RITCHIE BROS AUCTIONEERS INC, 10-Q filed on 11/8/2018
Quarterly Report
v3.10.0.1
Document and Entity Information - shares
9 Months Ended
Sep. 30, 2018
Nov. 07, 2018
Document And Entity Information [Abstract]    
Entity Registrant Name Ritchie Bros Auctioneers Inc  
Entity Central Index Key 0001046102  
Current Fiscal Year End Date --12-31  
Entity Filer Category Large Accelerated Filer  
Document Type 10-Q  
Document Period End Date Sep. 30, 2018  
Document Fiscal Year Focus 2018  
Document Fiscal Period Focus Q3  
Amendment Flag false  
Entity Common Stock, Shares Outstanding   108,644,431
Entity Emerging Growth Company false  
Entity Small Business false  
v3.10.0.1
Condensed Consolidated Income Statements - USD ($)
$ in Thousands
3 Months Ended 9 Months Ended
Sep. 30, 2018
Sep. 30, 2017
Sep. 30, 2018
Sep. 30, 2017
Revenues:        
Total revenues $ 245,346 $ 227,401 $ 814,054 $ 679,441
Operating expenses:        
Costs of services 33,053 33,461 112,743 94,093
Cost of inventory sold 74,341 72,476 231,834 207,603
Selling, general and administrative expenses 88,323 85,335 287,052 230,287
Acquisition-related costs 2,007 3,587 5,039 35,162
Depreciation and amortization expenses 16,723 14,837 49,451 37,047
Gain on disposition of property, plant and equipment (342) (42) (958) (1,071)
Impairment loss       8,911
Foreign exchange loss (gain) 47 816 31 (7)
Total operating expenses 214,152 210,470 685,192 612,025
Operating income 31,194 16,931 128,862 67,416
Interest expense (10,473) (10,558) (32,720) (27,311)
Other income, net 7,182 592 8,995 6,346
Income before income taxes 27,903 6,965 105,137 46,451
Income tax expense (recovery) 4,791 (3,358) 19,091 7,982
Net income 23,112 10,323 86,046 38,469
Net income (loss) attributable to:        
Stockholders 23,138 10,261 85,993 38,273
Non-controlling interests $ (26) $ 62 $ 53 $ 196
Earnings per share attributable to stockholders:        
Basic $ 0.21 $ 0.10 $ 0.80 $ 0.36
Diluted $ 0.21 $ 0.09 $ 0.79 $ 0.35
Weighted average number of shares outstanding:        
Basic 108,365,427 107,120,618 107,811,391 106,993,358
Diluted 109,887,194 108,178,303 109,133,378 108,069,624
Service Revenues [Member]        
Revenues:        
Total revenues $ 161,374 $ 145,938 $ 551,736 $ 442,066
Revenue from Inventory Sales [Member]        
Revenues:        
Total revenues $ 83,972 $ 81,463 $ 262,318 $ 237,375
v3.10.0.1
Condensed Consolidated Statements of Comprehensive Income - USD ($)
$ in Thousands
3 Months Ended 9 Months Ended
Sep. 30, 2018
Sep. 30, 2017
Sep. 30, 2018
Sep. 30, 2017
Condensed Consolidated Statements of Comprehensive Income [Abstract]        
Net income $ 23,112 $ 10,323 $ 86,046 $ 38,469
Other comprehensive income (loss), net of income tax:        
Foreign currency translation adjustment 3 6,009 (7,781) 22,822
Total comprehensive income 23,115 16,332 78,265 61,291
Total comprehensive income (loss) attributable to:        
Stockholders 23,145 16,256 78,234 61,045
Non-controlling interests $ (30) $ 76 $ 31 $ 246
v3.10.0.1
Condensed Consolidated Balance Sheets - USD ($)
$ in Thousands
Sep. 30, 2018
Dec. 31, 2017
Assets    
Cash and cash equivalents $ 228,764 $ 267,910
Restricted cash 75,281 63,206
Trade and other receivables 247,972 92,105
Inventory 84,789 38,238
Other current assets 40,236 27,610
Income taxes receivable 8,589 19,418
Total current assets 685,631 508,487
Property, plant and equipment 504,738 526,581
Equity-accounted investments 4,206 7,408
Other non-current assets 26,549 24,146
Intangible assets 251,422 261,094
Goodwill 673,191 670,922
Deferred tax assets 23,729 18,674
Total assets 2,169,466 2,017,312
Liabilities and Equity    
Auction proceeds payable 325,985 199,245
Trade and other payables 179,659 164,553
Income taxes payable 6,999 732
Short-term debt 10,532 7,018
Current portion of long-term debt 11,556 16,907
Total current liabilities 534,731 388,455
Long-term debt 740,222 795,985
Other non-current liabilities 39,436 46,773
Deferred tax liabilities 33,601 32,334
Total liabilities 1,347,990 1,263,547
Commitments
Contingencies
Contingently redeemable performance share units 864 9,014
Share capital:    
Common stock; no par value, unlimited shares authorized, issued and outstanding shares: 108,601,417 (December 31, 2017: 107,269,783) 179,348 138,582
