related costs (note 7)
4,691 
 
5,440 
 
Depreciation and amortization expenses (note 7)
10,196 
10,017 
30,560 
31,402 
Gain on disposition of property, plant and equipment
(570)
(234)
(1,017)
(1,200)
Impairment loss (note 8)
28,243 
 
28,243 
 
Foreign exchange loss (gain)
281 
718 
332 
(2,051)
Operating income
2,285 
28,602 
95,094 
124,416 
Interest income
369 
548 
1,354 
2,075 
Interest expense
(934)
(1,239)
(3,357)
(3,816)
Equity income (note 19)
213 
363 
1,209 
769 
Other, net
247 
739 
1,214 
2,370 
Other income (expense)
(105)
411 
420 
1,398 
Income before income taxes
2,180 
29,013 
95,514 
125,814 
Income tax expense (recovery) (note 9):
 
 
 
 
Current
9,652 
8,700 
35,767 
38,778 
Deferred
(2,472)
(934)
(5,838)
(4,167)
Income tax expense
7,180 
7,766 
29,929 
34,611 
Net income (loss)
(5,000)
21,247 
65,585 
91,203 
Net income (loss) attributable to:
 
 
 
 
Stockholders
(5,137)
20,825 
63,979 
89,685 
Non-controlling interests
$ 137 
$ 422 
$ 1,606 
$ 1,518 
Earnings (loss) per share attributable to stockholders (note 11):
 
 
 
 
Basic
$ (0.05)
$ 0.19 
$ 0.60 
$ 0.84 
Diluted
$ (0.05)
$ 0.19 
$ 0.60 
$ 0.83 
Weighted average number of shares outstanding (note 11):
 
 
 
 
Basic
106,622,376 
107,137,417 
106,595,088 
107,041,819 
Diluted
107,525,051 
107,517,888 
107,221,390 
107,433,359 
Condensed Consolidated Statements of Comprehensive Income (USD $)
In Thousands, unless otherwise specified
3 Months Ended 9 Months Ended
Sep. 30, 2016
Sep. 30, 2015
Sep. 30, 2016
Sep. 30, 2015
Condensed Consolidated Statements of Comprehensive Income [Abstract]
 
 
 
 
Net income (loss)
$ (5,000)
$ 21,247 
$ 65,585 
$ 91,203 
Other comprehensive income (loss), net of income tax:
 
 
 
 
Foreign currency translation adjustment
590 
(10,817)
7,990 
(33,903)
Total comprehensive income (loss)
(4,410)
10,430 
73,575 
57,300 
Total comprehensive income (loss) attributable to:
 
 
 
 
Stockholders
(4,550)
10,115 
71,798 
56,075 
Non-controlling interests
$ 140 
$ 315 
$ 1,777 
$ 1,225 
Condensed Consolidated Balance Sheets (USD $)
In Thousands, unless otherwise specified
Sep. 30, 2016
Dec. 31, 2015
Current Assets:
 
 
Cash and cash equivalents
$ 230,984 
$ 210,148 
Restricted cash
83,413 
83,098 
Trade and other receivables
192,420 
59,412 
Inventory (note 14)
42,371 
58,463 
Advances against auction contracts
3,839 
4,797 
Prepaid expenses and deposits
12,672 
11,057 
Assets held for sale (note 15)
390 
629 
Income taxes receivable
5,882 
2,495 
Total Current Assets
571,971 
430,099 
Property, plant and equipment (note 16)
528,634 
528,591 
Equity-accounted investments (note 19)
7,649 
6,487 
Other non-current assets
4,770 
3,369 
Intangible assets (note 17)
66,681 
46,973 
Goodwill (note 18)
92,307 
91,234 
Deferred tax assets
15,475 
13,362 
Total Assets
1,287,487 
1,120,115 
Current liabilities:
 
