RITCHIE BROS AUCTIONEERS INC, 10-K filed on 2/25/2016
Annual Report
Document and Entity Information (USD $)
12 Months Ended
Dec. 31, 2015
Feb. 24, 2016
Jun. 30, 2015
Document And Entity Information [Abstract]
 
 
 
Entity Registrant Name
Ritchie Bros Auctioneers Inc 
 
 
Entity Central Index Key
0001046102 
 
 
Current Fiscal Year End Date
--12-31 
 
 
Entity Filer Category
Large Accelerated Filer 
 
 
Document Type
10-K 
 
 
Document Period End Date
Dec. 31, 2015 
 
 
Document Fiscal Year Focus
2015 
 
 
Document Fiscal Period Focus
FY 
 
 
Amendment Flag
false 
 
 
Entity Well-known Seasoned Issuer
Yes 
 
 
Entity Voluntary Filers
No 
 
 
Entity Current Reporting Status
Yes 
 
 
Entity Public Float
 
 
$ 2,955,007,642 
Entity Common Stock, Shares Outstanding
 
107,215,270 
 
Consolidated Income Statements (USD $)
In Thousands, except Share data, unless otherwise specified
12 Months Ended
Dec. 31, 2015
Dec. 31, 2014
Dec. 31, 2013
Consolidated Income Statements [Abstract]
 
 
 
Revenues (note 5)
$ 515,875 
$ 481,097 
$ 467,403 
Direct expenses, excluding depreciation and amortization (note 6)
56,026 
57,884 
54,008 
Gross revenue, net of expenses
459,849 
423,213 
413,395 
Selling, general and administrative expenses (note 6)
254,990 
248,220 
243,736 
Depreciation and amortization expenses (note 6)
42,032 
44,536 
43,280 
Gain on disposition of property, plant and equipment
(9,691)
(3,512)
(10,552)
Impairment loss (note 6)
 
8,084 
 
Foreign exchange gain
(2,322)
(2,042)
(28)
Operating income
174,840 
127,927 
136,959 
Interest income
2,660 
2,222 
2,708 
Interest expense
(4,962)
(5,277)
(7,434)
Equity income (note 20)
916 
458 
405 
Other, net
2,982 
3,708 
2,117 
Other income (expense)
1,596 
1,111 
(2,204)
Income before income taxes
176,436 
129,038 
134,755 
Income tax expense (note 7):
 
 
 
Current
42,420 
33,321 
36,909 
Deferred
(4,559)
3,154 
3,401 
Income tax expense
37,861 
36,475 
40,310 
Net income
138,575 
92,563 
94,445 
Net income attributable to:
 
 
 
Shareholders
136,214 
90,981 
93,644 
Non-controlling interests
$ 2,361 
$ 1,582 
$ 801 
Earnings per share attributable to shareholders (note 9):
 
 
 
Basic
$ 1.27 
$ 0.85 
$ 0.88 
Diluted
$ 1.27 
$ 0.85 
$ 0.87 
Weighted average number of shares outstanding (note 9):
 
 
 
Basic
107,075,845 
107,268,425 
106,768,856 
Diluted
107,432,474 
107,654,828 
107,155,173 
Consolidated Statements of Comprehensive Income (USD $)
In Thousands, unless otherwise specified
12 Months Ended
Dec. 31, 2015
Dec. 31, 2014
Dec. 31, 2013
Consolidated Statements of Comprehensive Income [Abstract]
 
 
 
Net income
$ 138,575 
$ 92,563 
$ 94,445 
Other comprehensive loss, net of income tax:
 
 
 
Foreign currency translation adjustment
(40,776)
(35,796)
(13,442)
Total comprehensive income
97,799 
56,767 
81,003 
Total comprehensive income attributable to:
 
 
 
Shareholders
95,831 
55,295 
80,202 
Non-controlling interests
$ 1,968 
$ 1,472 
$ 801 
Consolidated Balance Sheets (USD $)
In Thousands, unless otherwise specified
Dec. 31, 2015
Dec. 31, 2014
Current Assets:
 
 
Cash and cash equivalents
$ 210,148 
$ 139,815 
Restricted cash
83,098 
93,274 
Trade and other receivables (note 12)
59,412 
76,062 
Inventory (note 13)
58,463 
42,750 
Advances against auction contracts (note 14)
4,797 
26,180 
Prepaid expenses and deposits (note 15)
11,057 
11,587 
Assets held for sale (note 16)
629 
1,668 
Income taxes receivable
2,495 
3,237 
Total Current Assets
430,099 
394,573 
Property, plant and equipment (note 17)
528,591 
580,701 
Equity-accounted investments (note 20)
6,487 
3,001 
Other non-current assets
3,369 
5,504 
Intangible assets (note 18)
46,973 
45,504 
Goodwill (note 19)
91,234 
82,354 
Deferred tax assets (note 7)
13,362 
9,873 
Total Assets
1,120,115 
1,121,510 
Current liabilities:
 