Additional paid-in capital 53,941 41,005
Retained earnings 632,496 602,609
Accumulated other comprehensive loss (50,273) (42,514)
Stockholders' equity 815,512 739,682
Non-controlling interest 5,100 5,069
Total stockholders' equity 820,612 744,751
Total liabilities and equity $ 2,169,466 $ 2,017,312
v3.10.0.1
Condensed Consolidated Balance Sheets (Parenthetical) - $ / shares
9 Months Ended 12 Months Ended
Sep. 30, 2018
Dec. 31, 2017
Condensed Consolidated Balance Sheets [Abstract]    
Common stock, no par value
Common stock, Shares Authorized, Unlimited Unlimited Unlimited
Common stock, issued shares 108,601,417 107,269,783
Common stock, outstanding shares 108,601,417 107,269,783
v3.10.0.1
Condensed Consolidated Statements of Changes in Equity - 9 months ended Sep. 30, 2018 - USD ($)
$ in Thousands
Common stock [Member]
Additional paid-in capital ("APIC") [Member]
Retained earnings [Member]
Accumulated other comprehensive loss [Member]
Non-controlling interest ("NCI") [Member]
Contingently Redeemable Performance Share Units [Member]
Total
Balance at Dec. 31, 2017 $ 138,582 $ 41,005 $ 602,609 $ (42,514) $ 5,069   $ 744,751
Balance, shares at Dec. 31, 2017 107,269,783            
Contingently redeemable Performance share units, Balance at Dec. 31, 2017           $ 9,014 9,014
Net income     85,993   53   86,046
Other comprehensive loss       (7,759) (22)   (7,781)
Comprehensive income     85,993 (7,759) 31   78,265
Stock option exercises $ 34,876 (7,804)         $ 27,072
Stock option exercises, shares 1,154,541           1,154,541
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   6,711         6,711
Modification of PSUs   12,365 958     (6,622) 13,323
Equity-classified PSU expense   3,153       5,826 3,153
Equity-classified PSU dividend equivalents   173 (514)     341 (341)
Change in fair value of contingently redeemable PSUs     (108)     108 (108)
Cash dividends paid     (56,116)       (56,116)
Balance at Sep. 30, 2018 $ 179,348 $ 53,941 $ 632,496 $ (50,273) $ 5,100   820,612
Balance, shares at Sep. 30, 2018 108,601,417            
Contingently redeemable Performance share units, Balance at Sep. 30, 2018           $ 864 $ 864
v3.10.0.1
Condensed Consolidated Statements of Cash Flows - USD ($)
$ in Thousands
9 Months Ended
Sep. 30, 2018
Sep. 30, 2017
Operating activities:    
Net income $ 86,046 $ 38,469
Adjustments for items not affecting cash:    
Depreciation and amortization expenses 49,451 37,047
Impairment loss   8,911
Stock option compensation expense 6,711 10,996
Equity-classified PSU expense 8,978 1,871
Deferred income tax expense (recovery) (3,774) (9,583)
Unrealized foreign exchange loss (gain) 501 (1,011)
Amortization of debt issuance costs 3,032 2,058
Gain on disposition of equity investment (4,935)  
Other, net (4,636) (2,090)
Net changes in operating assets and liabilities (44,227) 11,849
Net cash provided by operating activities 97,147 98,517
Investing activities:    
Acquisition of IronPlanet, net of cash acquired   (675,851)
Property, plant and equipment additions (13,394) (8,086)
Intangible asset additions (19,410) (20,482)
Proceeds on disposition of property, plant and equipment 2,524 3,487
Proceeds on disposal of equity investment 6,147  
Other, net (4,674) (667)
Net cash used in investing activities (28,807) (701,599)
Financing activities:    
Dividends paid to stockholders (56,116) (54,558)
Dividends paid to NCI   (41)
Issuances of share capital 27,072 7,934
Payment of withholding taxes on issuance of shares (3,901)  
Proceeds from short-term debt 6,949 6,850
Repayment of short-term debt (3,372) (22,793)
Proceeds from long-term debt   325,000
Repayment of long-term debt (58,825) (104,729)
Debt issue costs   (12,624)
Repayment of finance lease obligations (2,827) (1,565)
Other, net (1,176) (1,431)
Net cash provided by (used in) financing activities (92,196) 142,043
Effect of changes in foreign currency rates on cash, cash equivalents, and restricted cash (3,215) 17,270
Decrease (27,071) (443,769)
Beginning of period 331,116 758,089
Cash, cash equivalents, and restricted cash, end of period $ 304,045 $ 314,320
v3.10.0.1
Summary of Significant Accounting Policies
9 Months Ended
Sep. 30, 2018
Summary of Significant Accounting Policies [Abstract]  
Summary of Significant Accounting Policies