 
Auction proceeds payable
274,741 
101,215 
Trade and other payables
122,288 
120,042 
Income taxes payable
4,299 
13,011 
Short-term debt (note 20)
39,013 
12,350 
Current portion of long-term debt (note 20)
 
43,348 
Total Current Liabilities
440,341 
289,966 
Long-term debt (note 20)
101,590 
54,567 
Share unit liabilities
3,526 
5,633 
Other non-current liabilities
13,647 
6,735 
Deferred tax liabilities
30,592 
31,070 
Total Liabilities
589,696 
387,971 
Commitments (note 23)
   
   
Contingencies (note 24)
   
   
Contingently redeemable:
 
 
Non-controlling interest (note 10)
 
24,785 
Performance Share Units (note 22)
3,438 
 
Share capital:
 
 
Common shares; no par value, unlimited shares authorized, issued and outstanding shares: 106,661,268 (December 31, 2015: 107,200,470)
120,911 
131,530 
Additional paid-in capital
26,602 
27,728 
Retained earnings
591,430 
601,051 
Accumulated other comprehensive loss
(49,314)
(57,133)
Shareholders' equity
689,629 
703,176 
Non-controlling interest
4,724 
4,183 
Total Equity
694,353 
707,359 
Total Liabilities and Equity
$ 1,287,487 
$ 1,120,115 
Condensed Consolidated Balance Sheets (Parenthetical) (USD $)
Sep. 30, 2016
Dec. 31, 2015
Condensed Consolidated Balance Sheets [Abstract]
 
 
Common shares, no par value
   
   
Common shares, issued shares
106,661,268 
107,200,470 
Common shares, outstanding shares
106,661,268 
107,200,470 
Condensed 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]
Performance Share Units [Member]
Total
Contingently redeemable non-controlling interest, Balance at Dec. 31, 2015
 
 
 
 
 
 
$ 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
 
 
63,979 
 
272 
 
64,251 
Other comprehensive income (loss)
 
 
 
7,819 
 
7,821 
Comprehensive income
 
 
63,979 
7,819 
274 
 
72,072 
Net income
 
 
 
 
 
 
1,334 
Other comprehensive income (loss)
 
 
 
 
 
 
169 
Comprehensive Income attributable redeemable non-controlling interests
 
 
 
 
 
 
1,503 
Change in value of redeemable NCI
 
 
(21,186)
 
 
 
(21,186)
Change in value of contingently redeemable NCI
 
 
 
 
 
 
21,186 
Stock option exercises
26,107 
(5,405)
 
 
 
 
20,702 
Stock option exercises, shares
920,798 
 
 
 
 
 
 
Stock option tax adjustment
 
254 
 
 
 
 
254 
Stock option compensation expense (note 22)
 
4,025 
 
 
 
 
4,025 
Modification of PSUs (note 22)
 
 
(70)
 
 
2,175 
(70)
Equity-classified PSU expense (note 22)
 
 
 
 
 
1,222 
 
Equity-classified PSU dividend equivalents
 
 
(20)
 
 
20 
(20)
Change in value of contingently redeemable equity-classified PSUs
 
 
(21)
 
 
21 
(21)
NCI acquired in a business combination (note 25)
 
 
 
 
596 
 
596 
Acquisition of NCI
 
 
 
 
(226)
 
(226)
Acquisition of NCI
 
 
 
 
 
 
(44,141)
Shares repurchased (note 21)
(36,726)
 
 
 
 
 
(36,726)
Shares repurchased, shares
(1,460,000)
 
 
 
 
 
Cash dividends paid (note 21)
 
 
(52,303)
 
(103)
 
(52,406)
Cash dividends paid (note 21)
 
 
 
 
 
 
(3,333)
Balance at Sep. 30, 2016
120,911 
26,602 
591,430 
(49,314)
4,724 
 
694,353 
Balance, shares at Sep. 30, 2016
106,661,268 
 
 
 
 
 
