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Ritchie Bros. Auctioneers Incorporated and its subsidiaries (collectively referred to as the “Company”) sell industrial equipment and other assets for the construction, agricultural, transportation, energy, mining, forestry, material handling, marine and real estate industries at its unreserved auctions and online marketplaces. Ritchie Bros. Auctioneers Incorporated is a company incorporated in Canada under the Canada Business Corporations Act, whose shares are publicly traded on the Toronto Stock Exchange (“TSX”) and the New York Stock Exchange (“NYSE”).
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2. Significant accounting policies
(a) Basis of preparation
These financial statements have been prepared in accordance with United States generally accepted accounting principles (“US GAAP”) and the following accounting policies have been consistently applied in the preparation of the consolidated financial statements. Previously, the Company prepared its consolidated financial statements under International Financial Reporting Standards (“IFRS”) as permitted by securities regulators in Canada, as well as in the United States under the status of a Foreign Private Issuer as defined by the United States Securities and Exchange Commission (“SEC”). At the end of the second quarter of 2015, the Company determined that it no longer qualified as a Foreign Private Issuer under the SEC rules. As a result, beginning January 1, 2016 the Company is required to report with the SEC on domestic forms and comply with domestic company rules in the United States. The transition to US GAAP was made retrospectively for all periods from the Company’s inception.
(b) Basis of consolidation
The consolidated financial statements include the accounts of the Company and its wholly-owned and non-wholly owned subsidiaries in which the Company has a controlling financial interest either through voting rights or means other than voting rights. All inter-company transactions and balances have been eliminated on consolidation. Where the Company’s ownership interest in a consolidated subsidiary is less than 100%, the non-controlling interests’ share of these non-wholly owned subsidiaries is reported in the Company’s consolidated balance sheets as a separate component of equity or within temporary equity. The non-controlling interests’ share of the net earnings of these non-wholly owned subsidiaries is reported in the Company’s consolidated income statements as a deduction from the Company’s net earnings to arrive at net earnings attributable to stockholders of the Company.
The Company consolidates variable interest entities (VIE’s) if the Company has (a) the power to direct matters that most significantly impact the VIE’s economic performance and (b) the obligation to absorb losses or the right to receive benefits of the VIE that could potentially be significant to the VIE. For VIE’s where the Company has shared power with unrelated parties, the Company uses the equity method of account to report their results. The determination of the primary beneficiary involves judgment.
(c) Revenue recognition
Revenues are comprised of:
commissions earned at our auctions through the Company acting as an agent for consignors of equipment and other assets, as well as commissions on online marketplace sales, and
fees earned in the process of conducting auctions, fees from value-added services, as well as fees paid by buyers on online marketplace sales.
2. Significant accounting policies (continued)
(c)Revenue recognition (continued)
The Company recognizes revenue when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the price is fixed or determinable, and collectability is reasonably assured. For auction or online marketplace sales, revenue is recognized when the auction or online marketplace sale is complete and the Company has determined that the sale proceeds are collectible. Revenue is measured at the fair value of the consideration received or receivable and is shown net of value-added tax and duties.
Commissions from sales at our auctions represent the percentage earned by the Company on the gross auction proceeds from equipment and other assets sold at auction. The majority of commissions are earned as a pre-negotiated fixed rate of the gross selling price. Other commissions from sales at our auctions are earned from underwritten commission contracts, when the Company guarantees a certain level of proceeds to a consignor or purchases inventory to be sold at auction. Commissions also include those earned on online marketplace sales.
Commissions from sales at auction
The Company accepts equipment and other assets on consignment or takes title for a short period of time prior to auction, stimulates buyer interest through professional marketing techniques, and matches sellers (also known as consignors) to buyers through the auction or private sale process.
In its role as auctioneer, the Company matches buyers to sellers of equipment on consignment, as well as to inventory held by the Company, through the auction process. Following the auction, the Company invoices the buyer for the purchase price of the property, collects payment from the buyer, and where applicable, remits to the consignor the net sale proceeds after deducting its commissions, expenses and applicable taxes. Commissions are calculated as a percentage of the hammer price of the property sold at auction.
On the fall of the auctioneer’s hammer, the highest bidder becomes legally obligated to pay the full purchase price, which is the hammer price of the property purchased and the seller is legally obligated to relinquish the property in exchange for the hammer price less any seller’s commissions. Commission revenue is recognized on the date of the auction sale upon the fall of the auctioneer’s hammer, which is the point in time when the Company has substantially accomplished what it must do to be entitled to the benefits represented by the commission revenue. Subsequent to the date of the auction sale, the Company’s remaining obligations for its auction services relate only to the collection of the purchase price from the buyer and the remittance of the net sale proceeds to the seller. These remaining service obligations are not an essential part of the auction services provided by the Company.
Under the standard terms and conditions of its auction sales, the Company is not obligated to pay a consignor for property that has not been paid for by the buyer, provided that the property has not been released to the buyer. In the rare event where a buyer refuses to take title of the property, the sale is cancelled in the period in which the determination is made, and the property is returned to the consignor. Historically, cancelled sales have not been material in relation to the aggregate hammer price of property sold at auction.
Commission revenues are recorded net of commissions owed to third parties, which are principally the result of situations when the commission is shared with a consignor or with the counterparty in an auction guarantee risk and reward sharing arrangement. Additionally, in certain situations, commissions are shared with third parties who introduce the Company to consignors who sell property at auction.
2. Significant accounting policies (continued)
(c)Revenue recognition (continued)
Underwritten commission contracts can take the form of guarantee or inventory contracts. Guarantee contracts typically include a pre-negotiated percentage of the guaranteed gross proceeds plus a percentage of proceeds in excess of the guaranteed amount. If actual auction proceeds are less than the guaranteed amount, commission is reduced; if proceeds are sufficiently lower, the Company can incur a loss on the sale. Losses, if any, resulting from guarantee contracts are recorded in the period in which the relevant auction is completed. If a loss relating to a guarantee contract held at the period end to be sold after the period end is known or is probable and estimable at the financial statement reporting date, the loss is accrued in the financial statements for that period. The Company’s exposure from these guarantee contracts fluctuates over time (note 27).
Revenues related to inventory contracts are recognized in the period in which the sale is completed, title to the property passes to the purchaser and the Company has fulfilled any other obligations that may be relevant to the transaction, including, but not limited to, delivery of the property. Revenue from inventory sales is presented net of costs within revenues on the income statement, as the Company takes title only for a short period of time and the risks and rewards of ownership are not substantially different than the Company’s other underwritten commission contracts.
Fees
Fees earned in the process of conducting our auctions include administrative, documentation, and advertising fees. Fees from value-added services include financing and technology service fees. Fees also include amounts paid by buyers (a “buyer’s premium”) on online marketplace sales. Fees are recognized in the period in which the service is provided to the customer.
(d) Share-based payments
Equity-settled share-based payments
The Company has a stock option compensation plan that provides for the award of stock options to selected employees, directors and officers of the Company. The cost of options granted is measured at the fair value of the underlying option at the grant date using the Black-Scholes option pricing model. This fair value of awards expected to vest is expensed over the respective vesting period of the individual awards on a straight-line basis with recognition of a corresponding increase to additional paid-in capital in equity. At the end of each reporting period, the Company revises its estimate of the number of equity instruments expected to vest. The impact of the revision of the original estimates, if any, is recognized in earnings, such that the consolidated expense reflects the revised estimate, with a corresponding adjustment to equity.
Any consideration paid on exercise of the options is credited to the common shares together with any related compensation recognized for the award.
Cash-settled share-based payments
The Company maintains share unit compensation plans which vest generally up to five years after grant. The Company is required to settle vested awards in cash based upon the volume weighted average price (“VWAP”) of the Company’s common shares for the twenty days prior to the vesting date or, in the case of deferred share unit (“DSU”) recipients, following cessation of service on the Board of Directors.
2. Significant accounting policies (continued)
(d)Share-based payments (continued)
Cash-settled share-based payment (continued)
The awards are classified as liability awards, measured at fair value at the date of grant and re-measured at fair value at each reporting date up to and including the settlement date. The fair value of the share unit grants is calculated on the valuation date using the 20-day volume weighted average share price of the Company‘s common shares listed on the New York Stock Exchange. The fair value of the awards is expensed over the respective vesting period of the individual awards with recognition of a corresponding liability, with changes in fair value after vesting being recognized through compensation expense. Compensation expense reflects estimates the number of instruments expected to vest.
The impacts of fair value and forfeiture estimate revisions, if any, are recognized in earnings such that the cumulative expense reflects the revised estimates, with a corresponding adjustment to the settlement liability. Short-term cash-settled share-based liabilities are presented in trade and other payables while long-term settlements are presented in non-current liabilities.
Employee share purchase plan
The Company matches employees’ contributions to the share purchase plan, which is described in more detail in note 25. The Company’s contributions are expensed as share-based compensation.
(e) Fair value measurement
Fair value is the exit price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The Company measures financial instruments or discloses select non-financial assets at fair value at each balance sheet date. Also, fair values of financial instruments measured at amortized cost are disclosed in note 11.
The Company uses valuation techniques that are appropriate in the circumstances and for which sufficient data is available to measure fair value, maximizing the use of relevant observable inputs and minimizing the use of unobservable inputs.
All assets and liabilities for which fair value is measured or disclosed in the financial statements at fair value are categorized within a fair value hierarchy, as disclosed in note 11, based on the lowest level input that is significant to the fair value measurement or disclosure. This fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3).
For assets and liabilities that are recognized in the financial statements at fair value on a recurring basis, the Company determines whether transfers have occurred between levels in the hierarchy by re-assessing categorization at the end of each reporting period.
For the purposes of fair value disclosures, the Company has determined classes of assets and liabilities on the basis of the nature, characteristics and risks of the assets or liability and the level of the fair value hierarchy as explained above.
(f) Foreign currency translation
The parent entity‘s presentation and functional currency is the United States dollar. The functional currency for each of the parent entity‘s subsidiaries is the currency of the primary economic environment in which the entity operates, which is usually the currency of the country of residency.
2. Significant accounting policies (continued)
(f)Foreign currency translation (continued)
Accordingly, the financial statements of the Company‘s subsidiaries that are not denominated in United States dollars have been translated into United States dollars using the exchange rate at the end of each reporting period for asset and liability amounts and the monthly average exchange rate for amounts included in the determination of earnings. Any gains or losses from the translation of asset and liability amounts are included in foreign currency translation adjustment in accumulated other comprehensive income.
In preparing the financial statements of the individual subsidiaries, transactions in currencies other than the entity‘s functional currency are recognized at the rates of exchange prevailing at the dates of the transaction. At the end of each reporting period, monetary assets and liabilities denominated in foreign currencies are retranslated at the rates prevailing at that date. Foreign currency differences arising on retranslation of monetary items are recognized in earnings. Foreign currency translation adjustment includes intra-entity foreign currency transactions that are of a long-term investment nature of $19,636,000, $18,273,000 and $12,413,000 for 2015, 2014 and 2013 respectively.
(g) Cash and cash equivalents
Cash and cash equivalents is comprised of cash on hand, deposits with financial institutions, and other short-term, highly liquid investments with original maturity of three months or less when acquired, that are readily convertible to known amounts of cash.
(h) Restricted cash
In certain jurisdictions, local laws require the Company to hold cash in segregated accounts, which are used to settle auction proceeds payable resulting from auctions conducted in those regions. In addition, the Company also holds cash generated from its EquipmentOne online marketplace sales in separate escrow accounts, for settlement of the respective online marketplace transactions as a part of its secured escrow service.
(i) Trade and other receivables
Trade receivables principally include amounts due from customers as a result of auction and online marketplace transactions. The recorded amount reflects the purchase price of the item sold, including the Company’s commission. The allowance for doubtful accounts is the Company’s best estimate of the amount of probable credit losses in existing accounts receivable. The Company determines the allowance based on historical write-off experience and customer economic data. The Company reviews the allowance for doubtful accounts regularly and past due balances are reviewed for collectability. Account balances are charged against the allowance when the Company believes that the receivable will not be recovered.
(j) Inventories
Inventory is recorded at cost and is represented by goods held for auction. Each inventory contract has been valued at the lower of cost and net realizable value.
(k) Equity-accounted investments
Investments in entities that the Company has the ability to exercise significant influence over, but not control, are accounted for using the equity method of accounting. Under the equity method of accounting, investments are stated at initial costs and are adjusted for subsequent additional investments and the Company’s share of earnings or losses and distributions. The Company evaluates its equity-accounted investments for impairment when events or circumstances indicate that the carrying value of such investments may have experienced an other-than-temporary decline in value below their carrying value.
2. Significant accounting policies (continued)
(k) Equity accounted investments (continued
If the estimated fair value is less than the carrying value and is considered an other than temporary decline, the carrying value is written down to its estimated fair value and the resulting impairment is recorded in the consolidated income statement.
(l) Property, plant and equipment
All property, plant and equipment are stated at cost less accumulated depreciation. Cost includes all expenditures that are directly attributable to the acquisition or development of the asset, net of any amounts received in relation to those assets, including scientific research and experimental discovery tax credits. The cost of self-constructed assets includes the cost of materials and direct labour, any other costs directly attributable to bringing the assets to working condition for their intended use, the costs of dismantling and removing items and restoring the site on which they are located (if applicable) and capitalized interest on qualifying assets. Subsequent costs are included in the asset’s carrying amount or recognized as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Company and the cost of the item can be measured reliably.
All repairs and maintenance costs are charged to earnings during the financial period in which they are incurred. Gains and losses on disposal of an item of property, plant and equipment are determined by comparing the proceeds from disposal with the carrying amount of the item, and are recognized net within operating income on the income statement.
Depreciation is provided to charge the cost of the assets to operations over their estimated useful lives based on their usage as follows:
Asset |
Basis |
Rate / term |
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Land improvements |
Declining balance |
10% | ||
Buildings |
Straight-line |
15 - 30 years |
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Yard equipment |
Declining balance |
20 - 30% |
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Automotive equipment |
Declining balance |
30% | ||
Computer software and equipment |
Straight-line |
3 - 5 years |
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Office equipment |
Declining balance |
20% | ||
Leasehold improvements |
Straight-line |
Lesser of lease term or economic life |
No depreciation is provided on freehold land or on assets in the course of construction or development. Depreciation of property, plant and equipment under capital leases is recorded in depreciation expense.
Legal obligations to retire and to restore property, plant and equipment and assets under operating leases are recorded at management‘s best estimate in the period in which they are incurred, if a reasonable estimate can be made, with a corresponding increase in asset carrying value. The liability is accreted to face value over the remaining estimated useful life of the asset. The Company does not have any significant asset retirement obligations.
(m) Long-lived assets held for sale
Long-lived assets, or disposal groups comprising assets and liabilities, that are expected to be recovered primarily through sale rather than through continuing use, are classified as assets held for sale. Immediately before classification as held for sale, the assets, or components of a disposal group, are measured at carrying amount in accordance with the Company’s accounting policies. Thereafter the assets, or disposal group, are measured at the lower of their carrying amount and fair value less cost to sell and are not depreciated. Impairment losses on initial classification as held for sale and subsequent gains or losses on re-measurement are recognized in operating income on the income statement.