1.  Summary of significant accounting policies

Ritchie Bros. Auctioneers Incorporated and its subsidiaries (collectively referred to as the “Company”) provide global asset management and disposition services, offering customers end-to-end solutions for buying and selling used industrial equipment and other durable assets through its live unreserved auctions and online reserved and unreserved marketplaces, listing services, and private brokerage services.  Ritchie Bros. Auctioneers Incorporated is a company incorporated in Canada under the Canada Business Corporations Act, whose shares are publicly traded on the Toronto Stock Exchange (“TSX”) and the New York Stock Exchange (“NYSE”).



(a)

Basis of preparation

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



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



(b)

 Revenue recognition

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



Revenues are comprised of:

·

Service revenues, including the following:

i.

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

ii.

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

·

Revenue from inventory sales as part of A&M activities

The Company recognizes revenue when control of the promised goods or services is transferred to our customers, or upon completion of the performance obligation, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services. A performance obligation is a promise in a contract to transfer a distinct good or service to the customer. A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. For live event-based auctions or online auctions, revenue is recognized when the auction sale is complete and the Company has determined that the sale proceeds are collectible.  Revenue is measured at the fair value of the consideration received or receivable and is shown net of value-added tax and duties. 

1.  Summary of significant accounting policies (continued)

(b)

Revenue recognition (continued)

Service revenues

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



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



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



On the fall of the auctioneer’s hammer, the highest bidder becomes legally obligated to pay the full purchase price, which is the hammer price of the property purchased and the seller is legally obligated to relinquish the property in exchange for the hammer price less any seller’s commissions. Commission and fee revenues are recognized on the date of the auction sale upon the fall of the auctioneer’s hammer. 



