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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
--------------------------------------
Form 6-K
REPORT OF FOREIGN ISSUER
PURSUANT TO RULE 13a-16 OR 15d-16 OF
THE SECURITIES EXCHANGE ACT OF 1934
For the period ended June 30, 1998
--------------------------------------
RITCHIE BROS. AUCTIONEERS INCORPORATED
9200 Bridgeport Road
Richmond, BC, Canada
V6X 1S1
(604) 273 7564
(Address of principal executive offices)
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[indicate by check mark whether the registrant files or will file annual
reports under cover Form 20-F or Form 40-F]
Form 20-F __ Form 40-F X
[indicate by check mark whether the registrant by furnishing information
contained
in this Form is also thereby furnishing the information to the Commission
pursuant to
rule 12g3-2(b) under the Securities Exchange Act of 1934]
Yes __ No X
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PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The accompanying unaudited consolidated financial statements do not include
all information and footnotes required by Canadian or United States generally
accepted accounting principles. However, in the opinion of management, all
adjustments (which consist only of normal recurring adjustments) necessary for a
fair presentation of the results of operations for the relevant periods have
been made. Results for the interim periods are not necessarily indicative of the
results to be expected for the year or any other period. These financial
statements should be read in conjunction with the summary of accounting policies
and the notes to the consolidated financial statements for the periods ended
April 30, 1997 and December 31, 1997 included in the Company's Rule 424(b)
Prospectus dated March 9, 1998 filed with the United States Securities and
Exchange Commission. Effective December 31, 1997, the Company changed its fiscal
year end from April 30 to December 31.
2
<PAGE> 3
RITCHIE BROS. AUCTIONEERS INCORPORATED
CONSOLIDATED BALANCE SHEETS
(EXPRESSED IN THOUSANDS OF UNITED STATES DOLLARS)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1998 1997
----------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 72,523 $27,149
Accounts receivable....................................... 55,940 6,744
Inventory................................................. 16,802 7,081
Advances against auction contracts........................ 7,482 1,261
Prepaid expenses and deposits............................. 1,340 1,218
-------- -------
154,087 43,453
Fixed assets (note 2)....................................... 44,981 27,007
Deferred income taxes (note 3).............................. 2,175 --
-------- -------
$201,243 $70,460
======== =======
LIABILITIES AND EQUITY
Current liabilities:
Auction proceeds payable.................................. $ 86,680 $17,728
Accounts payable and accrued liabilities.................. 17,585 17,131
Current bank loans........................................ 760 730
Income taxes payable...................................... 889 4,542
-------- -------
105,914 40,131
Bank term loans............................................. 4,141 4,623
-------- -------
110,055 44,754
SHAREHOLDERS' EQUITY
Share capital (note 4).................................... 64,816 10,866
Retained earnings......................................... 28,807 16,958
Foreign currency translation adjustment................... (2,435) (2,118)
-------- -------
91,188 25,706
-------- -------
$201,243 $70,460
======== =======
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE> 4
RITCHIE BROS. AUCTIONEERS INCORPORATED
CONSOLIDATED STATEMENTS OF INCOME
(EXPRESSED IN THOUSANDS OF UNITED STATES DOLLARS EXCEPT PER SHARE AMOUNTS)
(unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
----------------------- -----------------------
1998 1997 1998 1997
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Auction revenues............................ $ 29,188 $ 30,525 $ 50,417 $ 44,235
Direct expenses............................. 4,896 5,665 8,463 7,990
---------- ---------- ---------- ----------
24,292 24,860 41,954 36,245
Expenses:
Depreciation.............................. 656 610 1,256 1,160
General and administrative................ 9,143 8,565 20,875 15,625
---------- ---------- ---------- ----------
9,799 9,175 22,131 16,785
---------- ---------- ---------- ----------
Income from operations...................... 14,493 15,685 19,823 19,460
Other income (expenses):
Interest expense.......................... (430) (445) (1,171) (670)
Other..................................... 254 75 577 235
---------- ---------- ---------- ----------
(176) (370) (594) (435)
---------- ---------- ---------- ----------
