<PAGE> 1
1998
[LOGO] RITCHIE BROS. AUCTIONEERS
ANNUAL REPORT
<PAGE> 2
CONTENTS
<TABLE>
<S> <C>
To our Fellow Shareholders 1
A Look Behind the Scenes 9
Understanding our Growth 14
A Look at our 1998 Milestones 16
Financial Information 19
Shareholder Information 36
</TABLE>
In this Annual Report, all dollar amounts are stated in United States dollars
unless a different currency is indicated.
20 YEAR SUMMARY
GROSS
AUCTION SALES
in millions of US dollars
(compound annual growth rate = 15%)
[GRAPH]
BUYERS
in thousands
[GRAPH]
CONSIGNORS
in thousands
[GRAPH]
<PAGE> 3
The Evolution of an
Industry.
The buying and selling of used industrial equipment has evolved into
international commerce, with nearly $100 billion of used equipment changing
hands worldwide each year. Equipment now travels from country to country, and
industry to industry. From large construction sites and industrial projects to
farms, mines and oil wells around the globe. From Mexico and Australia to
Germany and the American Midwest.
Of that $100 billion in annual business, auctions represent less than five
percent. But the industrial auction business continues to grow. And Ritchie
Bros. Auctioneers is proud to be leading the way.
[PHOTO]
<PAGE> 4
To our Fellow
Shareholders.
35 years ago, when Ken, John and Dave Ritchie entered the auction business, it
was with one simple goal. They wanted to earn a good living by holding honest,
unreserved auctions where everybody got their money's worth.
<TABLE>
<S> <C> <C> <C>
Ken Ritchie John Ritchie Dave Ritchie
[PHOTO] [PHOTO] [PHOTO] [LOGO]
Retired from the Retired from the
company company
in 1975. in 1981.
</TABLE>
"We've come a long way from the old scout hall in Kelowna, British Columbia
where we held our first auction in order to pay down $2,000 on a bank loan so we
could keep our furniture business alive." Dave Ritchie, Chairman and CEO
It wasn't much of a business plan. But today, Ritchie Bros. is the world's
leading auctioneer of industrial equipment, with over 50 offices in 14 countries
around the world, and over $1 billion in gross auction sales in 1998 alone. Of
course, a great many things have changed over the years. We've refined our
systems, brought in new blood, expanded into foreign markets, developed a global
customer database, and built numerous state-of-the-art auction facilities around
the world. And in 1998, we became a public company.
But we've always remained true to our founding principles. To treat everyone --
employees and customers alike -- with honesty, respect and fairness. We think
that our success can, to a large extent, be credited to these principles.
Bidders trust us to offer them a wide selection of equipment in honest
unreserved auctions. When they buy at a Ritchie Bros. auction, they know they're
paying a fair market price. Meanwhile, equipment owners know that a Ritchie
Bros. auction attracts buyers from around the world and provides a competitive
bidding environment for their equipment. The results speak for themselves.
[PHOTO]
Dave Ritchie
This year, we held over 100 auctions, including the largest in our history. Set
in the Port of Moerdijk, near Rotterdam, 1,328 bidders from 58 countries
purchased $59 million worth of trucks and equipment over a period of three days.
Our business, like the equipment that sells at our auctions, has become
international in every possible respect.
RITCHIE BROS. ANNUAL REPORT 1998
1
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LOOKING BACK ON 1998
Our 35th year has, without question, been noteworthy. In 1998, Ritchie Bros.
Auctioneers surpassed $1 billion in annual gross auction sales for the first
time ever. In addition to holding the largest auction in our history, in
Rotterdam, we also held our largest North American auction ever, in Fort Worth,
Texas, where over $30 million in trucks and equipment was sold.
This year, the company also went public, with an initial public offering on the
New York Stock Exchange. The offering was very well received, and we raised over
$50 million for the company to finance the next stage of our growth.
1998 also saw us purchase four new locations for permanent auction sites located
in the Port of Moerdijk near Rotterdam in The Netherlands; on Australia's Gold
Coast near Brisbane; in Perris, California just outside Los Angeles; and in
Morris, Illinois southwest of Chicago. These purchases are part of a
comprehensive growth plan that is intended to include more permanent sites, as
well as the upgrading of several existing sites. Our new Toronto and Atlanta
facilities were opened this year, and are now among the most modern of our
permanent sites, with auction facilities that are far superior to the ones they
replaced.
[PHOTOS]
"If you want to know about Ritchie Bros., don't just look at the balance sheet.
Talk to our customers. To the contractor from Alberta who's going to retire with
the money he gets for his construction equipment.
Or the customer from Argentina who came half way around the world to buy
equipment for his project. They're the ones you should talk to. They're the ones
who are responsible for our success."
Dave Ritchie
Chairman and CEO
THE AUCTION PROCESS
[PHOTO]
STEP 1. The auction process begins when an equipment owner meets with
one of our territory managers. We get to know the consignor's needs and,
if necessary, we appraise his equipment. Then we develop an auction
contract that meets his requirements. It might be a straight commission
contract, or it might involve a guarantee of gross proceeds or an
outright purchase.
