RITCHIE BROS AUCTIONEERS INC, 10-K filed on 2/27/2020
Annual Report
v3.19.3.a.u2
Document and Entity Information - USD ($)
12 Months Ended
Dec. 31, 2019
Feb. 26, 2020
Jun. 30, 2019
Document and Entity Information      
Document Type 10-K    
Document Annual Report true    
Document Period End Date Dec. 31, 2019    
Document Transition Report false    
Entity File Number 001-13425    
Entity Registrant Name Ritchie Bros. Auctioneers Incorporated    
Entity Incorporation, State or Country Code CA    
Entity Tax Identification Number 98-0626225    
Entity Address, Address Line One 9500 Glenlyon Parkway    
Entity Address, Address Line Two Burnaby    
Entity Address, City or Town British Columbia    
Entity Address, Country CA    
Entity Address, Postal Zip Code V5J 0C6    
City Area Code 778    
Local Phone Number 331-5500    
Title of 12(b) Security Common Shares    
Trading Symbol RBA    
Security Exchange Name NYSE    
Entity Current Reporting Status Yes    
Entity Voluntary Filers No    
Entity Well-known Seasoned Issuer Yes    
Entity Interactive Data Current Yes    
Entity Filer Category Large Accelerated Filer    
Entity Small Business false    
Entity Emerging Growth Company false    
Entity Shell Company false    
Entity Common Stock, Shares Outstanding   109,528,545  
Entity Public Float     $ 3,573,759,165
Entity Central Index Key 0001046102    
Current Fiscal Year End Date --12-31    
Document Fiscal Year Focus 2019    
Document Fiscal Period Focus FY    
Amendment Flag false    
v3.19.3.a.u2
Consolidated Income Statements - USD ($)
$ in Thousands
12 Months Ended
Dec. 31, 2019
Dec. 31, 2018
Dec. 31, 2017
Revenues:      
Revenues $ 1,318,641 $ 1,170,026 $ 971,191
Operating expenses:      
Selling, general and administrative expenses 382,389 382,676 323,270
Acquisition-related costs 777 5,093 38,272
Depreciation and amortization expenses 70,501 66,614 52,694
Gain on disposition of property, plant and equipment (1,107) (2,731) (1,656)
Impairment loss 0 0 8,911
Foreign exchange (gain) loss (2,937) (212) 2,559
Total operating expenses 1,095,439 984,837 863,737
Operating income 223,202 185,189 107,454
Interest expense (41,277) (44,527) (38,291)
Other income, net 8,838 11,850 8,231
Income before income taxes 190,763 152,512 77,394
Current income tax 32,797 24,767 19,356
Deferred income tax 8,826 6,239 (17,268)
Income tax expense (recovery) 41,623 31,006 2,088
Net income 149,140 121,506 75,306
Net income attributable to:      
Stockholders 149,039 121,479 75,027
Non-controlling interests 101 27 279
Net income $ 149,140 $ 121,506 $ 75,306
Earnings per share attributable to stockholders:      
Basic $ 1.37 $ 1.12 $ 0.70
Diluted $ 1.36 $ 1.11 $ 0.69
Weighted average number of shares outstanding:      
Basic 108,519,739 108,063,349 107,044,348
Diluted 109,759,123 109,388,236 108,113,151
Service Revenue [Member]      
Revenues:      
Revenues $ 804,024 $ 749,515 $ 624,417
Operating expenses:      
Direct expenses 164,977 159,058 133,189
Inventory Sales Revenue [Member]      
Revenues:      
Revenues 514,617 420,511 346,774
Operating expenses:      
Direct expenses $ 480,839 $ 374,339 $ 306,498
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Consolidated Statements of Comprehensive Income - USD ($)
$ in Thousands
12 Months Ended
Dec. 31, 2019
Dec. 31, 2018
Dec. 31, 2017
Consolidated Statements of Comprehensive Income      
Net income $ 149,140 $ 121,506 $ 75,306
Other comprehensive income (loss), net of income tax:      
Foreign currency translation adjustment (2,836) (13,792) 24,670
Total comprehensive income 146,304 107,714 99,976
Total comprehensive income attributable to:      
Stockholders 146,217 107,716 99,639
Non-controlling interests 87 (2) 337
Total comprehensive income $ 146,304 $ 107,714 $ 99,976
v3.19.3.a.u2
Consolidated Balance Sheets - USD ($)
$ in Thousands
Dec. 31, 2019
Dec. 31, 2018
Assets    
Cash and cash equivalents $ 359,671 $ 237,744
Restricted cash 60,585 67,823
Trade and other receivables 137,402 129,257
Inventory 64,956 113,294
Other current assets 50,160 49,055
Income taxes receivable 6,810 6,365
Total current assets 679,584 603,538
Property, plant and equipment 484,482 486,599
Other non-current assets 145,679 29,395
Intangible assets 233,380 245,622
Goodwill 672,310 671,594
Deferred tax assets 13,995 15,648
Total assets 2,229,430 2,052,396
Liabilities and Equity    
Auction proceeds payable 276,188 203,503
Trade and other payables 194,279 201,255
Income taxes payable 7,809 2,312
Short-term debt 4,705 19,896
Current portion of long-term debt 18,277 13,126
Total current liabilities 501,258 440,092
Long-term debt 627,204 698,172
Other non-current liabilities 151,238 41,980
Deferred tax liabilities 42,743 35,519
Total liabilities 1,322,443 1,215,763
Commitments
Contingencies
Contingently redeemable performance share units   923
Share capital:    
Common stock; no par value, unlimited shares authorized, issued and outstanding shares: 109,337,781 (December 31, 2018: 108,682,030) 194,771 181,780
Additional paid-in capital 52,110 56,885
Retained earnings 714,051 648,255
Accumulated other comprehensive loss (59,099) (56,277)
Stockholders' equity 901,833 830,643
Non-controlling interest 5,154 5,067
Total stockholders' equity 906,987 835,710
Total liabilities and equity $ 2,229,430 $ 2,052,396
v3.19.3.a.u2
Consolidated Balance Sheets (Parenthetical) - $ / shares
12 Months Ended
Dec. 31, 2019
Dec. 31, 2018
Consolidated Balance Sheets    
Common stock, no par value $ 0 $ 0
Common stock, Shares Authorized, Unlimited Unlimited Unlimited
Common stock, issued shares 109,337,781 108,682,030
Common stock, outstanding shares 109,337,781 108,682,030
v3.19.3.a.u2
Consolidated Statements of Changes in Equity - USD ($)
$ in Thousands
Common stock [Member]
Additional paid-in capital ("APIC") [Member]