Under the standard terms and conditions of its auction sales, the Company is not obligated to pay a consignor for property that has not been paid for by the buyer, provided the property has not been released to the buyer. If the buyer defaults on its payment obligation, also referred to as a collapsed sale, the sale is cancelled in the period in which the determination is made, and the property is returned to the consignor or placed in a later event-based or online auction. Historically cancelled sales have not been material.



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



Commission revenues are recorded net of commissions owed to third parties, which are principally the result of situations when the commission is shared with a consignor or with the counterparty in an auction guarantee risk and reward sharing arrangement. Additionally, in certain situations, commissions are shared with third parties who introduce the Company to consignors who sell property at auction.



1.  Summary of significant accounting policies (continued)

(b)

Revenue recognition (continued)

Service revenues (continued)

Underwritten commission contracts can take the form of guarantee contracts. Guarantee contracts typically include a pre-negotiated percentage of the guaranteed gross proceeds plus a percentage of proceeds in excess of the guaranteed amount. If actual auction proceeds are less than the guaranteed amount, commission is reduced; if proceeds are sufficiently lower, the Company can incur a loss on the sale. Losses, if any, resulting from guarantee contracts are recorded in the period in which the relevant auction is completed. If a loss relating to a guarantee contract held at the period end to be sold after the period end is known or is probable and estimable at the financial statement reporting date, the loss is accrued in the financial statements for that period. The Company’s exposure from these guarantee contracts fluctuates over time. 



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



Revenue on inventory sales

Underwritten commission contracts can take the form of inventory contracts. Revenues related to inventory contracts are recognized in the period in which the sale is completed, title to the property passes to the purchaser and the Company has fulfilled any other obligations that may be relevant to the transaction. In its role as auctioneer, the Company auctions its inventory to equipment buyers through the auction process. Following the sale of the item, the Company invoices the buyer for the purchase price of the asset, taxes, and, if applicable, the buyer transaction fee, and collects payment from the buyer.

 

On the fall of the auctioneer’s hammer, the highest bidder becomes legally obligated to pay the full purchase price, which is the hammer price of the property purchased. Title to the property is transferred in exchange for the hammer price, and if applicable, the buyer transaction fee plus applicable taxes.



(c)

 Cost of services

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



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



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



(d)

Cost of inventory sold

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

   

1.  Summary of significant accounting policies (continued)

(e)

Share-based payments

The Company classifies a share-based payment award as an equity or liability payment based on the substantive terms of the award and any related arrangement.



Equity-classified share-based payments

Share unit plans

The Company has a senior executive performance share unit (“PSU”) plan and an employee PSU plan that provides for the award of PSUs to certain senior executives and employees, respectively, of the Company. The Company has the option to settle certain share unit awards in cash or shares and expects to settle them in shares. The cost of PSUs granted is measured at the fair value of the underlying PSUs at the grant date using a Monte-Carlo simulation model.  PSUs vest based on the passage of time and achievement of performance criteria. 



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



This fair value of awards expected to vest under these plans is expensed over the respective remaining service period of the individual awards, on an accelerated recognition basis, with the corresponding increase to APIC recorded in equity. At the end of each reporting period, the Company revises its estimate of the number of equity instruments expected to vest. The impact of the revision of the original estimates, if any, is recognized in earnings, such that the consolidated expense reflects the revised estimate, with a corresponding adjustment to equity. Dividend equivalents on the equity-classified PSUs and RSUs are recognized as a reduction to retained earnings over the service period.



In previous quarters, the RSUs and PSUs awarded under the senior executive and employee PSU plans were intended to be settled in cash in the event of death of the participant. At its August 2018 meeting, the Board of Directors resolved that, with respect to each of the RSU and PSU plans, there will be no preference or default in favour of cash settlement and, pursuant to the discretion granted under each plan, the Compensation Committee of the Board will determine whether to settle the awards in cash or in shares in the event of death of the participant. The Company intends to settle in shares. Prior to such resolution, the contingently redeemable portion representing the amount that would be redeemable based on the conditions at the date of grant, to the extent attributable to prior service, was recognized as temporary equity. As a result of the resolution, that portion has been reclassified to additional paid in capital during the quarter.