RITCHIE BROS. ANNUAL REPORT 1998
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1998 has been a year of successes, thanks largely to the support of our
customers and employees.
To our customers, we would like to extend our thanks for doing business with
Ritchie Bros. Your trust and friendship have helped us grow and prosper. That
many of you have also become shareholders of our company is viewed by us as the
ultimate testimonial.
And to our employees, we would like to express our appreciation for the hard
work, commitment and loyalty that is reflected in everything this company has
achieved. If you've spent any time with us, you know that Ritchie Bros. people
are energetic, enthusiastic, "glass is half full" types. We work hard and have
fun doing it. We're proud to say that the vast majority of our employees own
shares in Ritchie Bros., and we think that speaks volumes about the faith that
our employees have in their company. What's more, it underlines our shared
vision of this company, and our interest in guiding Ritchie Bros. in a way that
serves the shareholders.
It's not possible to reflect on 1998 without mentioning one truly sad event.
This year saw the passing of our close friend and colleague, Mark Clarke.
Working with Ritchie Bros. for over 20 years, Mark's role in this company was
incalculable, from his key role in the management of our company to his
extraordinary contribution to our success in Europe and the Middle East. More
importantly, Mark was a loyal and devoted friend and family man. His friendship
will be deeply missed. His legacy will always be with us.
Crawler tractors cross the ramp in front
of the seated crowd at our permanent
auction site in Olympia, Washington.
[PHOTO]
RITCHIE BROS. ANNUAL REPORT 1998
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Ritchie Bros. proprietary database
contains over 250,000 customers in
over 160 countries.
[PHOTO]
RITCHIE BROS. ANNUAL REPORT 1998
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A FOUNDATION FOR LASTING GROWTH
Our greatest strength, for customers and shareholders alike, is our ability to
deliver a global marketplace for industrial equipment.
From our vast proprietary database of customers worldwide, to our network of
auction sites, to our international marketing program, to a senior management
group with unparalleled industrial auction experience, we're continually
building on the foundation that has made us the leading force in this industry.
Today, we're the world's leading auctioneer of industrial equipment, having sold
over $1 billion worth of industrial equipment in 1998 alone. Over our history,
we have auctioned over $8.5 billion in trucks, tractors, backhoes, forklifts and
cranes in over 1,750 auctions around the world. Everybody at Ritchie Bros. is
proud of this achievement. But more importantly, we view it as a foundation upon
which to build. This strong footing provides us with the financial resources to
tailor our contracts to the individual needs of each consignor. It enables us to
offer our clients truly comprehensive service. And more than ever, it allows us
to bring the international marketplace to bear on our auctions by attracting
bidders from every corner of the world.
The result, ultimately, is a strong position in the market and continued growth.
Over the past 20 years, our gross auction sales have grown at an average rate of
15% per year.
[PHOTOS]
"When you walk away from a Ritchie Bros. auction, you know you paid a fair
market value, because you and 1,000 other people set the price. Out in the open.
In the clean light of day. You were treated right and the only people you were
bidding against were legitimate bidders like you."
Russ Cmolik
President
RITCHIE BROS. ANNUAL REPORT 1998
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LOOKING TO THE FUTURE
As exciting as our growth has been to this point, we believe that we're still
only scratching the surface.
Of the nearly $100 billion of used equipment sold around the world each year,
only a fraction is presently traded through auctions. This enormous market
remains the primary route through which to build our business, and our goal will
be to continue to promote the unreserved auction method as a preferred way to
buy and sell trucks and equipment.
[PHOTO]
Russ Cmolik
As in past years, we intend to continue growing our gross auction sales by
constructing state-of-the-art auction facilities in strategic locations
worldwide, and by continuing to build on our network of salespeople and regional
sales offices around the world. In 1998, we purchased land for new permanent
sites in Rotterdam, Brisbane, Los Angeles and Chicago. We also upgraded our
sites in Toronto and Atlanta, bringing them in line with our other
state-of-the-art sites. Without exception, our permanent auction sites generate
higher gross auction sales for the company. They allow us to attract more buyers
and more equipment, and enable us to hold auctions more frequently. Simply put,
they're good for customer service, and our bottom line.
Ringmen relay the bids to the auctioneer.
[PHOTO]
With respect to our geographic expansion, we plan to continue our aggressive
expansion in the U.S. and overseas markets. The U.S. market continues to
represent a significant growth opportunity for us. Expansion beyond the United
States also remains highly promising. To date, we've only begun to venture into
Europe, Asia and Australia, while Africa and South America have yet to host a
Ritchie Bros. auction. These regions represent the majority of the global
marketplace, and exciting growth potential for Ritchie Bros.
In conjunction with our geographic expansion, we plan to increase our presence
in the agriculture and transportation segments of the used equipment market. We
intend to leverage our expertise, infrastructure and reputation to generate
additional business in these segments. This lateral growth is a natural
complement to our traditional focus on construction equipment, and will allow us
to increase revenue from our existing permanent auction sites and regional
auction units.