Income before income taxes.................. 14,317 15,315 19,229 19,025
Income taxes (note 5)....................... 5,825 740 7,360 1,310
---------- ---------- ---------- ----------
Net income.................................. $ 8,492 $ 14,575 $ 11,869 $ 17,715
========== ========== ========== ==========
Net income per share (note 6)............... $ 0.51 $ 1.15 $ 0.78 $ 1.39
========== ========== ========== ==========
Net income per share -- diluted (note 6).... $ 0.51 $ 1.15 $ 0.77 $ 1.39
========== ========== ========== ==========
Weighted average number of shares
outstanding............................... 16,548,666 12,715,667 15,277,312 12,715,667
========== ========== ========== ==========
Diluted weighted average number of shares
outstanding............................... 16,729,497 12,715,667 15,465,852 12,715,667
========== ========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE> 5
RITCHIE BROS. AUCTIONEERS INCORPORATED
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(EXPRESSED IN THOUSANDS OF UNITED STATES DOLLARS)
(unaudited)
<TABLE>
<CAPTION>
FOREIGN
CURRENCY TOTAL
SHARE RETAINED TRANSLATION SHAREHOLDERS'
CAPITAL EARNINGS ADJUSTMENT EQUITY
------- -------- ----------- -------------
<S> <C> <C> <C> <C>
Balance, December 31, 1997.................... $10,866 $16,958 $(2,118) $25,706
Common shares issued........................ 51,911 -- -- 51,911
Net income.................................. -- 3,377 -- 3,377
Foreign currency translation adjustment..... -- -- (53) (53)
------- ------- ------- -------
Balance, March 31, 1998....................... 62,777 20,335 (2,171) 80,941
Net income.................................. -- 8,492 -- 8,492
Tax recovery on amortization of underwriting
costs.................................... 2,175 -- -- 2,175
Additional costs of issuance of common
shares................................... (136) -- -- (136)
Additional costs of reorganization.......... -- (20) -- (20)
Foreign currency translation adjustment..... -- -- (264) (264)
------- ------- ------- -------
Balance, June 30, 1998........................ $64,816 $28,807 $(2,435) $91,188
======= ======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE> 6
RITCHIE BROS. AUCTIONEERS INCORPORATED
CONSOLIDATED STATEMENT OF CASH FLOWS
(EXPRESSED IN THOUSANDS OF UNITED STATES DOLLARS)
(unaudited)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
1998
----------------
<S> <C>
Cash provided by (used in)
Operations:
Net income................................................ $ 11,869
Items not involving the use of cash
Depreciation........................................... 1,256
Changes in non-cash working capital:
Accounts receivable.................................... (49,196)
Inventory.............................................. (9,721)
Advances against auction contracts..................... (6,221)
Prepaid expenses and deposits.......................... (122)
Auction proceeds payable............................... 68,952
Accounts payable and accrued liabilities............... 454
Income taxes payable................................... (3,653)
Foreign currency translation adjustment................... (317)
--------
13,301
Financing:
Issuance of share capital, net of issue costs............. 51,775
Additional costs of reorganization........................ (20)
Bank loans................................................ (452)
--------
51,303
Investments:
Fixed asset additions, net................................ (19,230)
--------
Increase in cash and cash equivalents....................... 45,374
Cash and cash equivalents, beginning of period.............. 27,149
--------
Cash and cash equivalents, end of period.................... $ 72,523
========
</TABLE>
See accompanying notes to consolidated financial statements.
6
<PAGE> 7
RITCHIE BROS. AUCTIONEERS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(TABULAR DOLLAR AMOUNTS EXPRESSED IN THOUSANDS OF UNITED STATES DOLLARS)
JUNE 30, 1998
(Information as at June 30, 1998 and for the periods
ended June 30, 1998 and 1997 is unaudited)
1. SIGNIFICANT ACCOUNTING POLICIES:
(a) BASIS OF PRESENTATION:
These unaudited consolidated financial statements present the financial
position, results of operations and changes in shareholders' equity and cash
flows of Ritchie Bros. Auctioneers Incorporated (the "Company") and its
predecessor businesses. These predecessor businesses comprised the Ritchie Bros.
Auctioneers group of companies and partnerships. A reorganization of the Company
and its predecessor businesses (the "Reorganization") was completed in December
1997 and is described more fully in the consolidated financial statements and
notes thereto included in the Company's Rule 424(b) Prospectus dated March 9,
1998 filed with the United States Securities and Exchange Commission.
