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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 40-F
U
(Check One)
[ ] Registration statement pursuant to Section 12 of the Securities Exchange Act of 1934
or
[X] Annual report pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934
For the fiscal year ended December 31, 2000 Commission File Number 001-13475
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RITCHIE BROS. AUCTIONEERS INCORPORATED
(Exact Name of Registrant as Specified in Its Charter)
NOT APPLICABLE CANADA NOT APPLICABLE
(Translation of Registrant's (Province or Other (I.R.S. Employer
Name Into English (if Jurisdiction of Identification Number (if
Applicable) Incorporation or Applicable)
Organization)
7389
(Primary Standard Industrial Classification Code Number (if Applicable)
9200 BRIDGEPORT ROAD, RICHMOND, BRITISH COLUMBIA V6X 1S1 (604) 273-7564
(Address and Telephone Number of Registrant's Principal Executive Offices)
LAWCO OF OREGON, INC. 1211 S.W. FIFTH AVENUE, SUITE 1500, PORTLAND, OREGON
97204-3715 (503) 727-2000
(Name, Address (Including Zip Code) and Telephone Number (Including Area Code)
of Agent For Service in the United States)
Securities registered or to be registered pursuant to Section 12(b) of the
Act:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
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Common Shares............................. New York Stock Exchange
Securities registered or to be registered pursuant to Section 12(g) of the
Act:
NOT APPLICABLE
(Title of Class)
Securities for which there is a reporting obligation pursuant to Section
15(d) of the Act:
NOT APPLICABLE
(Title of Class)
For annual reports, indicate by check mark the information filed with this
Form:
[X] Annual information form [X] Audited annual financial statements
Indicate the number of outstanding shares of each of the issuer's classes
of capital or common stock as of the close of the period covered by the annual
report.
COMMON SHARES: 16,748,563
Indicate by check mark whether the Registrant by filing the information
contained in this Form is also thereby furnishing the information to the
Commission pursuant to Rule 12g3-2(b) under the Act. If "Yes" is marked,
indicate the filing number assigned to the Registrant in connection with such
Rule.
Yes [ ] 82- No [X]
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Act during the preceding 12
months (or for such shorter period that the Registrant was required to file such
reports) and (2) has been subject to such filing requirements for the past 90
days.
Yes [X] No [ ]
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SIGNATURES
Pursuant to the requirements of the Exchange Act, the Registrant certifies
that it meets all of the requirements for filing on Form 40-F and has duly
caused this annual report to be signed on its behalf by the undersigned, thereto
duly authorized.
RITCHIE BROS. AUCTIONEERS INCORPORATED
By: /s/ ROBERT S. ARMSTRONG
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Name: Robert S. Armstrong
Title: Corporate Secretary
Date: March 23, 2001
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EXHIBIT INDEX
SEQUENTIALLY
EXHIBIT NO. DESCRIPTION NUMBERED PAGES
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1. Annual Information Form of the Registrant dated March 23,
2001 (which includes Management's Discussion and Analysis of
Financial Condition and Results of Operations for the year
ended December 31, 2000).
2. The following audited consolidated financial statements of
the Registrant, together with the independent auditors'
report dated February 16, 2001 of KPMG LLP, Chartered
Accountants:
a. Consolidated Statements of Income for the years ended
December 31, 2000, 1999 and 1998.
b. Consolidated Balance Sheets as of December 31, 2000 and
1999.
c. Consolidated Statements of Shareholders' Equity for the
years ended December 31, 2000, December 31, 1999 and
1998.
d. Consolidated Statements of Cash Flows for the years
ended December 31, 2000, 1999 and 1998.
e. Notes to Consolidated Financial Statements (which
includes reconciliation with United States generally
accepted accounting principles).
3. Consent dated March 23, 2001 of KPMG LLP, Chartered
Accountants.
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EXHIBIT NO. 1
RITCHIE BROS. AUCTIONEERS INCORPORATED
ANNUAL INFORMATION FORM FOR THE YEAR ENDED DECEMBER 31, 2000
March 23, 2001
Ritchie Bros. Auctioneers Incorporated
9200 Bridgeport Road
Richmond, British Columbia
Canada V6X 1S1
(604) 273-7564
www.rbauction.com
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TABLE OF CONTENTS
PAGE
----
Definitions................................................. 1-3
The Company................................................. 1-4
Overview.................................................. 1-4
History and Development of the Business................... 1-5
Industry.................................................. 1-5
Competitive Advantages.................................... 1-6
Growth Strategies......................................... 1-8
Operations................................................ 1-9
Marketing and Sales....................................... 1-11
Competition............................................... 1-12
Facilities................................................ 1-12
Employees................................................. 1-13
Governmental and Environmental Regulations................ 1-13
Legal Proceedings......................................... 1-13
Selected Consolidated Financial Information................. 1-14
Three Year Summary........................................ 1-14
Segmented Information..................................... 1-15
Dividend Policy............................................. 1-15
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 1-16
Overview.................................................. 1-16
Results of Operations..................................... 1-17
Liquidity and Capital Resources........................... 1-18
Quarterly Summary......................................... 1-19
Forward-Looking Statements................................ 1-19
Risk Factors................................................ 1-20
Market for Securities....................................... 1-23
Directors and Officers...................................... 1-23
Additional Information...................................... 1-24
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DEFINITIONS
Unless the context otherwise requires, "Ritchie Bros." or the "Company"
refers to Ritchie Bros. Auctioneers Incorporated and its predecessor entities,
either alone or together with its subsidiaries. Unless otherwise specified,
references to years are references to calendar years and references to quarters
are references to calendar quarters. All dollar amounts are denominated in U.S.
Dollars.
As used in this Annual Information Form,
- "auction revenues" include commissions earned from consignors through
both straight commission and gross guarantee contracts, plus the net
profit on the sale of lots purchased and sold by the Company as
principal;
- "bidder" refers to a person or company that registers to bid at an
auction;
- "buyer" refers to a person or company that makes the highest bid on a
particular lot and is therefore the purchaser of that lot;
- "Common Shares" means the common shares, without par value, of the
Company;
- "consignor" refers to a person or company that is selling a lot or lots
at an auction;
- "Forke" refers to Forke, Inc. and its predecessor entities, either alone
or together with its subsidiaries;
- "gross auction sales" represent the aggregate selling prices of all lots
sold at an auction or auctions; and
- "lot" refers to an item being sold at auction.
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This Annual Information Form contains forward-looking statements that involve
risks and uncertainties.
For further information, refer to the "Forward-Looking Statements" in the
Management's Discussion and Analysis of Financial Condition and Results of
Operations.
THE COMPANY
Ritchie Bros. Auctioneers Incorporated was amalgamated on December 12, 1997
under, and is governed by, the Canada Business Corporation Act. The registered
office of the Company is located at 1300 -- 777 Dunsmuir Street, Vancouver,
British Columbia, Canada V7Y 1K2. The Company's executive office is located at
9200 Bridgeport Road, Richmond, British Columbia, Canada V6X 1S1 and its
telephone number is (604) 273-7564. The Company maintains a website at
www.rbauction.com.
The following diagram illustrates the primary intercorporate relationships
of the Company and its principal operating subsidiaries:
[PRIMARY INTERCORPORATE RELATIONSHIPS DIAGRAM]
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Notes:
1. Ritchie Bros. Holdings Ltd. is a corporation continued under the laws of
Canada.
2. Ritchie Bros. Holdings Inc. is a corporation amalgamated under the laws of
the state of Washington, U.S.A.
3. Ritchie Bros. Auctioneers (Canada) Ltd. is a corporation incorporated under
the laws of Canada.
4. Ritchie Bros. Properties Ltd. is a corporation incorporated under the laws
of Canada.
5. Ritchie Bros. Auctioneers B.V. is a corporation incorporated under the laws
of The Netherlands.
6. Ritchie Bros. Auctioneers Limited is a corporation incorporated under the
laws of Cyprus.
7. Ritchie Bros. Auctioneers (America) Inc. is a corporation incorporated under
the laws of the state of Washington, U.S.A.
8. Ritchie Bros. Properties Inc. is a corporation incorporated under the laws
of the state of Washington, U.S.A.
OVERVIEW
Ritchie Bros. is the world's leading auctioneer of industrial equipment,
operating through more than 80 locations in North and Central America, Europe,
Asia, Australia, Africa and the Middle East. The Company sells, through public
auctions, a broad range of used industrial equipment, including equipment used
in the construction, transportation, mining, forestry, petroleum and
agricultural industries.
Ritchie Bros. conducts its auctions on an unreserved basis. There are no
minimum prices and consignors are not permitted to bid on their own equipment or
in any way artificially affect selling prices. Every item is sold to the highest
bidder on the day of the auction.
The Company's worldwide marketing efforts and reputation for conducting
fair auctions, together with the fact that it does not charge buyers' premiums,
enable Ritchie Bros. to attract a broad international base of customers to its
auctions, thereby providing a global marketplace that can transcend local market
conditions. Management believes that the Company's reputation and leading market
position, as well as the breadth and
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international composition of the customers at Ritchie Bros.' auctions, result in
a greater volume of consigned equipment and higher gross auction sales than in
other auction venues.
HISTORY AND DEVELOPMENT OF THE BUSINESS
Ritchie Bros. held its first major industrial auction in 1963, selling over
$600,000 worth of construction equipment in Radium, British Columbia. While the
Company's early auction sales were held primarily in Western Canada, Ritchie
Bros. expanded eastward through the 1960's.
By 1970, the Company had established operations in the U.S. and held its
first U.S. sale in Beaverton, Oregon. Throughout the 1970's and 1980's,
additional auctions were held across Canada and in an increasing number of
American states. In 1987, the Company held its first European auctions, in
Liverpool, U.K. and Rotterdam, the Netherlands. Ritchie Bros.' first Australian
auction was held in 1990. This was followed by expansion into Asia and
subsequent sales in countries including Japan, the Philippines and Singapore.
The Company held its first Mexican auction in 1995 and its first Middle Eastern
auction, in Dubai, U.A.E. in 1997.
In 1994, Ritchie Bros. introduced its prototype auction facility, opening
new permanent auction sites in Fort Worth, Texas and Olympia, Washington that
represented significant improvements over the facilities being used at the time
by industrial equipment auctioneers. The Company has since constructed similar
buildings in various locations in Canada, the U.S., Europe, Australia, Asia and
the Middle East.
The Company has always used available technologies to augment its live
auctions and enhance customer service. Ritchie Bros. maintains a website at
www.rbauction.com and has been active on the Internet since 1996 when it
introduced its first website as a marketing tool, allowing the Company to
communicate with international customers who otherwise would not have timely
access to auction information. The Company's current website provides customers
with a wide range of features, giving customers current information about the
equipment consigned to upcoming Ritchie Bros. auctions and access to historic
selling prices. The site also facilitates Internet-based proxy bidding, on-line
consignments and the ability to broadcast live auctions.
In March 1998, Ritchie Bros. completed its initial public offering (the
"IPO") of Common Shares, selling 3,335,000 Common Shares at $17.00 per share.
The Company allocated the net proceeds of approximately $54.0 million to the
acquisition and development of additional permanent auction sites, the
replacement or upgrade of certain existing permanent sites and general corporate
purposes. Ritchie Bros.' Common Shares trade on the New York Stock Exchange
under the ticker symbol "RBA".
On April 1, 1999, Ritchie Bros. completed the acquisition (the "Forke
Acquisition") of the industrial auction business of Forke, a major auctioneer of
industrial equipment that operated primarily in the United States. Consideration
paid to Forke consisted of $25.0 million in cash, 100,000 Common Shares and
warrants to acquire 400,000 Common Shares prior to April 1, 2001 at an exercise
price of $26.69 per share.
In 2000, the Company opened new auction facilities at its permanent auction
sites in Perris, California; Morris, Illinois; and Montreal, Quebec and regional
auction units in Dubai, United Arab Emirates and Singapore. As at December 31,
2000, the Company was operating 20 permanent auction sites and five regional
auction units.