Stock option plans

The Company has three stock option compensation plans that provide for the award of stock options to selected employees, directors and officers of the Company. The cost of options granted is measured at the fair value of the underlying option at the grant date using the Black-Scholes option pricing model. The fair value of options expected to vest under these plans is expensed over the respective remaining service period of the individual awards, on an accelerated recognition basis, with the corresponding increase to APIC recorded in equity.  Upon exercise, any consideration paid on exercise of the stock options and amounts fully amortized in APIC are credited to the common shares.



1.  Summary of significant accounting policies (continued)

(e)

Share-based payments (continued)

Liability-classified share-based payments

The Company maintains other share unit compensation plans that vest over a period of up to three years after grant. Under those plans, the Company is either required or expects to settle vested awards on a cash basis or by providing cash to acquire shares on the open market on the employee’s behalf, where the settlement amount is determined using the volume weighted average price of the Company’s common shares for the twenty days prior to the vesting date or, in the case of deferred share unit (“DSU”) recipients, following cessation of service on the Board of Directors.



These awards are classified as liability awards, measured at fair value at the date of grant and re-measured at fair value at each reporting date up to and including the settlement date. The determination of the fair value of the share units under these plans is described in note 18. The fair value of the awards is expensed over the respective vesting period of the individual awards with recognition of a corresponding liability. Changes in fair value after vesting are recognized through compensation expense. Compensation expense reflects estimates of the number of instruments expected to vest.    



The impact of forfeitures and fair value revisions, if any, are recognized in earnings such that the cumulative expense reflects the revisions, with a corresponding adjustment to the settlement liability. Liability-classified share unit liabilities due within 12 months of the reporting date are presented in trade and other payables while settlements due beyond 12 months of the reporting date are presented in non-current liabilities.



(f)

Inventories

Inventory consists of equipment and other assets purchased for resale in an upcoming live on site auction or online marketplace event. The Company purchases inventory for resale through a competitive process where the consignor 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. 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.



(g)

Impairment of long-lived and indefinite-lived assets

Long-lived assets, comprised of property, plant and equipment and intangible assets subject to amortization, are assessed for impairment whenever events or circumstances indicate that their carrying value may not be recoverable. For the purpose of impairment testing, long-lived assets are grouped and tested for recoverability at the lowest level that generates independent cash flows.  An impairment loss is recognized when the carrying value of the assets or asset groups is greater

than the future projected undiscounted cash flows. The impairment loss is calculated as the excess of the carrying value over the fair value of the asset or asset group. Fair value is based on valuation techniques or third-party appraisals. Significant estimates and judgments are applied in determining these cash flows and fair values.



1.

Summary of significant accounting policies (continued)

(g)

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

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



(h)

Goodwill

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



Goodwill is not amortized, but it is tested annually for impairment at the reporting unit level as of December 31 and between annual tests if indicators of potential impairment exist. The Company has the option of performing a qualitative assessment of a reporting unit to first determine whether the quantitative impairment test is necessary. This involves an assessment of qualitative factors to determine the existence of events or circumstances that would indicate whether it is more likely than not that the carrying amount of the reporting unit to which goodwill belongs is less than its fair value. If the qualitative assessment indicates it is not more likely than not that the reporting unit’s carrying amount is less than its fair value, a quantitative impairment test is not required.