These consolidated financial statements have been prepared in accordance
with Canadian generally accepted accounting principles for interim financial
information. Except as disclosed in note 7, these consolidated financial
statements comply, in all material respects, with generally accepted accounting
principles in the United States.
2. FIXED ASSETS
Fixed assets at June 30, 1998 were as follows:
<TABLE>
<CAPTION>
ACCUMULATED NET BOOK
COST DEPRECIATION VALUE
------- ------------ --------
<S> <C> <C> <C>
Land and improvements..................................... $27,766 $ 853 $26,913
Buildings................................................. 14,179 2,825 11,354
Automotive equipment...................................... 4,801 1,329 3,472
Computer equipment........................................ 1,618 569 1,049
Yard equipment............................................ 2,225 982 1,243
Office equipment.......................................... 1,696 923 773
Leasehold improvements.................................... 208 31 177
------- ------ -------
$52,493 $7,512 $44,981
======= ====== =======
</TABLE>
Fixed assets at December 31, 1997 were as follows:
<TABLE>
<CAPTION>
ACCUMULATED NET BOOK
COST DEPRECIATION VALUE
------- ------------ --------
<S> <C> <C> <C>
Land and improvements..................................... $12,830 $ 535 $12,295
Buildings................................................. 11,490 2,726 8,764
Automotive equipment...................................... 3,974 1,002 2,972
Computer equipment........................................ 1,384 433 951
Yard equipment............................................ 2,320 1,082 1,238
Office equipment.......................................... 1,454 874 580
Leasehold improvements.................................... 225 18 207
------- ------ -------
$33,677 $6,670 $27,007
======= ====== =======
</TABLE>
7
<PAGE> 8
RITCHIE BROS. AUCTIONEERS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(TABULAR DOLLAR AMOUNTS EXPRESSED IN THOUSANDS OF UNITED STATES DOLLARS)
JUNE 30, 1998
(Information as at June 30, 1998 and for the periods
ended June 30, 1998 and 1997 is unaudited)
3. DEFERRED INCOME TAXES
Deferred income taxes recoverable of $2,175,000 have been recorded to give
effect to future reductions in income taxes payable by the Company resulting
from tax deductible financing costs incurred in the course of the Company's
initial public offering completed in March 1998.
4. SHARE CAPITAL:
SHARES ISSUED:
In March 1998, the Company issued 3,335,000 common shares in connection
with its initial public offering. Net proceeds raised from the offering, after
deducting underwriting commissions and other direct costs, were $51.9 million.
OPTIONS:
During the period ended June 30, 1998, options to purchase 36,000 common
shares were granted to an employee of the Company and options to purchase 18,667
common shares expired when certain other individuals ceased to be employees of
the Company.
5. INCOME TAXES:
For the three months and six months ended June 30, 1997, not all income
earned by the Group was subject to tax as, during the period prior to the
Reorganization, many of the Company's predecessor entities were partnerships and
not subject to corporate income tax.
6. NET INCOME PER SHARE:
Net income per share has been calculated based on the weighted average
number of shares outstanding after giving retroactive effect to the 12,715,667
common shares issued on the Reorganization.
7. UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES:
The consolidated financial statements are prepared in accordance with
Canadian generally accepted accounting principles for interim financial
information which differ, in certain respects, from accounting practices
generally accepted in the United States and from requirements promulgated by the
United States Securities and Exchange Commission.
8
<PAGE> 9
RITCHIE BROS. AUCTIONEERS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(TABULAR DOLLAR AMOUNTS EXPRESSED IN THOUSANDS OF UNITED STATES DOLLARS)
JUNE 30, 1998
(Information as at June 30, 1998 and for the periods
ended June 30, 1998 and 1997 is unaudited)
Material differences to the consolidated financial statements and related
notes of the Company are as follows:
(a) CONSOLIDATED STATEMENT OF CASH FLOWS:
United States accounting principles require the following supplementary
information be presented to a statement of cash flows:
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
JUNE 30,
1998
----------
<S> <C>
Interest paid............................................... $ 1,174
Income taxes paid........................................... $11,014
</TABLE>
(b) NET INCOME PER SHARE:
Under United States generally accepted accounting principles, basic and
diluted net income per share are not materially different than the corresponding
basic and diluted net income per share computed under Canadian generally
accepted accounting principles.