Retained earnings [Member]
Accumulated other comprehensive income (loss) [Member]
Non-controlling interest ("NCI") [Member]
Contingently Redeemable Performance Share Units [Member]
Total
Balance at Dec. 31, 2016 $ 125,474 $ 27,638 $ 601,071 $ (67,126) $ 4,773 $ 3,950 $ 691,830
Balance, shares at Dec. 31, 2016 106,822,001            
Net income     75,027   279   75,306
Other comprehensive income (loss)       24,612 58    
Other comprehensive income (loss)             24,670
Comprehensive income     75,027 24,612 337   99,976
Stock option exercises $ 13,017 (3,081)         9,936
Stock option exercises, shares 444,571            
Stock option compensation expense   13,700         13,700
Assumption of stock options on acquisition of IronPlanet   2,330         2,330
Settlement of equity-classified PSUs $ 91         (172) 91
Settlement of equity-classified PSUs, shares 3,211            
Modification of PSUs     (382)     1,803 (382)
Equity-classified PSU expense   340       3,189 340
Equity-classified share units dividend equivalents   78 (227)     149 (149)
Change in value of contingently redeemable equity-classified PSUs     (95)     95 (95)
Cash dividends paid     (72,785)   (41)   (72,826)
Balance at Dec. 31, 2017 $ 138,582 41,005 602,609 (42,514) 5,069 9,014 744,751
Balance, shares at Dec. 31, 2017 107,269,783            
Net income     121,479   27   121,506
Other comprehensive income (loss)       (13,763) (29)    
Other comprehensive income (loss)             (13,792)
Comprehensive income     121,479 (13,763) (2)   107,714
Stock option exercises $ 37,308 (8,784)         28,524
Stock option exercises, shares 1,235,154            
Issuance of common stock related to vesting of share units $ 5,890 (1,662) (326)     (7,803) 3,902
Issuance of common stock related to vesting of share units, shares 177,093            
Stock option compensation expense   8,252         8,252
Modification of PSUs   12,365 958     (6,622) 13,323
Equity-classified PSU expense   5,384       5,872 5,384
Equity-classified share units dividend equivalents   325 (678)     353 (353)
Change in value of contingently redeemable equity-classified PSUs     (109)     109 (109)
Cash dividends paid     (75,678)       (75,678)
Balance at Dec. 31, 2018 $ 181,780 56,885 648,255 (56,277) 5,067 923 835,710
Balance, shares at Dec. 31, 2018 108,682,030            
Net income     149,039   101   149,140
Other comprehensive income (loss)       (2,822) (14)    
Other comprehensive income (loss)             (2,836)
Comprehensive income     149,039 (2,822) 87   146,304
Stock option exercises $ 49,117 (8,023)         41,094
Stock option exercises, shares 1,672,022            
Issuance of common stock related to vesting of share units $ 5,886 (10,064) 1     (1,083) (4,177)
Issuance of common stock related to vesting of share units, shares 207,403            
Stock option compensation expense   4,697         4,697
Equity-classified PSU expense   7,933       114 7,933
Equity-classified share units dividend equivalents   682 (709)     $ 46 (27)
Cash dividends paid     (82,535)       (82,535)
Shares repurchased $ (42,012)           (42,012)
Shares repurchased, shares (1,223,674)            
Balance at Dec. 31, 2019 $ 194,771 $ 52,110 $ 714,051 $ (59,099) $ 5,154   $ 906,987
Balance, shares at Dec. 31, 2019 109,337,781            
v3.19.3.a.u2
Consolidated Statements of Cash Flows - USD ($)
$ in Thousands
12 Months Ended
Dec. 31, 2019
Dec. 31, 2018
Dec. 31, 2017
Operating activities:      
Net income $ 149,140 $ 121,506 $ 75,306
Adjustments for items not affecting cash:      
Depreciation and amortization expenses 70,501 66,614 52,694
Impairment loss 0 0 8,911
Stock option compensation expense 4,697 8,252 13,700
Equity-classified share units expense 8,047 11,256 3,529
Deferred income tax expense (recovery) 8,826 6,239 (17,268)
Unrealized foreign exchange (gain) loss (3,058) 951 254
Gain on disposition of property, plant and equipment (1,107) (2,731) (1,656)
Amortization of debt issuance costs 4,086 4,995 3,056
Gain on disposition of equity investment   (4,935)  
Amortization of right-of-use assets 12,280    
Other, net 2,779 (2,317) (1,237)
Net changes in operating assets and liabilities 76,602 (65,550) 10,279
Net cash provided by operating activities 332,793 144,280 147,568
Investing activities:      
Acquisition of IronPlanet, net of cash acquired     (675,851)
Property, plant and equipment additions (13,589) (16,860) (10,812)
Intangible asset additions (27,415) (26,152) (28,584)
Proceeds on disposition of property, plant and equipment 5,929 10,586 4,985
Proceeds on disposal of equity investment   6,147  
Other, net (982) (4,674) (692)
Net cash used in investing activities (36,057) (30,953) (710,954)
Financing activities:      
Share repurchase (42,012)    
Dividends paid to stockholders (82,535) (75,678) (72,785)
Dividends paid to NCI     (41)
Issuances of share capital 41,094 28,524 9,936
Payment of withholding taxes on issuance of shares (5,260) (3,901)  
Proceeds from short-term debt 13,169 19,715 6,971
Repayment of short-term debt (28,684) (6,628) (24,479)
Proceeds from long-term debt     325,000
Repayment of long-term debt (76,282) (91,013) (108,985)
Debt issue costs     (12,624)
Repayment of finance lease obligations (6,708) (3,950) (2,322)
Other, net   (1,176) (1,408)
Net cash provided by (used in) financing activities (187,218) (134,107) 119,263
Effect of changes in foreign currency rates on cash, cash equivalents, and restricted cash 5,171 (4,769) 17,150
Increase (decrease) 114,689 (25,549) (426,973)
Beginning of period 305,567 331,116 758,089
Cash, cash equivalents, and restricted cash, end of period $ 420,256 $ 305,567 $ 331,116
v3.19.3.a.u2
General Information
12 Months Ended
Dec. 31, 2019
General Information  
General Information