INDUSTRY
Ritchie Bros. operates in the auction segment of the used equipment
marketplace. It is estimated by industry observers that there is approximately
$1 trillion of used industrial equipment in circulation worldwide, and that an
estimated $100 billion of that equipment changes ownership each year. Of this
total, only a fraction is currently traded through auctions, with the majority
being sold directly or through dealers and brokers. The international used
equipment market includes both mobile and stationary equipment and trucks and
trailers produced by manufacturers such as Caterpillar, Hitachi, Ingersoll Rand,
John Deere, Kenworth, Komatsu, Mack and Volvo for the construction, mining,
forestry, petroleum, agriculture and transportation industries, among others.
Examples of industrial equipment include crawler tractors, excavators, loader
backhoes and wheel loaders. Much of the equipment can be used in multiple
industries and in diverse geographic locations.
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Growing Market for Used Industrial Equipment. The international used
industrial equipment market has experienced substantial growth in recent years
as a result of the following factors:
- An increasing, cumulative supply of used equipment, as a result of the
substantial ongoing production of new industrial equipment by the major
manufacturers.
- Rising turnover rates among equipment owners and sales of idle or
underutilized equipment, resulting from the increase in the size of
rental fleets as well as the global trends toward outsourcing and
reducing investment in capital assets.
- Increasing preference of equipment users to purchase high quality used
equipment instead of purchasing new equipment, particularly in times of
economic uncertainty.
Growth of the Auction Segment of the Used Industrial Equipment Market. The
industrial equipment auction market has grown rapidly in recent years, as
evidenced by the Company's own gross auction sales. Management believes that
auctions represent an increasingly important distribution channel for industrial
equipment for the following reasons:
- The ability of auctioneers to market a wide range of equipment and
related assets and therefore offer a comprehensive service to buyers and
sellers.
- The increasing preference of sellers to access the auction marketplace
in order to achieve a sale quickly and to maximize proceeds.
- The ability of auctioneers to deliver high net proceeds on the sale of
equipment.
- The convenience of the auction marketplace to buyers, who often want to
purchase many different types of equipment produced by different
manufacturers.
Attractiveness of Industrial Equipment Auction Market. In addition to the
growth of both the used equipment market and the auction segment of that market,
management believes that there are certain compelling characteristics of the
industrial equipment auction business model:
- The industrial equipment auction business is relatively insulated from
cyclical economic trends. In many cases, economic fluctuations or
downturns can lead to increased levels of used equipment for
consignment, and in greater demand for used, rather than new, equipment.
For example, Ritchie Bros.' gross auction sales increased during the
economic recessions of the 1980's and 1990's.
- Industrial equipment auctioneers typically are not restricted to selling
lines of equipment provided by a particular manufacturer or manufactured
for a particular industry, or to holding auctions in particular
geographic regions. As a result, auction companies can respond quickly
to changing market forces and address a variety of customer demands.
- Auction companies do not typically bear the risks associated with
holding inventory over extended periods.
- The industrial equipment auction industry is highly fragmented and no
other industrial auctioneer conducts auctions on a global scale similar
to Ritchie Bros.
- Used industrial equipment is well-suited to the auction method of buying
and selling because items of used equipment cannot be valued on a
commodity basis. The unreserved auction method gives buyers and sellers
confidence that the equipment has traded for a fair market price.
COMPETITIVE ADVANTAGES
Ritchie Bros. has several key strengths that provide distinct competitive
advantages. Management believes that these advantages have enabled the Company
to attract an increasing number of consignors and bidders to its auctions,
thereby achieving significant and profitable growth.
Reputation for Conducting Only Unreserved Auctions. Management believes
that the Company's highly publicized commitment to fair dealing and the
unreserved auction process is a key contributor to the
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Company's growth and success. All Ritchie Bros. auctions are unreserved, meaning
that there are no minimum prices; each and every item is sold to the highest
bidder on the day of the auction. Each consignor is prohibited by contract from
bidding on its own consigned items at the auction or in any way artificially
affecting the auction result. In addition, the Company adheres to a policy
prohibiting it from artificially affecting the auction result by bidding on any
items being auctioned. Each bidder has confidence that if he or she makes the
highest bid for an item, even if that bid is less than the item's anticipated
sale price, the item will be sold to that bidder. Management believes that
Ritchie Bros.' reputation for conducting only unreserved auctions is a major
reason why bidders are willing to travel to a Ritchie Bros. auction, making the
Company's commitment to the unreserved auction method a significant competitive
advantage.
Ability to Transcend Local Market Conditions. Ritchie Bros. markets each
auction to a global customer base of potential bidders. Because bidders are
willing to travel between regions and countries in order to attend Ritchie
Bros.' auctions, consignors have confidence that they will receive the world
market price for their equipment. Due to the Company's ability to attract a
global bidding audience, the market conditions of the local region do not
necessarily dictate the results of its auctions. Buyers from outside the region
in which the auction is being held may account for 50% or more of the gross
auction sales at a Ritchie Bros. auction. Management believes that this breadth
of participants generally enables Ritchie Bros. to transcend local market
conditions and to sell equipment at world market prices.
International Scope. Ritchie Bros. has substantial expertise in marketing,
assembling and conducting auctions in new international markets. The Company has
experience in currency exchange risk management, import and export regulatory
issues, local political and economic issues, licensing and other regulatory
requirements, and cultural and business traditions in the international markets
in which it operates. Ritchie Bros. has conducted auctions in 19 countries and
regularly holds auctions in North America, Europe, Asia, Australia and the
Middle East.
Proprietary Databases. Ritchie Bros. maintains sophisticated databases
containing information on over one million pieces of equipment sold at auctions
around the world, detailed information regarding new equipment prices, and
listings of stolen equipment. These databases and the Company's
centrally-controlled appraisal process gives the Company the confidence to offer
consignors gross guarantee and outright purchase contracts and enables the
Company to manage the risks associated with such contracts. Together with the
Company's unique and comprehensive information regarding the flow of equipment
coming to market, these databases give Ritchie Bros. the opportunity to identify
market trends and develop marketing initiatives in response to those trends.
The Company also maintains a proprietary customer information database
containing information regarding potential bidders. This database contains
detailed information on over 340,000 companies and individuals from over 190
countries, including each customer's auction attendance, trade association
memberships, buying and travel habits, and sales tax and banking information.
This database allows the Company to identify potential customers that might be
interested in the equipment being sold at any particular auction.
Size and Financial Resources. Ritchie Bros. is the world's leading
auctioneer of industrial equipment. In addition to its strong market position,
the Company also has the financial resources to offer gross guarantee and
outright purchase contracts, invest in new technologies and expand into new
markets. Management believes that these are significant competitive advantages.
Dedicated and Experienced Workforce. Ritchie Bros.' dedicated and
motivated employees are an important strength of the Company. The Company has
over 500 full-time employees. All employees participate in a performance bonus
plan tying their overall compensation to corporate and personal performance, and
none are compensated on a commission basis.
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GROWTH STRATEGIES
Ritchie Bros. intends to continue its growth primarily by further
committing to markets and regions that the Company has already explored and
developed, and in which the Company expects to be profitable, and additionally
by moving into new areas in stages. Some of the key elements of Ritchie Bros.'
growth strategy are highlighted below.
1. Increase the Customer Base
The Company has a database of over 340,000 companies and individuals in 190
countries, and is continually working to expand it.
2. Expand the Network of Auction Sites
The Company plans to continue expanding its international network of
auction facilities. In most cases, a five-stage approach is followed:
STAGE 1: Identify patterns of bidder travel and the regions that are home
to new bidders and equipment owners.
STAGE 2: Hold auctions at temporary "off-site" locations in those regions
in order to introduce the Company's auctions to more people.
STAGE 3: Establish a modest sales office and staff it with one or two
territory managers, who will develop the region, hold additional off-site
auctions and source equipment for other sites.
STAGE 4: Develop a Regional Auction Unit. At this stage the Company
typically leases a yard, deploys additional people and generally holds auctions
every three to six months.
STAGE 5: In areas where the Company's market assessment leads it to expect
an appropriate return on investment, the Company purchases land and constructs
purpose-built auction facilities. These Permanent Auction Sites allow Ritchie
Bros. to hold larger auctions with lower costs.
By establishing itself in its local market and by holding frequent and
regularly scheduled auctions at its permanent site, the Company is able to
enhance its profitability. The Company is currently proceeding with several site
development projects. In 2001, the Company expects to open a new head office
facility in Richmond, British Columbia, and new permanent auction sites to
replace existing auction sites in Phoenix, Arizona; Edmonton, Alberta; and
Prince George, British Columbia. Also in 2001, the Company plans to open a new
permanent auction site to replace the regional auction unit in Baltimore,
Maryland, and in 2002, the Company has tentative plans to open a permanent
auction site in Orlando, Florida.
3. Expand Geographic Reach
The Company intends to continue the geographic expansion of its operations
by (i) establishing additional auction operations in markets where it has
developed a strong long-term presence, such as parts of the United States and
Canada; (ii) increasing its presence in newer markets, such as Europe, Asia,
Australia and the Middle East, where it has ongoing business; and (iii) entering
new markets such as South America and Africa. Regions outside North America
represent the majority of the global marketplace for used industrial equipment
and management believes that these markets offer growth opportunities for
Ritchie Bros.
4. Expand into Related Markets
To increase sales of agricultural equipment and over-the-road trucks and
trailers, the Company has been hiring people with expertise in both of these
market segments and adding "truck days" and "ag days" to some of its auctions.
Both segments are complementary to Ritchie Bros. core business and allow it to
increase the utilization of its auction facilities.
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5. Recruit, Train and Develop the Best People
Closely related to its other growth strategies is the Company's plan to
build and train its team of sales representatives and support personnel.
6. Use the Internet to Enhance our Business
The Internet is a valuable tool that the Company uses to differentiate
itself from competitors. The Company's strategy is to use the Internet to
enhance, rather than replace, its auctions.
Ritchie Bros. broadcasts selected auctions over the Internet using the
rbauctionView service on its website. It has also successfully tested real-time
Internet bidding software. This rbauctionBid-Live service, which the Company
plans to refine and improve in 2001, is a complement to the rbauctionBid-Proxy
service that has been in place since 1999 and which allows bidders to place
proxy bids via the Internet.
During 2000 the Company also launched the rbauctionRe$ults service, giving
customers access to historic auction results.
OPERATIONS
Ritchie Bros. auctions are conducted by employees based at the Company's
offices in North and Central America, Europe, Asia, Australia, Africa and the
Middle East. In 2000, approximately 85% of the Company's auctions were held at
permanent auction sites or regional auction units. The remaining 15% were
"off-site" auctions, typically held on leased or consignor-owned land. The
decision of whether to hold a particular auction at a Ritchie Bros. site or at
an off-site location is driven by the nature, amount and location of the
equipment to be sold.
The Company holds over 100 auctions a year in locations around the world. A
Ritchie Bros. auction typically brings together more than 1,000 buyers and
sellers from multiple regions. Every Ritchie Bros. auction, regardless of
location, is conducted in a consistent manner so that bidders from one country
are comfortable attending an auction in another country.
In 1994, the Company developed a specialized auction site design as a model
for its permanent sites. To date, this model and variations on it have been used
to construct sites in several locations in North America as well as Europe,
Australia, Asia and the Middle East. The main building on each site typically
consists of up to 25,000 square feet including offices, covered theatre style
seating for up to 900 bidders, an auction display area, space for bidder
registration, catering and restrooms, and meeting areas for representatives from
transportation companies, finance companies and customs brokers.
Management believes that Ritchie Bros.' auctions generally draw a larger
number of bidders than most other industrial equipment auctions. The large
bidder audiences, including international bidders, increases the likelihood of
world market prices being achieved, thereby maximizing the proceeds on the sale
of equipment. Greater volume and selection of consigned equipment at an auction,
in turn, attracts more bidders to the auction in a process that is
self-reinforcing. The following are some of the key elements of Ritchie Bros.'
auction process:
Attracting the Bidders. The Company's customer database contains
comprehensive and detailed information regarding potential bidders that, in the
view of management, significantly enhances the Company's ability to effectively
market its auction services. This proprietary database contains information on
over 340,000 companies and individuals from over 190 countries including each
customer's auction attendance, trade association memberships, buying and travel
habits and sales tax and banking information. This database allows the Company
to identify which customers might be interested in the equipment being sold at a
particular auction. Typically, prior to each auction, approximately 50,000
strategically selected customers receive full-color auction brochures for that
particular auction. In conjunction with this direct mail campaign, the Company
conducts targeted regional and industry-specific advertising and marketing
campaigns. In addition, information about all of the consigned equipment is
posted on the Ritchie Bros. web site where potential bidders can review the
information and selected photographs.