2. Significant accounting policies (continued)
(n) Intangible assets
Intangible assets have finite useful lives and are measured at cost less accumulated amortization and accumulated impairment losses, except trade names and trademarks as they have indefinite useful lives. Cost includes all expenditures that are directly attributable to the acquisition or development of the asset, net of any amounts received in relation to those assets, including scientific research and experimental development tax credits.
Costs of internally developed software are amortized on a straight-line basis over the remaining estimated economic life of the software product.
Costs related to software incurred prior to establishing technological feasibility or the beginning of the application development stage of software are charged to operations as such costs are incurred. Once technological feasibility is established or the application development stage has begun, directly attributable costs are capitalized until the software is available for use.
Amortization is recognized in net earnings on a straight-line basis over the estimated useful lives of intangible assets from the date that they are available for use. The estimated useful lives are:
Asset |
Basis |
Rate / term |
||
Customer relationships |
Straight-line |
10 - 20 years |
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Software assets |
Straight-line |
3 - 5 years |
Amortization of intangible assets under capital leases has been recorded in amortization expense.
(o) Impairment of long-lived assets
Long-lived assets, comprised of property, plant and equipment and intangibles subject to amortization, are assessed for impairment whenever events or circumstances indicate that their carrying value may not be recoverable. For the purpose of impairment testing, long-lived assets are grouped and tested for recoverability at the lowest level that generates independent cash flows. An impairment loss is recognized when the carrying value of the assets or asset groups is greater than the future projected undiscounted cash flows. The impairment loss is calculated as the excess of the carrying value over the fair value of the asset or asset group. Fair value is based on valuation techniques or third party appraisals. Significant estimates and judgments are applied in determining these cash flows and fair values.
(p) Goodwill
Goodwill represents the excess of the purchase price of an acquired enterprise over the fair value assigned to assets acquired and liabilities assumed in a business combination. Goodwill is allocated to either the Core Auction or EquipmentOne reporting unit.
Goodwill is not amortized, but it is tested annually for impairment at the reporting unit level as of December 31 and between annual tests if indicators of potential impairment exist. The first step of the impairment test for goodwill is an assessment of qualitative factors to determine the existence of events or circumstances that would indicate whether it is more likely than not that the carrying amount of the reporting unit to which goodwill belongs is less than its fair value. If the qualitative test indicates it is not more likely than not that the reporting unit’s carrying amount is less than its fair value, a quantitative assessment is not required.
2. Significant accounting policies (continued)
(p)Goodwill (continued)
Where a quantitative assessment is required the next step is to compare the fair value of the reporting unit to the reporting unit’s carrying value. The fair value calculated in the impairment test is determined using a discounted cash flow or another model involving assumptions that are based upon what we believe a hypothetical marketplace participant would use in estimating fair value on the measurement date. In developing these assumptions, we compare the resulting estimated enterprise value to our observable market enterprise value. If the fair value of the reporting unit is lower than the reporting unit’s carrying value an impairment loss is recognized for any amount by which the carrying value of goodwill exceeds its implied fair value.
(q) Deferred financing costs
Deferred financing costs represent the unamortized costs incurred on issuance of the Company’s credit facilities. Amortization of deferred financing costs on credit facilities is provided on the effective interest rate method over the term of the facility based on amounts available under the facilities. Deferred financing costs related to the issuance of debt are presented in the consolidated balance sheet as a direct reduction of the carrying amount of the long-term debt.
(r) Taxes
Income tax expense represents the sum of current tax expense and deferred tax expense.
Current tax
The current tax expense is based on taxable profit for the period and includes any adjustments to tax payable in respect of previous years. Taxable profit differs from earnings before income taxes as reported in the consolidated income statement because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Company‘s liability for current tax is calculated using tax rates that have been enacted by the balance sheet date.
Deferred tax
Income taxes are accounted for using the asset and liability method. Deferred income tax assets and liabilities are based on temporary differences (differences between the accounting basis and the tax basis of the assets and liabilities) and non-capital loss, capital loss, and tax credits carryforwards are measured using the enacted tax rates and laws expected to apply when these differences reverse. Deferred tax benefits, including non-capital loss, capital loss, and tax credits carry-forwards, are recognized to the extent that realization of such benefits is considered more likely than not. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in earnings in the period that enactment occurs. When realization of deferred income tax assets does not meet the more-likely-than-not criterion for recognition, a valuation allowance is provided.
Interest and penalties related to income taxes, including unrecognized tax benefits, are recorded in income tax expense in the income statement.
Liabilities for uncertain tax positions are recorded based on a two-step process. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount that is more than 50% likely of being realized upon settlement. The Company regularly assesses the potential outcomes of examinations by tax authorities in determining the adequacy of our provision for income taxes. The Company continually assesses the likelihood and amount of potential adjustments and adjust the income tax provision, income taxes payable and deferred taxes in the period in which the facts that give rise to a revision become known.
2. Significant accounting policies (continued)
(s) Contingently redeemable non-controlling interest
Contingently redeemable equity instruments are initially recorded at their fair value on the date of issue within temporary equity on the balance sheet. When the equity instruments become redeemable or redemption is probable, the Company recognizes changes in the estimated redemption value immediately as they occur, and adjusts the carrying amount of the redeemable equity instrument to equal the estimated redemption value at the end of each reporting period. Changes to the carrying value are charged or credited to retained earnings attributable to stockholders on the balance sheet.
Redemption value determinations require high levels of judgment (“Level 3” on the fair value hierarchy) and are based on various valuation techniques, including market comparables and discounted cash flow projections.
(t) Earnings per share
Basic earnings per share has been calculated by dividing the net income for the year attributable to equity holders of the parent by the weighted average number of common shares outstanding. Diluted earnings per share has been calculated after giving effect to outstanding dilutive options calculated by adjusting the net earnings attributable to equity holders of the parent and the weighted average number of shares outstanding for all dilutive shares.
(u) Defined contribution plans
The employees of the Company are members of retirement benefit plans to which the Company matches up to a specified percentage of employee contributions or, in certain jurisdictions, contributes a specified percentage of payroll costs as mandated by the local authorities. The only obligation of the Company with respect to the retirement benefit plans is to make the specified contributions.
(v) Advertising costs
Advertising costs are expensed as incurred. Advertising expense is included in direct expenses and selling, general and administrative expense on the accompanying consolidated statements of operations.
(w) Early adoption of new accounting pronouncements
(i)The Company early adopted Accounting Standards Update (“ASU”) 2015-11, Inventory (Topic 330): Simplifying the Measurement of Inventory, which requires the Company to measure inventory at the lower of cost or net realizable value, which consists of the estimated selling prices in the ordinary course of business, less reasonably predictable cost of completions, disposal, and transportation. The adoption of this standard did not have an impact on the Company’s consolidated financial statements.
(ii)November 2015, the Financial Accounting Standards Board, (“FASB”) issued ASU 2015-17, Balance Sheet Classification of Deferred Taxes, amending the accounting for income taxes and requiring all deferred tax assets and liabilities to be classified as non-current on the consolidated balance sheet. The ASU is effective for reporting periods beginning after December 15, 2016, with early adoption permitted. The ASU may be adopted either prospectively or retrospectively. This standard was adopted retrospectively in the Company’s consolidated financial statements.
(iii)In April 2015, the FASB issued ASU 2015-03, Interest – Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs. ASU 2015-03 requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. ASU 2015-03 is effective for interim and annual periods beginning after
December 15, 2015. This standard was adopted retrospectively in the Company’s consolidated financial statements.
2. Significant accounting policies (continued)
(x) Recent accounting pronouncements not yet adopted
(i)In July 2015, FASB, delayed the effective date of ASU 2014-09, Revenue from Contracts with Customers by one year. Reporting entities may choose to adopt the standard as of the original effective date. Based on its outreach to various stakeholders and the forthcoming amendments to ASU 2014-09, the FASB decided that a deferral is necessary to provide adequate time to effectively implement the new revenue standard. ASU 2014-09 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017. The Company is evaluating the new guidance to determine the impact it will have on its consolidated financial statements.
(ii)In February 2015, the FASB issued ASU 2015-02, Consolidation – Amendments to the Consolidation Analysis. ASU 2015-02 changes the evaluation of whether limited partnerships, and similar legal entities, are variable interest entities, or VIEs, and eliminates the presumption that a general partner should consolidate a limited partnership that is a voting interest entity. The new guidance also alters the analysis for determining when fees paid to a decision maker or service provider represent a variable interest in a VIE and how interests of related parties affect the primary beneficiary determination. ASU 2015-02 is effective for fiscal years and interim periods within those fiscal years, beginning after December 15, 2015. The new standard allows early adoption, including early adoption in an interim period. The Company is evaluating the new guidance to determine the impact it will have on its consolidated financial statements.
(iii)In September 2015, the FASB issued ASU 2015-16, Simplifying the Accounting for Measurement-Period Adjustments. The update requires that an acquirer recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined. The standard is effective for fiscal years beginning after December 15, 2015. Early application is permitted. The Company is currently evaluating the impact of the new guidance on its consolidated financial statements.
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3. Significant judgments, estimates and assumptions
The preparation of financial statements in conformity with US GAAP requires management to make judgments, estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period.
Future differences arising between actual results and the judgments, estimates and assumptions made by the Company at the reporting date, or future changes to estimates and assumptions, could necessitate adjustments to the underlying reported amounts of assets, liabilities, revenues and expenses in future reporting periods.
Judgments, estimates and underlying assumptions are evaluated on an ongoing basis by management, and are based on historical experience and other factors including expectations of future events that are believed to be reasonable under the circumstances. Existing circumstances and assumptions about future developments, however, may change due to market changes or circumstance and such changes are reflected in the assumptions when they occur. Significant estimates include the estimated useful lives of long-lived assets, as well as valuation of goodwill, underwritten commission contracts, contingently redeemable non-controlling interest and share-based compensation.
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4. Segmented information
The Company’s principal business activity is the sale of industrial equipment and other assets at auctions. The Company’s operations are comprised of two reportable segments as determined by their differing service delivery model, these are:
Core Auction segment, a network of auction locations that conduct live, unreserved auctions with both on-site and online bidding; and
EquipmentOne segment, a secure online marketplace that facilitates private equipment transactions.
The accounting policies of the segments are similar to those described in the significant accounting policies in note 2. The Chief Operating Decision Maker evaluates each segment‘s performance based on earnings (loss) from operations. The significant non-cash item included in segment earnings (loss) from operations is depreciation and amortization.
Core |
Equipment- |
||||||||
Year ended December 31, 2015 |
Auction |
One |
Consolidated |
||||||
Revenues |
$ |
500,764 |
$ |
15,111 |
$ |
515,875 | |||
Direct expenses, excluding |
|||||||||
depreciation and amortization |
(56,026) |
- |
(56,026) | ||||||
Selling, general and administrative expenses |
(241,274) | (13,716) | (254,990) | ||||||
Depreciation and amortization expenses |
(39,016) | (3,016) | (42,032) | ||||||
$ |
164,448 |
$ |
(1,621) |
$ |
162,827 | ||||
Gain on disposition of property, |
|||||||||
plant and equipment |
9,691 | ||||||||
Foreign exchange gain |
2,322 | ||||||||
Operating income |
$ |
174,840 | |||||||
Equity income |
916 | ||||||||
Other and income tax expenses |
(37,181) | ||||||||
Net income |
$ |
138,575 |
Core |
Equipment- |
||||||||
Year ended December 31, 2014 |
Auction |
One |
Consolidated |
||||||
Revenues |
$ |
467,919 |
$ |
13,178 |
$ |
481,097 | |||
Direct expenses, excluding |
|||||||||
depreciation and amortization |
(57,884) |
- |
(57,884) | ||||||
Selling, general and administrative expenses |
(233,438) | (14,782) | (248,220) | ||||||
Depreciation and amortization expenses |
(40,872) | (3,664) | (44,536) | ||||||
Impairment loss |
(8,084) |
- |
(8,084) | ||||||
$ |
127,641 |
$ |
(5,268) |
$ |
122,373 | ||||
Gain on disposition of property, |
|||||||||
plant and equipment |
3,512 | ||||||||
Foreign exchange gain |
2,042 | ||||||||
Operating income |
$ |
127,927 | |||||||
Equity income |
458 | ||||||||
Other and income tax expenses |
(35,822) | ||||||||
Net income |
$ |
92,563 |
4. Segmented information (continued)
Core |
Equipment- |
||||||||
Year ended December 31, 2013 |
Auction |
One |
Consolidated |
||||||
Revenues |
$ |
453,994 |
$ |
13,409 |
$ |
467,403 | |||
Direct expenses, excluding |
|||||||||
depreciation and amortization |
(54,008) |
- |
(54,008) | ||||||
Selling, general and administrative expenses |
(227,402) | (16,334) | (243,736) | ||||||
Depreciation and amortization expenses |
(39,578) | (3,702) | (43,280) | ||||||
$ |
133,006 |
$ |
(6,627) |
$ |
126,379 | ||||
Gain on disposition of property, |
|||||||||
plant and equipment |
10,552 | ||||||||
Foreign exchange gain |
28 | ||||||||
Operating income |
$ |
136,959 | |||||||
Equity income |
405 | ||||||||
Other and income tax expenses |
(42,919) | ||||||||
Net income |
$ |
94,445 |
The Chief Operating Decision Maker does not evaluate the performance of its operating segments based on segment assets and liabilities. The Company does not classify liabilities on a segmented basis.
The Company‘s geographic information as determined by the revenue and location of assets is as follows:
United |
Canada |
Europe |
Other |
Consolidated |
||||||
Revenues for the year ended: |
||||||||||
December 31, 2015 |
$ |
257,824 |
$ |
166,528 |
$ |
48,419 |
$ |
43,104 |
$ |
515,875 |
December 31, 2014 |
223,770 | 154,392 | 58,782 | 44,153 | 481,097 | |||||
December 31, 2013 |
224,214 | 135,545 | 65,016 | 42,628 | 467,403 |
United |
Canada |
Europe |
Other |
Consolidated |
|||||||
Long-lived assets: |
|||||||||||
December 31, 2015 |
$ |
289,126 |
$ |
106,924 |
$ |
79,578 |
$ |
52,963 |
$ |
528,591 | |
December 31, 2014 |
302,189 | 126,396 | 91,592 | 60,524 | 580,701 |
Revenue information is based on the locations of the auction and the assets at the time of sale.
|
5. Revenues
The Company’s revenue from the rendering of services is as follows:
Year ended December 31, |
||||||||
Year ended December 31, |
2015 | 2014 | 2013 | |||||
Commissions |
$ |
405,308 |
$ |
379,340 |
$ |
374,107 | ||
Fees |
110,567 | 101,757 | 93,296 | |||||
$ |
515,875 |
$ |
481,097 |
$ |
467,403 |
Net profits on inventory sales included in commissions are:
Year ended December 31, |
||||||||
Year ended December 31, |
2015 | 2014 | 2013 | |||||
Revenue from inventory sales |
$ |
555,827 |
$ |
758,437 |
$ |
634,498 | ||
Cost of inventory sold |
(511,892) | (709,072) | (571,993) | |||||
$ |
43,935 |
$ |
49,365 |
$ |
62,505 |
|
6. Operating expenses
Direct expenses
Year ended December 31, |
2015 | 2014 | 2013 | |||||
Employee compensation expenses |
$ |
22,855 |
$ |
22,857 |
$ |
20,755 | ||
Buildings and facilities expenses |
7,179 | 7,609 | 7,510 | |||||
Travel, advertising and promotion expenses |
22,150 | 23,006 | 22,077 | |||||
Other direct expenses ( net of recoveries) |
3,842 | 4,412 | 3,666 | |||||
$ |
56,026 |
$ |
57,884 |
$ |
54,008 |
Selling, general and administrative (“SG&A”) expenses
Year ended December 31, |
2015 | 2014 | 2013 | |||||
Employee compensation expenses |
$ |
166,418 |
$ |
159,398 |
$ |
158,448 | ||
Buildings and facilities expenses |
41,404 | 41,725 | 40,820 | |||||
Travel, advertising and promotion expenses |
22,307 | 22,454 | 20,728 | |||||
Other SG&A expenses |
24,861 | 24,643 | 23,740 | |||||
$ |
254,990 |
$ |
248,220 |
$ |
243,736 |
Employee compensation expenses
Year ended December 31, |
2015 | 2014 | 2013 | |||||
Wages, salaries and other benefits |
$ |
139,878 |
$ |
136,650 |
$ |
137,346 | ||
Social security costs |
10,692 | 11,067 | 10,931 | |||||
Defined contribution plans |
3,794 | 3,378 | 3,867 | |||||
Share-based payment expenses |
11,006 | 10,846 | 8,266 | |||||
Profit-sharing and bonuses |
23,903 | 14,781 | 18,793 | |||||
Termination benefits |
- |
5,533 |
- |
|||||
$ |
189,273 |
$ |
182,255 |
$ |
179,203 |
6. Operating expenses (continued)
During the year ended December 31, 2014, the Company initiated a management reorganization impacting various members of senior management, including some key management personnel. In total, $5,533,000 of termination benefits were recognized in selling, general and administrative expenses during the year ended December 31, 2014 in relation to the reorganization of management.