1.     General information

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 unreserved live on site auctions, online 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”).

v3.19.3.a.u2
Significant Accounting policies
12 Months Ended
Dec. 31, 2019
Significant Accounting Policies  
Significant Accounting Policies

2.     Significant accounting policies

(a)   Basis of preparation

These financial statements have been prepared in accordance with United States generally accepted accounting principles (“US GAAP”) and the following accounting policies have been consistently applied in the preparation of the consolidated financial statements.

(b)   Basis of consolidation

The consolidated financial statements include the accounts of the Company and its wholly-owned and non-wholly owned subsidiaries in which the Company has a controlling financial interest either through voting rights or means other than voting rights. All inter-company transactions and balances have been eliminated on consolidation. Where the Company’s ownership interest in a consolidated subsidiary is less than 100%, the non-controlling interests’ share of these non-wholly owned subsidiaries is reported in the Company’s consolidated balance sheets as a separate component of equity or within temporary equity. The non-controlling interests’ share of the net income of these non-wholly owned subsidiaries is reported in the Company’s consolidated income statements as a deduction from the Company’s net earnings to arrive at net income attributable to stockholders of the Company.

Investments in entities that the Company has the ability to exercise significant influence over, but not control, are accounted for using the equity method of accounting. Under the equity method of accounting, investments are stated at initial costs and are adjusted for subsequent additional investments and the Company's share of earnings or losses and distributions.

The Company consolidates variable interest entities (“VIEs”) if the Company has (a) the power to direct matters that most significantly impact the VIEs economic performance and (b) the obligation to absorb losses or the right to receive benefits of the VIE that could potentially be significant to the VIE. For VIEs where the Company has shared power with unrelated parties, the Company uses the equity method of accounting to report their results. The determination of the primary beneficiary involves judgment.

(c)   Revenue recognition

Revenues are comprised of:

Service revenue, 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 revenue, including revenue from listing services, refurbishment, logistical services, financing, appraisal fees and other ancillary service fees; and

2.    Significant accounting policies (continued)

(c)   Revenue recognition (continued)

Inventory sales revenue 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.

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 revenue 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 revenue 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.

2.     Significant accounting policies (continued)

(c)   Revenue recognition (continued)

Service revenues (continued)

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 revenue are recorded net of commissions owed to third parties, which are principally the result of situations when the commission is shared with a consignor in an auction guarantee risk and reward sharing arrangement.

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.

Inventory sales revenue

Underwritten commission contracts can take the form of inventory contracts. Revenue related to inventory contracts is 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.

(d)   Costs of services

Costs of services are comprised of expenses incurred in direct relation to conducting auctions (“direct expenses”), earning online marketplace revenue, and earning other fee revenue. Direct expenses include direct labour, buildings and facilities charges, travel, advertising and promotion costs and fees paid to unrelated third parties who introduce the Company to equipment sellers who sell property at the Company's auctions and marketplaces.

2.     Significant accounting policies (continued)

(d)   Costs of services (continued)

Costs of services incurred to earn online marketplace revenue 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 revenue also include costs for the Company’s customer support, online marketplace operations, logistics, title and lien investigation functions.

Costs of services incurred in earning other fee revenue 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.

(e)   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.

(f)    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. 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 at the fair value based on the fair value of the Company’s common shares at 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.

2.     Significant accounting policies (continued)

(f)    Share-based payments (continued)

Equity-classified share-based payments (continued)

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.

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 based on the average price of the Company’s common shares 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 24. 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 other non-current liabilities.

(g)   Leases

The Company determines if an arrangement is a lease at inception. The Company may have lease agreements with lease and non-lease components, which are generally accounted for separately. Additionally, for certain vehicle and equipment leases, management applies a portfolio approach to account for the right-of-use ("ROU") assets and liabilities for assets leased with similar lease terms.

Operating leases

Operating leases are included in other non-current assets, trade and other payables, and other non-current liabilities in our consolidated balance sheets if the initial lease term is greater than 12 months. For leases with an initial term of 12 months or less the Company recognizes those lease payments on a straight-line basis over the lease term.

ROU assets represent the right to use an underlying asset for the lease term and lease liabilities represent the obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As most of the Company's leases do not provide an implicit rate, management uses the incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. Management uses the implicit rate when readily determinable. The Company includes lease payments for renewal or termination options in its determination of lease term, ROU asset, and lease liability when it is reasonably certain that the Company will exercise these options. Lease expense for lease payments is recognized on a straight-line basis over the lease term and are included in costs of services and selling, general and administrative ("SG&A") expenses.

2.     Significant accounting policies (continued)

(g)   Leases (continued)

Finance leases

Finance lease ROU assets are included in property, plant and equipment, trade and other payables, and other non-current liabilities in our consolidated balance sheets.

Finance lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As most of the Company's leases do not provide an implicit rate, management uses the incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. Management uses the implicit rate when readily determinable. The Company includes lease payments for renewal, purchase options, or termination options in its determination of lease term, ROU asset, and lease liability when it is reasonably certain that the Company will exercise these options. Finance lease ROU assets are generally amortized over the lease term and are included in depreciation expense. The interest on the finance lease liabilities is included in interest expense.

(h)   Fair value measurement

Fair value is the exit price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The Company measures financial instruments or discloses select non-financial assets at fair value at each balance sheet date. Also, fair values of financial instruments measured at amortized cost are disclosed in note 12.