9
<PAGE> 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
The following discussion summarizes the significant factors affecting the
consolidated operating results and financial condition of Ritchie Bros.
Auctioneers Incorporated ("Ritchie Bros." or the "Company") for the three-month
and six-month periods ended June 30, 1998 compared to the three-month and
six-month periods ended June 30, 1997. This discussion should be read in
conjunction with the consolidated financial statements and notes to the
consolidated financial statements thereto included in the Company's Rule 424(b)
Prospectus dated March 9, 1998 filed with the United States Securities and
Exchange Commission. Effective December 31, 1997, the Company changed its fiscal
year end from April 30 to December 31. Data for the three-month and six-month
periods ended June 30, 1997 is based on management estimates.
Ritchie Bros. is the world's leading auctioneer of industrial equipment,
operating through over 50 locations, including 13 permanent auction sites and 8
regional auction units, in 13 countries in North America, Europe, Asia,
Australia and the Middle East. The Company sells, through unreserved public
auctions, a broad range of used equipment, including equipment utilized in the
construction, transportation, mining, forestry, petroleum and agricultural
industries.
Gross auction sales represent the aggregate selling prices of all items
sold at Ritchie Bros. auctions during the periods indicated. Gross auction sales
are key to understanding the financial results of the Company, since the amount
of auction revenues and to a lesser extent, certain expenses, are dependent on
it. Auction revenues include commissions earned as agent for consignors through
both straight commission and gross guarantee contracts, plus the net profit on
the sale of equipment purchased and sold by the Company as principal. Under a
gross guarantee contract, the consignor is guaranteed a minimum amount of
proceeds on the sale of its equipment. When the Company guarantees gross
proceeds, it earns a commission on the guaranteed amount and typically
participates in a negotiated percentage of proceeds, if any, in excess of the
guaranteed amount. If auction proceeds are less than the guaranteed amount, the
Company's commission would be reduced, or, if sufficiently lower, the Company
would incur a loss. Auction revenues are reduced by the amount of any losses on
gross guarantee consignments and sales by the Company as principal. Auction
revenues also include interest income earned that is incidental to the auction
business.
The Company's gross auction sales and auction revenues are affected by the
seasonal nature of the auction business. Gross auction sales and auction
revenues tend to increase during the second and fourth calendar quarters during
which the Company generally conducts more auctions than in the first and third
calendar quarters. The Company's gross auction sales and auction revenues are
also affected on a period-to-period basis by the timing of major auctions. In
newer markets where the Company is developing operations, the number and size of
auctions and, as a result, the level of gross auction sales and auction
revenues, is likely to vary more dramatically from period-to-period than in the
Company's established markets where the number, size and frequency of the
Company's auctions are more consistent. Finally, economies of scale are achieved
as the Company's operations in a region mature from conducting intermittent
auctions, establishing a regional auction unit, and ultimately to developing a
permanent auction site.
The Company is aware of potential restrictions that may affect the ability
of equipment owners to transport certain equipment between some jurisdictions.
Management believes that these potential restrictions have not had a significant
impact on the Company's business, financial condition or results of operations
to date. However, the extent of any future impact on the Company's business,
financial condition or results of operations from these potential restrictions
can not be predicted at this time.
Income taxes reported in periods prior to the completion of the
reorganization (as described in the Company's Rule 424(b) Prospectus dated March
9, 1998, the "Reorganization") in December 1997 are not indicative of taxes that
would normally be incurred on reported income. Prior to the Reorganization, the
majority of Ritchie Bros.' business operations was carried on by predecessor
entities to the Company that were partnerships. Consequently, most of the income
of the predecessor partnerships was included for income tax
10
<PAGE> 11
purposes in the income of the partner entities, many of which were not
predecessor entities to the Company. As a result of the Reorganization, the
Company is subject to income taxation in all relevant jurisdictions.
Prior to the Reorganization the Company's general and administrative
expense fluctuated significantly from period to period, primarily as a result of
the amount and timing of profit distributions paid as bonuses to certain of the
beneficial owners of the Company's predecessor entities. During this period,
certain other beneficial owners were remunerated through profit distributions
that did not result in charges against the Company's income. The differences in
timing, magnitude and characterization of remuneration will affect the
quarter-to-quarter comparability of general and administrative expense as
between the year ended December 31, 1997 and the year ending December 31, 1998,
with some quarters reflecting increased expenses, and others reflecting
decreased expenses.