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Management believes that assembling a wide selection of equipment displayed
in a central location is a critical element of a successful auction of used
equipment. The Company's carefully planned layout of the auction yard enables
bidders to evaluate and compare the equipment. Easy access to the equipment,
repair records and other relevant information allows bidders to determine the
fair value of the equipment and bid with confidence.
Attracting the Equipment. The Company solicits equipment consignments of
any magnitude, ranging from single pieces of equipment consigned by local
owner-operators to large equipment fleets offered by multi-national consortiums
upon the completion of major construction projects. While the majority of the
Company's gross auction sales comes from items that sell for less than $100,000,
the Company also sells items with values exceeding $500,000. For substantial
consignments, Ritchie Bros.' comprehensive services typically begin with an
equipment appraisal that gives the prospective consignor a reliable and credible
estimate of the value of the appraised equipment.
Ritchie Bros.' willingness to take consignment of a customer's full
equipment fleet (and all ancillary assets, including inventories, parts, tools,
attachments and construction materials), rather than only the most desirable
items, is another important service offered by Ritchie Bros. to the consignor.
Attractive Contract Options. Ritchie Bros. offers consignors several
contract options to meet their individual needs. These can include a straight
commission contract whereby the seller receives the gross proceeds on the sale
minus an agreed commission rate, as well as alternate arrangements including
guaranteed proceeds or an outright purchase of the equipment.
Straight Commission. Under a straight commission consignment, Ritchie
Bros. earns a commission based on the auction sale price of the equipment.
The commission rate is negotiated on a consignor-by-consignor basis.
Straight commission consignments typically represent approximately
two-thirds of the Company's gross auction sales.
Gross Guarantee. Under this type of consignment, Ritchie Bros. guarantees
the consignor a minimum level of gross sale proceeds, regardless of the
actual results of the auction. When the Company guarantees gross proceeds,
it earns a commission on the guaranteed amount and typically participates
in a negotiated percentage of any proceeds in excess of the guaranteed
amount. If auction proceeds are less than the guaranteed amount, the
Company would not earn its full commission or, if sufficiently lower, the
Company would incur a loss.
Outright Purchase. Under the outright purchase method, Ritchie Bros.
purchases the equipment from the consignor and then auctions the equipment
as principal.
Ritchie Bros.' commission structure reflects the degree of risk assumed by
the Company with respect to the equipment being sold. In general, on similar
packages of equipment, lower commissions are charged for straight commission
sales than for gross guarantee sales. In the case of outright purchases, pricing
takes into account the risk of ownership that is assumed by the Company.
Management believes that the Company's ability to offer these alternatives is a
significant competitive advantage that helps the Company promote the unreserved
auction method of buying and selling used equipment and, in particular, the use
of Ritchie Bros. auctions.
Occasionally, the Company advances to consignors a portion of the estimated
auction proceeds prior to the auction. The Company generally makes such advances
only after taking possession of the equipment and upon receipt of a security
interest in the equipment to secure the obligation.
Value-Added Services. Ritchie Bros. provides a wide array of services to
make the auction process convenient for buyers and sellers of equipment:
- Ritchie Bros. personnel perform extensive title searches on the
equipment consigned and the Company warrants free and clear title on
each piece of equipment that it sells, up to the purchase price paid by
the buyer.
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- Equipment being offered at the auction is available for inspection by
prospective buyers or their representatives prior to the auction and
service records are made available for inspection. Where possible,
prospective buyers are put in touch with the consignors so that bidders
can conduct their own investigations before bidding.
- Regular customers are invited to become "Express Bidders" and thereby
benefit from expedited check-in procedures. Additional privileges are
extended to the Company's largest customers.
- To assist bidders with their prospective purchases, Ritchie Bros.
arranges for representatives of finance companies, transportation
companies, customs brokerages and other service providers to be present
at the auction site.
- Where relevant, translation services are provided and in some cases, the
auctioneer's current "bid" number is displayed on large screens (in
multiple currencies, if necessary).
- A reception is typically held on the evening before the auction to give
customers a chance to network among themselves and meet various Company
representatives.
- The Company contracts with selected painters and other trade service
providers at each of its auction sites and often provides facilities for
on-site cleaning and refurbishment of equipment.
- Ritchie Bros. handles all marketing, the collection and disbursement of
auction proceeds and the coordination of payments to lienholders.
- The Company arranges for on-site catering, public telephones and other
services.
MARKETING AND SALES
As at December 31, 2000, the Company employed approximately 180 regional,
area and territory managers. These representatives are deployed by geographic
region around the world. Each territory manager is primarily responsible for the
development of customer relationships and solicitation of consignments in the
manager's region. Each territory manager is also involved in the appraisal and
proposal presentation process. To encourage global teamwork and superior
customer service, none of the Company's employees is paid a commission.
Territory managers, and all other Ritchie Bros. employees, are compensated by a
combination of base salary and performance bonus.
In support of Ritchie Bros. territory managers, the Company follows a dual
marketing strategy, promoting both Ritchie Bros. and the auction industry in
general, and marketing specific auctions. The dual strategy is designed to
attract both consignors and bidders. These advertising and promotional efforts
include the use of trade journals and magazines and attendance at numerous trade
shows held around the world. The Company also participates in international,
national and local trade associations. The auction specific advertising consists
of the production and mailing of full color pictorial auction brochures to a
targeted selection from the Company's proprietary database of over 340,000
companies and individuals. Trade journal, newspaper, radio and television
advertising augment the effort. In addition, the Company's website is updated
daily by the addition of major items committed that day to upcoming auctions,
and gives customers access to auction brochures, catalogs and other marketing
materials.
In addition to regional marketing through its territory managers, the
Company markets through its national accounts team to large national customers,
typically consisting of major equipment owners (such as rental companies),
manufacturers or finance companies who have recurring, large scale equipment
disposition requirements in various regions and countries and can therefore
benefit from Ritchie Bros.' international network of auction sites.
Building strong name recognition throughout its target markets is an
important part of the Company's marketing program. Accordingly, the Company has
implemented programs to continually enhance recognition of the Ritchie Bros.
corporate name and logo through consistent design elements in its advertising,
signage, facilities and employee uniforms.
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COMPETITION
Both the international used equipment market and the auction segment of
that market are highly fragmented. The Company competes for potential consignors
with other auction companies and with equipment dealers (both franchised and
independent) and brokers. When competing for potential purchasers of equipment,
the Company competes against other auction companies, equipment manufacturers,
distributors and dealers that sell new or used equipment, and equipment rental
companies.
The Company believes that the principal competitive factors in the
industrial equipment market are reputation, customer service, commission pricing
and structure, and the ability to deliver the highest net return to the
equipment seller.
While Ritchie Bros. is significantly larger than its largest auction
competitor, some of the other distributors and marketers of equipment that
compete against the Company have significantly greater financial and marketing
resources and name recognition than the Company.
FACILITIES
Ritchie Bros.' head office is located in Richmond, B.C., Canada. Ritchie
Bros. also operates the Company's main administrative office for U.S. operations
in Lincoln, Nebraska.
With respect to auction sites, the Company attempts to establish sites in
industrial areas close to major cities. Although the Company leases some
temporary auction sites, the Company prefers to purchase land and construct
purpose-built facilities once it has determined that a region can generate
sufficient gross auction sales. The following table lists Ritchie Bros.'
permanent sites and sites under development as at December 31, 2000:
YEAR PLACED IN SERVICE SIZE
LOCATION BY RITCHIE BROS. (ACRES) STATUS
- -------- ---------------------- ------- ------
United States
Albuquerque, New Mexico............... 1999 16
Atlanta, Georgia...................... 1996 40
Denver, Colorado...................... 1985 39
Fort Worth, Texas..................... 1994 90
Houston, Texas........................ 1993 25
Minneapolis, Minnesota................ 1991 29
Morris, Illinois...................... 2000 95
North East, Maryland.................. 55 scheduled to open in 2001
Ocala, Florida........................ 1999 64
Olympia, Washington................... 1994 26
Perris, California.................... 2000 66
Phoenix, Arizona...................... 1987 9 scheduled to be replaced
in 2001
Phoenix, Arizona...................... 48 scheduled to open in 2001
Statesville, North Carolina........... 1999 40
Canada
Edmonton, Alberta..................... 1976 24 scheduled to be replaced
in 2001
Edmonton, Alberta..................... 125 scheduled to open in 2001
Halifax, Nova Scotia.................. 1997 26
Montreal, Quebec...................... 2000 60
Prince George, British Columbia....... 1980 32 scheduled to be replaced
in 2001
Prince George, British Columbia....... 60 scheduled to open in 2001
Toronto, Ontario...................... 1998 65
Vancouver, British Columbia........... 1979 8
Other
Brisbane, Australia................... 1999 42
Rotterdam, The Netherlands............ 1999 53
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Certain of these properties are subject to encumbrances granted as security
for term loans of the Company.
The Company also owns property in addition to the acreage noted on certain
of the above auction sites, which may be available for future expansion or sale.
In addition to these locations, the Company operates regional auction
units, which have been conducting recurring auctions, typically on leased
premises, located in Baltimore, Maryland (being replaced by the new site in
North East, Maryland), Toluca, Mexico; Stockton, California; Singapore; and
Dubai, United Arab Emirates.
EMPLOYEES
The Company employed approximately 515 full-time staff at December 31,
2000. The Company also employs up to 1,000 part-time employees each year. The
Company expects to increase its customer service and auction yard employees as
it expands its operations. The Company is not subject to any collective
bargaining agreements and believes that its relationships with its employees are
good.
GOVERNMENTAL AND ENVIRONMENTAL REGULATIONS
In the countries in which it operates, the Company is subject to a variety
of federal, provincial, state and local laws, rules and regulations relating to,
among other things, the auction business, imports and exports of equipment,
worker safety and the use, storage, discharge and disposal of environmentally
sensitive materials. In addition, the Company is subject to various local zoning
requirements with regard to the location of its auction sites, which vary from
location to location.
Under certain of the laws regulating the use, storage, discharge and
disposal of environmentally sensitive materials, an owner or lessee of real
estate may be liable for the costs of removal or remediation of certain
hazardous or toxic substances located on or in, or emanating from, such
property, as well as related costs of investigation and property damage. Such
laws often impose liability without regard to whether the owner or lessee knew
of, or was responsible for, the presence of such hazardous or toxic substances.
In connection with its site acquisitions, the Company obtains Phase I
environmental assessment reports prepared by independent environmental
consultants. A Phase I assessment consists of a site visit, historical record
review, interviews and reports, with the purpose of identifying potential
environmental conditions associated with the subject property. There can be no
assurance, however, that acquired or leased sites have been operated in
compliance with environmental laws and regulations or that future uses or
conditions will not result in the imposition of environmental liability upon the
Company or expose the Company to third-party actions such as tort suits.
The Company believes that it is in compliance in all material respects with
all laws, rules, regulations and requirements that affect its business, and that
compliance with such laws, rules, regulations and requirements does not impose a
material impediment on the Company's ability to conduct its business.
LEGAL PROCEEDINGS
From time to time the Company has been, and expects to continue to be,
subject to legal proceedings and claims in the ordinary course of its business.
Such claims, even if lacking merit, could result in the expenditure of
significant financial and managerial resources. The Company is not aware of any
legal proceedings or claims that it believes will have, individually or in the
aggregate, a material adverse effect on the Company or on its financial
condition or results of operation.