The Company uses valuation techniques that are appropriate in the circumstances and for which sufficient data is available to measure fair value, maximizing the use of relevant observable inputs and minimizing the use of unobservable inputs.

All assets and liabilities for which fair value is measured or disclosed in the financial statements at fair value are categorized within a fair value hierarchy, as disclosed in note 12, based on the lowest level input that is significant to the fair value measurement or disclosure. This fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3).

For assets and liabilities that are recognized in the financial statements at fair value on a recurring basis, the Company determines whether transfers have occurred between levels in the hierarchy by re-assessing categorization at the end of each reporting period.

For the purposes of fair value disclosures, the Company has determined classes of assets and liabilities on the basis of the nature, characteristics and risks of the assets or liability and the level of the fair value hierarchy as explained above.

(i)   Foreign currency translation

The parent entity’s presentation and functional currency is the United States dollar. The functional currency for each of the parent entity’s subsidiaries is the currency of the primary economic environment in which the entity operates, which is usually the currency of the country of residency.

Accordingly, the financial statements of the Company’s subsidiaries that are not denominated in United States dollars have been translated into United States dollars using the exchange rate at the end of each reporting period for asset and liability amounts and the monthly average exchange rate for amounts included in the determination of earnings. Any gains or losses from the translation of asset and liability amounts are included in foreign currency translation adjustment in accumulated other comprehensive income.

In preparing the financial statements of the individual subsidiaries, transactions in currencies other than the entity’s functional currency are recognized at the rates of exchange prevailing at the dates of the transaction. At the end of each reporting period, monetary assets and liabilities denominated in foreign currencies are retranslated at the rates prevailing at that date. Foreign currency differences arising on retranslation of monetary items are recognized in earnings.

2.     Significant accounting policies (continued)

(j)    Cash and cash equivalents

Cash and cash equivalents is comprised of cash on hand, deposits with financial institutions, and other short-term, highly liquid investments with original maturity of three months or less when acquired, that are readily convertible to known amounts of cash.

(k)    Restricted cash

In certain jurisdictions, local laws require the Company to hold cash in segregated bank accounts, which are used to settle auction proceeds payable resulting from live on site auctions and online marketplace sales conducted in those regions. In addition, the Company also holds cash generated from its online marketplace sales in separate escrow accounts, for settlement of the respective online marketplace transactions as a part of its secured escrow service. Restricted cash balances also include funds held in accounts owned by the Company in support of short-term stand-by letters of credit to provide seller security.

(l)   Trade and other receivables

Trade receivables principally include amounts due from customers as a result of live on site auction and online marketplace transactions. The recorded amount reflects the purchase price of the item sold, including the Company’s commission. The allowance for doubtful accounts is the Company’s best estimate of the amount of probable credit losses in existing accounts receivable. The Company determines the allowance based on historical write-off experience and customer economic data.

The Company reviews the allowance for doubtful accounts regularly and past due balances are reviewed for collectability. Account balances are charged against the allowance when the Company believes that the receivable will not be recovered.

(m)    Inventories

Inventory consists of equipment and other assets purchased for resale in an upcoming live on site auction or online marketplace event. The Company typically purchases inventory for resale through a competitive process where the consignor or vendor 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. As part of its government business, the Company purchases inventory for resale as part of its commitment to purchase certain surplus government property (note 26). 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 and in-bound transportation costs. Write-downs to the carrying value of inventory are recorded in cost of inventory sold on the consolidated income statement.

(n)   Property, plant and equipment

All property, plant and equipment are stated at cost less accumulated depreciation. Cost includes all expenditures that are directly attributable to the acquisition or development of the asset, net of any amounts received in relation to those assets, including scientific research and experimental development tax credits.

The cost of self-constructed assets includes the cost of materials and direct labour, any other costs directly attributable to bringing the assets to working condition for their intended use, the costs of dismantling and removing items and restoring the site on which they are located (if applicable), and capitalized interest on qualifying assets. Subsequent costs are included in the asset’s carrying amount or recognized as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Company and the cost of the item can be measured reliably.

2.     Significant accounting policies (continued)

(n)   Property, plant and equipment (continued)

All repairs and maintenance costs are charged to earnings during the financial period in which they are incurred. Gains and losses on disposal of an item of property, plant and equipment are determined by comparing the proceeds from disposal with the carrying amount of the item and are recognized net within operating income on the income statement.

Depreciation is provided to charge the cost of the assets to operations over their estimated useful lives based on their usage as follows:

Asset

    

Basis

    

Rate / term

 

Land improvements

 

Declining balance

10

%

Buildings

 

Straight-line

15 - 30

years

Yard equipment

 

Declining balance

20 - 30

%

Automotive equipment

 

Declining balance

30

%

Computer software and equipment

 

Straight-line

3 - 5

years

Office equipment

 

Declining balance

20

%

Leasehold improvements

 

Straight-line

Lesser of lease term or economic life

No depreciation is provided on freehold land or on assets in the course of construction or development. Depreciation of property, plant and equipment under capital leases is recorded in depreciation expense.

Legal obligations to retire and to restore property, plant and equipment and assets under operating leases are recorded at management’s best estimate in the period in which they are incurred, if a reasonable estimate can be made, with a corresponding increase in asset carrying value. The liability is accreted to face value over the remaining estimated useful life of the asset. The Company does not have any significant asset retirement obligations.

(o)   Long-lived assets held for sale

Long-lived assets, or disposal groups comprising assets and liabilities, that are expected to be recovered primarily through sale rather than through continuing use are classified as assets held for sale. Immediately before classification as held for sale, the assets, or components of a disposal group, are measured at carrying amount in accordance with the Company’s accounting policies. Thereafter, the assets, or disposal group, are measured at the lower of their carrying amount and fair value less cost to sell and are not depreciated. Impairment losses on initial classification as held for sale and subsequent gains or losses on re-measurement are recognized in operating income on the income statement.