Depreciation and amortization expenses
Year ended December 31, |
2015 | 2014 | 2013 | ||||||
Depreciation expense |
$ |
35,374 |
$ |
39,966 |
$ |
39,655 | |||
Amortization expense |
6,658 | 4,570 | 3,625 | ||||||
$ |
42,032 |
$ |
44,536 |
$ |
43,280 |
During the year ended December 31, 2015, depreciation expense of $4,340,000 (2014: $5,949,000; 2013: $6,136,000) and amortization expense of $4,680,000 (2014: $2,620,000; 2013: $1,617,000) was recorded relating to software.
Impairment loss
During the year ended December 31, 2014, the Company recognized a total impairment loss of $8,084,000 on its auction site property located in Narita, Japan. The impairment loss consisted of $6,094,000 on the land and improvements and $1,990,000 on the auction building (the ”Japanese assets“). Management assessed the recoverable amounts of the Japanese assets when results of an assessment of the Japan auction operations and performance of that auction site indicated impairment, and management concluded that the undiscounted cash flows resulted in recoverable amounts below the carrying value of the Japanese assets. The fair values of the Japanese assets were determined to be $16,150,000 for the land and improvements and $4,779,000 for the auction building based on the fair value less costs of disposal.
The Company performed a valuation of the Japanese assets as at September 30, 2014. The fair value of the land and improvements was determined based on comparable data in similar regions and relevant information regarding recent events impacting the local real-estate market (Level 3 inputs). The fair value of the auction building was determined based on a depreciated asset cost model with adjustments for relevant market participant data based on the Company‘s experience with disposing of similar auction buildings and current real estate transactions in similar regions (Level 3 inputs).
Determination of the recoverable amount of the Japanese assets involved estimating any costs that would be incurred if the assets were disposed of, including brokers‘ fees, costs to prepare the Japanese assets for sale and other selling fees. In determining these costs, management assumed that any costs required to prepare the Japanese assets for sale could be estimated based on current market rates for brokers‘ fees and management‘s experience with disposing of similar auction sites, taking into consideration the relative newness of the Japan auction site (Level 3 inputs).
The impaired Narita land and improvements and auction building form part of the Company‘s Core Auction reportable segment.
|
7. Income taxes
The expense for the year can be reconciled to earnings before income taxes as follows:
Year ended December 31, |
2015 | 2014 | 2013 | |||||
Income before income taxes |
$ |
176,436 |
$ |
129,038 |
$ |
134,755 | ||
Statutory federal and provincial tax |
||||||||
rate in Canada |
26.00% | 26.00% | 25.75% | |||||
Expected income tax expense |
$ |
45,873 |
$ |
33,550 |
$ |
34,699 | ||
Non-deductible expenses |
2,579 | 2,392 | 2,396 | |||||
Sale of capital property |
(1,291) | (407) |
- |
|||||
Changes in valuation allowance |
(5,828) | 7,083 | 4,512 | |||||
Different tax rates of subsidiaries |
||||||||
operating in foreign jurisdictions |
(3,426) | (4,773) | (2,798) | |||||
Other |
(46) | (1,370) | 1,501 | |||||
$ |
37,861 |
$ |
36,475 |
$ |
40,310 |
The income tax expense (recovery) consists of:
Year ended December 31, |
2015 | 2014 | 2013 | |||||
Canadian: |
||||||||
Current tax expense |
$ |
27,623 |
$ |
21,712 |
$ |
21,824 | ||
Deferred tax expense |
1,880 | 1,680 | 324 | |||||
Foreign: |
||||||||
Current tax expense before application |
||||||||
of operating loss carryforwards |
16,707 | 12,236 | 15,712 | |||||
Tax benefit of operating loss carryforwards |
(1,910) | (627) | (627) | |||||
Total foreign current tax expense |
14,797 | 11,609 | 15,085 | |||||
Deferred tax expense before adjustment |
||||||||
to opening valuation allowance |
(273) | 1,474 | 3,077 | |||||
Adjustment to opening valuation allowance |
(6,166) |
- |
- |
|||||
Total foreign deferred tax expense |
(6,439) | 1,474 | 3,077 | |||||
$ |
37,861 |
$ |
36,475 |
$ |
40,310 |
7.Income taxes (continued)
The tax effects of temporary differences that give rise to significant deferred tax assets and deferred tax liabilities were as follows:
As at December 31, |
2015 | 2014 | |||
Deferred tax assets: |
|||||
Working capital |
$ |
4,082 |
$ |
1,518 | |
Property, plant and equipment |
5,236 | 4,287 | |||
Goodwill |
286 | 447 | |||
Share-based compensation |
3,243 | 1,635 | |||
Unused tax losses |
17,079 | 20,798 | |||
Other |
14,704 | 18,061 | |||
44,630 | 46,746 | ||||
Deferred tax liabilities: |
|||||
Property, plant and equipment |
$ |
(11,292) |
$ |
(14,255) | |
Goodwill |
(12,587) | (12,549) | |||
Intangible assets |
(9,370) | (7,425) | |||
Other |
(17,308) | (17,812) | |||
(50,557) | (52,041) | ||||
Net deferred tax assets (liabilities) |
$ |
(5,927) |
$ |
(5,295) | |
Valuation allowance |
(11,781) | (18,906) | |||
$ |
(17,708) |
$ |
(24,201) |
At December 31, 2015, the Company had non-capital loss carryforwards that are available to reduce taxable income in the future years. These non-capital loss carryforwards expire as follows:
2016 |
$ |
35 | |||
2017 |
758 | ||||
2018 |
270 | ||||
2019 |
2,385 | ||||
2020 and thereafter |
47,239 | ||||
50,687 |
The Company has capital loss carry-forwards of approximately $8,604,000 available to reduce future capital gains which carryforward indefinitely.
Tax losses are denominated in the currency of the countries in which the respective subsidiaries are located and operate. Fluctuations in currency exchange rates could reduce the U.S. dollar equivalent value of these tax losses in future years.
In assessing the realizability of our deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during periods in which temporary differences become deductible and the loss carry-forwards can be utilized. Management considers projected future taxable income and tax planning strategies in making our assessment.
7. Income taxes (continued)
The foreign provision for income taxes is based on foreign pre-tax earnings of $64,139,000, $42,221,000 and $56,683,000 in 2015, 2014 and 2013, respectively. The Company’s consolidated financial statements provide for any related tax liability on undistributed earnings. As of December 31, 2015, income taxes have not been provided on a cumulative total of $393,000,000 of such earnings. The amount of unrecognized deferred tax liability related to these temporary differences is estimated to be approximately $3,600,000. Earnings retained by subsidiaries and equity-accounted investments amount to approximately $411,000,000 (2014: $380,000,000; 2013: $415,000,000). The Company accrues withholding and other taxes that would become payable on the distribution of earnings only to the extent that either the Company does not control the relevant entity or it is expected that these earnings will be remitted in the foreseeable future.
Uncertain tax positions
Tax positions are evaluated in a two-step process. The Company first determines whether it is more likely than not that a tax position will be sustained upon examination. If a tax position meets the more-likely-than-not recognition threshold it is then measured to determine the amount of the benefit to recognize in the financial statements. The tax position is measured as the largest amount of the benefit that is greater than 50% likely of being realized upon ultimate settlement. The Company classifies unrecognized tax benefits that are not expected to result in the payment or receipt of cash within one year as non-current liabilities in the consolidated balance sheets.
At December 31, 2015, the Company had gross unrecognized tax benefits of $15,904,000 (2014: $16,131,000). Of this total, $8,419,000 (2014: $6,509,000) represents the amount of unrecognized tax benefits that, if recognized, would favorably impact the effective tax rate.
Reconciliation of unrecognized tax benefits:
As at December 31, |
2015 | 2014 | |||
Unrecognized tax benefits, beginning of year |
$ |
16,131 |
$ |
17,919 | |
Increases - tax positions taken in prior period |
800 | 292 | |||
Decreases - tax positions taken in prior period |
(30) | (3,866) | |||
Increases - tax positions taken in current period |
1,770 | 2,121 | |||
Settlement and lapse of statute of limitations |
(2,767) | (335) | |||
Unrecognized tax benefits, end of year |
$ |
15,904 |
$ |
16,131 |
Interest expense and penalties related to unrecognized tax benefits are recorded within the provision for income tax expense on the consolidated income statement. At December 31, 2015, the Company had accrued $2,102,000 (2014: $1,864,000) for interest and penalties.
In the normal course of business, the Company is subject to audit by the Canadian federal and provincial taxing authorities, by the U.S. federal and various state taxing authorities and by the taxing authorities in various foreign jurisdictions. Tax years ranging from 2010 to 2015 remain subject to examination in Canada, the United States, and Luxembourg.
|
8.Contingently redeemable non-controlling interest in Ritchie Bros. Financial Services
The Company holds a 51% interest in Ritchie Bros. Financial Services (”RBFS”), an entity that provides loan origination services to enable the Company’s auction customers to obtain financing from third party lenders. As a result of the Company’s involvement with RBFS, the Company is exposed to risks related to the recovery of the net assets of RBFS as well as liquidity risks associated with the put option discussed below.
8. Contingently redeemable non-controlling interest in Ritchie Bros. Financial Services
(continued)
The Company has determined RBFS is a variable interest entity because the Company provides subordinated financial support to RBFS and because the Company’s voting interest is disproportionately low in relation to its economic interest in RBFS while substantially all the activities of RBFS involve or are conducted on behalf of the Company. The Company has determined it is the primary beneficiary of RBFS as it is part of a related party group that has the power to direct the activities that most significantly impact RBFS’s economic performance, and although no individual member of that group has such power, the Company represents the member of the related party group that is most closely associated with RBFS.
The Company and the non-controlling interest (“NCI”) holders each hold options pursuant to which the Company may acquire, or be required to acquire, the NCI holders’ 49% interest in RBFS. These call and put options become exercisable in April 2016. As a result of the existence of the put option, the NCI is accounted for as a contingently redeemable equity instrument (the “contingently redeemable NCI”).
At all reporting periods presented, the Company determined that redemption was probable and measured the carrying value of the contingently redeemable NCI at its estimated redemption value. The NCI can be redeemed at a purchase price to be determined through an independent appraisal process conducted in accordance with the terms of the agreement, or at a negotiated price (the “redemption value”) and therefore, the redemption value on exercise may materially differ from the redemption value as at December 31, 2015. The Company has the option to elect to pay the purchase price in either cash or shares of the Company, subject to the Company obtaining all relevant security exchange and regulatory consents and approvals.
The redemption value of the contingently redeemable NCI was determined based on a blended analysis of a capitalized cash flow approach and a market value approach towards determining an estimated fair value of RBFS, with adjustments for relevant market participant data. The Company has estimated the redemption value using the capitalized cash flow approach, with significant inputs including the capitalization multiple, which is based on an estimated weighted average cost of capital of 15%, as well as a long-term earnings growth for RBFS of 4% and foreign exchange rates. Significant estimates in the market value approach include identifying similar companies with comparable business factors to RBFS, and implied valuation multiples for these companies.
The estimation of fair value as a basis of determining the redemption value required management to make significant judgments, estimates, and assumptions as of the reporting date. Those judgments, estimates, and assumptions could vary significantly between the reporting date and when the call and put options become exercisable in April 2016.
|
10. Supplemental cash flow information
Year ended December 31, |
2015 | 2014 | 2013 | |||||
Restricted cash |
$ |
(102) |
$ |
22,347 |
$ |
(41,001) | ||
Trade and other receivables |
12,757 | (113) | (9,163) | |||||
Inventory |
(17,635) | 4,109 | 8,905 | |||||
Advances against auction contracts |
20,804 | (14,230) | (4,843) | |||||
Prepaid expenses and deposits |
(307) | (3,873) | 6,818 | |||||
Income taxes receivable |
742 | (958) | 5,485 | |||||
Auction proceeds payable |
5,151 | (3,855) | 40,246 | |||||
Trade and other payables |
(7,654) | 13,826 | 901 | |||||
Income taxes payable |
3,481 | 2,408 | 2,482 | |||||
Share unit liabilities |
5,397 | 5,699 | 2,460 | |||||
Other |
2,398 | (4,810) | (1,773) | |||||
Net changes in operating assets and liabilities |
$ |
25,032 |
$ |
20,550 |
$ |
10,517 |
Net capital spending, which consists of property, plant and equipment and intangible asset additions, net of proceeds on disposition of property, plant and equipment, was $14,152,000 for the year ended December 31, 2015 (2014: $29,595,000; 2013: $37,066,000).
10. Supplemental cash flow information (continued)
Year ended December 31, |
2015 | 2014 | 2013 | |||||
Interest paid, net of interest capitalized |
$ |
4,989 |
$ |
4,823 |
$ |
8,251 | ||
Interest received |
2,657 | 2,218 | 2,401 | |||||
Net income taxes paid |
34,661 | 29,089 | 27,738 | |||||
Non-cash transactions: |
||||||||
Non-cash purchase of property, plant |
||||||||
and equipment under capital lease |
943 | 2,143 | 2,174 |
|
11. Fair value measurement
All assets and liabilities for which fair value is measured or disclosed in the consolidated financial statements are categorized within the fair value hierarchy, described as follows, based on the lowest level input that is significant to the fair value measurement or disclosure:
● Level 1: Unadjusted quoted prices in active markets for identical assets or liabilities that the entity can access at measurement date;
● Level 2: Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly; and
● Level 3: Unobservable inputs for the asset or liability.