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SELECTED CONSOLIDATED FINANCIAL INFORMATION
The selected consolidated financial information presented below should be
read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" (included elsewhere in this Annual
Information Form) and the Company's audited financial statements for the year
ended December 31, 2000. All dollar amounts in the table are in thousands,
except per share data.
THREE YEAR SUMMARY
YEAR ENDED DECEMBER 31,
------------------------------------
2000 1999 1998
---------- ---------- ----------
INCOME STATEMENT DATA:
Auction revenues........................................... $ 106,125 $ 104,624 $ 94,899
Direct expenses............................................ (17,936) (17,469) (16,010)
---------- ---------- ----------
88,189.... 87,155 78,889
Depreciation............................................... (7,761) (5,581) (2,752)
General & administrative expense........................... (52,942) (47,346) (39,315)
---------- ---------- ----------
Income from operations..................................... 27,486 34,228 36,822
Interest expense........................................... (3,378) (1,705) (1,569)
Other income............................................... 1,252 1,209 3,251
---------- ---------- ----------
Income before income taxes................................. 25,360 33,732 38,504
Income taxes............................................... (8,155) (11,452) (13,670)
---------- ---------- ----------
Net income................................................. $ 17,205 $ 22,280 $ 24,834
========== ========== ==========
Net income per share -- basic.............................. 1.03 1.34 1.56
Net income per share -- diluted............................ 1.01 1.31 1.54
US GAAP -- Net income...................................... $ 17,205 $ 22,280 $ 24,814
========== ========== ==========
US GAAP -- Net income per share -- basic................... 1.03 1.34 1.56
US GAAP -- Net income per share -- diluted................. 1.02 1.32 1.54
Weighted average number of shares outstanding(1)
-- Basic................................................. 16,743,433 16,686,595 15,918,214
-- Diluted............................................... 16,860,863 16,912,319 16,096,705
BALANCE SHEET DATA (END OF PERIOD):
Working capital (including cash)........................... $ 30,857 $ 25,980 $ 49,149
Total assets............................................... 268,353 216,146 152,593
Long term debt............................................. 57,821 35,728 8,768
Total shareholders' equity................................. 148,764 134,395 104,172
SELECTED OPERATING DATA:
Gross auction sales(2)..................................... $1,232,974 $1,170,529 $1,087,800
Auction revenues as percentage of gross auction sales...... 8.61% 8.94% 8.72%
Number of consignors....................................... 18,177 16,185 14,432
Number of buyers........................................... 41,940 38,958 34,613
Number of permanent auction sites (end of period).......... 20 17 13
Notes:
- ---------------
(1) Diluted weighted average shares outstanding has been determined in
accordance with US GAAP.
(2) Gross auction sales represent the aggregate selling prices of all items sold
at Ritchie Bros.' auctions. Gross auction sales are not a measure under
Generally Accepted Accounting Principles but are important to understanding
the financial results of the Company, since the amount of revenues and, to a
lesser extent, certain expenses, are dependent upon them.
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SEGMENTED INFORMATION
The Company's principal business activity is the sale of consignment and
self-owned equipment at auctions. This business represents a single operating
segment. In 2000, auction revenues derived from auction sales in the United
States represented 62.6% of the Company's total auction revenues.
Summarized information on the Company's activities generated by geographic
segment are as follows:
UNITED STATES CANADA OTHER COMBINED
------------- ------- ------- --------
(DOLLAR AMOUNTS IN THOUSANDS)
Year ended December 31, 2000
Auction revenues................................ $ 66,425 $18,517 $21,183 $106,125
Capital assets and goodwill..................... 109,376 30,005 31,356 170,737
Year ended December 31, 1999
Auction revenues................................ $ 64,766 $17,110 $22,748 $104,624
Capital assets and goodwill..................... 94,662 17,463 30,101 142,226
Year ended December 31, 1998
Auction revenues................................ $ 49,747 $16,105 $29,047 $ 94,899
Capital assets.................................. 31,529 9,203 20,592 61,324
DIVIDEND POLICY
The declaration and payment of dividends on the Common Shares will be
subject to the discretion of the Board of Directors and the retention of
sufficient cash to fund the Company's growth initiatives. Because Ritchie Bros.
is a holding company with no material assets other than the shares of its
subsidiaries, its ability to pay dividends on the Common Shares is dependent on
the income and cash flow of its subsidiaries. No financing agreements to which
the subsidiaries of Ritchie Bros. are party currently restrict those
subsidiaries from paying dividends to Ritchie Bros. The Company has not declared
or paid any dividends on the Common Shares since its IPO.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
OVERVIEW
The following discussion summarizes the significant factors affecting the
consolidated operating results and financial condition of Ritchie Bros.
Auctioneers Incorporated ("Ritchie Bros." or the "Company") for the year ended
December 31, 2000 compared to the year ended December 31, 1999. This discussion
should be read in conjunction with the consolidated financial statements and
notes thereto included herein. The Company prepares its consolidated financial
statements in accordance with generally accepted accounting principles in Canada
which, except as set out in note 9 to the consolidated financial statements,
result in materially consistent financial position and results of operations to
that which would be reported under generally accepted accounting principles in
the United States. Amounts discussed below are based on consolidated financial
statements prepared in accordance with Canadian accounting principles.
Ritchie Bros. is the world's leading auctioneer of industrial equipment. At
December 31, 2000, the Company operated from over 80 locations in North and
Central America, Europe, Asia, Australia, Africa and the Middle East. The
Company sells, through unreserved public auctions, a broad range of used
equipment, including equipment utilized in the construction, transportation,
mining, forestry, petroleum and agricultural industries.
Gross auction sales represent the aggregate selling prices of all items
sold at Ritchie Bros. auctions during the periods indicated. Gross auction sales
are key to understanding the financial results of the Company, since the amount
of auction revenues and to a lesser extent, certain expenses, are dependent on
it. Auction revenues include commissions earned as agent for consignors through
both straight commission and gross guarantee contracts, plus the net profit on
the sale of equipment purchased and sold by the Company as principal. Under a
gross guarantee contract, the consignor is guaranteed a minimum amount of
proceeds on the sale of its equipment. When the Company guarantees gross
proceeds, it earns a commission on the guaranteed amount and typically
participates in a negotiated percentage of proceeds, if any, in excess of the
guaranteed amount. If auction proceeds are less than the guaranteed amount, the
Company's commission would be reduced, or, if sufficiently lower, the Company
would incur a loss. Auction revenues are reduced by the amount of any losses on
gross guarantee consignments and sales by the Company as principal. Auction
revenues also include interest income earned that is incidental to the auction
business.
The Company's gross auction sales and auction revenues are affected by the
seasonal nature of the auction business. Gross auction sales and auction
revenues tend to increase during the second and fourth calendar quarters during
which the Company generally conducts more auctions than in the first and third
calendar quarters. The Company's gross auction sales and auction revenues are
also affected on a period-to-period basis by the timing of major auctions. In
newer markets where the Company is developing operations, the number and size of
auctions and, as a result, the level of gross auction sales and auction
revenues, is likely to vary more dramatically from period-to-period than in the
Company's established markets where the number, size and frequency of the
Company's auctions are more consistent. Finally, economies of scale are achieved
as the Company's operations in a region mature from conducting intermittent
auctions, establishing a regional auction unit, and ultimately to developing a
permanent auction site. Economies of scale are also achieved when the size of
the Company's auctions increases.
The Company is aware of potential restrictions that may affect the ability
of equipment owners to transport certain equipment between some jurisdictions.
Management believes that these potential restrictions have not had a significant
impact on the Company's business, financial condition or results of operations
to date. However, the extent of any future impact on the Company's business,
financial condition or results of operations from these potential restrictions
cannot be predicted at this time.
Although the Company cannot accurately anticipate the future effect of
inflation, inflation historically has not had a material effect on the Company's
operations.
During 2000 the Company held its first auction in Spain and opened sales
offices in Spain, Saudi Arabia, Jordan, and several cities in North America. In
addition, new permanent auction sites were opened in Perris, California; Morris,
Illinois; and Montreal, Quebec. The Company also opened new auction facilities
at its regional auction units in Dubai, the United Arab Emirates and Singapore.
Also during 2000, the Company
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purchased 318 acres of land (with plans to develop approximately 125 acres) in
Edmonton, Alberta with the intention of constructing a permanent auction site to
service the Edmonton market. The new site is expected to replace the existing
24-acre Edmonton permanent auction site in the second half of 2001. The Company
also purchased two acres of land in Richmond, British Columbia with the
intention of constructing a new administrative head office building. The new
head office is expected to be complete in June 2001.
Also during 2000 the Company hosted several live auction broadcasts over
the Internet and continued its work on other Internet initiatives designed to
enhance the Company's auction business.
RESULTS OF OPERATIONS
Auction Revenues
Auction revenues of $106.1 million for the year ended December 31, 2000
increased by $1.5 million, or 1.4% from 1999 due to increased gross auction
sales, partially offset by a lower average percentage of auction revenues earned
by the Company on gross auction sales. Gross auction sales of $1.23 billion for
the year ended December 31, 2000 increased $62.4 million, or 5.3%, over the
prior year, primarily as a result of increased gross auction sales in Canada and
the United States, partially offset by decreased gross auction sales in other
parts of the world. Results for 2000 included significant auctions in Fort
Worth, Texas; Ocala, Florida; Toronto, Ontario and in the Port of Moerdijk, the
Netherlands. In addition, the Company held its first auction in Spain. Auction
revenues as a percentage of gross auction sales have averaged approximately
8.80% on a long-term basis. In the year ended December 31, 2000, the auction
revenue rate of 8.61% was lower than the long-term, average and lower than the
8.94% rate experienced in the year ended December 31, 1999. Management's
expectations with respect to the long-term average auction revenue rate remain
unchanged.
Direct Expenses
Direct expenses are expenses that are incurred as a direct result of an
auction sale being held. Direct expenses include the costs of hiring personnel
to assist in conducting the auction, lease expenses for temporary auction sites,
travel costs for full time employees to attend and work at the auction site,
security hired to Direct expenses of $17.9 million for the year ended December
31, 2000 increased by $0.5 million compared to 1999 due to increased auction
activity generated by the Company in 2000. As a percentage of gross auction
sales, direct expenses were 1.45% for the year ended December 31, 2000, roughly
consistent with the 1.49% ratio experienced in the prior year. Direct expenses
as a percentage of gross auction sales fluctuate based on the size and location
of auctions held each period. Management expects that, on average, direct
expenses as a percentage of gross auction sales will be approximately 1.5% in
2001.
Depreciation and Amortization Expense
Depreciation is calculated on capital assets employed in the Company's
business, including building and site improvements, automobiles, yard equipment,
and computers. Amortization results from expensing, over 20 years, the $33.0
million of goodwill recorded as a result of the acquisition of the auction
business of Forke in April 1999. In the year ended December 31, 2000,
depreciation and amortization expense was $7.8 million, compared to $5.6 million
in 1999. This increase is the result of the depreciation of new auction
facilities constructed over the past year. Management anticipates that
depreciation expense will increase as existing auction sites are improved and
additional permanent auction sites are acquired and developed.
General and Administrative Expense
General and administrative expense ("G&A") includes employee expenses such
as salaries, wages, performance bonuses and benefits, non-auction related
travel, institutional advertising, insurance, general office, and computer
expenses. For the year ended December 31, 2000, the Company incurred G&A of
$52.9 million, as compared to $47.3 million in 1999. This increase in
expenditures is attributable to an increase in employee numbers and
infrastructure to support the growth initiatives of the Company, and costs
associated with a Company-wide meeting held in January 2000. Future levels of
G&A will be affected by infrastructure and workforce expansion necessary to
support the Company's growth plans and other factors.
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Income from Operations
Income from operations was $27.5 million for the year ended December 31,
2000 compared to $34.2 million in 1999. This decrease is primarily the result of
increased G&A and depreciation and amortization expenses.
Interest Expense
Interest expense includes interest and bank charges paid on term bank debt.