(p)   Intangible assets

Intangible assets are measured at cost less accumulated amortization and accumulated impairment losses. Cost includes all expenditures that are directly attributable to the acquisition or development of the asset, net of any amounts received in relation to those assets, including scientific research and experimental development tax credits. Costs of internally developed software are amortized on a straight-line basis over the remaining estimated economic life of the software product. Costs related to software incurred prior to establishing technological feasibility or the beginning of the application development stage of software are charged to operations as such costs are incurred. Once technological feasibility is established or the application development stage has begun, directly attributable costs are capitalized until the software is available for use.

2.     Significant accounting policies (continued)

(p)   Intangible assets (continued)

Amortization is recognized in net earnings on a straight-line basis over the estimated useful lives of intangible assets from the date that they are available for use. The estimated useful lives are:

Asset

    

Basis

    

Rate / term

Trade names and trademarks

 

Straight-line

 

3 - 15 years or indefinite-lived

Customer relationships

 

Straight-line

 

6 - 20 years

Software assets

 

Straight-line

 

3 - 7 years

Customer relationships includes relationships with buyers and sellers.

(q)   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.

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.

(r)   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.

2.     Significant accounting policies (continued)

(s)   Deferred financing costs

Deferred financing costs represent the unamortized costs incurred on the issuance of the Company’s long-term debt. Amortization of deferred financing costs is provided on the effective interest rate method over the term of the facility. Deferred financing costs relating to the Company’s term debt are presented in the consolidated balance sheet as a direct reduction of the carrying amount of the long-term debt. Deferred financing costs relating to the Company’s revolving loans are presented on the balance sheet as a deferred charge.

(t)    Taxes

Income tax expense represents the sum of current tax expense and deferred tax expense.

Current tax

The current tax expense is based on taxable profit for the period and includes any adjustments to tax payable in respect of previous years. Taxable profit differs from income before income taxes as reported in the consolidated income statement because it excludes (i) items of income or expense that are taxable or deductible in other years and (ii) items that are never taxable or deductible. The Company’s liability for current tax is calculated using tax rates that have been enacted by the balance sheet date.

Deferred tax

Income taxes are accounted for using the asset and liability method. Deferred income tax assets and liabilities are based on temporary differences, which are differences between the accounting basis and the tax basis of the assets and liabilities, and non-capital loss, capital loss, and tax credits carryforwards are measured using the enacted tax rates and laws expected to apply when these differences reverse. Deferred tax benefits, including non-capital loss, capital loss, and tax credits carryforwards, are recognized to the extent that realization of such benefits is considered more likely than not. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in earnings in the period that enactment occurs. When realization of deferred income tax assets does not meet the more-likely-than-not criterion for recognition, a valuation allowance is provided.

Interest and penalties related to income taxes, including unrecognized tax benefits, are recorded in income tax expense in the income statement.

Liabilities for uncertain tax positions are recorded based on a two-step process. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount that is more than 50% likely of being realized upon settlement. The Company regularly assesses the potential outcomes of examinations by tax authorities in determining the adequacy of its provision for income taxes. The Company continually assesses the likelihood and amount of potential adjustments and adjusts the income tax provision, income taxes payable, and deferred taxes in the period in which the facts that give rise to a revision become known.

(u)   Contingently redeemable non-controlling interest

Contingently redeemable equity instruments are initially recorded at their fair value on the date of issue within temporary equity on the balance sheet. When the equity instruments become redeemable or redemption is probable, the Company recognizes changes in the estimated redemption value immediately as they occur and adjusts the carrying amount of the redeemable equity instrument to equal the estimated redemption value at the end of each reporting period. Changes to the carrying value are charged or credited to retained earnings attributable to stockholders on the balance sheet.

Redemption value determinations require high levels of judgment (“Level 3” on the fair value hierarchy) and are based on various valuation techniques, including market comparable and discounted cash flow projections.

2.     Significant accounting policies (continued)

(v)   Earnings per share

Basic earnings per share has been calculated by dividing net income attributable to stockholders by the weighted average number of common shares outstanding. Diluted earnings per share has been determined after giving effect to outstanding dilutive stock options and share units calculated by adjusting the net income attributable to stockholders and the weighted average number of shares outstanding for all dilutive shares.

(w)  Defined contribution plans

The employees of the Company are members of retirement benefit plans to which the Company matches up to a specified percentage of employee contributions or, in certain jurisdictions, contributes a specified percentage of payroll costs as mandated by the local authorities. The only obligation of the Company with respect to the retirement benefit plans is to make the specified contributions.

(x)   Advertising costs

Advertising costs are expensed as incurred. Advertising expense is included in costs of services and selling, general and administrative (“SG&A”) expenses on the accompanying consolidated income statements.

(y)   New and amended accounting standards

Effective January 1, 2019, the Company adopted ASU 2016-02, Leases (Topic 842). The Company adopted the new standard utilizing the “optional transition method”, which permits the Company to apply the new lease standard at the adoption date. As the optional transition method is being utilized, the Company’s reporting for the comparative periods presented in the financial statements in which it adopts Topic 842 will continue to be reported pursuant to Topic 840.

On adoption, the Company elected to utilize the package of practical expedients permitted within the new standard, which among other things, allows the Company to carryforward the historical lease classification. In addition, the Company elected to utilize the hindsight practical expedient to determine the reasonably certain lease term for existing leases. While lease classification will remain unchanged, hindsight will result in generally longer accounting lease terms where the Company has determined that it is reasonably certain to exercise certain renewal options and thereby increasing the useful lives of the corresponding leasehold improvements. The Company also elected not to recognize the lease assets and liabilities for leases with an initial term of 12 months or less and will recognize those lease payments on a straight-line basis over the lease term.

On adoption of the new standard the Company recognized ROU assets of $103,897,000 with a corresponding increase in operating lease liability. Offsetting the increase in ROU assets recognized was the reclassification of prepaid rent and deferred rent liabilities to ROU assets of $5,752,000. There was no impact on retained earnings or cash flows.

The adoption of the standard had no impact on our debt-covenant compliance under our current agreements.

(z)   Recent accounting standards not yet adopted

In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments, 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.” To clarify or address stakeholders’ specific issues about certain aspects of ASU 2016-13, the FASB issued ASU 2019-04, Codification Improvement to Topic 326, Financial Instruments – Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments.