 
Auction proceeds payable
101,215 
109,378 
Trade and other payables (note 21)
120,042 
126,738 
Income taxes payable
13,011 
10,136 
Short-term debt (note 23)
12,350 
7,839 
Current portion of long-term debt (note 23)
43,348 
 
Total Current Liabilities
289,966 
254,091 
Long-term debt (note 23)
54,567 
110,846 
Share unit liabilities
5,633 
5,844 
Other non-current liabilities
6,735 
7,436 
Deferred tax liabilities (note 7)
31,070 
34,074 
Total Liabilities
387,971 
412,291 
Commitments (note 26)
   
   
Contingencies (note 27)
   
   
Contingently redeemable non-controlling interest (note 8)
24,785 
17,287 
Share capital:
 
 
Common shares; no par value, unlimited shares authorized, issued and outstanding shares: 107,200,470 (December 31, 2014: 107,687,935
131,530 
141,257 
Additional paid-in capital
27,728 
31,314 
Retained earnings
601,051 
536,111 
Accumulated other comprehensive income
(57,133)
(16,750)
Shareholders' equity
703,176 
691,932 
Non-controlling interest
4,183 
 
Total Equity
707,359 
691,932 
Total Liabilities and Equity
$ 1,120,115 
$ 1,121,510 
Consolidated Balance Sheets (Parenthetical) (USD $)
12 Months Ended
Dec. 31, 2015
Dec. 31, 2014
Consolidated Balance Sheets [Abstract]
 
 
Common shares, no par value
   
 
Common Stock, Shares Authorized, Unlimited
Unlimited 
Unlimited 
Common shares, issued shares
107,200,470 
107,687,935 
Common shares, outstanding shares
107,200,470 
107,687,935 
Consolidated Statements of Changes in Equity (USD $)
In Thousands, except Share data
Common stock [Member]
Additional paid-In capital [Member]
Retained earnings [Member]
Accumulated other comprehensive income (loss) [Member]
Non-controlling interest [Member]
Total
Contingently redeemable non-controlling interest, Balance at Dec. 31, 2012
 
 
 
 
 
$ 3,504 
Balance at Dec. 31, 2012
118,694 
27,169 
474,843 
32,378 
 
653,084 
Balance, shares at Dec. 31, 2012
106,596,811 
 
 
 
 
 
Net income
 
 
93,644 
 
 
93,644 
Change in value of redeemable non-controlling interest
 
 
(3,998)
 
 
(3,998)
Other comprehensive loss
 
 
 
(13,442)
 
(13,442)
Comprehensive income
 
 
89,646 
(13,442)
 
76,204 
Stock option exercises
7,656 
(1,504)
 
 
 
6,152 
Stock option exercises, shares
427,972 
 
 
 
 
 
Stock option tax adjustment
 
69 
 
 
 
69 
Stock option compensation expense (note 25)
 
4,504 
 
 
 
4,504 
Cash dividends paid (note 24)
 
 
(53,918)
 
 
(53,918)
Net income
 
 
 
 
 
801 
Change in value of contingently redeemable non-controlling interest
 
 
 
 
 
3,998 
Comprehensive Income attributable redeemable non-controlling interests
 
 
 
 
 
4,799 
Contingently redeemable non-controlling interest, Balance at Dec. 31, 2013
 
 
 
 
 
8,303 
Balance at Dec. 31, 2013
126,350 
30,238 
510,571 
18,936 
 
686,095 
Balance, shares at Dec. 31, 2013
107,024,783 
 
 
 
 
 
Net income
 
 
90,981 
 
 
90,981 
Change in value of redeemable non-controlling interest
 
 
(7,512)
 
 
(7,512)
Other comprehensive loss
 
 
 
(35,686)
 
(35,686)
Comprehensive income
 
 
83,469 
(35,686)
 
47,783 
Stock option exercises
14,907 
(2,786)
 
 
 
12,121 
Stock option exercises, shares
663,152 
 
 
 
 
 
Stock option tax adjustment
 
152 
 
 
 
152 
Stock option compensation expense (note 25)
 
3,710 
 
 
 
3,710 
Cash dividends paid (note 24)
 
 
(57,929)
 
 
(57,929)
Net income
 
 
 
 
 
1,582 
Change in value of contingently redeemable non-controlling interest
 
 
 
 
 
7,512 
Other comprehensive income (loss)
 
 
 
 
 
(110)
Comprehensive Income attributable redeemable non-controlling interests
 
 
 
 
 
8,984 
Contingently redeemable non-controlling interest, Balance at Dec. 31, 2014
 
 
 
 
 
17,287 
Balance at Dec. 31, 2014
141,257 
31,314 
536,111 
(16,750)
 
691,932 
Balance, shares at Dec. 31, 2014
107,687,935 
 
 
 
 
 
Net income
 
 
136,214 
 
64 
136,278 
Change in value of redeemable non-controlling interest
 
 
(6,934)
 
 
(6,934)
Other comprehensive loss
 
 
 
(40,383)
 
(40,383)
Comprehensive income
 
 
129,280 
(40,383)
64 
88,961 
Stock option exercises
37,762 
(7,946)
 