Interest expense for the year ended December 31, 2000 was $3.4 million, compared
to $1.7 million incurred in 1999. The increase resulted primarily from debt
incurred by the Company in April 1999 and June 1999 in connection with the
acquisition of the auction business and certain assets of Forke, as well as debt
incurred over the past year to finance the development of additional permanent
auction sites. During the year, the Company capitalized $1.1 million (1999 --
$0.9 million) of interest related to properties under development. Management
anticipates that interest expense will increase further as debt is incurred to
finance the development of additional permanent auction sites. See "Overview"
and "Liquidity and Capital Resources".
Other Income
Other income arises from equipment appraisals performed by the Company, and
other miscellaneous sources. Other income for the year ended December 31, 2000
was $1.3 million compared to $1.2 million in 1999.
Income Taxes
Income taxes of $8.2 million for the year ended December 31, 2000 have been
computed based on rates of tax that apply in each of the tax jurisdictions in
which the Company operates. The effective tax rate of 32.2% on net income for
the year ended December 31, 2000 is lower than the 33.9% rate the Company
experienced in 1999 primarily due to the different jurisdictions in which the
Company operates and earns its income.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash can fluctuate significantly from period to period,
largely due to differences in timing of receipt of gross sale proceeds from
buyers and the payment of net amounts due to consignors. If auctions are
conducted near a period end, the Company may hold cash in respect of those
auctions that will not be paid to consignors until after the period end.
Accordingly, management believes a more meaningful measure of the Company's
liquidity is working capital, including cash.
At December 31, 2000, working capital including cash was $30.9 million,
compared to $26.0 million at December 31, 1999. This increase of $4.9 million
during the year is primarily a result of the reclassification of real property
available for sale from capital assets to current assets partially offset by an
increase in current portion of bank debt. The property is presently being
marketed for sale. The increase in debt was incurred to finance the acquisition
and development of certain permanent auction sites.
Net capital expenditures by the Company during the year ended December 31,
2000 were $46.5 million as compared to $55.2 million for the year ended December
31, 1999. In 2000, the Company acquired land for use as permanent auction sites
and an administrative head office and incurred related development costs in
Canada and the United States. In addition, the Company continued to incur site
development costs in the United States, Canada, Singapore, and the United Arab
Emirates. The Company is continuing with its plan to add additional permanent
auction sites in selected locations and is presently in various stages of
commitments to acquire land for development in the United States. The Company
expects that it will incur capital expenditures of approximately $40 million
during 2001 and the first half of 2002. In subsequent years, the Company expects
to incur in the range of $20 million per year in capital expenditures. Actual
expenditure levels will depend on the Company's ability to identify, acquire and
develop suitable auction sites.
The Company has established credit facilities with financial institutions
in the United States, Canada, Europe, and Australia. The Company presently has
access to credit lines for operations of approximately
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$97.2 million and to credit lines for funding property acquisitions of
approximately $91.9 million. At December 31, 2000, the Company had bank debt of
$2.1 million related to operations, and bank debt related to property
acquisitions totaled $65.1 million, leaving a net credit line of $95.1 million
available for operations and net credit lines of $25.7 million available for
property acquisitions. See "Overview".
QUARTERLY SUMMARY (UNAUDITED)
(dollar amounts in thousands, except per share data)
NET INCOME PER SHARE
GROSS AUCTION AUCTION ---------------------
PERIOD SALES REVENUE NET INCOME BASIC DILUTED(1)
- ------ ------------- -------- ---------- ------ ------------
2000
1(st) quarter........................ $ 289,928 $ 26,769 $ 3,609 $0.22 $0.21
2(nd) quarter........................ 353,354 29,570 6,109 0.36 0.36
3(rd) quarter........................ 231,550 21,554 1,503 0.09 0.09
4(th) quarter........................ 358,142 28,232 5,984 0.36 0.36
---------- -------- ------- ----- -----
$1,232,974 $106,125 $17,205 $1.03 $1.02
========== ======== ======= ===== =====
1999
1(st) quarter........................ $ 201,764 $ 18,013 $ 1,632 $0.10 $0.10
2(nd) quarter........................ 387,288 35,589 10,471 0.63 0.62
3(rd) quarter........................ 219,024 20,699 2,146 0.13 0.13
4(th) quarter........................ 362,453 30,323 8,031 0.48 0.47
---------- -------- ------- ----- -----
$1,170,529 $104,624 $22,280 $1.34 $1.32
========== ======== ======= ===== =====
- ---------------
(1) Diluted net income per share has been calculated in accordance with US GAAP.
FORWARD-LOOKING STATEMENTS
This Management's Discussion and Analysis of Financial Condition and
Results of Operations contains forward-looking statements that involve risks and
uncertainties. These statements are based on current expectations and estimates
about the Company's business. These statements include, in particular,
statements relating to auction revenues, direct expenses, G&A expenses, and
income taxes, the anticipated improvement, acquisition and development of
permanent auction sites, the development of Internet-related initiatives, and
the financing available to the Company. Words such as "expects", "intends",
"plans", "believes", "estimates", "anticipates" and variations of such words and
similar expressions are intended to identify such forward-looking statements.
These statements are not guarantees of future performance and involve certain
risks, uncertainties and assumptions that are difficult to predict. The
following important factors, among others, could affect the Company's actual
results and could cause such results to differ materially from those expressed
in the Company's forward-looking statements: the many factors that have an
impact on the supply of and demand for used equipment; fluctuations in the
market values of used equipment; potential inability to achieve and manage
growth; periodic and seasonal variations in operating results or financial
conditions; the timing and location of auctions; potential delays in
construction or development of auction sites; actions of competitors; adverse
changes in economic conditions; restrictions affecting the ability of equipment
owners to transport equipment between jurisdictions; the ability of the Company
to integrate the business acquired and personnel hired as a result of the Forke
transaction; potential losses from price guarantees, purchases of inventory,
advances by the Company and guarantees of clear title; risks of noncompliance
with governmental and environmental regulation; potential inadequacy of
insurance coverage; risks of international operations; dependence of key
personnel; failure, pace or lack of development of Internet-related initiatives;
and other risks and uncertainties as detailed in the Company's periodic filings
with the United States Securities and Exchange Commission including its annual
return for 2000 filed on Form 40-F in March 2001. The Company undertakes no
obligation to update publicly any forward-looking statements, whether as a
result of new information, future events or otherwise. Forward-looking
statements should be considered in light of these factors.
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RISK FACTORS
POTENTIAL INABILITY TO ACHIEVE AND MANAGE GROWTH
A principal component of the Company's strategy is to continue to grow by
increasing income from operations in the Company's existing markets and by
expanding into new geographic markets. The Company is also assessing
opportunities to expand its presence in the auction market segments that the
Company has not historically emphasized. The Company's future growth will depend
upon a number of factors, both within and outside of the Company's control,
including the Company's identification and development of new markets; the
identification and acquisition on favorable terms of suitable new auction sites
and, possibly, of suitable acquisition candidates; the ability to hire, train
and retain qualified personnel; the successful integration of new sites and any
acquired businesses with the Company's existing operations; the acceptance by
potential consignors and industrial equipment buyers of the auction process
generally, as well as of the Company's expansion into new markets and market
segments; the establishment and maintenance of favorable relationships with
consignors and bidders in new markets and the maintenance of such relationships
in existing markets; the receipt of any required governmental authorizations for
proposed development or expansion; and the Company's ability to manage expansion
and to obtain required financing. The failure to identify, purchase, develop and
integrate new sites effectively could adversely affect the Company's financial
condition and results of operations. There can be no assurance that the Company
will successfully expand its operations or that any expansion will be
profitable. Further, the results achieved by the Company to date may not be
indicative of its prospects or its ability to penetrate new markets, many of
which may have different competitive conditions and demographic characteristics
than the Company's current markets. See "The Company -- Growth Strategies" for
further details.
As a result of expanding its operations, the Company will experience growth
in the number of its employees, the scope of its operating and financial systems
and the geographic area of its operations. This growth will increase the
operating complexity of the Company and the level of responsibility of existing
and new management personnel. There can be no assurance that the Company will be
able to attract and retain qualified management and employees, that the
Company's current operating and financial systems and controls will be adequate
as the Company grows, or that any steps taken to attract and retain management
and employees and to improve such systems and controls will be sufficient.
QUARTERLY AND SEASONAL VARIATIONS IN OPERATING RESULTS
The Company's revenues and operating results historically have fluctuated
from quarter to quarter. These fluctuations have been and are expected to
continue to be caused by a number of factors, including the timing of auctions;
seasonal results of operations (with peak auction revenues and operating income
typically occurring in the second and fourth calendar quarters of each year,
primarily due to the seasonal nature of the construction and natural resources
industries); general economic conditions in the Company's markets; the timing of
acquisitions and development of auction sites and related costs; and the
effectiveness of integrating new sites or acquired businesses. Additionally, the
Company generally incurs substantial costs in entering new markets and the
profitability of operations at a new location is uncertain, in part because the
number and size of auctions at new locations is more variable than at the
Company's more established locations. These factors, among others, may cause the
Company's results of operations in some future quarters to be below the
expectations of investors or results of previous quarters, which could have a
material adverse effect on the market price of the Common Shares.
POTENTIAL LOSSES FROM PRICE GUARANTEES, PURCHASES OF INVENTORY, ADVANCES BY THE
COMPANY AND GUARANTEES OF CLEAR TITLE
The Company generally offers its services to consignors of used industrial
equipment on a straight commission basis. In certain circumstances the Company
will, subject to its evaluation of the equipment, either (1) offer to guarantee
the consignor a minimum level of gross sale proceeds, regardless of the ultimate
results of the auction or (2) offer to purchase the equipment directly from the
consignor and then auction such
1-20
24
equipment as principal. If auction proceeds are less than the guaranteed amount,
the Company's commission would be reduced or, if sufficiently lower, the Company
would incur a loss. If auction proceeds are less than the purchase price paid by
the Company, the Company would incur a loss. Because all its auctions are
unreserved, the Company cannot protect itself against such losses by bidding on
or acquiring any items at the auctions. In recent periods, guarantees and
purchases and sales by the Company as principal have represented approximately
one-third of the Company's annual gross auction sales. See "The Company --
Operations" for further details.
Occasionally, the Company advances to consignors a portion of the estimated
auction proceeds prior to the auction. The Company generally makes such advances
only after taking possession of the equipment to be auctioned and upon receipt
of a security interest in the equipment to secure the obligation. If the Company
were unable to auction the equipment or if auction proceeds were less than
amounts advanced, the Company could incur a loss. See "The Company --
Operations" for further details.
The Company guarantees that each item purchased at its auctions is free of
liens and other encumbrances up to the purchase price paid by the buyer. While
the Company expends considerable effort ensuring that all liens have been
identified and, if necessary, dealt with prior to the auction sale, there have
been instances where liens have not been properly identified or discharged and
the Company has had to make payments to the relevant lienholders. If the Company
is not able to recover sufficient funds from the consignors to offset the
payment to the lienholders, the Company would incur a loss and such losses could
be material.
ADVERSE CHANGES IN ECONOMIC CONDITIONS; INDUSTRY CYCLICALITY
A substantial portion of the Company's revenues is derived from customers
in industries that are cyclical in nature and subject to changes in general or
regional economic conditions. Adverse changes or downturns in a given industry
may decrease demand for related equipment and lead to lower auction revenues.
Although auction sales to residents of countries or regions other than the
country or region in which the auction is held have generally been increasing in
recent years, approximately one-half of auction revenues are generated by same
country or same region purchasers. As a result, the Company's operating results
in a particular country or region may be adversely affected by events or
conditions in that country or region, such as a local economic slowdown, adverse
weather affecting local industries and other factors. The Company's operating
results may also be adversely affected by increases in interest rates that may
lead to a decline in economic activity.