 
Contingently redeemable Performance share units, Balance at Sep. 30, 2016
 
 
 
 
 
$ 3,438 
$ 3,438 
Condensed Consolidated Statements of Cash Flows (USD $)
In Thousands, unless otherwise specified
9 Months Ended
Sep. 30, 2016
Sep. 30, 2015
Operating activities:
 
 
Net income (loss)
$ 65,585 
$ 91,203 
Adjustments for items not affecting cash:
 
 
Depreciation and amortization expenses (note 7)
30,560 
31,402 
Inventory write down (note 14)
2,284 
480 
Impairment loss (note 8)
28,243 
 
Stock option compensation expense (note 22)
4,025 
3,094 
Equity-classified PSU expense (note 22)
1,222 
 
Deferred income tax recovery
(5,838)
(4,167)
Equity income less dividends received
(1,209)
(769)
Unrealized foreign exchange loss (gain)
586 
1,463 
Gain on disposition of property, plant and equipment
(1,017)
(1,200)
Net changes in operating assets and liabilities (note 12)
38,982 
36,922 
Net cash provided by operating activities
163,423 
158,428 
Investing activities:
 
 
Acquisition of NCI (note 25)
(226)
 
Acquisition of contingently redeemable NCI (note 10)
(41,092)
 
Property, plant and equipment additions
(12,600)
(12,643)
Intangible asset additions
(12,041)
(4,248)
Proceeds on disposition of property, plant and equipment
3,259 
4,700 
Other, net
(243)
 
Net cash used in investing activities
(97,316)
(12,191)
Financing activities:
 
 
Issuances of share capital
20,702 
29,251 
Share repurchase (note 21)
(36,726)
(47,489)
Dividends paid to stockholders (note 21)
(52,303)
(47,191)
Dividends paid to contingently redeemable NCI
(3,436)
(1,340)
Proceeds from short-term debt
52,584 
8,566 
Repayment of short-term debt
(28,641)
(6,558)
Proceeds from long-term debt
46,572 
 
Repayment of long-term debt
(46,568)
 
Repayment of finance lease obligations
(1,282)
(1,599)
Other, net
(512)
75 
Net cash used in financing activities
(49,610)
(66,285)
Effect of changes in foreign currency rates on cash and cash equivalents
4,339 
(13,212)
Increase in cash and cash equivalents
20,836 
66,740 
Cash and cash equivalents, beginning of period
210,148 
139,815 
Cash and cash equivalents, end of period
230,984 
206,555 
Mascus International Holdings BV [Member]
 
 
Investing activities:
 
 
Acquisitions (note 25)
(28,123)
 
Petrowsky Auctioneers Inc. [Member]
 
 
Investing activities:
 
 
Acquisitions (note 25)
$ (6,250)
 
General Information
General Information

1.  General information

Ritchie Bros. Auctioneers Incorporated and its subsidiaries (collectively referred to as the “Company”) provide asset management and disposition services for the construction, agricultural, transportation, energy, mining, forestry, material handling, marine and real estate industries through its unreserved auctions, online marketplace services, value-added services and listing and software 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”).





Significant Accounting Policies
Significant Accounting Policies

2.  Significant accounting policies

(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 (collectively referred to as the “Company”) 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 condensed consolidated interim financial statements should be read in conjunction with the Company’s audited consolidated financial statements for the year ended December 31, 2015, included in the Company’s Annual Report on Form 10-K, filed with the Securities Exchange Commission (“SEC”). A selection of the accounting policies for which there has been a change since the annual consolidated financial statements are set out below.  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.



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 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 was 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)

 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 through all our auction channels and from value-added services, as well as subscription revenues from our listing and software services.

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. 

2.  Significant accounting policies (continued)

(b)  Revenue recognition (continued)

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.



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.



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 24).    

2.  Significant accounting policies (continued)

(b)  Revenue recognition (continued)

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 subscription revenues from our listing and software services, as well as 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. 