 
 
29,816 
Stock option exercises, shares
1,412,535 
 
 
 
 
 
Stock option tax adjustment
 
359 
 
 
 
359 
Stock option compensation expense (note 25)
 
4,001 
 
 
 
4,001 
Non-controlling interest acquired in a business combination (note29)
 
 
 
 
4,119 
4,119 
Shares repurchased (note 24)
(47,489)
 
 
 
 
(47,489)
Shares repurchased, shares
(1,900,000)
 
 
 
 
 
Cash dividends paid (note 24)
 
 
(64,340)
 
 
(64,340)
Net income
 
 
 
 
 
2,297 
Change in value of contingently redeemable non-controlling interest
 
 
 
 
 
6,934 
Other comprehensive income (loss)
 
 
 
 
 
(393)
Comprehensive Income attributable redeemable non-controlling interests
 
 
 
 
 
8,838 
Cash dividends paid (note 25)
 
 
 
 
 
(1,340)
Contingently redeemable non-controlling interest, Balance at Dec. 31, 2015
 
 
 
 
 
24,785 
Balance at Dec. 31, 2015
$ 131,530 
$ 27,728 
$ 601,051 
$ (57,133)
$ 4,183 
$ 707,359 
Balance, shares at Dec. 31, 2015
107,200,470 
 
 
 
 
 
Consolidated Statements of Cash Flows (USD $)
In Thousands, unless otherwise specified
12 Months Ended
Dec. 31, 2015
Dec. 31, 2014
Dec. 31, 2013
Operating activities:
 
 
 
Net income
$ 138,575 
$ 92,563 
$ 94,445 
Adjustments for items not affecting cash:
 
 
 
Depreciation and amortization expenses
42,032 
44,536 
43,280 
Inventory write down (note 13)
480 
2,177 
963 
Impairment loss (note 6)
 
8,084 
 
Stock option compensation expense (note 25)
4,001 
3,710 
4,504 
Deferred income tax expense (recovery) (note 7)
(4,559)
3,154 
3,401 
Equity income less dividends received
(916)
(458)
(405)
Unrealized foreign exchange loss
1,403 
562 
486 
Gain on disposition of property, plant and equipment
(9,691)
(3,512)
(10,552)
Net changes in operating assets and liabilities (note 10)
25,032 
20,550 
10,517 
Net cash provided by operating activities
196,357 
171,366 
146,639 
Investing activities:
 
 
 
Acquisition of Xcira (note 29)
(12,107)
 
 
Acquisition of equity investments
(3,000)
 
 
Property, plant and equipment additions
(22,055)
(24,990)
(35,896)
Intangible asset additions
(8,764)
(13,935)
(15,662)
Proceeds on disposition of property, plant and equipment
16,667 
9,330 
14,492 
Proceeds from note receivable and other assets
 
 
9,276 
Other, net
(89)
(529)
260 
Net cash used in investing activities
(29,348)
(30,124)
(27,530)
Financing activities:
 
 
 
Issuances of share capital
29,816 
12,121 
6,152 
Share repurchase
(47,489)
 
 
Dividends paid to stockholders
(64,340)
(57,929)
(53,918)
Dividends paid to contingently redeemable non-controlling interests
(1,340)
 
 
Proceeds from short-term debt
11,038 
45,751 
19,102 
Repayment of short-term debt
(6,373)
(41,066)
(53,254)
Repayment of long-term debt
 
(58,409)
(15,000)
Repayment of finance lease obligations
(2,073)
(1,953)
(1,103)
Other, net
72 
(148)
101 
Net cash used in financing activities
(80,689)
(101,633)
(97,920)
Effect of changes in foreign currency rates on cash and cash equivalents
(15,987)
(14,390)
1,006 
Increase in cash and cash equivalents
70,333 
25,219 
22,195 
Cash and cash equivalents, beginning of year
139,815 
114,596 
92,401 
Cash and cash equivalents, end of year
$ 210,148 
$ 139,815 
$ 114,596 
General Information
General Information

1. General information

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”).

 

Significant Accounting Policies
Significant Accounting Policies

2. Significant accounting policies

(a)  Basis of preparation

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

 

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.

 

(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

 

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.

Significant Judgments, Estimated and Assumptions
Significant Judgments, Estimated and Assumptions

3. Significant judgments, estimates and assumptions

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

 

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

 

Judgments, estimates and underlying assumptions are evaluated on an ongoing basis by management, and are based on historical experience and other factors including expectations of future events that are believed to be reasonable under the circumstances. Existing circumstances and assumptions about future developments, however, may change due to market changes or circumstance and such changes are reflected in the assumptions when they occur. Significant estimates include the estimated useful lives of long-lived assets, as well as valuation of goodwill, underwritten commission contracts, contingently redeemable non-controlling interest and share-based compensation.

Segmented Information
Segmented Information

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
States

 

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
States

 

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.  

Revenues
Revenues

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 

 

Operating Expenses
Operating Expenses

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.

Income Taxes
Income Taxes

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