RISKS OF COMPETITION
The international industrial equipment market and the industrial equipment
auction market are highly fragmented. The Company competes for potential
purchasers of industrial equipment with other auction companies and with
indirect competitors such as equipment manufacturers, distributors and dealers
that sell new or used equipment, as well as equipment rental companies. The
Company also competes for potential consignors with other auction companies and
with indirect competitors such as used equipment dealers. The Company's direct
competitors are primarily regional auction companies. Some of the Company's
indirect competitors have significantly greater financial and marketing
resources and name recognition than the Company. New competitors with greater
financial and other resources than the Company may enter the industrial
equipment auction market in the future. Additionally, existing or future
competitors may succeed in entering and establishing successful operations in
new geographic markets prior to the Company's entry into such markets. They may
also compete against the Company via Internet-based services. To the extent
existing or future competitors seek to gain or retain market share by reducing
commission rates, the Company may also be required to modify its commission
rates, which may adversely affect the Company's results of operations and
financial condition.
RISKS OF NONCOMPLIANCE WITH GOVERNMENTAL AND ENVIRONMENTAL REGULATION
In the countries in which it operates, the Company is subject to a variety
of federal, provincial, state and local laws, rules and regulations relating to,
among other things, the auction business, imports and exports of
1-21
25
equipment, worker safety, and the use, storage, discharge and disposal of
environmentally sensitive materials. Failure to comply with such laws, rules and
regulations could result in a substantial liability to the Company, suspension
or cessation of certain of the Company's operations, restrictions on the
Company's ability to expand at its present locations or into new locations,
requirements for the acquisition of additional equipment or other significant
expenses.
The development or expansion of auction sites is contingent upon receipt of
required licenses, permits and other governmental authorizations. The inability
of the Company to obtain such required items could have an adverse effect on its
results of operations and financial condition. Additionally, changes or
concessions required by regulatory authorities could result in significant
delays in, or prevent completion of, such development or expansion. Under
certain of the laws regulating the use, storage, discharge and disposal of
environmentally sensitive materials, an owner or lessee of real estate may be
liable for the costs of removal or remediation of certain hazardous or toxic
substances located on or in, or emanating from, such real estate, as well as
related costs of investigation and property damage. Such laws often impose such
liability without regard to whether the owner or lessee knew of or was
responsible for the presence of such hazardous or toxic substances. There can be
no assurance that environmental contamination does not exist at the Company's
acquired or leased auction sites from prior activities at such locations or from
neighboring properties or that additional auction sites acquired or leased by
the Company will not prove to be so contaminated. Any such contamination could
materially adversely affect the Company's financial condition or results of
operations.
The Company is aware of potential restrictions in the United States and
Europe that may affect the ability of equipment owners to transport certain
equipment between certain jurisdictions. If these restrictions were to
materially affect the ability of customers to ship equipment to or from the
Company's auction sites, the restrictions could materially adversely affect the
Company's business, financial condition and results of operations.
The imposition of additional export or import regulations or of additional
duties, taxes or other charges on exports or imports could have a material
adverse impact on participation in the Company's auctions by international
bidders and consignors. Reduced participation by such parties could materially
adversely affect the Company's business, financial condition and results of
operations.
POTENTIAL INADEQUACY OF INSURANCE COVERAGE
The Company maintains property and general liability insurance. There can
be no assurance that such insurance will remain available to the Company at
commercially reasonable rates or that the amount of such coverage will be
adequate to cover any liability incurred by the Company. If the Company is
liable for amounts exceeding the limits of its insurance coverage or for claims
outside the scope of its coverage, its business, results of operations and
financial condition could be materially adversely affected.
RISKS OF INTERNATIONAL OPERATIONS
The Company conducts auctions in North and Central America, Europe, Asia,
Australia and the Middle East and intends to expand its international presence.
The Company's operations in international markets may be affected by fluctuating
currency exchange rates and by changing economic, political and governmental
conditions and regulations.
DEPENDENCE ON KEY PERSONNEL
The Company's future performance and development will depend to a
significant extent on the efforts and abilities of David E. Ritchie, a
co-founder of the Company and its Chairman and Chief Executive Officer, and of
its other executive officers, particularly C. Russell Cmolik, President and
Chief Operating Officer. The loss of the services of one or more of such
individuals or other senior managers could have a material adverse effect on the
Company's business. The Company does not maintain key man insurance for any of
its employees. The Company's ongoing success will depend on its continuing
ability to attract, develop and retain skilled personnel in all areas of its
business.
1-22
26
MARKET FOR SECURITIES
The Common Shares of the Company are listed and traded on the New York
Stock Exchange (the "NYSE") under the ticker symbol "RBA". The NYSE is the
principal market for the Common Shares.
DIRECTORS AND OFFICERS
The names and municipalities of residence of the directors and officers of
the Company and their principal occupations are set forth below.
DIRECTORS
DIRECTOR
NAME AND MUNICIPALITY OF RESIDENCE PRINCIPAL OCCUPATION SINCE
- ---------------------------------- -------------------- --------
David E. Ritchie..................... Chief Executive Officer of the Company 1997
Leduc, Alberta
C. Russell Cmolik(2)................. President and Chief Operating Officer of the Company 1997
Surrey, British Columbia
Peter J. Blake(1).................... Vice President -- Finance and Chief Financial 1997
Vancouver, British Columbia Officer of the Company
Charles E. Croft(1)(2)............... President and Director of Falcon Pacific Financial 1998
Vancouver, British Columbia Corp. and its subsidiaries
G. Edward Moul(1)(2)................. Director and officer of The McEmcy Company of Canada 1998
West Vancouver, British Columbia Ltd., Peace Portal Properties Ltd. and certain other
private real estate holding companies
- ---------------
(1) Member of the Audit Committee
(2) Member of the Compensation Committee
The Company does not have an Executive Committee and is required to have an
Audit Committee. Each director will serve until the next annual general meeting
or until his successor is elected or appointed.
EXECUTIVE OFFICERS
NAME AND MUNICIPALITY OF RESIDENCE POSITION WITH THE COMPANY
- ---------------------------------- -------------------------
David E. Ritchie............................. Chief Executive Officer
Leduc, Alberta
C. Russell Cmolik............................ President and Chief Operating Officer
Surrey, British Columbia
Peter J. Blake............................... Vice President -- Finance and Chief Financial Officer
Vancouver, British Columbia
Robert S. Armstrong.......................... Manager -- Finance and Corporate Relations, Corporate
New Westminster, British Columbia Secretary
As of March 15, 2001, the directors and executive officers (the executive
officers are the Chief Executive Officer, Chief Operating Officer, Chief
Financial Officer and Corporate Secretary) of the Company, as a group,
beneficially owned, directly or indirectly, or exercised control or direction
over 42.0% of the outstanding Common Shares of the Company.
1-23
27
ADDITIONAL INFORMATION
The Company shall provide to any person, upon request to the Corporate
Secretary of the Company:
(a) when the securities of the Company are in the course of a distribution
pursuant to a short form prospectus or a preliminary short form
prospectus has been filed in respect of a distribution of its
securities;
(i) one copy of this Annual Information Form, together with one
copy of any document, or the pertinent pages of any document,
incorporated by reference in this Annual Information Form;
(ii) one copy of the comparative financial statements of the Company
for its most recently completed financial year together with
the accompanying report of the auditor and one copy of any
interim financial statements of the Company subsequent to the
financial statements for the Company's most recently completed
financial year;
(iii) one copy of the Information Circular of the Company in respect
of its most recent annual meeting of shareholders that involved
the election of directors; and
(iv) one copy of any other documents that are incorporated by
reference into the preliminary short form prospectus or the
short form prospectus and are not required to be provided under
(i) to (iii) above; or
(b) at any other time, one copy of any of the documents referred to in
(a)(i), (ii) and (iii) above, provided that the Company may require
the payment of a reasonable charge if the request is made by a person
who is not a security holder of the Company.
Additional information, including directors' and officers' remuneration and
indebtedness to the Company, principal holders of the Company's securities,
options to purchase securities and interests of insiders in material
transactions, where applicable, is contained in the Company's Information
Circular for its most recent annual meeting of shareholders that involved the
election of directors, and additional financial information is provided in the
Company's comparative financial statements for its most recently completed
financial year.
Copies of these documents may be obtained upon request from the Corporate
Secretary of the Company, 9200 Bridgeport Road, Richmond, British Columbia, V6X
1S1 (telephone number: (604) 273-7564).
1-24
28
EXHIBIT NO. 2
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
2-1
29
INDEPENDENT AUDITORS' REPORT
To the Shareholders of
Ritchie Bros. Auctioneers Incorporated
We have audited the consolidated balance sheets of Ritchie Bros.
Auctioneers Incorporated (the "Company") as at December 31, 2000 and 1999 and
the consolidated statements of income, shareholders' equity and cash flows for
each of the years in the three year period ended December 31, 2000. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with Canadian generally accepted
auditing standards. Those standards require that we plan and perform an audit to
obtain reasonable assurance whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation.
In our opinion, these consolidated financial statements present fairly, in
all material respects, the financial position of the Company as at December 31,
2000 and 1999 and the results of its operations and its cash flows for each of
the years in the three year period ended December 31, 2000 in accordance with
Canadian generally accepted accounting principles.
Canadian generally accepted accounting principles vary in certain
significant respects from accounting principles generally accepted in the United
States. Application of accounting principles generally accepted in the United
States would have affected results of operations for each of the years in the
three year period ended December 31, 2000 and shareholders' equity as at
December 31, 2000 and 1999 to the extent summarized in note 9 to the
consolidated financial statements.
/s/ KPMG LLP
- ------------------------------------------------------
Chartered Accountants
Vancouver, Canada
February 16, 2001
2-2
30
RITCHIE BROS. AUCTIONEERS INCORPORATED
CONSOLIDATED STATEMENTS OF INCOME
(EXPRESSED IN THOUSANDS OF UNITED STATES DOLLARS)
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
2000 1999 1998
------------ ------------ ------------
Auction revenues...................................... $ 106,125 $ 104,624 $ 94,899
Direct expenses....................................... (17,936) (17,469) (16,010)
----------- ----------- -----------
88,189 87,155 78,889
Expenses
Depreciation and amortization....................... 7,761 5,581 2,752
General and administrative.......................... 52,942 47,346 39,315
----------- ----------- -----------
60,703 52,927 42,067
----------- ----------- -----------
Income from operations................................ 27,486 34,228 36,822
Other income (expenses)
Interest expense.................................... (3,378) (1,705) (1,569)
Other............................................... 1,252 1,209 3,251
----------- ----------- -----------
(2,126) (496) 1,682
----------- ----------- -----------
Income before income taxes............................ 25,360 33,732 38,504
Income taxes (note 8)
Current............................................. 7,979 10,902 13,962
Future.............................................. 176 550 (292)
----------- ----------- -----------
8,155 11,452 13,670
----------- ----------- -----------
Net income............................................ $ 17,205 $ 22,280 $ 24,834
=========== =========== ===========
Net income per share (note 1(n))
Basic............................................... $ 1.03 $ 1.34 $ 1.56
Diluted............................................. 1.01 1.31 1.54
----------- ----------- -----------
Weighted average number of shares outstanding......... 16,743,433 16,686,595 15,918,214
=========== =========== ===========
Approved on behalf of the Board of Directors
/s/ C. RUSSELL CMOLIK /s/ PETER J. BLAKE
- -------------------------------------------- --------------------------------------------
C. Russell Cmolik Peter J. Blake
Director Director
See accompanying notes to consolidated financial statements.
2-3
31
RITCHIE BROS. AUCTIONEERS INCORPORATED
CONSOLIDATED BALANCE SHEETS
(EXPRESSED IN THOUSANDS OF UNITED STATES DOLLARS)
DECEMBER 31, DECEMBER 31,
2000 1999
------------ ------------
ASSETS
Current assets
Cash and cash equivalents................................. $ 63,435 $ 55,921
Accounts receivable....................................... 10,565 9,645
Inventory................................................. 9,175 3,203
Advances against auction contracts........................ -- 856
Prepaid expenses and deposits............................. 1,234 1,221
Income taxes recoverable.................................. 911 865
Capital assets available for sale......................... 7,305 292
-------- --------
92,625 72,003
Capital assets (note 2)..................................... 140,621 110,459
Funds committed for debt repayment (note 5) 3,250 --
Goodwill (note 3)........................................... 30,116 31,767
Future income taxes (note 8)................................ 1,741 1,917
-------- --------
$268,353 $216,146
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Auction proceeds payable.................................. $ 23,556 $ 16,178
Accounts payable and accrued liabilities.................. 28,846 17,891
Short-term debt (note 4).................................. 2,057 6,529
Current bank term loans (note 5).......................... 7,309 5,425
-------- --------
61,768 46,023
Bank term loans (note 5).................................... 57,821 35,728
-------- --------
119,589 81,751
Shareholders' equity
Share capital (note 6).................................... 69,132 69,130
Additional paid-in capital (note 6(f)).................... 4,332 4,332
Retained earnings......................................... 81,257 64,052
Foreign currency translation adjustment................... (5,957) (3,119)
-------- --------
148,764 134,395
======== ========
$268,353 $216,146
======== ========
See accompanying notes to consolidated financial statements.