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



(i)

New and amended accounting standards

(i)

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



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



1.  Summary of significant accounting policies (continued)

(i)

New and amended accounting standards (continued)

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

1)

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

2)

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



Impact to reported results

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



 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

Three months ended September 30, 2017

Consolidated income statement line item

As reported

 

New Revenue Standard Adjustment

 

Consolidated income statement line item

As Adjusted

Revenues

$

141,047 

 

$

4,891 

 

Service revenues

$

145,938 



 

 

 

 

81,463 

 

Revenue from inventory sales

 

81,463 



 

 

 

 

86,354 

 

Total revenues

 

227,401 

Costs of services, excluding D&A

 

(19,583)

 

 

(13,878)

 

Costs of services

 

(33,461)



 

 

 

 

(72,476)

 

Cost of inventory sold

 

(72,476)



$

121,464 

 

$

 -

 

 

$

121,464 





 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

Nine months ended September 30, 2017

Consolidated income statement line item

As reported

 

New Revenue Standard Adjustment

 

Consolidated income statement line item

As Adjusted

Revenues

$

431,732 

 

$

10,334 

 

Service revenues

$

442,066 



 

 

 

 

237,375 

 

Revenue from inventory sales

 

237,375 



 

 

 

 

247,709 

 

Total revenues

 

679,441 

Costs of services, excluding D&A

 

(53,987)

 

 

(40,106)

 

Costs of services

 

(94,093)



 

 

 

 

(207,603)

 

Cost of inventory sold

 

(207,603)



$

377,745 

 

$

 -

 

 

$

377,745 



(ii)

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

1.

Summary of significant accounting policies (continued)

(j)

Recent accounting standards not yet adopted

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which requires lessees to recognize almost all leases, including operating leases, on the balance sheet through a right-of-use asset and a corresponding lease liability. For short-term leases, defined as those with a term of 12 months or less, the lessee is permitted to make an accounting policy election not to recognize the lease assets and liabilities, and instead recognize the lease expense generally on a straight-line basis over the lease term. The accounting treatment under this election is consistent with current operating lease accounting. No extensive amendments were made to lessor accounting, but amendments of note include changes to the definition of initial direct costs and accounting for collectability uncertainties in a lease.



ASU 2016-02 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018, with early adoption permitted. The Company plans to adopt the standard effective January 1, 2019. In July 2018, the FASB issued ASU 2018-11, Leases (Topic 842): Targeted Improvements, which provides an “optional transition method”. The Company can transition to the new standard by using a “modified retrospective transition”, which reflects the new guidance from the beginning of the earliest period presented in the financial statements or the “optional transition method”, which permits the Company to apply the new lease standard at the adoption date and recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. If the optional transition method is 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. The Company is evaluating which transition approach it intends to apply and will conclude on the transition approach in the fourth quarter of 2018.



The Company will 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 will elect 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 and useful lives of the corresponding leasehold improvements. The Company will elect 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.



The Company is continuing to assess the impact of the standard and we expect total liabilities to increase with an offsetting increase to leased assets. The Company does not believe the standard will materially affect our consolidated net earnings.



We do not expect the standard to impact on our debt-covenant compliance under our current agreements.



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

2.  Significant judgments, estimates and assumptions

The preparation of financial statements in conformity with US GAAP requires management to make judgments, estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period.



Future differences arising between actual results and the judgments, estimates and assumptions made by the Company at the reporting date, or future changes to estimates and assumptions, could necessitate adjustments to the underlying reported amounts of assets, liabilities, revenues and expenses in future reporting periods.



Judgments, estimates and underlying assumptions are evaluated on an ongoing basis by management, and are based on historical experience and other factors including expectations of future events that are believed to be reasonable under the circumstances. Existing circumstances and assumptions about future developments, however, may change due to market changes or circumstance and such changes are reflected in the assumptions when they occur. Significant items subject to estimates include purchase price allocations, the carrying amounts of goodwill, the useful lives of long-lived assets, share based compensation, deferred income taxes, reserves for tax uncertainties, and other contingencies.

v3.10.0.1
Seasonality
9 Months Ended
Sep. 30, 2018
Seasonality [Abstract]  
Seasonality

3.  Seasonality

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



v3.10.0.1
Segment Information
9 Months Ended
Sep. 30, 2018
Segment Information [Abstract]  
Segment Information