Although the Company cannot accurately anticipate the future effect of
inflation, inflation historically has not had a material effect on the Company's
operations.
RESULTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1998 COMPARED TO SIX MONTHS ENDED JUNE 30, 1997
Auction Revenues
Auction revenues of $50.4 million for the six months ended June 30, 1998
increased by $6.2 million, or 14.0%, from the comparable period in 1997 due to
increased gross auction sales, partially offset by lower average commission
rates earned on auction contracts. Gross auction sales of $566.9 million for the
six months ended June 30, 1998 increased by $90.2 million, or 18.9%, from the
comparable period in the prior year, primarily as a result of increased gross
auction sales in the United States and Europe. Results for the 1998 period
included significant gross auction sales for auctions held by the Company in
Rotterdam, the Netherlands, Fort Worth, Texas, and Dubai, the United Arab
Emirates. In the 1998 period, the average commission rate of 8.89% was lower
than the 9.28% rate in the comparable 1997 period, and more in-line with the
Company's long-term average commission rate of 8.80%.
Direct Expenses
Direct expenses are expenses that are incurred as a direct result of an
auction sale being held. Direct expenses include the costs of hiring personnel
to assist in conducting the auction, lease expenses for temporary auction sites,
travel costs for full-time employees to attend and work at the auction site,
security hired to safeguard equipment while at the auction site, and advertising
costs specifically related to the auction. Direct expenses increased by $0.5
million for the six months ended June 30, 1998 compared to the comparable period
in the prior year, reflecting increased costs from increased gross auction
sales. As a percentage of gross auction sales, direct expenses were 1.49% for
the six-month period ending June 30, 1998, lower than the 1.68% figure for the
comparable period in 1997. This decrease was a result of several larger auctions
being held in the 1998 period as compared to the 1997 period and the related
expense efficiencies arising from conducting large auctions. As a percentage of
gross auction sales, direct expenses incurred in both periods were lower than
the Company's long-term average of 1.90%. This difference is a result of
relatively more large auctions being held by the Company during both the 1998
and 1997 periods than in other prior periods.
Depreciation Expense
Depreciation is calculated on capital assets employed in the Company's
business, including building and site improvements, automobiles, yard equipment,
and computers. In the six-month period ending June 30, 1998, depreciation
increased $0.1 million over the comparable period in the prior year, reflecting
a moderate increase in investment in depreciable fixed assets. Management
anticipates that depreciation expense will increase as existing auction sites
are improved and additional permanent auction sites are acquired and developed
as part of the Company's growth strategy.
11
<PAGE> 12
General and Administrative Expense
General and administrative expense ("G&A") includes employee expenses, such
as salaries, wages, performance bonuses and benefits, non-auction related
travel, institutional advertising, insurance, general office, and computer
expenses. For the six months ended June 30, 1998, the Company incurred G&A of
$20.9 million. Management does not consider G&A of $15.6 million in the 1997
period to be meaningful as a comparable number since the expenses incurred in
the 1997 period reflect results prior to the Reorganization (as outlined in the
Company's Prospectus dated March 9, 1998) and, as a result, certain components
are not comparable on a period to period basis with the expenses incurred in the
1998 period. See "-- Overview." Management anticipates that G&A will increase in
the future due to an increased level of administrative infrastructure to support
expansion of the Company's operations.
Income from Operations
Income from operations was $19.8 million for the six months ended June 30,
1998. Management does not consider the 1997 amount of $19.4 million to be
meaningful as a comparable number because certain components of G&A are not
comparable for these periods as a result of the Reorganization, as discussed
above.
Interest Expense
Interest expense includes interest and bank charges paid on term bank debt.
Interest expense of $1.2 million for the six months ended June 30, 1998
increased by $0.5 million over the comparable period in 1997. The increase was
primarily due to additional short-term bank debt incurred by the Company as a
result of capital withdrawn in the course of the Reorganization. Management
plans to partially finance the acquisition of additional permanent auction sites
by incurring debt, which will result in an increase in interest expense in the
future.
Other Income
Other income arises from equipment appraisals performed by the Company and
other miscellaneous sources, and increased by $0.3 million compared to the
comparable six-month period in 1997 due to recoveries of miscellaneous prior
period charges and from increased appraisal revenue.