(c)

 Costs of services, excluding depreciation and amortization expenses

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 include inventory management, referral, inspection, sampling, and appraisal fees. Costs of services incurred in earning other fee revenues include direct labour (including commissions on sales), software maintenance fees, and materials. Costs of services exclude depreciation and amortization expenses.  In comparative periods, costs of services consisted entirely of direct expenses. As a result of the Xcira LLC (“Xcira”) and Mascus International Holdings BV (“Mascus”) acquisitions, significant other costs of services are now incurred in earning our revenues (note 25).

 

(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 22) 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 22. 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.



Employee share purchase plan

The Company matches employees’ contributions to the share purchase plan, which is described in more detail in note 22. The Company’s contributions are expensed as share-based compensation.



(e)

 New and amended accounting standards

(i)

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.



2.  Significant accounting policies (continued)

(e)   New and amended accounting standards (continued)

(ii)

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.

(iii)

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.

(iv)

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 25(b)) as no adjustments to provisional amounts were identified during the measurement period. During the period from February 19, 2016 to September 30, 2016, the Company recognized working capital adjustments related to the Mascus acquisition (note 25(a)), which resulted in a net $343,000 increase in goodwill.

(f)

   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. 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.  The Company is evaluating the new guidance to determine the impact it will have on its consolidated financial statements.

2.  Significant accounting policies (continued)

 (f)   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.

(iv)

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.

2.  Significant accounting policies (continued)

(f)   Recent accounting standards not yet adopted (continued)

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.

(v)

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.

(vi)

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.

(vii)

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.

(viii)

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.

2.  Significant accounting policies (continued)

(f)   Recent accounting standards not yet adopted (continued)

(ix)

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.





Seasonality of Operations
Seasonality of Operations

4.  Seasonality of operations

The Company's operations are both seasonal and event driven. Revenues tend to be highest during the second and fourth calendar quarters.  The Company generally conducts more 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.



Segmented Information
Segmented Information

5.  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.”

5.  Segmented information (continued)

The Chief Operating Decision Maker evaluates segment 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.





 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

Three months ended

 

 

Nine months ended



 

September 30, 2016

 

 

September 30, 2016



Core

 

 

 

 

 

 

Core

 

 

 

 

 

 



Auction

 

Other

 

 

Consolidated

 

Auction

 

Other

 

 

Consolidated

 

Revenues

$

122,789 

 

$

6,087 

 

$

128,876 

 

$

402,671 

 

$

16,955 

 

$

419,626 

 

Costs of services, excluding

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

depreciation and amortization

 

(14,131)

 

 

(619)

 

 

(14,750)

 

 

(48,354)

 

 

(1,467)

 

 

(49,821)

 

SG&A expenses

 

(63,998)

 

 

(5,002)

 

 

(69,000)

 

 

(197,222)

 

 

(13,931)

 

 

(211,153)

 

Depreciation and amortization expenses

 

(9,259)

 

 

(937)

 

 

(10,196)

 

 

(27,960)

 

 

(2,600)

 

 

(30,560)

 

Impairment loss

 

 -

 

 

(28,243)

 

 

(28,243)

 

 

 -

 

 

(28,243)

 

 

(28,243)

 



$

35,401 

 

$

(28,714)

 

$

6,687 

 

$

129,135 

 

$

(29,286)

 

$

99,849 

 

Acquisition-related costs

 

 

 

 

 

 

 

(4,691)

 

 

 

 

 

 

 

 

(5,440)

 

Gain on disposition of property,

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

plant and equipment

 

 

 

 

 

 

 

570 

 

 

 

 

 

 

 

 

1,017 

 

Foreign exchange loss

 

 

 

 

 

 

 

(281)

 

 

 

 

 

 

 

 

(332)

 

Operating income

 

 

 

 

 

 

$

2,285 

 

 

 

 

 

 

 

$

95,094 

 