The Company will adopt the new standard prescribed by ASU 2016-13 and ASU 2019-04 effective January 1, 2020. The Company is currently updating processes and controls in preparation of the adoption. We do not expect the adoption of the new standard to have a material effect on our consolidated financial results.

v3.19.3.a.u2
Significant Judgments, Estimates and Assumptions
12 Months Ended
Dec. 31, 2019
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. However, existing circumstances and assumptions about future developments may change due to market changes or circumstances 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, the determination of lease term and lease liabilities, deferred income taxes, reserves for tax uncertainties, and other contingencies.

v3.19.3.a.u2
Segmented Information
12 Months Ended
Dec. 31, 2019
Segmented Information  
Segmented Information

4.     Segmented 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.

Year ended December 31, 2019

    

A&M

    

Other

    

Consolidated

Service revenue

$

678,823

$

125,201

$

804,024

Inventory sales revenue

 

514,617

 

 

514,617

Total revenue

$

1,193,440

$

125,201

$

1,318,641

Costs of services

 

99,821

 

65,156

 

164,977

Cost of inventory sold

 

480,839

 

 

480,839

Selling, General and Administration expenses ("SG&A")

 

358,016

 

24,373

 

382,389

Segment profit

$

254,764

$

35,672

$

290,436

Acquisition-related costs

 

  

 

777

Depreciation and amortization expenses ("D&A")

 

  

 

70,501

Gain on disposition of property, plant and equipment ("PPE")

 

  

 

(1,107)

Foreign exchange gain

 

  

 

(2,937)

Operating income

 

  

$

223,202

Interest expense

 

  

 

(41,277)

Other income, net

 

  

 

8,838

Income tax expense

 

  

 

(41,623)

Net income

 

  

$

149,140

4.     Segmented information (continued)

Year ended December 31, 2018

    

A&M

    

Other

    

Consolidated

Service revenue

$

626,007

$

123,508

$

749,515

Inventory sales revenue

 

420,511

 

 

420,511

Total revenue

$

1,046,518

$

123,508

$

1,170,026

Costs of services

 

87,430

 

71,628

 

159,058

Cost of inventory sold

 

374,339

 

 

374,339

SG&A expenses

 

363,549

 

19,127

 

382,676

Segment profit

$

221,200

$

32,753

$

253,953

Acquisition-related costs

 

  

 

5,093

D&A expenses

 

  

 

66,614

Gain on disposition of PPE

 

  

 

(2,731)

Foreign exchange gain

 

  

 

(212)

Operating income

 

  

$

185,189

Interest expense

 

  

 

(44,527)

Other income, net

 

  

 

11,850

Income tax expense

 

  

 

(31,006)

Net income

 

  

$

121,506

Year ended December 31, 2017

    

A&M

    

Other

    

Consolidated

Service revenue

$

524,023

 

$

100,394

$

624,417

Inventory sales revenue

 

346,774

 

 

346,774

Total revenue

$

870,797

$

100,394

 

971,191

Costs of services

 

75,685

 

57,504

 

133,189

Cost of inventory sold

 

306,498

 

 

306,498

SG&A expenses

 

308,873

 

14,397

 

323,270

Impairment loss

 

8,911

 

 

8,911

Segment profit

$

170,830

$

28,493

$

199,323

Acquisition-related costs

 

  

 

38,272

D&A expenses

 

  

 

52,694

Gain on disposition of PPE

 

  

 

(1,656)

Foreign exchange loss

 

  

 

2,559

Operating income

 

  

$

107,454

Interest expense

 

  

 

(38,291)

Other income, net

 

  

 

8,231

Income tax expense

 

  

 

(2,088)

Net income

 

  

$

75,306

The carrying value of goodwill of $652,243,000 has been allocated to A&M and $20,067,000 has been allocated to Other in relation to the Mascus acquisition. As in prior periods, the CODM does not evaluate the performance of its operating segments based on segment assets and liabilities, nor does the Company classify liabilities on a segmented basis.

As at December 31,

    

2019

    

2018

A&M

$

652,243

$

651,359

Other

 

20,067

 

20,235

Total Goodwill

$

672,310

$

671,594

4.     Segmented information (continued)

The Company’s geographic information as determined by the revenue and location of assets, which represents property, plant and equipment is as follows:

    

United

    

    

    

    

States

Canada

Europe

Other

Consolidated

Total revenue for the year ended:

 

  

 

  

 

  

 

  

 

  

December 31, 2019

$

743,793

$

247,737

$

173,054

$

154,057

$

1,318,641

December 31, 2018

 

548,695

 

284,989

 

180,817

 

155,525

 

1,170,026

December 31, 2017

 

452,599

 

245,106

 

127,706

 

145,780

 

971,191

    

United

    

    

    

    

States

Canada

Europe

Other

Consolidated

Property, plant and equipment:

 

  

 

  

 

  

 

  

 

  

December 31, 2019

$

256,159

$

106,922

$

73,991

$

47,410

$

484,482

December 31, 2018

 

260,489

 

100,983

 

77,496

 

47,631

 

486,599

v3.19.3.a.u2
Revenues
12 Months Ended
Dec. 31, 2019
Revenue  
Revenue

5.    Revenues

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

    

2019

    

2018

    

2017

Service revenue:

 

  

 

  

 

  

Commissions

$

431,781

$

420,160

$

394,397

Fees

 

372,243

 

329,355

 

230,020

 

804,024

 

749,515

 

624,417

Inventory sales revenue

 

514,617

 

420,511

 

346,774

$

1,318,641

$

1,170,026

$

971,191

v3.19.3.a.u2
Operating Expenses
12 Months Ended
Dec. 31, 2019
Operating Expenses  
Operating Expenses

6.     Operating expenses

Costs of services

Year ended December 31,

    

2019

    

2018

    

2017

Ancillary and logistical service expenses

$

59,252

$

66,576

$

54,176

Employee compensation expenses

 

50,093

 

41,391

 

35,440

Buildings, facilities and technology expenses

 

7,865

 

9,477

 

8,359

Travel, advertising and promotion expenses

 

31,652

 

27,606

 

23,994

Other costs of services

 

16,115

 

14,008

 

11,220

$

164,977

$

159,058

$

133,189

SG&A expenses

Year ended December 31,

    

2019

    

2018

    

2017

Employee compensation expenses

$

246,028

$

249,115

$

208,370

Buildings, facilities and technology expenses

 

61,177

 

60,930

 

53,151

Travel, advertising and promotion expenses

 

38,248

 

36,728

 

30,440

Professional fees

 

15,572

 

16,768

 

13,522

Other SG&A expenses

 

21,364

 

19,135

 

17,787

$

382,389

$

382,676

$

323,270

6.     Operating expenses (continued)

Acquisition-related costs

Acquisition-related costs consist of operating expenses directly incurred as part of a business combination, due diligence and integration planning related to the IronPlanet acquisition (note 29), and continuing employment costs that are recognized separately from our business combinations.