December 31, 2015 |
December 31, 2014 |
||||||||||||
Category |
Carrying amount |
Fair value |
Carrying amount |
Fair value |
|||||||||
Fair vales disclosed, recurring: |
|||||||||||||
Cash and cash equivalents |
Level 1 |
$ |
210,148 |
$ |
210,148 |
$ |
139,815 |
$ |
139,815 | ||||
Restricted cash |
Level 1 |
83,098 | 83,098 | 93,274 | 93,274 | ||||||||
Short-term debt (note 23) |
Level 2 |
12,350 | 12,350 | 7,839 | 7,839 | ||||||||
Current portion of long- |
|||||||||||||
term debt (note 23) |
Level 2 |
43,348 | 43,348 |
- |
- |
||||||||
Long-term debt (note 23) |
Level 2 |
54,567 | 56,126 | 110,846 | 114,532 | ||||||||
Fair value measurements, non-recurring: |
|||||||||||||
Japanese assets: |
|||||||||||||
Land and improvements (note 6) |
Level 3 |
$ |
14,346 |
$ |
N/A |
$ |
14,719 |
$ |
16,150 | ||||
Auction building (note 6) |
Level 3 |
4,149 |
N/A |
4,368 | 4,779 |
The carrying value of the Company‘s cash and cash equivalents, trade and other current receivables, advances against auction contracts, auction proceeds payable, trade and other payables, and current borrowings approximate their fair values due to their short terms to maturity.
The fair values of non-current borrowings are determined through the calculation of each liability‘s present value using market rates of interest at period close.
|
12. Trade and other receivables
As at December 31, |
2015 | 2014 | ||
Trade receivables |
$ |
50,388 |
$ |
60,642 |
Consumption taxes receivable |
8,178 | 13,872 | ||
Other receivables |
846 | 1,548 | ||
$ |
59,412 |
$ |
76,062 |
Trade receivables are generally secured by the equipment that they relate to as it is Company policy that equipment is not released until payment has been collected. Trade receivables are due for settlement within seven days of the date of sale, after which they are interest bearing. Other receivables are unsecured and non-interest bearing.
As at December 31, 2015, trade receivables of $50,388,000 were more than seven days past due but not considered impaired (December 31, 2014: $60,642,000). As at December 31, 2015, there were $4,639,000 of impaired receivables that have been provided for in the balance sheet because they are over six months old, or specific situations where recovering the debt is considered unlikely (December 31, 2014: $3,948,000).
Consumption taxes receivable are deemed fully recoverable unless disputed by the relevant tax authority. The other classes within trade and other receivables do not contain impaired assets.
|
13. Inventory
At each period end, inventory is reviewed to ensure that it is recorded at the lower of cost and net realizable value. During the year ended December 31, 2015, the Company recorded inventory write downs of $480,000 (2014: $2,177,000; 2013: $963,000).
Of inventory held at December 31, 2015, 91% is expected to be sold prior to the end of March 2016, with the remainder to be sold by the end of June 2016 (December 31, 2014: 100% sold by the end of June 2015). During the year ended December 31, 2015, inventory was held for an average of approximately 31 days (2014: 30 days; 2013: 29 days).
|
14. Advances against auction contracts
Advances against auction contracts arise when the Company pays owners, in advance, a portion of the expected gross auction proceeds from the sale of the related assets at future auctions. The Company‘s policy is to limit the amount of advances to a percentage of the estimated gross auction proceeds from the sale of the related assets, and before advancing funds, require proof of owner‘s title to and equity in the assets, as well as receive delivery of the assets and title documents at a specified auction site, by a specified date and in a specified condition of repair.
Advances against auction contracts are generally secured by the assets to which they relate, as the Company requires owners to provide promissory notes and security instruments registering the Company as a charge against the asset. Advances against auction contracts are usually settled within two weeks of the date of sale, as they are netted against the associated auction proceeds payable to the owner.
|
15.Prepaid expenses and deposits
As at December 31, |
2015 | 2014 | ||
Prepaid expenses |
$ |
10,347 |
$ |
10,583 |
Refundable deposits |
710 | 1,004 | ||
$ |
11,057 |
$ |
11,587 |
|
16.Assets held for sale
Balance, December 31, 2012 |
$ |
958 | ||
Reclassified from property, plant and equipment |
2,839 | |||
Disposal |
(958) | |||
Balance, December 31, 2013 |
$ |
2,839 | ||
Reclassified from property, plant and equipment |
1,636 | |||
Disposal |
(2,803) | |||
Other |
(4) | |||
Balance, December 31, 2014 |
$ |
1,668 | ||
Reclassified from property, plant and equipment |
2,719 | |||
Site preparation costs |
1,079 | |||
Disposal |
(4,624) | |||
Foreign exchange movement |
(213) | |||
Balance, December 31, 2015 |
$ |
629 |
As at December 31, 2015, the Company’s assets held for sale consisted of land located in Denver, United States, and Orlando, United States, representing excess auction site acreage. Management made the strategic decision to sell this excess acreage to maximize the Company’s return on invested capital. As at December 31, 2015, the properties are being actively marketed for sale through an independent real estate broker, and management expects the sales to be completed within 12 months of that date. These land assets belong to the Core Auction reportable segment.
During the year ended December 31, 2015, the Company sold property located in Edmonton, Canada and London, Canada, recognizing a net gain on disposition of property, plant and equipment of $8,485,000 on the consolidated income statement (2014: $3,386,000 gain related to the sale of property in Grande Prairie, Canada; 2013: $10,342,000 gain related to the sale of property in Fort Worth, United States, Grande Prairie, Canada, and Prince Rupert, Canada).
|
17.Property, plant and equipment
As at December 31, 2015 |
Cost |
Accumulated depreciation |
Net book value |
|||||
Land and improvements |
$ |
356,905 |
$ |
(54,551) |
$ |
302,354 | ||
Buildings |
254,760 | (82,100) | 172,660 | |||||
Yard and automotive equipment |
59,957 | (38,848) | 21,109 | |||||
Computer software and equipment |
60,586 | (50,754) | 9,832 | |||||
Office equipment |
22,432 | (15,660) | 6,772 | |||||
Leasehold improvements |
20,893 | (12,160) | 8,733 | |||||
Assets under development |
7,131 |
- |
7,131 | |||||
$ |
782,664 |
$ |
(254,073) |
$ |
528,591 |
17. Property, plant and equipment (continued)
As at December 31, 2014 |
Cost |
Accumulated depreciation |
Net book value |
|||||
Land and improvements |
$ |
357,796 |
$ |
(50,235) |
$ |
307,561 | ||
Buildings |
269,912 | (78,370) | 191,542 | |||||
Yard and automotive equipment |
67,226 | (39,284) | 27,942 | |||||
Computer software and equipment |
81,739 | (65,778) | 15,961 | |||||
Office equipment |
23,639 | (15,539) | 8,100 | |||||
Leasehold improvements |
21,131 | (10,309) | 10,822 | |||||
Assets under development |
18,773 |
- |
18,773 | |||||
$ |
840,216 |
$ |
(259,515) |
$ |
580,701 |
During the year ended December 31, 2015, interest of $86,000 (2014: $904,000; 2013: $878,000) was capitalized to the cost of assets under development. These interest costs relating to qualifying assets are capitalized at a weighted average rate of 6.27% (2014: 4.71%; 2013: 4.82%).
Additions during the year include $943,000 (2014: $2,143,0000; 2013: $2,174,000) of property, plant and equipment under capital leases.
During the year ended December 31, 2014, the Company recognized impairment loss consisted of $6,094,000 on land and improvements and $1,990,000 on the auction building which was recorded as a reduction of asset costs (note 6).
|
18. Intangible assets
As at December 31, 2015 |
Cost |
Accumulated amortization |
Net book value |
|||||
Trade names and trademarks |
$ |
800 |
$ |
- |
$ |
800 | ||
Customer relationships |
22,800 | (7,097) | 15,703 | |||||
Software |
23,269 | (5,848) | 17,421 | |||||
Software under development |
13,049 |
- |
13,049 | |||||
$ |
59,918 |
$ |
(12,945) |
$ |
46,973 |
As at December 31, 2014 |
Cost |
Accumulated amortization |
Net book value |
|||||
Trade names and trademarks |
$ |
800 |
$ |
- |
$ |
800 | ||
Customer relationships |
19,500 | (5,119) | 14,381 | |||||
Software |
11,955 | (4,886) | 7,069 | |||||
Software under development |
23,254 |
- |
23,254 | |||||
$ |
55,509 |
$ |
(10,005) |
$ |
45,504 |
At December 31, 2015, a net carrying amount of $13,849,000 (December 31, 2014: $24,054,000) included in intangible assets was not subject to amortization. During the year ended December 31, 2015, the cost of additions was reduced by $1,678,000 for recognition of tax credits (2014: $297,000; 2013: $915,000)
18. Intangible assets (continued)
During the year ended December 31, 2015, interest of $772,000 (2014: $1,258,000; 2013: $591,000) was capitalized to the cost of software under development. These interest costs relating to qualifying assets are capitalized at a weighted average rate of 6.39% (2014: 6.39%; 2013: 6.39%).
During the year ended December 31, 2015, the weighted average amortization period for all classes of intangible assets was 7.9 years (2014: 7.9 years; 2013: 8.7 years).
As at December 31, 2015, estimated annual amortization expense for the next five years ended December 31 are as follows:
2016 |
$ |
9,760 | |||
2017 |
9,255 | ||||
2018 |
8,478 | ||||
2019 |
6,958 | ||||
2020 |
4,468 | ||||
$ |
38,919 |
|
19. Goodwill
Balance, December 31, 2013 |
$ |
83,397 | |||
Foreign exchange movement |
(1,043) | ||||
Balance December 31, 2014 |
$ |
82,354 | |||
Additions (note 29) |
10,659 | ||||
Foreign exchange movement |
(1,779) | ||||
Balance, December 31, 2015 |
$ |
91,234 |
The carrying value of goodwill has been allocated to reporting units for impairment testing purposes as follows:
As at December 31, |
2015 | 2014 | |||
Core Auction |
$ |
53,303 |
$ |
44,423 | |
EquipmentOne |
37,931 | 37,931 | |||
$ |
91,234 |
$ |
82,354 |
|
20. Equity-accounted investments
The Company holds a 48% share interest in a group of companies detailed below (together, the Cura Classis entities), which have common ownership. The Cura Classis entities provide dedicated fleet management services in three jurisdictions to a common customer unrelated to the Company. The Company has determined the Cura Classis entities are variable interest entities and the Company is not the primary beneficiary, as it does not have the power to make any decisions that significantly affect the economic results of the Cura Classis entities. Accordingly, the Company accounts for its investments in the Cura Classis entities following the equity method.
20. Equity-accounted investments (continued)
A condensed summary of the Company's investments in and advances to equity-accounted investees are as follows (in thousands of U.S. dollars, except percentages):
Ownership |
As at December 31, |
|||||||
percentage |
2015 | 2014 | ||||||
Cura Classis entities |
48% |
$ |
3,487 |
$ |
3,001 | |||
Other equity investments |
32% | 3,000 |
- |
|||||
6,487 | 3,001 |
As a result of the Company’s investments, the Company is exposed to risks associated with the results of operations of the Cura Classis entities. The Company has no other business relationships with the Cura Classis entities. The Company’s maximum risk of loss associated with these entities is the investment carrying amount.
|
21. Trade and other payables
As at December 31, |
2015 | 2014 | ||
Trade payables |
$ |
38,239 |
$ |
46,757 |
Accrued liabilities |
47,193 | 45,863 | ||
Social security and sales taxes payable |
15,208 | 18,870 | ||
Net consumption taxes payable |
9,759 | 10,862 | ||
Share unit liabilities |
6,204 | 1,589 | ||
Other payables |
3,439 | 2,797 | ||
$ |
120,042 |
$ |
126,738 |
|
22. Deferred compensation arrangement
The Company established a non-qualified deferred compensation arrangement (the “Deferred Compensation Arrangement”) which is available to certain US employees. The Deferred Compensation Arrangement permits the deferral of up to 10% of base salary with the Company matching 100% of such contributions. Employees will receive the benefit, including a return on investment, on termination, retirement or other specified departures. The Company funds the deferred compensation obligations by investing in a non-qualified corporate owned life insurance policy (“COLI”), whereby funds are invested and the account balance fluctuates with the investment returns on those funds.
The expected benefit to be paid on termination of $1,030,000 (2014: $775,000) is presented in other non-current liabilities. The cash surrender value of the COLI asset of $1,138,000 (2014: $782,000) is classified within other non-current assets, with changes in the deferred compensation liability and COLI asset charged to selling, general and administrative expenses (note 6).
|
23. Debt
Carrying value |
||||||
As at December 31, |
2015 | 2014 | ||||
Short-term debt |
$ |
12,350 |
$ |
7,839 | ||
Long-term debt: |
||||||
Term loan, denominated in Canadian dollars, unsecured, bearing |
||||||
interest at 4.225%, due in quarterly installments of interest only, |
||||||
with the full amount of the principal due in May 2022. |
24,567 | 29,257 | ||||
Term loan, denominated in United States dollars, unsecured, bearing |
||||||
interest at 3.59%, due in quarterly installments of interest only, |
||||||
with the full amount of the principal due in May 2022. |
30,000 | 30,000 | ||||
Term loan, denominated in Canadian dollars, unsecured, bearing |
||||||
interest at 6.385%, due in quarterly installments of interest only, |
||||||
with the full amount of the principal due in May 2016. |
43,348 | 51,589 | ||||
97,915 | 110,846 | |||||
Total debt |
$ |
110,265 |
$ |
118,685 | ||
Total long-term debt: |
||||||
Current portion |
$ |
43,348 |
$ |
- |
||
Non-current portion |
54,567 | 110,846 | ||||
$ |
97,915 |
$ |
110,846 |
At December 31, 2015, the current portion of long-term debt consisted of a Canadian dollar 60,000,000 term loan under the Company’s uncommitted, non-revolving credit facility.
Short-term debt at December 31, 2015 is comprised of drawings in different currencies on the Company’s committed revolving credit facilities of $312,693,000 (2014: $285,000,000), and have a weighted average interest rate of 1.82% (December 31, 2014: 1.83%).
As at December 31, 2015, principal repayments for the remaining period to the contractual maturity dates are as follows:
Face value |
||||||
2016 |
$ |
55,698 | ||||
2017 |
- |
|||||
2018 |
- |
|||||
2019 |
- |
|||||
2020 |
- |
|||||
Thereafter |
54,567 | |||||
$ |
110,265 |
23. Debt (continued)
As at December 31, 2015, the Company had available committed revolving credit facilities aggregating $300,358,000, of which $212,665,000 is available until May 2018. The Company also had available uncommitted credit facilities aggregating $170,049,000, of which $127,076,000 expires November 2017. The Company has a committed seasonal bulge credit facility of $50,000,000, which is available in February, March, August and September until May 2018. This bulge credit facility is not included in the available credit facilities totals above as at December 31, 2015.
The Company is required to meet financial covenants established by its lenders. These include fixed charge coverage ratio and leverage ratio measurements. As at December 31, 2015 and 2014, the Company is in compliance with these covenants. The Company is not subject to any statutory capital requirements, and has not made any changes with respect to its overall capital management strategy during the years ended December 31, 2015 and 2014.
|
24. Equity and dividends
Share capital
Preferred stock
Unlimited number of senior preferred shares, without par value, issuable in series.