Equity income

 

 

 

 

 

 

 

213 

 

 

 

 

 

 

 

 

1,209 

 

Other and income tax expenses

 

 

 

 

 

 

 

(7,498)

 

 

 

 

 

 

 

 

(30,718)

 

Net income (loss)

 

 

 

 

 

 

$

(5,000)

 

 

 

 

 

 

 

$

65,585 

 









 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

Three months ended

 

 

Nine months ended



September 30, 2015

 

 

September 30, 2015



 

Core

 

 

 

 

 

 

 

Core

 

 

 

 

 

 

 



Auction

 

Other

 

 

Consolidated

 

Auction

 

Other

 

 

Consolidated

 

Revenues

$

105,421 

 

$

3,897 

 

$

109,318 

 

$

369,711 

 

$

10,702 

 

$

380,413 

 

Costs of services, excluding

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

depreciation and amortization

 

(12,045)

 

 

 -

 

 

(12,045)

 

 

(40,681)

 

 

 -

 

 

(40,681)

 

SG&A expenses

 

(54,797)

 

 

(3,373)

 

 

(58,170)

 

 

(177,196)

 

 

(9,969)

 

 

(187,165)

 

Depreciation and amortization expenses

 

(9,357)

 

 

(660)

 

 

(10,017)

 

 

(29,025)

 

 

(2,377)

 

 

(31,402)

 



$

29,222 

 

$

(136)

 

$

29,086 

 

$

122,809 

 

$

(1,644)

 

$

121,165 

 

Gain on disposition of property,

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

plant and equipment

 

 

 

 

 

 

 

234 

 

 

 

 

 

 

 

 

1,200 

 

Foreign exchange gain (loss)

 

 

 

 

 

 

 

(718)

 

 

 

 

 

 

 

 

2,051 

 

Operating income

 

 

 

 

 

 

$

28,602 

 

 

 

 

 

 

 

$

124,416 

 

Equity income

 

 

 

 

 

 

 

363 

 

 

 

 

 

 

 

 

769 

 

Other and income tax expenses

 

 

 

 

 

 

 

(7,718)

 

 

 

 

 

 

 

 

(33,982)

 

Net income

 

 

 

 

 

 

$

21,247 

 

 

 

 

 

 

 

$

91,203 

 



Revenues
Revenues

6Revenues

The Company’s revenue from the rendering of services is as follows:



 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 



Three months ended

 

Nine months ended



September 30,

 

September 30,



 

2016 

 

 

2015 

 

 

2016 

 

 

2015 

Commissions

$

96,110 

 

$

83,648 

 

$

314,084 

 

$

301,379 

Fees

 

32,766 

 

 

25,670 

 

 

105,542 

 

 

79,034 



$

128,876 

 

$

109,318 

 

$

419,626 

 

$

380,413 



Net profits on inventory sales included in commissions are:





 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 



Three months ended

 

Nine months ended



September 30,

 

September 30,



 

2016 

 

 

2015 

 

 

2016 

 

 

2015 

Revenue from inventory sales

$

176,381 

 

$

105,678 

 

$

411,970 

 

$

409,105 

Cost of inventory sold

 

(159,850)

 

 

(97,745)

 

 

(376,364)

 

 

(372,577)



$

16,531 

 

$

7,933 

 

$

35,606 

 

$

36,528 



Operating Expenses
Operating Expenses

7Operating expenses

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



Costs of services, excluding depreciation and amortization



 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 



Three months ended

 

Nine months ended



September 30,

 

September 30,



 

2016 

 

 

2015 

 

 

2016 

 

 

2015 

Employee compensation expenses

$

6,593 

 

$

5,309 

 

$

21,731 

 

$

16,185 

Buildings, facilities and technology expenses

 

1,709 

 

 

1,745 

 

 

6,015 

 

 

5,191 

Travel, advertising and promotion expenses

 

4,991 

 