Income Taxes
Income taxes of $7.4 million for the six months ended June 30, 1998 have
been computed based on rates of tax that apply in each of the tax jurisdictions
in which the Company operates. The effective rate of tax on net income for the
1998 period of 38.3% is marginally higher than the rate the Company would
normally expect for the full 1998 year. Income taxes for the six months ended
June 30, 1997 of $1.3 million incurred on net income of $19.0 million are not
meaningful as a comparable number since, during the 1997 period prior to the
Reorganization, many of the predecessor entities to the Company were
partnerships not subject to corporate income taxation. See "-- Overview."
THREE MONTHS ENDED JUNE 30, 1998 COMPARED TO THREE MONTHS ENDED JUNE 30, 1997
Auction Revenues
Auction revenues of $29.2 million for the three months ended June 30, 1998
decreased by $1.3 million, or 4.4%, over the record-high comparable period in
1997 due to reduced average commission rates on gross auction sales. The average
commission rate for the three-month period in 1998 period was 8.60%, below the
Company's long-term average commission rate of 8.80% and below the average rate
in the comparable 1997 period of 9.26%. Gross auction sales of $339.2 million
for the three months ended June 30, 1998 increased by $9.5 million, or 2.9%,
from the comparable period in the prior year, primarily as a result of increased
gross auction sales in Europe and the United States. Results for the 1998 period
included a record-high gross auction sale conducted by the Company in Rotterdam,
the Netherlands.
12
<PAGE> 13
Direct Expenses
Direct expenses decreased by $0.8 million for the three months ended June
30, 1998 compared to the comparable period in the prior year. As a percentage of
gross auction sales, direct expenses were 1.44% for the three-month period
ending June 30, 1998, lower than the 1.72% figure for the comparable period in
1997. This decrease was primarily a result of several larger auctions being held
in the 1998 period as compared to the 1997 period and the related expense
efficiencies arising from conducting large auctions. As a percentage of gross
auction sales, direct expenses incurred in both periods were lower than the
Company's long-term average of 1.90% due to relatively more large auctions being
held by the Company during both the 1998 and 1997 periods than in other prior
periods.
Depreciation Expense
In the three-month period ending June 30, 1998, depreciation of $0.7
million was virtually unchanged from the comparable 1997 period. Management
anticipates that depreciation expense will increase as existing auction sites
are improved and additional permanent auction sites are acquired and developed
as part of the Company's growth strategy.
General and Administrative Expense
For the three months ended June 30, 1998, the Company incurred G&A of $9.1
million. Management does not consider G&A of $8.6 million in the corresponding
1997 period to be meaningful as a comparable number since the expenses incurred
in the 1997 period reflect results prior to the Reorganization (as outlined in
the Company's Prospectus dated March 9, 1998) and, as a result, certain
components are not comparable on a period to period basis with the expenses
incurred in the 1998 period. See "-- Overview." Management anticipates that G&A
will increase in the future due to an increased level of administrative
infrastructure to support expansion of the Company's operations.
Income from Operations
Income from operations was $14.5 million for the three months ended June
30, 1998. Management does not consider the 1997 amount of $15.7 million to be
meaningful as a comparable number because certain components of G&A are not
comparable for these periods as a result of the Reorganization, as discussed
above.
Interest Expense
Interest expense of $0.4 million for the three months ended June 30, 1998
was virtually unchanged from the comparable period in 1997. Management plans to
partially finance the acquisition of additional permanent auction sites by
incurring debt, which will result in an increase in interest expense in the
future.
Other Income
Other income increased by $0.2 million over the comparable three-month
period in 1997 due to increased appraisal revenues.
Income Taxes
Income taxes of $5.8 million for the three months ended June 30, 1998 have
been computed based on rates of tax that apply in each of the tax jurisdictions
in which the Company operates. The effective rate of tax on net income for the
1998 period of 40.7% is higher than the rate the Company would normally expect
for the full 1998 year due to the absence of auction sales being held in lower
tax rate jurisdictions during the recent three-month period. Income taxes for
the three months ended June 30, 1997 of $0.7 million incurred on net income of
$15.3 million are not meaningful as a comparable number since, during the 1997
period prior to the Reorganization, many of the predecessor entities to the
Company were partnerships not subject to corporate income taxation. See "--
Overview."