4.  Segment information

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

·

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

·

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



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

Three months ended September 30, 2018

 

 

Nine months ended September 30, 2018



A&M

 

Other

 

Consolidated

 

A&M

 

Other

 

Consolidated

 

Service revenues

$

134,604 

 

$

26,770 

 

$

161,374 

 

$

463,076 

 

$

88,660 

 

$

551,736 

 

Revenue from inventory sales

 

83,972 

 

 

 -

 

 

83,972 

 

 

262,318 

 

 

 -

 

 

262,318 

 

Total revenues

 

218,576 

 

 

26,770 

 

 

245,346 

 

 

725,394 

 

 

88,660 

 

 

814,054 

 

Costs of services

 

20,059 

 

 

12,994 

 

 

33,053 

 

 

62,888 

 

 

49,855 

 

 

112,743 

 

Cost of inventory sold

 

74,341 

 

 

 -

 

 

74,341 

 

 

231,834 

 

 

 -

 

 

231,834 

 

Selling, general and administrative

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

      expenses ("SG&A")

 

83,542 

 

 

4,781 

 

 

88,323 

 

 

272,503 

 

 

14,549 

 

 

287,052 

 

Segment profit

$

40,634 

 

$

8,995 

 

$

49,629 

 

$

158,169 

 

$

24,256 

 

$

182,425 

 

Acquisition-related costs

 

 

 

 

 

 

 

2,007 

 

 

 

 

 

 

 

 

5,039 

 

Depreciation and amortization

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

      expenses ("D&A")

 

 

 

 

 

 

 

16,723 

 

 

 

 

 

 

 

 

49,451 

 

Gain on disposition of property, plant

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

      and equipment ("PPE")

 

 

 

 

 

 

 

(342)

 

 

 

 

 

 

 

 

(958)

 

Foreign exchange loss

 

 

 

 

 

 

 

47 

 

 

 

 

 

 

 

 

31 

 

Operating income

 

 

 

 

 

 

$

31,194 

 

 

 

 

 

 

 

$

128,862 

 

Interest expense

 

 

 

 

 

 

 

(10,473)

 

 

 

 

 

 

 

 

(32,720)

 

Other income, net

 

 

 

 

 

 

 

7,182 

 

 

 

 

 

 

 

 

8,995 

 

Income tax expense

 

 

 

 

 

 

 

(4,791)

 

 

 

 

 

 

 

 

(19,091)

 

Net income

 

 

 

 

 

 

$

23,112 

 

 

 

 

 

 

 

$

86,046 

 





4.  Segment information (continued)



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

Three months ended September 30, 2017

 

 

Nine months ended September 30, 2017



A&M

 

Other

 

Consolidated

 

A&M

 

Other

 

Consolidated

 

Service revenues

$

121,255 

 

$

24,683 

 

$

145,938 

 

$

370,794 

 

$

71,272 

 

$

442,066 

 

Revenue from inventory sales

 

81,463 

 

 

 -

 

 

81,463 

 

 

237,375 

 

 

 -

 

 

237,375 

 

Total revenues

 

202,718 

 

 

24,683 

 

 

227,401 

 

 

608,169 

 

 

71,272 

 

 

679,441 

 

Costs of services

 

18,381 

 

 

15,080 

 

 

33,461 

 

 

51,946 

 

 

42,147 

 

 

94,093 

 

Cost of inventory sold

 

72,476 

 

 

 -

 

 

72,476 

 

 

207,603 

 

 

 -

 

 

207,603 

 

SG&A expenses

 

81,736 

 

 

3,599 

 

 

85,335 

 

 

219,824 

 

 

10,463 

 

 

230,287 

 

Impairment loss

 

 -

 

 

 -

 

 

 -

 

 

8,911 

 

 

 -

 

 

8,911 

 

Segment profit

$

30,125 

 