 

5,120 

 

 

18,287 

 

 

16,207 

Other costs of services

 

1,457 

 

 

(129)

 

 

3,788 

 

 

3,098 



$

14,750 

 

$

12,045 

 

$

49,821 

 

$

40,681 



SG&A expenses



 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 



Three months ended

 

Nine months ended



September 30,

 

September 30,



 

2016 

 

 

2015 

 

 

2016 

 

 

2015 

Employee compensation expenses

$

43,077 

 

$

36,287 

 

$

135,129 

 

$

122,062 

Buildings, facilities and technology expenses

 

12,466 

 

 

10,516 

 

 

36,671 

 

 

30,849 

Travel, advertising and promotion expenses

 

6,273 

 

 

5,388 

 

 

18,594 

 

 

16,274 

Professional fees

 

3,675 

 

 

3,157 

 

 

9,524 

 

 

9,456 

Other SG&A expenses

 

3,509 

 

 

2,822 

 

 

11,235 

 

 

8,524 



$

69,000 

 

$

58,170 

 

$

211,153 

 

$

187,165 



7.  Operating expenses (continued)

Acquisition-related costs



 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 



Three months ended

 

Nine months ended



September 30,

 

September 30,



 

2016 

 

 

2015 

 

 

2016 

 

 

2015 

Iron Planet Holdings Inc.

 

 

 

 

 

 

 

 

 

 

 

("IronPlanet") (note 24)

$

4,514 

 

$

 -

 

$

4,514 

 

$

 -

Mascus (note 25)

 

 -

 

 

 -

 

 

749 

 

 

 -

Petrowsky Auctioneers Inc.

 

 

 

 

 

 

 

 

 

 

 

("Petrowsky") (note 25)

 

177 

 

 

 -

 

 

177 

 

 

 -



$

4,691 

 

 

 -

 

$

5,440 

 -

$

 -



Depreciation and amortization expenses



 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 



Three months ended

 

Nine months ended



September 30,

 

September 30,



 

2016 

 

 

2015 

 

 

2016 

 

 

2015 

Depreciation expense

$

7,751 

 

$

8,491 

 

$

23,466 

 

$

26,718 

Amortization expense

 

2,445 

 

 

1,526 

 

 

7,094 

 

 

4,684 



 $

10,196 

 

$

10,017 

 

 $

30,560 

 

$

31,402 



Impairment Loss
Impairment Loss

8Impairment loss

Goodwill impairment

The Company performs impairment tests on goodwill on an annual basis in accordance with US GAAP, or more frequently if events or changes in circumstances indicate that those assets might be impaired. Goodwill is tested for impairment at a reporting unit level, which is at the same level or one level below an operating segment. A goodwill impairment loss is recognized when the carrying amount of the reporting unit is greater than its fair value. The goodwill impairment loss is calculated as the excess of the carrying amount of the goodwill over its implied fair value.



Goodwill arising from the acquisition of AssetNation, the provider of our online marketplaces, forms part of the EquipmentOne reporting unit. During the three months ended September 30, 2016, an indicator of impairment was identified with respect to the EquipmentOne reporting unit. The indicator consisted of a decline in actual and forecasted revenue and operating income compared with previously projected results, which was primarily due to the recent performance of the EquipmentOne reporting unit.



As a result of the identification of an indicator of impairment of the EquipmentOne reporting unit, a US GAAP two-step goodwill impairment test was performed at September 30, 2016. Step one of the goodwill impairment test indicated that the carrying amount (including goodwill) of the EquipmentOne reporting unit exceeded its fair value. Accordingly, the impairment test proceeded to step two, wherein the step one fair value of the EquipmentOne reporting unit was used to estimate the implied fair value of the goodwill.  