Year ended December 31,

    

2019

    

2018

    

2017

IronPlanet:

 

  

 

  

 

  

Other acquisition-related costs

$

82

$

2,944

$

34,653

Other acquisitions:

 

  

 

  

 

  

Continuing employment costs

 

128

 

2,091

 

3,418

Other acquisition-related costs

 

567

 

58

 

201

$

777

$

5,093

$

38,272

Depreciation and amortization expenses

Year ended December 31,

    

2019

    

2018

    

2017

Depreciation expense

$

29,112

$

29,021

$

28,337

Amortization expense

 

41,389

 

37,593

 

24,357

$

70,501

$

66,614

$

52,694

During the year ended December 31, 2019, depreciation expense of $410,000 (2018: $494,000; 2017: $1,207,000) and amortization expense of $27,944,000 (2018: $18,996,000; 2017: $11,662,000) were recorded relating to software.

v3.19.3.a.u2
Impairment Loss
12 Months Ended
Dec. 31, 2019
Impairment Loss  
Impairment Loss

7.     Impairment Loss

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.

During the year ended December 31, 2017, management identified indicators of impairment on certain software and software under development intangible assets (the “technology assets”). The indicators consisted of decisions made after the acquisition of IronPlanet that adversely impacted the extent or manner in which certain technology assets would be utilized. As part of its integration activities the Company determined that it was more likely than not that certain technology assets would not be utilized or developed as originally intended and no longer had value. As a result, management performed an impairment test that resulted in the recognition of an impairment loss of $8,911,000 on the technology assets.

v3.19.3.a.u2
Other Income
12 Months Ended
Dec. 31, 2019
Other income  
Other Income

8.     Other income

For the period ended December 31, 2019, there were no significant items recorded in other income. In 2018, other income included a gain of $4,935,000 recognized on the disposition of one of the Company’s equity accounted for investments. The Company received net proceeds of $6,147,000 on closing and is entitled to receive up to $1,020,000 upon the satisfaction of certain escrow release conditions over a period of five years. The first escrow tranche was released during the period ended December 31, 2019. Additionally, the Company was entitled to receive up to $1,700,000 of contingent consideration upon the achievement of certain financial targets for the period from January 1, 2019 to December 31, 2019. The Company has not recognized any contingent consideration.

v3.19.3.a.u2
Income Taxes
12 Months Ended
Dec. 31, 2019
Income Taxes  
Income Taxes

9.     Income taxes

The expense for the year can be reconciled to income before income taxes as follows:

Year ended December 31,

    

2019

    

2018

    

2017

 

Earnings before income tax

$

190,763

$

152,512

$

77,394

Statutory federal and provincial tax rate in Canada

 

27.00

%  

 

27.00

%  

 

26.00

%

Expected income tax expense

$

51,506

$

41,178

$

20,122

Non-deductible expenses

 

3,705

 

4,810

 

5,668

Adjustment to prior year provision to statutory tax returns

 

4

 

1,323

 

(528)

Changes in the valuation of deferred tax assets

 

(550)

 

(771)

 

(1,089)

Different tax rates of subsidiaries operating in foreign jurisdictions

 

(11,818)

 

(17,145)

 

(12,269)

U.S. tax reform impacts

 

6,949

 

4,899

 

(9,734)

Change in enacted tax rates

 

(1,016)

 

93

 

(229)

Change in estimate of deductibility of stock options

 

 

 

(1,557)

Unrecognized tax benefits

 

(2,347)

 

(1,800)

 

3,291

Benefits of deductible stock options vested and exercised

 

(1,780)

 

(2,434)

 

(1,359)

Other

 

(3,030)

 

853

 

(228)

$

41,623

$

31,006

$

2,088

The income tax expense (recovery) consists of:

Year ended December 31,

    

2019

    

2018

    

2017

Canadian:

Current tax expense

$

19,752

$

13,209

$

14,245

Deferred tax expense (recovery)

 

3,346

 

3,958

 

(10,192)

Foreign:

 

  

 

  

 

  

Current tax expense before application of operating loss carryforwards

 

24,815

 

19,851

 

8,987

Tax benefit of operating loss carryforwards

 

(11,770)

 

(8,293)

 

(3,876)

Total foreign current tax expense

 

13,045

 

11,558

 

5,111

Deferred tax expense before adjustment

to opening valuation allowance

 

5,727

 

2,386

 

(6,317)

Adjustment to opening valuation allowance

 

(247)

 

(105)

 

(759)

Total foreign deferred tax expense (recovery)

 

5,480

 

2,281

 

(7,076)

$

41,623

$

31,006

$

2,088

The foreign provision for income taxes is based on foreign pre-tax earnings of $108,714,000, $102,824,000, and $64,252,000, in 2019, 2018, and 2017 respectively. The Company’s consolidated financial statements provide for any related tax liability on undistributed earnings that we intend to repatriate in the foreseeable future. As of December 31, 2019, income taxes have not been provided on a cumulative total of $483,430,000 of such earnings. The amount of unrecognized deferred tax liability related to these temporary differences is estimated to be approximately $10,506,000. Earnings retained by subsidiaries and equity-accounted investments amount to approximately $500,430,000 (2018: 484,510,000; 2017: 469,000,000). The Company accrues withholding and other taxes that would become payable on the distribution of earnings only to the extent that either the Company does not control the relevant entity or it is expected that these earnings will be remitted in the foreseeable future.