Unlimited number of junior preferred shares, without par value, issuable in series.
All issued shares are fully paid. No preferred shares have been issued.
Share repurchase
During March 2015, 1,900,000 common shares were repurchased at a weighted average share price of $24.98 per common share. The repurchased shares were cancelled on March 26, 2015.
Dividends
Declared and paid
The Company declared and paid the following dividends during the years ended December 31, 2015, 2014 and 2013:
Declaration date |
Dividend per share |
Record date |
Total dividends |
Payment date |
|||||||
Year ended December 31, 2015: |
|||||||||||
Fourth quarter 2014 |
January 12, 2015 |
$ |
0.1400 |
February 13, 2015 |
$ |
15,089 |
March 6, 2015 |
||||
First quarter 2015 |
May 7, 2015 |
0.1400 |
May 29, 2015 |
14,955 |
June 19, 2015 |
||||||
Second quarter 2015 |
August 6, 2015 |
0.1600 |
September 4, 2015 |
17,147 |
September 25, 2015 |
||||||
Third quarter 2015 |
November 5, 2015 |
0.1600 |
November 27, 2015 |
17,149 |
December 18, 2015 |
||||||
Year ended December 31, 2014: |
|||||||||||
Fourth quarter 2013 |
January 20, 2014 |
$ |
0.1300 |
February 14, 2014 |
$ |
13,915 |
March 7, 2014 |
||||
First quarter 2014 |
May 2, 2014 |
0.1300 |
May 23, 2014 |
13,942 |
June 13, 2014 |
||||||
Second quarter 2014 |
August 5, 2014 |
0.1400 |
August 22, 2014 |
15,028 |
September 12, 2014 |
||||||
Third quarter 2014 |
November 4, 2014 |
0.1400 |
November 21, 2014 |
15,044 |
December 12, 2014 |
||||||
Year ended December 31, 2013: |
|||||||||||
Fourth quarter 2012 |
January 21, 2013 |
$ |
0.1225 |
February 15, 2013 |
$ |
13,065 |
March 8, 2013 |
||||
First quarter 2013 |
April 26, 2013 |
0.1225 |
May 17, 2013 |
13,068 |
June 7, 2013 |
||||||
Second quarter 2013 |
August 1, 2013 |
0.1300 |
August 23, 2013 |
13,887 |
September 13, 2013 |
||||||
Third quarter 2013 |
November 1, 2013 |
0.1300 |
November 22, 2013 |
13,898 |
December 13, 2013 |
24. Equity and dividends (continued)
Declared and undistributed
In addition to the above dividends, since the end of the year the Directors have recommended the payment of a final dividend of $0.16 cents per common share, accumulating to a total dividend of $17,154,000. The aggregate amount of the proposed final dividend is expected to be paid out of retained earnings on March 4, 2016 to stockholders of record on February 12, 2016. This dividend payable has not been recognized as a liability in the financial statements. The payment of this dividend will not have any tax consequence for the Company.
|
26. Commitments
Commitments for expenditures
As at December 31, 2015, the Company had committed to, but not yet incurred, $1,820,000 in capital expenditures for property, plant and equipment and intangible assets (December 31, 2014: $884,000).
Operating lease commitments – the Company as lessee
The Company has entered into commercial leases for various auction sites and offices located in North America, Central America, Europe, the Middle East and Asia. The majority of these leases are non-cancellable. The Company also has further operating leases for certain motor vehicles and small office equipment where it is not in the best interest of the Company to purchase these assets.
The majority of the Company‘s operating leases have a fixed term with a remaining life between one month and 20 years with renewal options included in the contracts. The leases have varying contract terms, escalation clauses and renewal rights. There are no restrictions placed upon the lessee by entering into these leases, other than restrictions on use of property, sub-letting and alterations. In certain leases there are options to purchase; if the intention to take this option changes subsequent to the commencement of the lease, the Company re-assesses the classification of the lease as operating.
The future aggregate minimum lease payments under non-cancellable operating leases, excluding reimbursed costs to the lessor, are as follows:
2016 |
$ |
10,685 | |
2017 |
9,857 | ||
2018 |
8,823 | ||
2019 |
6,961 | ||
2020 |
5,776 | ||
Thereafter |
65,005 | ||
$ |
107,107 |
As at December 31, 2015, the total future minimum sublease payments expected to be received under non-cancellable subleases is $1,077,000 (December 31, 2014: $1,802,000). The lease expenditure charged to earnings during the year ended December 31, 2015 was $17,367,000 (2014: $18,139,000; 2013: $17,077,000).
26. Commitments (continued)
Capital lease commitments – the Company as lessee
The Company has entered into capital lease arrangements for computer and yard equipment. The majority of the leases have a fixed term with a remaining life of one month to three years with renewal options included in the contracts. In certain of these leases, the Company has the option to purchase the leased asset at fair market value at the end of the lease term.
As at December 31, 2015, the net carrying amount of computer and yard equipment under capital leases is $2,192,000 (December 31, 2014: $3,331,000), and is included in the total property, plant and equipment as disclosed on the consolidated balance sheets.
The future aggregate minimum lease payments under non-cancellable finance leases are as follows:
2016 |
$ |
1,312 | ||||||
2017 |
500 | |||||||
2018 |
254 | |||||||
2019 |
207 | |||||||
2020 |
- |
|||||||
Thereafter |
- |
|||||||
$ |
2,273 |
Assets recorded under capital leases are as follows:
As at December 31, 2015 |
Cost |
Accumulated depreciation |
Net book value |
|||||
Computer equipment |
$ |
6,080 |
$ |
(4,132) |
$ |
1,948 | ||
Yard and auto equipment |
315 | (71) | 244 | |||||
$ |
6,395 |
$ |
(4,203) |
$ |
2,192 |
As at December 31, 2014 |
Cost |
Accumulated depreciation |
Net book value |
|||||
Computer equipment |
$ |
6,081 |
$ |
(2,982) |
$ |
3,099 | ||
Yard and auto equipment |
264 | (32) | 232 | |||||
$ |
6,345 |
$ |
(3,014) |
$ |
3,331 |
|
27. Contingencies
Legal and other claims
The Company is subject to legal and other claims that arise in the ordinary course of its business. The Company does not believe that the results of these claims will have a material effect on the Company’s balance sheet or income statement.
Guarantee contracts
In the normal course of business, the Company will in certain situations guarantee to a consignor a minimum level of proceeds in connection with the sale at auction of that consignor’s equipment.
At December 31, 2015 there was $25,267,000 of industrial assets guaranteed under contract, of which 100% is expected to be sold prior to the end of May 2016 (December 31, 2014: $85,967,000 of which 100% sold prior to the end of May 2015).
27. Contingencies (continued)
Guarantee contracts (continued)
At December 31, 2015 there was $30,509,000 of agricultural assets guaranteed under contract, of which 100% is expected to be sold prior to the end of August 2016 (December 31, 2014: $15,793,000 of which 100% sold prior to the end of June 2015).
The outstanding guarantee amounts are undiscounted and before estimated proceeds from sale at auction.
|
28. Selected quarterly financial data (unaudited)
The following is a summary of selected quarterly financial information (unaudited):
Attributable to stockholders |
|||||||||||||||||
Operating |
Net |
Net |
Earnings per share |
||||||||||||||
2015 |
Revenues |
income |
income |
income |
Basic |
Diluted |
|||||||||||
First quarter |
$ |
115,618 |
$ |
33,019 |
$ |
24,110 |
$ |
23,777 |
$ |
0.22 |
$ |
0.22 | |||||
Second quarter |
155,477 | 62,795 | 45,846 | 45,083 | 0.42 | 0.42 | |||||||||||
Third quarter |
109,318 | 28,602 | 21,247 | 20,825 | 0.19 | 0.19 | |||||||||||
Fourth quarter |
135,462 | 50,424 | 47,372 | 46,529 | 0.43 | 0.43 |
Attributable to stockholders |
|||||||||||||||||
Operating |
Net |
Net |
Earnings per share |
||||||||||||||
2014 |
Revenues |
income |
income |
income |
Basic |
Diluted |
|||||||||||
First quarter |
$ |
98,588 |
$ |
19,081 |
$ |
13,435 |
$ |
13,174 |
$ |
0.12 |
$ |
0.12 | |||||
Second quarter |
141,835 | 51,773 | 37,536 | 37,008 | 0.35 | 0.34 | |||||||||||
Third quarter |
102,217 | 15,903 | 9,643 | 9,382 | 0.09 | 0.09 | |||||||||||
Fourth quarter |
138,457 | 41,170 | 31,949 | 31,417 | 0.29 | 0.29 |
|
29. Business combination
Summary of acquisition
On November 4, 2015 (the “Xcira Acquisition Date”), the Company acquired 75% of the issued and outstanding shares of Xcira LLC (“Xcira”) for cash consideration of $12,359,000. The remaining 25% interests remain with the two founders of Xcira. Xcira is a Florida-based company, incorporated in the United States and its principal activity is the provision of software and technology solutions to auction companies. By acquiring Xcira, the Company acquired information technology capability and platform to build on its strong online bidding customer experience, and further differentiate itself from other industrial auction companies.
The Company has the option to buy out the remaining interest of the Xcira sellers subject to the terms of the Xcira Purchase Agreement. The acquisition was accounted for in accordance with ASC 805. The assets acquired, liabilities assumed, and the non-controlling interest were recorded at their estimated fair values at the Xcira Acquisition Date. Full goodwill of $10,659,000 was calculated as the fair value of consideration over the estimated fair value of the net assets acquired.
29. Business combination (continued)
Xcira provisional purchase price allocation
(Amounts in thousands) |
November 4, 2015 |
|
Purchase price |
$ |
12,359 |
Non-controlling interest |
4,119 | |
Total fair value at Xcira acquisition date |
16,478 | |
Assets acquired: |
||
Cash and cash equivalents |
$ |
252 |
Trade and other receivables |
1,382 | |
Prepaid expenses |
62 | |
Property, plant and equipment |
314 | |
Other non-current assets |
11 | |
Intangible assets ~ |
4,300 | |
Liabilities assumed: |
||
Trade and other payables |
502 | |
Fair value of identifiable net assets acquired |
5,819 | |
Goodwill acquired on acquisition |
$ |
10,659 |
~Consists of existing technology and customer relationships with an amortization life of five and 20 years, respectively
The amounts included in the Xcira provisional purchase price allocation table represent the preliminary allocation of the purchase price and are subject to revision during the measurement period, a period not to exceed 12 months from the Xcira Acquisition Date. Adjustments to the preliminary values during the measurement period will be pushed back to the date of acquisition. Comparative information for periods after acquisition but before the period in which the adjustments were identified will be adjusted to reflect the effects of the adjustments as if they were taken into account as of the acquisition date. Changes to the amounts recorded as assets and liabilities will result in a corresponding adjustment to goodwill.
There was no contingent consideration under the terms of the acquisition, and as such no acquisition provisions were created.
Assets acquired and liabilities assumed
At the date of acquisition, the carrying values of the assets and liabilities acquired approximated their fair values, except intangible assets, whose fair values were determined using appropriate valuation techniques.
Goodwill
Goodwill has been allocated entirely to the Company’s Core Auction segment and based on an analysis of the fair value of assets acquired. The main drivers generating goodwill are the Company’s ability to utilize Xcira’s experience to differentiate the Company’s online bidding service from other industrial auction companies, as well as to secure Xcira’s bidding technology. Online bidding represents a significant and growing portion of all bidding conducted at the Company’s auctions.
29. Business combination (continued)
Non-controlling interests
The fair value of the 25% non-controlling interest in Xcira is estimated to be $4,119,000.
Contributed revenue and net loss
The results of Xcira’s operations are included in these consolidated financial statements from the date of acquisition. Xcira’s contribution to the Company’s revenues and net income for the period from November 4, 2015 to December 31, 2015 was $871,000 of revenues and a $270,000 net loss. Pro forma results of operations have not been presented as such pro forma financial information would not be materially different from historical results.
Transactions recognized separately from the acquisition of assets and assumptions of liabilities
Acquisition-related costs
Expenses totalling $410,000 for legal and other acquisition-related costs are included in the consolidated income statements for the year ended December 31, 2015.
Future development of internally-generated software
The Company may pay an additional amount not exceeding $2,700,000 over a two-year period upon achievement of certain conditions related to the delivery of an upgrade to its existing technology.
Employee compensation in exchange for continued services
The Company may pay an additional amount not exceeding $2,000,000 over a three-year period based on the Founder’s continuing employment with Xcira .
Assets and Liabilities at December 31, 2015
As a result of the Company’s involvement with Xcira, the Company is exposed to risks of the recovery of the net assets of Xcira.
|
30. Subsequent event
On February 19, 2016 the Company acquired 100% of the equity interests in Mascus International Holding B.V. (“Mascus”), an Amsterdam-based company which operates a global online portal for the sale and purchase of heavy equipment and vehicles for a provisional purchase price of 23,975,000 Euro ($26,600,000) subject to working capital adjustments under the terms of the agreement. Additional cash compensation, totaling no more than 3,400,000 Euro ($3,800,000), may be provided to Mascus’ former shareholders, contingent upon certain operating performance targets being achieved over the next three years.
|
Basis of preparation
These financial statements have been prepared in accordance with United States generally accepted accounting principles (“US GAAP”) and the following accounting policies have been consistently applied in the preparation of the consolidated financial statements. Previously, the Company prepared its consolidated financial statements under International Financial Reporting Standards (“IFRS”) as permitted by securities regulators in Canada, as well as in the United States under the status of a Foreign Private Issuer as defined by the United States Securities and Exchange Commission (“SEC”). At the end of the second quarter of 2015, the Company determined that it no longer qualified as a Foreign Private Issuer under the SEC rules. As a result, beginning January 1, 2016 the Company is required to report with the SEC on domestic forms and comply with domestic company rules in the United States. The transition to US GAAP was made retrospectively for all periods from the Company’s inception.
(b) Basis of consolidation
The consolidated financial statements include the accounts of the Company and its wholly-owned and non-wholly owned subsidiaries in which the Company has a controlling financial interest either through voting rights or means other than voting rights. All inter-company transactions and balances have been eliminated on consolidation. Where the Company’s ownership interest in a consolidated subsidiary is less than 100%, the non-controlling interests’ share of these non-wholly owned subsidiaries is reported in the Company’s consolidated balance sheets as a separate component of equity or within temporary equity. The non-controlling interests’ share of the net earnings of these non-wholly owned subsidiaries is reported in the Company’s consolidated income statements as a deduction from the Company’s net earnings to arrive at net earnings attributable to stockholders of the Company.
The Company consolidates variable interest entities (VIE’s) if the Company has (a) the power to direct matters that most significantly impact the VIE’s economic performance and (b) the obligation to absorb losses or the right to receive benefits of the VIE that could potentially be significant to the VIE. For VIE’s where the Company has shared power with unrelated parties, the Company uses the equity method of account to report their results. The determination of the primary beneficiary involves judgment.
Revenue recognition
Revenues are comprised of:
commissions earned at our auctions through the Company acting as an agent for consignors of equipment and other assets, as well as commissions on online marketplace sales, and
fees earned in the process of conducting auctions, fees from value-added services, as well as fees paid by buyers on online marketplace sales.