2-4
32
RITCHIE BROS. AUCTIONEERS INCORPORATED
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(EXPRESSED IN THOUSANDS OF UNITED STATES DOLLARS)
FOREIGN
ADDITIONAL CURRENCY TOTAL
SHARE PAID-IN RETAINED TRANSLATION SHAREHOLDERS'
CAPITAL CAPITAL EARNINGS ADJUSTMENT EQUITY
------- ---------- -------- ----------- -------------
Balance, December 31, 1997.............. $10,866 $ -- $16,958 $(2,118) $ 25,706
Net proceeds on common shares issued.... 53,862 -- -- -- 53,862
Net income.............................. -- -- 24,834 -- 24,834
Reorganization costs.................... -- -- (20) -- (20)
Foreign currency translation
adjustment............................ -- -- -- (210) (210)
------- ------ ------- ------- --------
Balance, December 31, 1998.............. 64,728 -- 41,772 (2,328) 104,172
Net proceeds on stock options
exercised............................. 3 -- -- -- 3
Employee share compensation............. 1,344 -- -- -- 1,344
Common shares issued on acquisition of
goodwill (note 6(f)).................. 3,055 -- -- -- 3,055
Warrants issued on acquisition of
goodwill (note 6(f)).................. -- 4,332 -- -- 4,332
Net income.............................. -- -- 22,280 -- 22,280
Foreign currency translation
adjustment............................ -- -- -- (791) (791)
------- ------ ------- ------- --------
Balance, December 31, 1999.............. 69,130 4,332 64,052 (3,119) 134,395
Net proceeds on stock options
exercised............................. 2 -- -- -- 2
Net income.............................. -- -- 17,205 -- 17,205
Foreign currency translation
adjustment............................ -- -- -- (2,838) (2,838)
------- ------ ------- ------- --------
Balance, December 31, 2000.............. $69,132 $4,332 $81,257 $(5,957) $148,764
======= ====== ======= ======= ========
See accompanying notes to consolidated financial statements.
2-5
33
RITCHIE BROS. AUCTIONEERS INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(EXPRESSED IN THOUSANDS OF UNITED STATES DOLLARS)
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
2000 1999 1998
------------ ------------ ------------
Cash and cash equivalents provided by (used in):
Operating activities:
Net income............................................ $ 17,205 $ 22,280 $ 24,834
Items not involving the use of cash:
Depreciation....................................... 6,110 4,345 2,752
Amortization of goodwill........................... 1,651 1,236 --
Employee share compensation........................ -- 1,344 --
Future income taxes................................ 176 550 (2,467)
Changes in non-cash working capital:
Accounts receivable................................ (920) (2,874) (27)
Inventory.......................................... (5,972) (848) 4,726
Advances against auction contracts................. 856 4,489 (4,084)
Prepaid expenses and deposits...................... (13) (510) 507
Auctions proceeds payable.......................... 7,378 2,148 (3,698)
Income taxes....................................... (46) (3,944) (1,463)
Accounts payable and accrued liabilities........... 10,955 (3,860) 4,620
Other.............................................. (231) (86) (210)
-------- -------- --------
37,149 24,270 25,490
Investing activities:
Capital asset additions............................... (46,539) (55,153) (37,069)
Acquisition of goodwill............................... -- (25,616) --
-------- -------- --------
(46,539) (80,769) (37,069)
Financing activities:
Issuance of share capital............................. 2 3 53,862
Bank term loans....................................... 24,624 32,268 4,208
Short-term debt....................................... (4,472) 6,529 --
Reorganization costs.................................. -- -- (20)
Funds committed for debt repayment.................... (3,250) -- --
-------- -------- --------
16,904 38,800 58,050
-------- -------- --------
Increase (decrease) in cash and cash equivalents........ 7,514 (17,699) 46,471
Cash and cash equivalents, beginning of year............ 55,921 73,620 27,149
-------- -------- --------
Cash and cash equivalents, end of year.................. $ 63,435 $ 55,921 $ 73,620
======== ======== ========
Supplemental disclosure of cash flow information:
Interest paid, excluding interest capitalized......... $ 3,948 $ 2,633 $ 1,570
Income taxes paid..................................... 8,123 14,861 16,735
Non-cash investing activities:
Common shares issued on acquisition of goodwill.... -- 3,055 --
Warrants issued on acquisition of goodwill......... -- 4,332 --
Non-cash financing activities:
Employee share compensation........................ -- 1,344 --
======== ======== ========
See accompanying notes to consolidated financial statements.
2-6
34
RITCHIE BROS. AUCTIONEERS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollar amounts expressed in thousands of United States Dollars)
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
1. SIGNIFICANT ACCOUNTING POLICIES
(a) BASIS OF PRESENTATION
These consolidated financial statements present the financial position,
results of operations and changes in shareholders' equity and cash flows of
Ritchie Bros. Auctioneers Incorporated (the "Company"), a company incorporated
in July 1997 under the Canada Business Corporations Act, and its subsidiaries.
All significant intercompany balances and transactions have been eliminated.
The consolidated financial statements of the Company have been prepared in
accordance with generally accepted accounting principles in Canada which, except
as disclosed in note 9, also comply, in all material respects, with generally
accepted accounting principles in the United States.
(b) CASH AND CASH EQUIVALENTS
Cash equivalents consist of highly liquid investments having an original
term to maturity of three months or less when acquired.
(c) INVENTORY
Inventory is primarily represented by goods held for auction and has been
valued at the lower of cost, determined by the specific identification method,
and net realizable value.
(d) CAPITAL ASSETS AVAILABLE FOR SALE
Capital assets available for sale are valued at lower of cost and net
realizable value.
(e) ADVANCES AGAINST AUCTION CONTRACTS
Advances against auction contracts represent funds advanced to consignors
against proceeds from future auctions.
(f) CAPITAL ASSETS
All capital assets are stated at cost and include capitalized interest
costs on property under development. Depreciation is provided to charge the cost
of the assets to operations over their estimated useful lives based on their
usage predominantly as follows:
ASSET BASIS RATE/TERM
- ----- ----------------- ---------------
Improvements............................................ straight-line 30 years
Buildings............................................... straight-line 30 years
Automotive equipment.................................... declining balance 30%
Computer equipment...................................... declining balance 30%
Computer software....................................... straight-line 3 years
Yard equipment.......................................... declining balance 20-30%
Office equipment........................................ declining balance 20%
Leasehold improvements.................................. Terms of leases
2-7
35
RITCHIE BROS. AUCTIONEERS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(Tabular dollar amounts expressed in thousands of United States Dollars)
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
1. SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
(g) GOODWILL
Goodwill, which represents non-identifiable intangible assets acquired, is
being amortized on a straight-line basis over the expected period to be
benefited, which is 20 years. The Company periodically assesses the
recoverability of goodwill by determining whether the amortization of the
carrying value over its remaining life can be recovered through estimated
undiscounted future operating cash flows.
(h) REVENUE RECOGNITION
Auction revenues are recognized when the specific items are sold and title
passes to the purchaser and are represented by the commissions received from the
consignor and the net proceeds received from the sale of self-owned equipment.
(i) INCOME TAXES
Income taxes are accounted for using the asset and liability method whereby
future taxes are recognized for the tax consequences of temporary differences by
applying enacted statutory tax rates applicable to future years to differences
between the financial statement carrying amounts and the tax bases of existing
assets and liabilities. The effect on future taxes of a change in tax rates is
recognized in income in the period that includes the enactment date of future
tax benefits. To the extent that realization of future tax assets is not
considered to be more likely than not, a valuation allowance is provided.
(j) FOREIGN CURRENCY TRANSLATION
The Company's reporting currency is the United States dollar. The
functional currency for each of the Company's operations is the currency of the
country of residency. Each of these operations is considered to be
self-sustaining. Accordingly, the financial statements of operations of the
Company that are not located in the United States 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 average exchange rate for each
reporting period for amounts included in the determination of income. Any gains
or losses from this translation have been included in the foreign currency
translation adjustment account which is included in shareholders' equity.
Monetary assets and liabilities recorded in foreign currencies are
translated into the appropriate functional currency at the rate of exchange in
effect at the balance sheet date. Foreign currency denominated transactions are
translated into the appropriate functional currency at the exchange rate in
effect on the date of the transaction. Any exchange gains and losses on these
are included in the determination of income.
(k) USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires the Company to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting periods. Actual results could differ from such estimates and
assumptions.
2-8
36
RITCHIE BROS. AUCTIONEERS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(Tabular dollar amounts expressed in thousands of United States Dollars)
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
1. SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
(l) FINANCIAL INSTRUMENTS
Carrying amounts of certain of the Company's financial instruments,
including cash and cash equivalents, accounts receivable, auction proceeds
payable, accounts payable and accrued liabilities and short-term debt,
approximate their fair value due to their short maturities. Based on borrowing
rates currently available to the Company for loans with similar terms, the
carrying value of its bank term loans approximates fair value.
(m) CREDIT RISK
The Company does not extend credit to purchasers of auctioned items.
Equipment is not normally released to the purchasers until it is paid for in
full.
(n) NET INCOME PER SHARE
Net income per share has been calculated based on the weighted average
number of common shares outstanding. Diluted net income per share has been
calculated after giving effect to the outstanding options and warrants.
(o) STOCK-BASED COMPENSATION
The Company has a stock-based compensation plan, which is described in note
6(e). No compensation expense is recognized for this plan when stock or stock
options are issued to employees. Any consideration paid by employees on exercise
of stock options or purchase of stock is credited to share capital. If stock or
stock options are repurchased from employees, the excess of the consideration
paid over the carrying amount of the stock or stock option cancelled is charged
to retained earnings.
(p) COMPARATIVE FIGURES
Certain comparative figures have been reclassified to conform with the
presentation adopted in the current year.
2. CAPITAL ASSETS
ACCUMULATED NET
DECEMBER 31, 2000 COST DEPRECIATION BOOK VALUE
- ----------------- -------- ------------ ----------
Land and buildings under development..................... $ 13,854 $ -- $ 13,854
Land and improvements.................................... 62,291 1,755 60,536
Buildings................................................ 58,639 5,011 53,628
Automotive equipment..................................... 7,821 2,839 4,982
Computer equipment....................................... 2,942 1,531 1,411
Computer software........................................ 2,261 621 1,640
Yard equipment........................................... 4,317 1,802 2,515
Office equipment......................................... 3,421 1,685 1,736
Leasehold improvements................................... 520 201 319
-------- ------- --------
$156,066 $15,445 $140,621
======== ======= ========
2-9
37
RITCHIE BROS. AUCTIONEERS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(Tabular dollar amounts expressed in thousands of United States Dollars)
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
2. CAPITAL ASSETS -- (CONTINUED)
ACCUMULATED NET
DECEMBER 31, 1999 COST DEPRECIATION BOOK VALUE
- ----------------- -------- ------------ ----------
Land and buildings under development..................... $ 12,764 $ -- $ 12,764
Land and improvements.................................... 48,723 1,426 47,297
Buildings................................................ 43,808 3,535 40,273
Automotive equipment..................................... 6,633 2,224 4,409
Computer equipment....................................... 2,492 1,131 1,361
Computer software........................................ 525 185 340
Yard equipment........................................... 3,474 1,391 2,083
Office equipment......................................... 2,999 1,329 1,670
Leasehold improvements................................... 380 118 262
-------- -------- --------
$121,798 $ 11,339 $110,459
======== ======== ========
During the year, interest of $1,141,007 (1999 -- $918,581) was capitalized
to cost of the buildings.