The second step of the goodwill impairment test involved allocating the EquipmentOne reporting unit fair value to all the assets and liabilities of that reporting unit based on their estimated fair values. Management used a blended analysis of the earnings approach, which employs a discounted cash flow methodology, and the market approach, which employs a multiple of earnings methodology, to determine the fair values of the intangible assets and to measure the goodwill impairment loss.

8.  Impairment loss (continued)

Goodwill impairment (continued)

Based on the results of the goodwill impairment test, the Company recorded an impairment loss on the EquipmentOne reporting unit goodwill of $23,574,000 on September 30, 2016.



Long-lived asset impairment

Long-lived assets, which are comprised of property, plant and equipment and definite-lived intangible assets, are assessed for impairment whenever events or circumstances indicate that their carrying amounts may not be recoverable. For the purpose of impairment testing, long-lived assets are grouped and tested for recoverability at the lowest level that generates independent cash flows from another asset group. The carrying amount of the long-lived asset group is not recoverable if it exceeds the sum of the future undiscounted cash flows expected to result from the long-lived asset group’s use and eventual disposition. Where the carrying amount of the long-lived asset group is not recoverable, its fair value is determined in order to calculate any impairment loss. An impairment loss is measured as the excess of the long-lived asset group’s carrying amount over its fair value.



At September 30, 2016, for the same reason noted above under the goodwill impairment test, management determined that there was an indicator that the carrying amount of the long-lived assets arising from our acquisition of AssetNation (the “EquipmentOne long-lived assets”) might not have been recoverable. As such, the Company performed the recoverability test, for which purpose management determined that the asset group to which the EquipmentOne long-lived assets belonged was the EquipmentOne reporting unit.



The results of the recoverability test indicated that the EquipmentOne reporting unit carrying amount (including goodwill but excluding deferred tax assets, deferred tax liabilities, and income taxes payable) exceeded the sum of its future undiscounted cash flows. As such, management then used an earnings approach to estimate the fair values of the EquipmentOne long-lived assets and compared those fair values to their carrying amounts.



Based on the results of the long-lived asset impairment test, the Company recorded a pre-tax impairment loss on the EquipmentOne reporting unit customer relationships of $4,669,000 on September 30, 2016. In connection with this impairment loss, the Company recorded a deferred tax benefit of $1,798,000 to the income tax provision. The result of this impairment test was reflected in the carrying value of the EquipmentOne reporting unit prior to the completion of the goodwill impairment test described above.





Income Taxes
Income Taxes

9Income taxes

At the end of each interim period, the Company estimates  the effective tax rate expected to be applicable for the full fiscal year.  The estimate reflects, among other items, management’s best estimate of operating results.  It does not include the estimated impact of foreign exchange rates or unusual and/or infrequent items, which may cause significant variations in the customary relationship between income tax expense and income before income taxes.



The Company’s consolidated effective tax rate in respect of operations for the three and nine months ended September 30, 2016 was 329.4% and 31.3%, respectively (2015: 26.8% and 27.5%). 



Contingently Redeemable Non-controlling Interest in Ritchie Bros. Financial Services
Contingently Redeemable Non-controlling Interest in Ritchie Bros. Financial Services

10Contingently redeemable non-controlling interest in Ritchie Bros. Financial Services

Until July 12, 2016, the Company held a 51% interest in Ritchie Bros. Financial Services (”RBFS”), an entity that provides loan origination services to enable the Company’s auction customers to obtain financing from third party lenders.    As a result of the Company’s involvement with RBFS, the Company is exposed to risks related to the recovery of the net assets of RBFS as well as liquidity risks associated with the put option discussed below.



Management determined that RBFS was a variable interest entity because the Company provided subordinated financial support to RBFS and because the Company’s voting interest was disproportionately low in relation to its economic interest in RBFS while substantially all the activities of RBFS involved or were conducted on behalf of the Company. Management also determined that the Company was the primary beneficiary of RBFS as the Company was part of a related party group that had the power to direct the activities that most significantly impacted RBFS’s economic performance, and although no individual member of that group had such power, the Company represented the member of the related party group that was most closely associated with RBFS.