2. Significant accounting policies (continued)
(c)Revenue recognition (continued)
The Company recognizes revenue when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the price is fixed or determinable, and collectability is reasonably assured. For auction or online marketplace sales, revenue is recognized when the auction or online marketplace sale is complete and the Company has determined that the sale proceeds are collectible. Revenue is measured at the fair value of the consideration received or receivable and is shown net of value-added tax and duties.
Commissions from sales at our auctions represent the percentage earned by the Company on the gross auction proceeds from equipment and other assets sold at auction. The majority of commissions are earned as a pre-negotiated fixed rate of the gross selling price. Other commissions from sales at our auctions are earned from underwritten commission contracts, when the Company guarantees a certain level of proceeds to a consignor or purchases inventory to be sold at auction. Commissions also include those earned on online marketplace sales.
Commissions from sales at auction
The Company accepts equipment and other assets on consignment or takes title for a short period of time prior to auction, stimulates buyer interest through professional marketing techniques, and matches sellers (also known as consignors) to buyers through the auction or private sale process.
In its role as auctioneer, the Company matches buyers to sellers of equipment on consignment, as well as to inventory held by the Company, through the auction process. Following the auction, the Company invoices the buyer for the purchase price of the property, collects payment from the buyer, and where applicable, remits to the consignor the net sale proceeds after deducting its commissions, expenses and applicable taxes. Commissions are calculated as a percentage of the hammer price of the property sold at auction.
On the fall of the auctioneer’s hammer, the highest bidder becomes legally obligated to pay the full purchase price, which is the hammer price of the property purchased and the seller is legally obligated to relinquish the property in exchange for the hammer price less any seller’s commissions. Commission revenue is recognized on the date of the auction sale upon the fall of the auctioneer’s hammer, which is the point in time when the Company has substantially accomplished what it must do to be entitled to the benefits represented by the commission revenue. Subsequent to the date of the auction sale, the Company’s remaining obligations for its auction services relate only to the collection of the purchase price from the buyer and the remittance of the net sale proceeds to the seller. These remaining service obligations are not an essential part of the auction services provided by the Company.
Under the standard terms and conditions of its auction sales, the Company is not obligated to pay a consignor for property that has not been paid for by the buyer, provided that the property has not been released to the buyer. In the rare event where a buyer refuses to take title of the property, the sale is cancelled in the period in which the determination is made, and the property is returned to the consignor. Historically, cancelled sales have not been material in relation to the aggregate hammer price of property sold at auction.
Commission revenues are recorded net of commissions owed to third parties, which are principally the result of situations when the commission is shared with a consignor or with the counterparty in an auction guarantee risk and reward sharing arrangement. Additionally, in certain situations, commissions are shared with third parties who introduce the Company to consignors who sell property at auction.
2. Significant accounting policies (continued)
(c)Revenue recognition (continued)
Underwritten commission contracts can take the form of guarantee or inventory contracts. Guarantee contracts typically include a pre-negotiated percentage of the guaranteed gross proceeds plus a percentage of proceeds in excess of the guaranteed amount. If actual auction proceeds are less than the guaranteed amount, commission is reduced; if proceeds are sufficiently lower, the Company can incur a loss on the sale. Losses, if any, resulting from guarantee contracts are recorded in the period in which the relevant auction is completed. If a loss relating to a guarantee contract held at the period end to be sold after the period end is known or is probable and estimable at the financial statement reporting date, the loss is accrued in the financial statements for that period. The Company’s exposure from these guarantee contracts fluctuates over time (note 27).
Revenues related to inventory contracts are recognized in the period in which the sale is completed, title to the property passes to the purchaser and the Company has fulfilled any other obligations that may be relevant to the transaction, including, but not limited to, delivery of the property. Revenue from inventory sales is presented net of costs within revenues on the income statement, as the Company takes title only for a short period of time and the risks and rewards of ownership are not substantially different than the Company’s other underwritten commission contracts.
Fees
Fees earned in the process of conducting our auctions include administrative, documentation, and advertising fees. Fees from value-added services include financing and technology service fees. Fees also include amounts paid by buyers (a “buyer’s premium”) on online marketplace sales. Fees are recognized in the period in which the service is provided to the customer.
Share-based payments
Equity-settled share-based payments
The Company has a stock option compensation plan that provides for the award of stock options to selected employees, directors and officers of the Company. The cost of options granted is measured at the fair value of the underlying option at the grant date using the Black-Scholes option pricing model. This fair value of awards expected to vest is expensed over the respective vesting period of the individual awards on a straight-line basis with recognition of a corresponding increase to additional paid-in capital in equity. At the end of each reporting period, the Company revises its estimate of the number of equity instruments expected to vest. The impact of the revision of the original estimates, if any, is recognized in earnings, such that the consolidated expense reflects the revised estimate, with a corresponding adjustment to equity.
Any consideration paid on exercise of the options is credited to the common shares together with any related compensation recognized for the award.
Cash-settled share-based payments
The Company maintains share unit compensation plans which vest generally up to five years after grant. The Company is required to settle vested awards in cash based upon the volume weighted average price (“VWAP”) of the Company’s common shares for the twenty days prior to the vesting date or, in the case of deferred share unit (“DSU”) recipients, following cessation of service on the Board of Directors.
2. Significant accounting policies (continued)
(d)Share-based payments (continued)
Cash-settled share-based payment (continued)
The awards are classified as liability awards, measured at fair value at the date of grant and re-measured at fair value at each reporting date up to and including the settlement date. The fair value of the share unit grants is calculated on the valuation date using the 20-day volume weighted average share price of the Company‘s common shares listed on the New York Stock Exchange. The fair value of the awards is expensed over the respective vesting period of the individual awards with recognition of a corresponding liability, with changes in fair value after vesting being recognized through compensation expense. Compensation expense reflects estimates the number of instruments expected to vest.
The impacts of fair value and forfeiture estimate revisions, if any, are recognized in earnings such that the cumulative expense reflects the revised estimates, with a corresponding adjustment to the settlement liability. Short-term cash-settled share-based liabilities are presented in trade and other payables while long-term settlements are presented in non-current liabilities.
Employee share purchase plan
The Company matches employees’ contributions to the share purchase plan, which is described in more detail in note 25. The Company’s contributions are expensed as share-based compensation.
Fair value measurement
Fair value is the exit price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The Company measures financial instruments or discloses select non-financial assets at fair value at each balance sheet date. Also, fair values of financial instruments measured at amortized cost are disclosed in note 11.
The Company uses valuation techniques that are appropriate in the circumstances and for which sufficient data is available to measure fair value, maximizing the use of relevant observable inputs and minimizing the use of unobservable inputs.
All assets and liabilities for which fair value is measured or disclosed in the financial statements at fair value are categorized within a fair value hierarchy, as disclosed in note 11, based on the lowest level input that is significant to the fair value measurement or disclosure. This fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3).
For assets and liabilities that are recognized in the financial statements at fair value on a recurring basis, the Company determines whether transfers have occurred between levels in the hierarchy by re-assessing categorization at the end of each reporting period.
For the purposes of fair value disclosures, the Company has determined classes of assets and liabilities on the basis of the nature, characteristics and risks of the assets or liability and the level of the fair value hierarchy as explained above.
Foreign currency translation
The parent entity‘s presentation and functional currency is the United States dollar. The functional currency for each of the parent entity‘s subsidiaries is the currency of the primary economic environment in which the entity operates, which is usually the currency of the country of residency.
2. Significant accounting policies (continued)
(f)Foreign currency translation (continued)
Accordingly, the financial statements of the Company‘s subsidiaries that are not denominated in United States dollars have been translated into United States dollars using the exchange rate at the end of each reporting period for asset and liability amounts and the monthly average exchange rate for amounts included in the determination of earnings. Any gains or losses from the translation of asset and liability amounts are included in foreign currency translation adjustment in accumulated other comprehensive income.
In preparing the financial statements of the individual subsidiaries, transactions in currencies other than the entity‘s functional currency are recognized at the rates of exchange prevailing at the dates of the transaction. At the end of each reporting period, monetary assets and liabilities denominated in foreign currencies are retranslated at the rates prevailing at that date. Foreign currency differences arising on retranslation of monetary items are recognized in earnings. Foreign currency translation adjustment includes intra-entity foreign currency transactions that are of a long-term investment nature of $19,636,000, $18,273,000 and $12,413,000 for 2015, 2014 and 2013 respectively.
Cash and cash equivalents
Cash and cash equivalents is comprised of cash on hand, deposits with financial institutions, and other short-term, highly liquid investments with original maturity of three months or less when acquired, that are readily convertible to known amounts of cash.
Restricted cash
In certain jurisdictions, local laws require the Company to hold cash in segregated accounts, which are used to settle auction proceeds payable resulting from auctions conducted in those regions. In addition, the Company also holds cash generated from its EquipmentOne online marketplace sales in separate escrow accounts, for settlement of the respective online marketplace transactions as a part of its secured escrow service.
Trade and other receivables
Trade receivables principally include amounts due from customers as a result of auction and online marketplace transactions. The recorded amount reflects the purchase price of the item sold, including the Company’s commission. The allowance for doubtful accounts is the Company’s best estimate of the amount of probable credit losses in existing accounts receivable. The Company determines the allowance based on historical write-off experience and customer economic data. The Company reviews the allowance for doubtful accounts regularly and past due balances are reviewed for collectability. Account balances are charged against the allowance when the Company believes that the receivable will not be recovered.
Inventories
Inventory is recorded at cost and is represented by goods held for auction. Each inventory contract has been valued at the lower of cost and net realizable value.
Equity-accounted investments
Investments in entities that the Company has the ability to exercise significant influence over, but not control, are accounted for using the equity method of accounting. Under the equity method of accounting, investments are stated at initial costs and are adjusted for subsequent additional investments and the Company’s share of earnings or losses and distributions. The Company evaluates its equity-accounted investments for impairment when events or circumstances indicate that the carrying value of such investments may have experienced an other-than-temporary decline in value below their carrying value.
2. Significant accounting policies (continued)
(k) Equity accounted investments (continued
If the estimated fair value is less than the carrying value and is considered an other than temporary decline, the carrying value is written down to its estimated fair value and the resulting impairment is recorded in the consolidated income statement.
(l) Property, plant and equipment
All property, plant and equipment are stated at cost less accumulated depreciation. Cost includes all expenditures that are directly attributable to the acquisition or development of the asset, net of any amounts received in relation to those assets, including scientific research and experimental discovery tax credits. The cost of self-constructed assets includes the cost of materials and direct labour, any other costs directly attributable to bringing the assets to working condition for their intended use, the costs of dismantling and removing items and restoring the site on which they are located (if applicable) and capitalized interest on qualifying assets. Subsequent costs are included in the asset’s carrying amount or recognized as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Company and the cost of the item can be measured reliably.
All repairs and maintenance costs are charged to earnings during the financial period in which they are incurred. Gains and losses on disposal of an item of property, plant and equipment are determined by comparing the proceeds from disposal with the carrying amount of the item, and are recognized net within operating income on the income statement.
Depreciation is provided to charge the cost of the assets to operations over their estimated useful lives based on their usage as follows:
Asset |
Basis |
Rate / term |
||
Land improvements |
Declining balance |
10% | ||
Buildings |
Straight-line |
15 - 30 years |
||
Yard equipment |
Declining balance |
20 - 30% |
||
Automotive equipment |
Declining balance |
30% | ||
Computer software and equipment |
Straight-line |
3 - 5 years |
||
Office equipment |
Declining balance |
20% | ||
Leasehold improvements |
Straight-line |
Lesser of lease term or economic life |
No depreciation is provided on freehold land or on assets in the course of construction or development. Depreciation of property, plant and equipment under capital leases is recorded in depreciation expense.
Legal obligations to retire and to restore property, plant and equipment and assets under operating leases are recorded at management‘s best estimate in the period in which they are incurred, if a reasonable estimate can be made, with a corresponding increase in asset carrying value. The liability is accreted to face value over the remaining estimated useful life of the asset. The Company does not have any significant asset retirement obligations.
Long-lived assets held for sale
Long-lived assets, or disposal groups comprising assets and liabilities, that are expected to be recovered primarily through sale rather than through continuing use, are classified as assets held for sale. Immediately before classification as held for sale, the assets, or components of a disposal group, are measured at carrying amount in accordance with the Company’s accounting policies. Thereafter the assets, or disposal group, are measured at the lower of their carrying amount and fair value less cost to sell and are not depreciated. Impairment losses on initial classification as held for sale and subsequent gains or losses on re-measurement are recognized in operating income on the income statement.
(n) Intangible assets
Intangible assets have finite useful lives and are measured at cost less accumulated amortization and accumulated impairment losses, except trade names and trademarks as they have indefinite useful lives. Cost includes all expenditures that are directly attributable to the acquisition or development of the asset, net of any amounts received in relation to those assets, including scientific research and experimental development tax credits.
Costs of internally developed software are amortized on a straight-line basis over the remaining estimated economic life of the software product.
Costs related to software incurred prior to establishing technological feasibility or the beginning of the application development stage of software are charged to operations as such costs are incurred. Once technological feasibility is established or the application development stage has begun, directly attributable costs are capitalized until the software is available for use.
Amortization is recognized in net earnings on a straight-line basis over the estimated useful lives of intangible assets from the date that they are available for use. The estimated useful lives are:
Asset |
Basis |
Rate / term |
||
Customer relationships |
Straight-line |
10 - 20 years |
||
Software assets |
Straight-line |
3 - 5 years |
Amortization of intangible assets under capital leases has been recorded in amortization expense.
Impairment of long-lived assets
Long-lived assets, comprised of property, plant and equipment and intangibles subject to amortization, are assessed for impairment whenever events or circumstances indicate that their carrying value may not be recoverable. For the purpose of impairment testing, long-lived assets are grouped and tested for recoverability at the lowest level that generates independent cash flows. An impairment loss is recognized when the carrying value of the assets or asset groups is greater than the future projected undiscounted cash flows. The impairment loss is calculated as the excess of the carrying value over the fair value of the asset or asset group. Fair value is based on valuation techniques or third party appraisals. Significant estimates and judgments are applied in determining these cash flows and fair values.
Goodwill
Goodwill represents the excess of the purchase price of an acquired enterprise over the fair value assigned to assets acquired and liabilities assumed in a business combination. Goodwill is allocated to either the Core Auction or EquipmentOne reporting unit.
Goodwill is not amortized, but it is tested annually for impairment at the reporting unit level as of December 31 and between annual tests if indicators of potential impairment exist. The first step of the impairment test for goodwill is an assessment of qualitative factors to determine the existence of events or circumstances that would indicate whether it is more likely than not that the carrying amount of the reporting unit to which goodwill belongs is less than its fair value. If the qualitative test indicates it is not more likely than not that the reporting unit’s carrying amount is less than its fair value, a quantitative assessment is not required.
2. Significant accounting policies (continued)
(p)Goodwill (continued)
Where a quantitative assessment is required the next step is to compare the fair value of the reporting unit to the reporting unit’s carrying value. The fair value calculated in the impairment test is determined using a discounted cash flow or another model involving assumptions that are based upon what we believe a hypothetical marketplace participant would use in estimating fair value on the measurement date. In developing these assumptions, we compare the resulting estimated enterprise value to our observable market enterprise value. If the fair value of the reporting unit is lower than the reporting unit’s carrying value an impairment loss is recognized for any amount by which the carrying value of goodwill exceeds its implied fair value.