$

6,004 

 

$

36,129 

 

$

119,885 

 

$

18,662 

 

$

138,547 

 

Acquisition-related costs

 

 

 

 

 

 

 

3,587 

 

 

 

 

 

 

 

 

35,162 

 

D&A expenses

 

 

 

 

 

 

 

14,837 

 

 

 

 

 

 

 

 

37,047 

 

Gain on disposition of PPE

 

 

 

 

 

 

 

(42)

 

 

 

 

 

 

 

 

(1,071)

 

Foreign exchange loss (gain)

 

 

 

 

 

 

 

816 

 

 

 

 

 

 

 

 

(7)

 

Operating income

 

 

 

 

 

 

$

16,931 

 

 

 

 

 

 

 

$

67,416 

 

Interest expense

 

 

 

 

 

 

 

(10,558)

 

 

 

 

 

 

 

 

(27,311)

 

Other income, net

 

 

 

 

 

 

 

592 

 

 

 

 

 

 

 

 

6,346 

 

Income tax recovery (expense)

 

 

 

 

 

 

 

3,358 

 

 

 

 

 

 

 

 

(7,982)

 

Net income

 

 

 

 

 

 

$

10,323 

 

 

 

 

 

 

 

$

38,469 

 



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



 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 



 

United
States

 

Canada

 

Europe

 

Other

 

Consolidated

Total revenues for the three months ended:

 

 

 

 

 

 

 

 

 

 

September 30, 2018

$

114,410 

$

52,711 

$

43,935 

$

34,290 

$

245,346 

September 30, 2017

 

107,812 

 

51,136 

 

29,065 

 

39,388 

 

227,401 

Total revenues for the nine months ended:

 

 

 

 

 

 

 

 

 

 

September 30, 2018

 

392,904 

 

201,296 

 

123,335 

 

96,519 

 

814,054 

September 30, 2017

 

327,838 

 

170,994 

 

81,930 

 

98,679 

 

679,441 



v3.10.0.1
Total Revenues
9 Months Ended
Sep. 30, 2018
Total Revenues [Abstract]  
Total Revenues

5.  Total revenues 



 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 



Three months ended

 

Nine months ended



September 30,

 

September 30,



 

2018 

 

 

2017 

 

 

2018 

 

 

2017 

Service revenues:

 

 

 

 

 

 

 

 

 

 

 

     Commissions

$

87,548 

 

$

88,696 

 

$

313,539 

 

$

280,235 

     Fees

 

73,826 

 

 

57,242 

 

 

238,197 

 

 

161,831 



 

161,374 

 

 

145,938 

 

 

551,736 

 

 

442,066 

Revenue from inventory sales

 

83,972 

 

 

81,463 

 

 

262,318 

 

 

237,375 



$

245,346 

 

$

227,401 

 

$

814,054 

 

$

679,441 



v3.10.0.1
Operating Expenses
9 Months Ended
Sep. 30, 2018
Operating Expenses [Abstract]  
Operating Expenses

6.  Operating expenses

Costs of services



 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 



Three months ended

 

Nine months ended

 



September 30,

 

September 30,



 

2018 

 

 

2017 

 

 

2018 

 

 

2017 

 

Ancillary and logistical service expenses

$

11,682 

 

$

13,878 

 

$

46,242 

 

$

40,106 

 

Employee compensation expenses

 

10,170 

 

 

10,032 

 

 

30,120 

 

 

24,321 

 

Buildings, facilities and technology expenses

 

1,990 

 

 

1,872 

 

 

7,280 

 

 

5,819 

 

Travel, advertising and promotion expenses

 

5,921 

 

 

5,562 

 

 

20,535 

 

 

17,644 

 

Other costs of services

 

3,290 

 

 

2,117 

 

 

8,566 

 

 

6,203 

 



$

33,053 

 

$

33,461 

 

$

112,743 

 

$

94,093 

 



SG&A expenses