9.     Income taxes (continued)

The tax effects of temporary differences that give rise to significant deferred tax assets and deferred tax liabilities were as follows:

As at December 31,

    

2019

    

2018

Deferred tax assets:

 

  

 

  

Working capital

$

13,307

$

4,703

Property, plant and equipment

 

5,579

 

6,385

Share-based compensation

 

5,973

 

4,923

Tax losses and tax credit carryforwards

 

33,248

 

48,881

Lease liabilities

29,523

2,578

Other

 

3,088

 

12,266

 

90,718

 

79,736

Deferred tax liabilities:

 

  

 

  

Property, plant and equipment

$

(14,783)

$

(10,918)

Goodwill

 

(8,499)

 

(8,390)

Intangible assets

 

(50,531)

 

(54,810)

Right-of-use assets

(25,244)

Other

 

(7,496)

 

(12,051)

 

(106,553)

 

(86,169)

Net deferred tax assets (liabilities)

$

(15,835)

$

(6,433)

Valuation allowance

 

(12,913)

 

(13,438)

$

(28,748)

$

(19,871)

At December 31, 2019, the Company had non-capital loss carryforwards that are available to reduce taxable income in the future years. These non-capital loss carryforwards expire as follows:

2020

    

$

4,983

2021

 

3,543

2022

 

4,878

2023

 

2,964

2024 and thereafter

 

69,462

$

85,830

The Company has capital loss carryforwards of approximately $39,981,209 (2018: $9,292,000) available to reduce future capital gains and interest deduction carryforwards of $23,746,000 (2018: $22,112,000), both of which carryforward indefinitely.

Tax losses are denominated in the currency of the countries in which the respective subsidiaries are located and operate. Fluctuations in currency exchange rates could reduce the U.S. dollar equivalent value of these tax loss and tax credit carry forwards in future years.

In assessing the realizability of our deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during periods in which temporary differences become deductible and the loss carry forwards or tax credits can be utilized. Management considers projected future taxable income and tax planning strategies in making our assessment.

9.     Income taxes (continued)

Uncertain tax positions

Tax positions are evaluated in a two-step process. The Company first determines whether it is more likely than not that a tax position will be sustained upon examination. If a tax position meets the more-likely-than-not recognition threshold it is then measured to determine the amount of the benefit to recognize in the financial statements. The tax position is measured as the largest amount of the benefit that is greater than 50% likely of being realized upon ultimate settlement. The Company classifies unrecognized tax benefits that are not expected to result in the payment or receipt of cash within one year as non-current liabilities in the consolidated balance sheets.

At December 31, 2019, the Company had gross unrecognized tax benefits of $20,232,000 (2018: $22,584,000). Of this total, $8,854,000 (2018: $10,556,000) represents the amount of unrecognized tax benefits that, if recognized, would favorably impact the effective tax rate.

Reconciliation of unrecognized tax benefits:

As at December 31,

    

2019

    

2018

Unrecognized tax benefits, beginning of year

$

22,584

$

25,910

Increases - tax positions taken in prior period

 

700

 

725

Decreases - tax positions taken in prior period

 

(57)

 

(107)

Increases - tax positions taken in current period

 

1,268

 

2,644

Settlement and lapse of statute of limitations

 

(4,364)

 

(4,944)

Currency translation adjustment

 

101

 

(1,644)

Unrecognized tax benefits, end of year

$

20,232

$

22,584

Interest expense and penalties related to unrecognized tax benefits are recorded within the provision for income tax expense on the consolidated income statement. At December 31, 2019, the Company had accrued $3,569,000 (2018: $4,170,000) for interest and penalties.

In the normal course of business, the Company is subject to audit by the Canadian federal and provincial taxing authorities, by the U.S. federal and various state taxing authorities and by the taxing authorities in various foreign jurisdictions. Tax years ranging from 2014 to 2019 remain subject to examination in Canada, the United States, Luxembourg, and the Netherlands.

v3.19.3.a.u2
Earnings Per Share Attributable to Stockholders
12 Months Ended
Dec. 31, 2019
Earnings Per Share Attributable to Stockholders  
Earnings Per Share Attributable to Stockholders

10.   Earnings 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 during the period. Diluted EPS attributable to stockholders was calculated by dividing the net income attributable to stockholders by the WA number of shares of common stock outstanding if the potentially dilutive securities had been issued. Potentially dilutive securities include unvested PSUs, unvested RSUs, and outstanding stock options. The dilutive effect of potentially dilutive securities is reflected in diluted EPS by application of the treasury stock method. Under the treasury stock method, an increase in the fair market value of the Company’s common stock can result in a greater dilutive effect from potentially dilutive securities.

    

Net income

    

WA

    

attributable to

number

Per share

Year ended December 31, 2019

stockholders

of shares

amount

Basic

$

149,039

 

108,519,739

$

1.37

Effect of dilutive securities:

 

  

 

  

 

  

Share units

 

 

458,763

 

Stock options

 

 

780,621

 

(0.01)

Diluted

$

149,039

 

109,759,123

$

1.36

10.   Earnings per share attributable to stockholders (continued)

    

Net income

    

WA

    

attributable to

number

Per share

Year ended December 31, 2018

stockholders

of shares

amount

Basic

$

121,479

 

108,063,349

$

1.12

Effect of dilutive securities:

 

  

 

  

 

  

Share units

 

 

459,503

 

Stock options

 

 

865,384

 

(0.01)

Diluted

$

121,479

 

109,388,236

$

1.11

    

Net income

    

WA

    

attributable to

number

Per share

Year ended December 31, 2017

stockholders

of shares

amount

Basic

$

75,027

 

107,044,348

$

0.70

Effect of dilutive securities:

 

  

 

  

 

  

Share units

 

(152)

 

353,880

 

Stock options

 

 

714,923

 

(0.01)

Diluted

$

74,875

 

108,113,151

$

0.69