Deferred financing costs
Deferred financing costs represent the unamortized costs incurred on issuance of the Company’s credit facilities. Amortization of deferred financing costs on credit facilities is provided on the effective interest rate method over the term of the facility based on amounts available under the facilities. Deferred financing costs related to the issuance of debt are presented in the consolidated balance sheet as a direct reduction of the carrying amount of the long-term debt.
(r) Taxes
Income tax expense represents the sum of current tax expense and deferred tax expense.
Current tax
The current tax expense is based on taxable profit for the period and includes any adjustments to tax payable in respect of previous years. Taxable profit differs from earnings before income taxes as reported in the consolidated income statement because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Company‘s liability for current tax is calculated using tax rates that have been enacted by the balance sheet date.
Deferred tax
Income taxes are accounted for using the asset and liability method. Deferred income tax assets and liabilities are based on temporary differences (differences between the accounting basis and the tax basis of the assets and liabilities) and non-capital loss, capital loss, and tax credits carryforwards are measured using the enacted tax rates and laws expected to apply when these differences reverse. Deferred tax benefits, including non-capital loss, capital loss, and tax credits carry-forwards, are recognized to the extent that realization of such benefits is considered more likely than not. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in earnings in the period that enactment occurs. When realization of deferred income tax assets does not meet the more-likely-than-not criterion for recognition, a valuation allowance is provided.
Interest and penalties related to income taxes, including unrecognized tax benefits, are recorded in income tax expense in the income statement.
Liabilities for uncertain tax positions are recorded based on a two-step process. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount that is more than 50% likely of being realized upon settlement. The Company regularly assesses the potential outcomes of examinations by tax authorities in determining the adequacy of our provision for income taxes. The Company continually assesses the likelihood and amount of potential adjustments and adjust the income tax provision, income taxes payable and deferred taxes in the period in which the facts that give rise to a revision become known.
(s) Contingently redeemable non-controlling interest
Contingently redeemable equity instruments are initially recorded at their fair value on the date of issue within temporary equity on the balance sheet. When the equity instruments become redeemable or redemption is probable, the Company recognizes changes in the estimated redemption value immediately as they occur, and adjusts the carrying amount of the redeemable equity instrument to equal the estimated redemption value at the end of each reporting period. Changes to the carrying value are charged or credited to retained earnings attributable to stockholders on the balance sheet.
Redemption value determinations require high levels of judgment (“Level 3” on the fair value hierarchy) and are based on various valuation techniques, including market comparables and discounted cash flow projections.
Earnings per share
Basic earnings per share has been calculated by dividing the net income for the year attributable to equity holders of the parent by the weighted average number of common shares outstanding. Diluted earnings per share has been calculated after giving effect to outstanding dilutive options calculated by adjusting the net earnings attributable to equity holders of the parent and the weighted average number of shares outstanding for all dilutive shares.
Defined contribution plans
The employees of the Company are members of retirement benefit plans to which the Company matches up to a specified percentage of employee contributions or, in certain jurisdictions, contributes a specified percentage of payroll costs as mandated by the local authorities. The only obligation of the Company with respect to the retirement benefit plans is to make the specified contributions.
Advertising costs
Advertising costs are expensed as incurred. Advertising expense is included in direct expenses and selling, general and administrative expense on the accompanying consolidated statements of operations.
(w) Early adoption of new accounting pronouncements
(i)The Company early adopted Accounting Standards Update (“ASU”) 2015-11, Inventory (Topic 330): Simplifying the Measurement of Inventory, which requires the Company to measure inventory at the lower of cost or net realizable value, which consists of the estimated selling prices in the ordinary course of business, less reasonably predictable cost of completions, disposal, and transportation. The adoption of this standard did not have an impact on the Company’s consolidated financial statements.
(ii)November 2015, the Financial Accounting Standards Board, (“FASB”) issued ASU 2015-17, Balance Sheet Classification of Deferred Taxes, amending the accounting for income taxes and requiring all deferred tax assets and liabilities to be classified as non-current on the consolidated balance sheet. The ASU is effective for reporting periods beginning after December 15, 2016, with early adoption permitted. The ASU may be adopted either prospectively or retrospectively. This standard was adopted retrospectively in the Company’s consolidated financial statements.
(iii)In April 2015, the FASB issued ASU 2015-03, Interest – Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs. ASU 2015-03 requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. ASU 2015-03 is effective for interim and annual periods beginning after
December 15, 2015. This standard was adopted retrospectively in the Company’s consolidated financial statements.
(x) Recent accounting pronouncements not yet adopted
(i)In July 2015, FASB, delayed the effective date of ASU 2014-09, Revenue from Contracts with Customers by one year. Reporting entities may choose to adopt the standard as of the original effective date. Based on its outreach to various stakeholders and the forthcoming amendments to ASU 2014-09, the FASB decided that a deferral is necessary to provide adequate time to effectively implement the new revenue standard. ASU 2014-09 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017. The Company is evaluating the new guidance to determine the impact it will have on its consolidated financial statements.
(ii)In February 2015, the FASB issued ASU 2015-02, Consolidation – Amendments to the Consolidation Analysis. ASU 2015-02 changes the evaluation of whether limited partnerships, and similar legal entities, are variable interest entities, or VIEs, and eliminates the presumption that a general partner should consolidate a limited partnership that is a voting interest entity. The new guidance also alters the analysis for determining when fees paid to a decision maker or service provider represent a variable interest in a VIE and how interests of related parties affect the primary beneficiary determination. ASU 2015-02 is effective for fiscal years and interim periods within those fiscal years, beginning after December 15, 2015. The new standard allows early adoption, including early adoption in an interim period. The Company is evaluating the new guidance to determine the impact it will have on its consolidated financial statements.
(iii)In September 2015, the FASB issued ASU 2015-16, Simplifying the Accounting for Measurement-Period Adjustments. The update requires that an acquirer recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined. The standard is effective for fiscal years beginning after December 15, 2015. Early application is permitted. The Company is currently evaluating the impact of the new guidance on its consolidated financial statements
|
Asset |
Basis |
Rate / term |
||
Land improvements |
Declining balance |
10% | ||
Buildings |
Straight-line |
15 - 30 years |
||
Yard equipment |
Declining balance |
20 - 30% |
||
Automotive equipment |
Declining balance |
30% | ||
Computer software and equipment |
Straight-line |
3 - 5 years |
||
Office equipment |
Declining balance |
20% | ||
Leasehold improvements |
Straight-line |
Lesser of lease term or economic life |
Asset |
Basis |
Rate / term |
||
Customer relationships |
Straight-line |
10 - 20 years |
||
Software assets |
Straight-line |
3 - 5 years |
|
Core |
Equipment- |
||||||||
Year ended December 31, 2015 |
Auction |
One |
Consolidated |
||||||
Revenues |
$ |
500,764 |
$ |
15,111 |
$ |
515,875 | |||
Direct expenses, excluding |
|||||||||
depreciation and amortization |
(56,026) |
- |
(56,026) | ||||||
Selling, general and administrative expenses |
(241,274) | (13,716) | (254,990) | ||||||
Depreciation and amortization expenses |
(39,016) | (3,016) | (42,032) | ||||||
$ |
164,448 |
$ |
(1,621) |
$ |
162,827 | ||||
Gain on disposition of property, |
|||||||||
plant and equipment |
9,691 | ||||||||
Foreign exchange gain |
2,322 | ||||||||
Operating income |
$ |
174,840 | |||||||
Equity income |
916 | ||||||||
Other and income tax expenses |
(37,181) | ||||||||
Net income |
$ |
138,575 |
Core |
Equipment- |
||||||||
Year ended December 31, 2014 |
Auction |
One |
Consolidated |
||||||
Revenues |
$ |
467,919 |
$ |
13,178 |
$ |
481,097 | |||
Direct expenses, excluding |
|||||||||
depreciation and amortization |
(57,884) |
- |
(57,884) | ||||||
Selling, general and administrative expenses |
(233,438) | (14,782) | (248,220) | ||||||
Depreciation and amortization expenses |
(40,872) | (3,664) | (44,536) | ||||||
Impairment loss |
(8,084) |
- |
(8,084) | ||||||
$ |
127,641 |
$ |
(5,268) |
$ |
122,373 | ||||
Gain on disposition of property, |
|||||||||
plant and equipment |
3,512 | ||||||||
Foreign exchange gain |
2,042 | ||||||||
Operating income |
$ |
127,927 | |||||||
Equity income |
458 | ||||||||
Other and income tax expenses |
(35,822) | ||||||||
Net income |
$ |
92,563 |
4. Segmented information (continued)
Core |
Equipment- |
||||||||
Year ended December 31, 2013 |
Auction |
One |
Consolidated |
||||||
Revenues |
$ |
453,994 |
$ |
13,409 |
$ |
467,403 | |||
Direct expenses, excluding |
|||||||||
depreciation and amortization |
(54,008) |
- |
(54,008) | ||||||
Selling, general and administrative expenses |
(227,402) | (16,334) | (243,736) | ||||||
Depreciation and amortization expenses |
(39,578) | (3,702) | (43,280) | ||||||
$ |
133,006 |
$ |
(6,627) |
$ |
126,379 | ||||
Gain on disposition of property, |
|||||||||
plant and equipment |
10,552 | ||||||||
Foreign exchange gain |
28 | ||||||||
Operating income |
$ |
136,959 | |||||||
Equity income |
405 | ||||||||
Other and income tax expenses |
(42,919) | ||||||||
Net income |
$ |
94,445 |
United |
Canada |
Europe |
Other |
Consolidated |
||||||
Revenues for the year ended: |
||||||||||
December 31, 2015 |
$ |
257,824 |
$ |
166,528 |
$ |
48,419 |
$ |
43,104 |
$ |
515,875 |
December 31, 2014 |
223,770 | 154,392 | 58,782 | 44,153 | 481,097 | |||||
December 31, 2013 |
224,214 | 135,545 | 65,016 | 42,628 | 467,403 |
United |
Canada |
Europe |
Other |
Consolidated |
|||||||
Long-lived assets: |
|||||||||||
December 31, 2015 |
$ |
289,126 |
$ |
106,924 |
$ |
79,578 |
$ |
52,963 |
$ |
528,591 | |
December 31, 2014 |
302,189 | 126,396 | 91,592 | 60,524 | 580,701 |
|
Year ended December 31, |
||||||||
Year ended December 31, |
2015 | 2014 | 2013 | |||||
Commissions |
$ |
405,308 |
$ |
379,340 |
$ |
374,107 | ||
Fees |
110,567 | 101,757 | 93,296 | |||||
$ |
515,875 |
$ |
481,097 |
$ |
467,403 |
Year ended December 31, |
||||||||
Year ended December 31, |
2015 | 2014 | 2013 | |||||
Revenue from inventory sales |
$ |
555,827 |
$ |
758,437 |
$ |
634,498 | ||
Cost of inventory sold |
(511,892) | (709,072) | (571,993) | |||||
$ |
43,935 |
$ |
49,365 |
$ |
62,505 |
|
Year ended December 31, |
2015 | 2014 | 2013 | |||||
Employee compensation expenses |
$ |
22,855 |
$ |
22,857 |
$ |
20,755 | ||
Buildings and facilities expenses |
7,179 | 7,609 | 7,510 | |||||
Travel, advertising and promotion expenses |
22,150 | 23,006 | 22,077 | |||||
Other direct expenses ( net of recoveries) |
3,842 | 4,412 | 3,666 | |||||
$ |
56,026 |
$ |
57,884 |
$ |
54,008 |
Year ended December 31, |
2015 | 2014 | 2013 | |||||
Employee compensation expenses |
$ |
166,418 |
$ |
159,398 |
$ |
158,448 | ||
Buildings and facilities expenses |
41,404 | 41,725 | 40,820 | |||||
Travel, advertising and promotion expenses |
22,307 | 22,454 | 20,728 | |||||
Other SG&A expenses |
24,861 | 24,643 | 23,740 | |||||
$ |
254,990 |
$ |
248,220 |
$ |
243,736 |
Year ended December 31, |
2015 | 2014 | 2013 | ||||||
Depreciation expense |
$ |
35,374 |
$ |
39,966 |
$ |
39,655 | |||
Amortization expense |
6,658 | 4,570 | 3,625 | ||||||
$ |
42,032 |
$ |
44,536 |
$ |
43,280 |
Year ended December 31, |
2015 | 2014 | 2013 | |||||
Wages, salaries and other benefits |
$ |
139,878 |
$ |
136,650 |
$ |
137,346 | ||
Social security costs |
10,692 | 11,067 | 10,931 | |||||
Defined contribution plans |
3,794 | 3,378 | 3,867 | |||||
Share-based payment expenses |
11,006 | 10,846 | 8,266 | |||||