3. GOODWILL:
2000 1999
------- -------
Goodwill.................................................... $33,003 $33,003
Accumulated amortization.................................... 2,887 1,236
------- -------
$30,116 $31,767
======= =======
4. SHORT-TERM DEBT
Short-term debt consists of a draw on lines of credit in the amounts of
AUD $1,900,000 and $1,000,000 with a weighted average interest rate of 8.35%.
5. BANK TERM LOANS
2000 1999
------- -------
Term loan of NLG 9.6 million, secured by deeds of trust on
specific property, bearing interest at the Amsterdam
Interbank Offered Rate plus 7/8%, due in quarterly
instalments of NLG 125,000 including interest, with the
final payment occurring in 2013........................... $3,890 $4,395
Term loan, unsecured, with $25 million bearing interest at
7.21% and $10 million bearing interest at 7.10%, due in
minimum annual instalments of $5 million ($1.75 million
towards principal, $3.25 million towards a sinking fund),
with the final payment occurring in 2004.................. 33,250 35,000
Term loan of AUD $2.7 million, secured by deeds of trust on
specific property, with $1.7 million bearing interest at
6.5% and $1 million bearing interest at the Australian
prime rate, due in quarterly instalments of AUD $75,000,
including interest, with final payment occurring in
2010...................................................... 1,321 1,758
Term loan, unsecured, of $5 million bearing interest at
7.81%, due in minimum annual instalments of $250,000, with
final payment occurring in 2005........................... 5,000 --
2-10
38
RITCHIE BROS. AUCTIONEERS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(Tabular dollar amounts expressed in thousands of United States Dollars)
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
5. BANK TERM LOANS -- (CONTINUED)
2000 1999
------- -------
Term loan, unsecured, of $5 million bearing interest at
7.91%, due in minimum annual instalments of $250,000, with
final payment occurring in 2005........................... 5,000 --
Term loan, unsecured, of $5 million bearing interest at
7.91%, due in minimum annual instalments of $714,300
($250,000 towards principal, $464,300 towards a sinking
fund), with the final payment occurring in 2005........... 5,000 --
Term loan, unsecured, of $5 million bearing interest at
7.15%, due in minimum annual instalments of $714,300
($250,000 towards principal, $464,300 towards a sinking
fund), with the final payment occurring in 2006........... 5,000 --
Term loan, unsecured, of CAD $10 million bearing interest at
7.195%, due in monthly instalments of interest only, with
the full amount of the principal due in December, 2004.... 6,669 --
------- -------
65,130 41,153
Current portion............................................. 7,309 5,425
------- -------
$57,821 $35,728
======= =======
As at December 31, 2000, principal repayments including sinking fund
requirements are as follows for the next five years:
2001..................................................... $ 7,309
2002..................................................... 7,309
2003..................................................... 7,309
2004..................................................... 27,227
2005..................................................... 11,237
Thereafter............................................... 4,739
-------
$65,130
=======
6. SHARE CAPITAL
(a) AUTHORIZED
Unlimited number of common shares, without par value.
Unlimited number of senior preferred shares, without par value, issuable in
series.
Unlimited number of junior preferred shares, without par value, issuable in
series.
2-11
39
RITCHIE BROS. AUCTIONEERS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(Tabular dollar amounts expressed in thousands of United States Dollars)
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
6. SHARE CAPITAL -- (CONTINUED)
(b) ISSUED
Issued and outstanding, December 31, 1997................... 13,213,666
Number of common shares issued during the year ended
December 31, 1998:
Pursuant to an equity offering............................ 3,335,000
----------
Issued and outstanding, December 31, 1998................... 16,548,666
Number of common shares issued during the year ended
December 31, 1999:
For cash, pursuant to stock options exercised............. 34,598
Employee share compensation (note 6(e))................... 50,000
Pursuant to acquisition of goodwill (note 6(f))........... 100,000
----------
Issued and outstanding, December 31, 1999................... 16,733,264
Number of common shares issued during the year ended
December 31, 2000:
For cash, pursuant to stock options exercised............. 15,299
----------
Issued and outstanding, December 31, 2000................... 16,748,563
==========
(c) OPTIONS
The Company has a stock option plan which provides for the award of stock
options to selected employees, directors and officers of the Company and to
other persons approved by the Board of Directors. At December 31, 2000, there
were 1,162,667 (1999 -- 1,240,667) shares authorized for grants of options under
the stock option plan. Stock option activity for 1998, 1999 and 2000 is
presented below:
NUMBER OF OPTIONS WEIGHTED AVERAGE
OUTSTANDING EXERCISE PRICE
----------------- ----------------
Outstanding, December 31, 1997............................ 196,333 $ 0.10
Granted................................................. 36,000 26.12
Cancelled............................................... (25,333) 0.10
------- ------
Outstanding, December 31, 1998............................ 207,000 4.67
Granted................................................. 27,000 31.23
Cancelled............................................... (4,166) 0.10
Exercised............................................... (34,598) 0.10
------- ------
Outstanding, December 31, 1999............................ 195,236 9.20
Granted................................................. 78,000 26.66
Cancelled............................................... (16,301) 5.00
Exercised............................................... (15,299) 0.10
------- ------
Outstanding, December 31, 2000............................ 241,636 $15.70
======= ======
Exercisable, December 31, 2000............................ 163,636 $ 9.89
======= ======
The options outstanding at December 31, 2000 expire on dates ranging to
April 26, 2010.
2-12
40
RITCHIE BROS. AUCTIONEERS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(Tabular dollar amounts expressed in thousands of United States Dollars)
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
6. SHARE CAPITAL -- (CONTINUED)
The following is a summary of stock options outstanding and exercisable at
December 31, 2000.
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
----------------------- ----------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
NUMBER REMAINING EXERCISE NUMBER EXERCISE
RANGE OF EXERCISE PRICES OUTSTANDING LIFE (YEARS) PRICE EXERCISABLE PRICE
- ------------------------ ----------- ------------ -------- ----------- --------
$0.10.................................... 103,636 3.58 $ 0.10 103,636 $ 0.10
$26.12 -- $38.625........................ 138,000 7.56 $27.41 60,000 $26.79
------- -------
241,636 163,636
======= =======
With respect to the options granted in 1999 and 2000, the current market
price did not exceed the exercise price at the grant date, therefore, no
compensation expense has been recorded.
(d) WARRANTS
2000 1999
------- -------
Warrants outstanding (note 6(f))............................ 400,000 400,000
======= =======
(e) EMPLOYEE SHARE COMPENSATION
During 1999, the Company issued 50,000 common shares to an employee. The
transaction was recorded at the market value of the common shares on the
issuance date of $26.88 per share. Compensation expense of $1,344,000 has been
recorded for this issuance.
(f) ACQUISITION OF GOODWILL
During 1999, the Company acquired non-identifiable intangible assets
related to an auction business through the payment of $25 million cash and the
issuance of 100,000 common shares and 400,000 warrants to acquire common shares
of the Company. The warrants are fully vested and have an exercise price of
$26.69 per share and expire on April 1, 2001. The shares have been valued using
the market price of $30.55 per share and the warrants have been valued at
$4,332,000 using an option pricing model.
7. SEGMENTED INFORMATION
The Company's principal business activities include the sale of consignment
and self-owned equipment at auctions. This business represents a single
operating segment.
2-13
41
RITCHIE BROS. AUCTIONEERS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(Tabular dollar amounts expressed in thousands of United States Dollars)
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
7. SEGMENTED INFORMATION -- (CONTINUED)
Summarized information on the Company's activities generated by geographic
segment are as follows:
UNITED STATES CANADA OTHER COMBINED
------------- ------- ------- --------
Year ended December 31, 2000:
Auction revenues.............................. $ 66,425 $18,517 $21,183 $106,125
Capital assets and goodwill................... 109,376 30,005 31,356 170,737
Year ended December 31, 1999:
Auction revenues.............................. 64,766 17,110 22,748 104,624
Capital assets and goodwill................... 94,662 17,463 30,101 142,226
Year ended December 31, 1998:
Auction revenues.............................. 49,747 16,105 29,047 94,899
Capital assets................................ 31,529 9,203 20,592 61,324
8. INCOME TAXES
Income tax expense differs from that determined by applying the United
States statutory tax rates to the Company's results of operations as follows:
2000 1999 1998
------ ------- -------
Statutory tax rates in the United States.................... 39% 39% 39%
------ ------- -------
Expected income tax expense................................. $9,890 $13,155 $15,017
Differences:
Different tax rates in non-U.S. jurisdictions............. (2,052) (1,289) (2,028)
Other..................................................... 317 (414) 681
------ ------- -------
Actual income tax expense................................. $8,155 $11,452 $13,670
====== ======= =======
Future income tax assets and liabilities are as follows:
2000 1999
------ ------
Future income tax assets:
Tax deductible benefit of options granted................. $ 579 $ 652
Tax deductible financing costs incurred in the course of
the Company's initial public offering in March 1998.... 880 1,305
Unused tax losses, expiring on December 31, 2004 to
2007................................................... 1,327 543
Accounts payable.......................................... -- 20
------ ------
Total future income tax assets............................ 2,786 2,520
Valuation allowance....................................... (458) --
------ ------
Net future income tax assets.............................. 2,328 2,520
Future income tax liabilities arising from temporary
differences between the tax basis of net assets and their
carrying value:
Capital assets............................................ (211) (441)
Goodwill.................................................. (376) (162)
------ ------
Total future income tax liabilities....................... (587) (603)
------ ------
$1,741 $1,917
====== ======
2-14
42
RITCHIE BROS. AUCTIONEERS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(Tabular dollar amounts expressed in thousands of United States Dollars)
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
9. UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
The consolidated financial statements are prepared in accordance with
generally accepted accounting principles ("GAAP") in Canada which differ, in
certain respects, from accounting practices generally accepted in the United
States and from requirements promulgated by the Securities and Exchange
Commission. Material measurement differences to these consolidated financial
statements are as follows:
Consolidated statements of net income per share:
2000 1999 1998
----- ----- -----
Net income per share in accordance with United States GAAP:
Basic..................................................... $1.03 $1.34 $1.56
Diluted................................................... 1.02 1.32 1.54
===== ===== =====
Consolidated statements of comprehensive net income:
2000 1999 1998
------- ------- -------
Net income in accordance with Canadian GAAP................. $17,205 $22,280 $24,834
Effect of differences in accounting for reorganization costs
(note 9(a))............................................... -- -- (20)
------- ------- -------
Net income in accordance with United States GAAP............ 17,205 22,280 24,814
Other comprehensive loss (note 9(b)):
Foreign currency translation adjustment................... (2,838) (791) (210)
------- ------- -------
Comprehensive income in accordance with United States
GAAP...................................................... $14,367 $21,489 $24,604
======= ======= =======
(a) REORGANIZATION COSTS
In accordance with generally accepted accounting principles in Canada,
costs incurred with respect to a reorganization undertaken by the Company were
charged, net of tax, against equity. Under generally accepted accounting
principles in the United States, such amounts are required to be charged against
income.
(b) OTHER COMPREHENSIVE LOSS
Comprehensive loss includes the change in equity or net assets of the
Company during the period from non-owner sources, including foreign exchange
adjustments, and reflected as a separate component of shareholders' equity.
2-15
43
EXHIBIT NO. 3
CONSENT OF KPMG LLP, CHARTERED ACCOUNTANTS
To the Board of Directors
Ritchie Bros. Auctioneers Incorporated
Dear Sirs
We consent to the use of our report dated February 16, 2001, included in this
annual report on Form 40-F.
We also consent to the incorporation by reference of such report in the
Registration Statements (No. 333-65533 and No. 333-71577) on Form S-8 of Ritchie
Bros. Auctioneers Incorporated.
/s/ KPMG LLP
- ---------------------------------------------------------
KPMG LLP
Chartered Accountants
Vancouver, Canada
March 23, 2001
3-1