13
<PAGE> 14
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash can fluctuate significantly from period to period,
largely due to differences in timing of receipt of gross sale proceeds from
buyers and the payment of net amounts due to consignors. If auctions are
conducted near a period end, the Company may hold cash in respect of those
auctions that will not be paid to consignors until after the period end.
Accordingly, Management believes a more meaningful measure of the Company's
liquidity is working capital, including cash.
At June 30, 1998 and December 31, 1997, working capital was $48.2 million
and $3.3 million respectively. The increase in working capital of $44.9 million
resulted primarily from the receipt of proceeds from the Company's initial
public offering in March 1998 of approximately $51.9 million, and from net
income earned during the six months ended June 30, 1998. This increase was
partially offset by capital expenditures incurred by the Company during the
period.
Net capital expenditures by the Company during the six-month period ending
June 30, 1998 were $19.2 million as compared to $3.2 million for the eight
months ended December 31, 1997. In the 1998 period, the Company acquired land
for use as permanent auction sites and incurred related development costs in the
United States, Australia and Europe.
The Company is continuing with its plan to add additional permanent auction
sites around the world and is presently in various stages of commitments to
acquire land for development in the United States and Canada.
Subsequent to its initial public offering, the Company has either completed
or is in the latter stages of establishing credit facilities with financial
institutions in the United States, Canada, Europe, and Australia. Upon
completion, the Company anticipates that it will have access to credit lines for
operations exceeding $75.0 million and to credit lines for funding property
acquisitions exceeding $35.0 million.
YEAR 2000 COMPLIANCE
The Company relies on computer systems and software to operate its
business, including applications used to control information about bidders and
consignors and to operate certain of its marketing, finance and administrative
functions. Management believes that only minor modifications will be required to
make its systems "Year 2000" compliant and that related costs will not have a
material impact on the Company's business, financial condition or results of
operations. However, failure by the Company to achieve full Year 2000 compliance
in a timely manner or consistent with its current cost estimates could have a
material adverse effect on the Company's business, financial condition and
results of operations. In addition, the Company could be adversely affected by
the failure of one or more of its lenders or other organizations with which it
conducts business to become fully Year 2000 compliant.
FORWARD-LOOKING STATEMENTS
Certain statements contained in the "Management's Discussion and Analysis
of Financial Condition and Results of Operations" section of this Report on Form
6-K are forward-looking statements (as defined in Section 21E of the Securities
Exchange Act of 1934, as amended) that involve risks and uncertainties
including, in particular, statements relating to the anticipated improvement,
acquisition and development of permanent auction sites, and financing available
to the Company. The following important factors, among others, could affect the
Company's actual results and could cause such results to differ materially from
those expressed in the Company's forward-looking statements: the many factors
that impact on the supply of and demand for used equipment; fluctuations in the
market values of used equipment; periodic and seasonal variations in operating
results or financial conditions; potential delays in construction or development
of auction sites; actions of competitors; adverse changes in economic
conditions; restrictions affecting the ability of equipment owners to transport
equipment between jurisdictions; and other risks and uncertainties as detailed
in the Company's Rule 424(b) Prospectus dated March 9, 1998. Forward-looking
statements should be considered in light of these factors.
14
<PAGE> 15
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS
<TABLE>
<CAPTION>
NUMBER
- ------ DESCRIPTION
<C> <S>
*3.1 Articles of Amalgamation, as amended
*3.2 By-laws
*4.1 Form of common share certificate
4.2 Description of capital shares contained in the Articles of
Amalgamation (see Exhibit 3.1)
4.3 Description of rights of securityholders contained in the
By-laws (see Exhibit 3.2)
*10.1 1997 Stock Option Plan, as amended
*10.2 Form of Indemnity Agreement for directors and officers
</TABLE>
- ---------------
* Incorporated by reference to the same exhibit number from the Registration
Statement on Form F-1 filed on September 26, 1997, as amended (File No.
333-36457).
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
<TABLE>
<S> <C>
RITCHIE BROS. AUCTIONEERS INCORPORATED
(Registrant)
Date August 14, 1998 By /s/ PETER J. BLAKE
----------------------------------------------
Peter J. Blake, Vice President, Finance
and Chief Financial Officer
</TABLE>
15