Profit-sharing and bonuses |
23,903 | 14,781 | 18,793 | |||||
Termination benefits |
- |
5,533 |
- |
|||||
$ |
189,273 |
$ |
182,255 |
$ |
179,203 |
|
Year ended December 31, |
2015 | 2014 | 2013 | |||||
Income before income taxes |
$ |
176,436 |
$ |
129,038 |
$ |
134,755 | ||
Statutory federal and provincial tax |
||||||||
rate in Canada |
26.00% | 26.00% | 25.75% | |||||
Expected income tax expense |
$ |
45,873 |
$ |
33,550 |
$ |
34,699 | ||
Non-deductible expenses |
2,579 | 2,392 | 2,396 | |||||
Sale of capital property |
(1,291) | (407) |
- |
|||||
Changes in valuation allowance |
(5,828) | 7,083 | 4,512 | |||||
Different tax rates of subsidiaries |
||||||||
operating in foreign jurisdictions |
(3,426) | (4,773) | (2,798) | |||||
Other |
(46) | (1,370) | 1,501 | |||||
$ |
37,861 |
$ |
36,475 |
$ |
40,310 |
Year ended December 31, |
2015 | 2014 | 2013 | |||||
Canadian: |
||||||||
Current tax expense |
$ |
27,623 |
$ |
21,712 |
$ |
21,824 | ||
Deferred tax expense |
1,880 | 1,680 | 324 | |||||
Foreign: |
||||||||
Current tax expense before application |
||||||||
of operating loss carryforwards |
16,707 | 12,236 | 15,712 | |||||
Tax benefit of operating loss carryforwards |
(1,910) | (627) | (627) | |||||
Total foreign current tax expense |
14,797 | 11,609 | 15,085 | |||||
Deferred tax expense before adjustment |
||||||||
to opening valuation allowance |
(273) | 1,474 | 3,077 | |||||
Adjustment to opening valuation allowance |
(6,166) |
- |
- |
|||||
Total foreign deferred tax expense |
(6,439) | 1,474 | 3,077 | |||||
$ |
37,861 |
$ |
36,475 |
$ |
40,310 |
As at December 31, |
2015 | 2014 | |||
Deferred tax assets: |
|||||
Working capital |
$ |
4,082 |
$ |
1,518 | |
Property, plant and equipment |
5,236 | 4,287 | |||
Goodwill |
286 | 447 | |||
Share-based compensation |
3,243 | 1,635 | |||
Unused tax losses |
17,079 | 20,798 | |||
Other |
14,704 | 18,061 | |||
44,630 | 46,746 | ||||
Deferred tax liabilities: |
|||||
Property, plant and equipment |
$ |
(11,292) |
$ |
(14,255) | |
Goodwill |
(12,587) | (12,549) | |||
Intangible assets |
(9,370) | (7,425) | |||
Other |
(17,308) | (17,812) | |||
(50,557) | (52,041) | ||||
Net deferred tax assets (liabilities) |
$ |
(5,927) |
$ |
(5,295) | |
Valuation allowance |
(11,781) | (18,906) | |||
$ |
(17,708) |
$ |
(24,201) |
2016 |
$ |
35 | |||
2017 |
758 | ||||
2018 |
270 | ||||
2019 |
2,385 | ||||
2020 and thereafter |
47,239 | ||||
50,687 |
As at December 31, |
2015 | 2014 | |||
Unrecognized tax benefits, beginning of year |
$ |
16,131 |
$ |
17,919 | |
Increases - tax positions taken in prior period |
800 | 292 | |||
Decreases - tax positions taken in prior period |
(30) | (3,866) | |||
Increases - tax positions taken in current period |
1,770 | 2,121 | |||
Settlement and lapse of statute of limitations |
(2,767) | (335) | |||
Unrecognized tax benefits, end of year |
$ |
15,904 |
$ |
16,131 |
|
Year ended December 31, |
2015 | 2014 | 2013 | |||||
Restricted cash |
$ |
(102) |
$ |
22,347 |
$ |
(41,001) | ||
Trade and other receivables |
12,757 | (113) | (9,163) | |||||
Inventory |
(17,635) | 4,109 | 8,905 | |||||
Advances against auction contracts |
20,804 | (14,230) | (4,843) | |||||
Prepaid expenses and deposits |
(307) | (3,873) | 6,818 | |||||
Income taxes receivable |
742 | (958) | 5,485 | |||||
Auction proceeds payable |
5,151 | (3,855) | 40,246 | |||||
Trade and other payables |
(7,654) | 13,826 | 901 | |||||
Income taxes payable |
3,481 | 2,408 | 2,482 | |||||
Share unit liabilities |
5,397 | 5,699 | 2,460 | |||||
Other |
2,398 | (4,810) | (1,773) | |||||
Net changes in operating assets and liabilities |
$ |
25,032 |
$ |
20,550 |
$ |
10,517 |
Year ended December 31, |
2015 | 2014 | 2013 | |||||
Interest paid, net of interest capitalized |
$ |
4,989 |
$ |
4,823 |
$ |
8,251 | ||
Interest received |
2,657 | 2,218 | 2,401 | |||||
Net income taxes paid |
34,661 | 29,089 | 27,738 | |||||
Non-cash transactions: |
||||||||
Non-cash purchase of property, plant |
||||||||
and equipment under capital lease |
943 | 2,143 | 2,174 |
|
December 31, 2015 |
December 31, 2014 |
||||||||||||
Category |
Carrying amount |
Fair value |
Carrying amount |
Fair value |
|||||||||
Fair vales disclosed, recurring: |
|||||||||||||
Cash and cash equivalents |
Level 1 |
$ |
210,148 |
$ |
210,148 |
$ |
139,815 |
$ |
139,815 | ||||
Restricted cash |
Level 1 |
83,098 | 83,098 | 93,274 | 93,274 | ||||||||
Short-term debt (note 23) |
Level 2 |
12,350 | 12,350 | 7,839 | 7,839 | ||||||||
Current portion of long- |
|||||||||||||
term debt (note 23) |
Level 2 |
43,348 | 43,348 |
- |
- |
||||||||
Long-term debt (note 23) |
Level 2 |
54,567 | 56,126 | 110,846 | 114,532 | ||||||||
Fair value measurements, non-recurring: |
|||||||||||||
Japanese assets: |
|||||||||||||
Land and improvements (note 6) |
Level 3 |
$ |
14,346 |
$ |
N/A |
$ |
14,719 |
$ |
16,150 | ||||
Auction building (note 6) |
Level 3 |
4,149 |
N/A |
4,368 | 4,779 |
|
As at December 31, |
2015 | 2014 | ||
Trade receivables |
$ |
50,388 |
$ |
60,642 |
Consumption taxes receivable |
8,178 | 13,872 | ||
Other receivables |
846 | 1,548 | ||
$ |
59,412 |
$ |
76,062 |
|
As at December 31, |
2015 | 2014 | ||
Prepaid expenses |
$ |
10,347 |
$ |
10,583 |
Refundable deposits |
710 | 1,004 | ||
$ |
11,057 |
$ |
11,587 |
|
Balance, December 31, 2012 |
$ |
958 | ||
Reclassified from property, plant and equipment |
2,839 | |||
Disposal |
(958) | |||
Balance, December 31, 2013 |
$ |
2,839 | ||
Reclassified from property, plant and equipment |
1,636 | |||
Disposal |
(2,803) | |||
Other |
(4) | |||
Balance, December 31, 2014 |
$ |
1,668 | ||
Reclassified from property, plant and equipment |
2,719 | |||
Site preparation costs |
1,079 | |||
Disposal |
(4,624) | |||
Foreign exchange movement |
(213) | |||
Balance, December 31, 2015 |
$ |
629 |
|
As at December 31, 2015 |
Cost |
Accumulated depreciation |
Net book value |
|||||
Land and improvements |
$ |
356,905 |
$ |
(54,551) |
$ |
302,354 | ||
Buildings |
254,760 | (82,100) | 172,660 | |||||
Yard and automotive equipment |
59,957 | (38,848) | 21,109 | |||||
Computer software and equipment |
60,586 | (50,754) | 9,832 | |||||
Office equipment |
22,432 | (15,660) | 6,772 | |||||
Leasehold improvements |
20,893 | (12,160) | 8,733 | |||||
Assets under development |
7,131 |
- |
7,131 | |||||
$ |
782,664 |
$ |
(254,073) |
$ |
528,591 |
17. Property, plant and equipment (continued)
As at December 31, 2014 |
Cost |
Accumulated depreciation |
Net book value |
|||||
Land and improvements |
$ |
357,796 |
$ |
(50,235) |
$ |
307,561 | ||
Buildings |
269,912 | (78,370) | 191,542 | |||||
Yard and automotive equipment |
67,226 | (39,284) | 27,942 | |||||
Computer software and equipment |
81,739 | (65,778) | 15,961 | |||||
Office equipment |
23,639 | (15,539) | 8,100 | |||||
Leasehold improvements |
21,131 | (10,309) | 10,822 | |||||
Assets under development |
18,773 |
- |
18,773 | |||||
$ |
840,216 |
$ |
(259,515) |
$ |
580,701 |
|
As at December 31, 2015 |
Cost |
Accumulated amortization |
Net book value |
|||||
Trade names and trademarks |
$ |
800 |
$ |
- |
$ |
800 | ||
Customer relationships |
22,800 | (7,097) | 15,703 | |||||
Software |
23,269 | (5,848) | 17,421 | |||||
Software under development |
13,049 |
- |
13,049 | |||||
$ |
59,918 |
$ |
(12,945) |
$ |
46,973 |
As at December 31, 2014 |
Cost |
Accumulated amortization |
Net book value |
|||||
Trade names and trademarks |
$ |
800 |
$ |
- |
$ |
800 | ||
Customer relationships |
19,500 | (5,119) | 14,381 | |||||
Software |
11,955 | (4,886) | 7,069 | |||||
Software under development |
23,254 |
- |
23,254 | |||||
$ |
55,509 |
$ |
(10,005) |
$ |
45,504 |
2016 |
$ |
9,760 | |||
2017 |
9,255 | ||||
2018 |
8,478 | ||||
2019 |
6,958 | ||||
2020 |
4,468 | ||||
$ |
38,919 |
|
Balance, December 31, 2013 |
$ |
83,397 | |||
Foreign exchange movement |
(1,043) | ||||
Balance December 31, 2014 |
$ |
82,354 | |||
Additions (note 29) |
10,659 | ||||
Foreign exchange movement |
(1,779) | ||||
Balance, December 31, 2015 |
$ |
91,234 |
As at December 31, |
2015 | 2014 | |||
Core Auction |
$ |
53,303 |
$ |
44,423 | |
EquipmentOne |
37,931 | 37,931 | |||
$ |
91,234 |
$ |
82,354 |
|
Ownership |
As at December 31, |
|||||||
percentage |
2015 | 2014 | ||||||
Cura Classis entities |
48% |
$ |
3,487 |
$ |
3,001 | |||
Other equity investments |
32% | 3,000 |
- |
|||||
6,487 | 3,001 |
|
Carrying value |
||||||
As at December 31, |
2015 | 2014 | ||||
Short-term debt |
$ |
12,350 |
$ |
7,839 | ||
Long-term debt: |
||||||
Term loan, denominated in Canadian dollars, unsecured, bearing |
||||||
interest at 4.225%, due in quarterly installments of interest only, |
||||||
with the full amount of the principal due in May 2022. |
24,567 | 29,257 | ||||
Term loan, denominated in United States dollars, unsecured, bearing |
||||||
interest at 3.59%, due in quarterly installments of interest only, |
||||||
with the full amount of the principal due in May 2022. |
30,000 | 30,000 | ||||
Term loan, denominated in Canadian dollars, unsecured, bearing |
||||||
interest at 6.385%, due in quarterly installments of interest only, |
||||||
with the full amount of the principal due in May 2016. |
43,348 | 51,589 | ||||
97,915 | 110,846 | |||||
Total debt |
$ |
110,265 |
$ |
118,685 | ||
Total long-term debt: |
||||||
Current portion |
$ |
43,348 |
$ |
- |
||
Non-current portion |
54,567 | 110,846 | ||||
$ |
97,915 |
$ |
110,846 |
Face value |
||||||
2016 |
$ |
55,698 | ||||
2017 |
- |
|||||
2018 |
- |
|||||
2019 |
- |
|||||
2020 |
- |
|||||
Thereafter |
54,567 | |||||
$ |
110,265 |
|
Declaration date |
Dividend per share |
Record date |
Total dividends |
Payment date |
|||||||
Year ended December 31, 2015: |
|||||||||||
Fourth quarter 2014 |
January 12, 2015 |
$ |
0.1400 |
February 13, 2015 |
$ |
15,089 |
March 6, 2015 |
||||
First quarter 2015 |
May 7, 2015 |
0.1400 |
May 29, 2015 |
14,955 |
June 19, 2015 |
||||||
Second quarter 2015 |
August 6, 2015 |
0.1600 |
September 4, 2015 |
17,147 |
September 25, 2015 |
||||||
Third quarter 2015 |
November 5, 2015 |
0.1600 |
November 27, 2015 |
17,149 |
December 18, 2015 |
||||||
Year ended December 31, 2014: |
|||||||||||
Fourth quarter 2013 |
January 20, 2014 |
$ |
0.1300 |
February 14, 2014 |
$ |
13,915 |
March 7, 2014 |
||||
First quarter 2014 |
May 2, 2014 |
0.1300 |
May 23, 2014 |
13,942 |
June 13, 2014 |
||||||
Second quarter 2014 |
August 5, 2014 |
0.1400 |
August 22, 2014 |
15,028 |
September 12, 2014 |
||||||
Third quarter 2014 |
November 4, 2014 |
0.1400 |
November 21, 2014 |
15,044 |
December 12, 2014 |
||||||
Year ended December 31, 2013: |
|||||||||||
Fourth quarter 2012 |
January 21, 2013 |
$ |
0.1225 |
February 15, 2013 |
$ |
13,065 |
March 8, 2013 |
||||
First quarter 2013 |
April 26, 2013 |
0.1225 |
May 17, 2013 |
13,068 |
June 7, 2013 |
||||||
Second quarter 2013 |
August 1, 2013 |
0.1300 |
August 23, 2013 |
13,887 |
September 13, 2013 |
||||||
Third quarter 2013 |
November 1, 2013 |
0.1300 |
November 22, 2013 |
13,898 |
December 13, 2013 |
|
2016 |
$ |
10,685 | |
2017 |
9,857 | ||
2018 |
8,823 | ||
2019 |
6,961 | ||
2020 |
5,776 | ||
Thereafter |
65,005 | ||
$ |
107,107 |
2016 |
$ |
1,312 | ||||||
2017 |
500 | |||||||
2018 |
254 | |||||||
2019 |
207 | |||||||
2020 |
- |
|||||||
Thereafter |
- |
|||||||
$ |
2,273 |
As at December 31, 2015 |
Cost |
Accumulated depreciation |
Net book value |
|||||
Computer equipment |
$ |
6,080 |
$ |
(4,132) |
$ |
1,948 | ||
Yard and auto equipment |
315 | (71) | 244 | |||||
$ |
6,395 |
$ |
(4,203) |
$ |
2,192 |
As at December 31, 2014 |
Cost |
Accumulated depreciation |
Net book value |
|||||
Computer equipment |
$ |
6,081 |
$ |
(2,982) |
$ |
3,099 | ||
Yard and auto equipment |
264 | (32) | 232 | |||||
$ |
6,345 |
$ |
(3,014) |
$ |
3,331 |
|
Attributable to stockholders |
|||||||||||||||||
Operating |
Net |
Net |
Earnings per share |
||||||||||||||
2015 |
Revenues |
income |
income |
income |
Basic |
Diluted |
|||||||||||
First quarter |
$ |
115,618 |
$ |
33,019 |
$ |
24,110 |
$ |
23,777 |
$ |
0.22 |
$ |
0.22 | |||||
Second quarter |
155,477 | 62,795 | 45,846 | 45,083 | 0.42 | 0.42 | |||||||||||
Third quarter |
109,318 | 28,602 | 21,247 | 20,825 | 0.19 | 0.19 | |||||||||||
Fourth quarter |
135,462 | 50,424 | 47,372 | 46,529 | 0.43 | 0.43 |
Attributable to stockholders |
|||||||||||||||||
Operating |
Net |
Net |
Earnings per share |
||||||||||||||
2014 |
Revenues |
income |
income |
income |
Basic |
Diluted |
|||||||||||
First quarter |
$ |
98,588 |
$ |
19,081 |
$ |
13,435 |
$ |
13,174 |
$ |
0.12 |
$ |
0.12 | |||||
Second quarter |
141,835 | 51,773 | 37,536 | 37,008 | 0.35 | 0.34 | |||||||||||
Third quarter |
102,217 | 15,903 | 9,643 | 9,382 | 0.09 | 0.09 | |||||||||||
Fourth quarter |
138,457 | 41,170 | 31,949 | 31,417 | 0.29 | 0.29 |
|
(Amounts in thousands) |
November 4, 2015 |
|
Purchase price |
$ |
12,359 |
Non-controlling interest |
4,119 | |
Total fair value at Xcira acquisition date |
16,478 | |
Assets acquired: |
||
Cash and cash equivalents |
$ |
252 |
Trade and other receivables |
1,382 | |
Prepaid expenses |
62 | |
Property, plant and equipment |
314 | |
Other non-current assets |
11 | |
Intangible assets ~ |
4,300 | |
Liabilities assumed: |
||
Trade and other payables |
502 | |
Fair value of identifiable net assets acquired |
5,819 | |
Goodwill acquired on acquisition |
$ |
10,659 |
|
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