Until July 12, 2016, the Company and the non-controlling interest (“NCI”) holders each held options pursuant to which the Company could acquire, or be required to acquire, the NCI holders’ 49% interest in RBFS.  These call and put options became exercisable on April 6, 2016, and the Company had the option to elect to pay the purchase price in either cash or shares of the Company, subject to the Company obtaining all relevant security exchange and regulatory consents and approvals. As a result of the existence of the put option, the NCI was accounted for as a contingently redeemable equity instrument (the “contingently redeemable NCI”). The NCI could be redeemed at a purchase price to be determined through an independent appraisal process conducted in accordance with the terms of the agreement, or at a negotiated price (the “redemption value”).



For the comparative reporting period presented, management determined that redemption was probable and measured the carrying amount of the contingently redeemable NCI at its estimated December 31, 2015 redemption value of $24,785,000. The estimation of redemption value at that date required management to make significant judgments, estimates, and assumptions.



On July 12, 2016 the Company completed its acquisition of the NCI. On that date, the Company acquired the NCI holders’ 49% interest in RBFS for total consideration of 57,900,000 Canadian dollars ($44,141,000). That purchase price consisted of cash consideration of 53,900,000 Canadian dollars ($41,092,000) and 4,000,000 Canadian dollars ($3,049,000)  representing the acquisition date fair value of contingent consideration payable to the former shareholders of RBFS. The contingent payment is payable if RBFS achieves a specified annual revenue growth rate over a three-year post-acquisition period, and is calculated as a specified percentage of the accumulated earnings of RBFS after the three-year post-acquisition period. The maximum amount payable under the contingent payment arrangement is 10,000,000 Canadian dollars. The Company may pay an additional amount not exceeding 1,500,000 Canadian dollars over a three-year period based on the former NCI holders providing continued management services to RBFS.



Earnings (Loss) Per Share Attributable to Stockholders
Earnings (Loss) Per Share Attributable to Stockholders

11Earnings (loss) per share attributable to stockholders

Basic earnings per share (“EPS”) attributable to stockholders was calculated by dividing the net income attributable to stockholders by the weighted average (“WA”) number of common shares outstanding. Diluted EPS attributable to stockholders was calculated by dividing the net income attributable to stockholders after giving effect to outstanding dilutive stock options and PSUs by the WA number of shares outstanding adjusted for all dilutive securities.





 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



Three months ended

 

Nine months ended



September 30, 2016

 

September 30, 2016



 

Net loss

 

WA

 

 

 

 

 

Net income

 

WA

 

 

 



 

attributable to

 

number

 

 

Per share

 

 

attributable to

 

number

 

 

Per share



 

stockholders

 

of shares

 

 

amount

 

 

stockholders

 

of shares

 

 

amount

Basic

$

(5,137)

 

106,622,376 

 

$

(0.05)

 

$

63,979 

 

106,595,088 

 

$

0.60 

Effect of dilutive securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

PSUs

 

 -

 

81,610 

 

 

 -

 

 

 -

 

27,203 

 

 

 -

Stock options

 

 -

 

821,065 

 

 

 -

 

 

 -

 

599,099 

 

 

 -

Diluted

$

(5,137)

 

107,525,051 

 

$

(0.05)

 

$

63,979 

 

107,221,390 

 

$

0.60 





 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



Three months ended

 

Nine months ended



September 30, 2015

 

September 30, 2015



 

Net income

 

WA

 

 

 

 

 

Net income

 

WA

 

 

 



 

attributable to

 

number

 

 

Per share

 

 

attributable to

 

number

 

 

Per share



 

stockholders

 

of shares

 

 

amount

 

 

stockholders

 

of shares

 

 

amount

Basic

$

20,825 

 

107,137,417 

 

$

0.19 

 

$

89,685 

 

107,041,819