We will also continue to look to new technologies to help us grow our business
and provide our customers with the services they deserve and demand. Our web
site currently provides customers with a range of features including on-line
auction brochures, on-line catalogues and an equipment search engine, giving our
customers an impressive array of up-to-the-minute information about the
equipment consigned to our auctions.
RITCHIE BROS. ANNUAL REPORT 1998
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[PHOTO]
Bidder registration in
Toronto, Ontario.
In the first quarter of 1999, we will be adding several new features to our
website including internet-based absentee bidding and live auction broadcasts.
The absentee bidding feature will serve as a valuable complement to our existing
phone/fax system, and should be faster and easier to use. And the real-time
auction broadcasts will allow us to introduce our auctions to a wider audience
while enabling absentee bidders to follow the auction on-line and see if their
bids are successful.
We have always used newly developed technologies to augment and improve our
auction process, and we intend to keep the company positioned to take advantage
of additional technologies as they become available. In the past, we've used
satellite and video conferencing to allow bidders in remote locations to
participate in selected auctions on a real-time basis. Today, the internet
offers a powerful means for us to disseminate information to our customers
around the world. To the extent that we can use the internet and other
technologies to enhance our services, we will do so.
Above all, we intend to continue our growth by moving into new sectors in
stages, committing to markets and regions that we've already explored, developed
and fully expect to be profitable. This conservative approach to growth has
served us well for 35 years. We remain open to new ideas, developments and
acquisition opportunities, but believe that our current approach is the
appropriate growth model for our company. Some might suggest that we're imposing
limits on ourselves, and perhaps that's true. But we believe it is important to
grow in a controlled manner and stay focused on our customers. Ultimately, it is
by giving our customers the best possible service, and by bringing them a global
marketplace, that we will best serve their needs and grow our company.
[PHOTO]
The auction theatre in Olympia, Washington.
THE AUCTION PROCESS
[PHOTO]
STEP 2. Ritchie Bros. coordinates cleaning, refurbishing, repairwork and
painting to help get the equipment ready for auction. Marketing is done
through full-colour auction brochures, ads in trade journals, press
releases, and a listing on our website. As well, we ensure that all the
equipment is free and clear of liens so buyers can purchase with
confidence.
RITCHIE BROS. ANNUAL REPORT 1998
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It's an approach that requires a lot of discipline. And we believe we have the
people to pull it off. In addition to the management team that has guided
Ritchie. Bros. to this point, we are grooming a team of young managers who are
proving themselves at every level of our organization. The issue of management
succession is a priority for our company, and we're very excited by our next
generation of leaders. Clearly, Ritchie Bros. Auctioneers will be in very
capable hands long after we've caught our last bids.
Lastly, we'd like to thank our shareholders. Many of you work with us. Some of
you are our customers. Others are simply looking to invest in a good, honest,
hard-working company with exciting potential. Whatever your reasons, on behalf
of every member of the Ritchie Bros. team, we thank you for believing in us and
pledge to do our best to uphold your trust for the next 35 years.
/s/ DAVE RITCHIE /s/ RUSS CMOLIK
Dave Ritchie Russ Cmolik
Chairman and C.E.O. President
[PHOTO]
RITCHIE BROS. ANNUAL REPORT 1998
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A Look Behind
the Scenes.
UNDERSTANDING THE INDUSTRY
Backhoes, forklifts, trucks and cranes, together with a multitude of other
equipment types, make up the backbone of every major industrial, agricultural
and transportation project on the planet. And though they may not look like the
stuff of international commerce, that's exactly what they are. While a
state-of-the-art computer will probably spend its entire lifetime in a single
office space with a single owner, a motor scraper could easily travel the world
several times during its lifetime, changing hands repeatedly as it goes from a
mining operation in Chile to an oil well in Alberta to a highway project on the
California coast.
Currently, there's approximately $1 trillion worth of used industrial equipment
in operation worldwide. Only a small percentage of that equipment is being
traded at any given time, and only a portion of that ends up at auction, with
the majority being sold directly or through dealers and brokers. That said, over
$1 billion worth of trucks and equipment was sold at our auctions last year
alone.
More importantly, the auction market continues to grow with every passing year.
We think that this growth is largely due to the appeal of the Ritchie Bros.
unreserved auction process and our ability to serve as an efficient low-cost
intermediary for buyers and sellers of industrial equipment.
It is a powerful business model that has proven itself with over three decades
of superior customer service, impressive profitability and consistent growth.
RITCHIE BROS. ANNUAL REPORT 1998
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THE AUCTION
A Ritchie Bros. auction is like nothing you've ever seen before. Held over 100
times a year in locations around the world, each auction usually brings together
more than 1,000 buyers and sellers from countless regions, with as much as $50
million worth of equipment changing hands during several exciting days.
The cornerstone of a Ritchie Bros. auction is that it's completely unreserved.
This means that there are no reserve prices, no minimum bids, and absolutely no
bidding by the auctioneer or the consignor. The bidders alone determine the
final selling price of the items being auctioned. The result is a completely
transparent process that generates a fair market price on every piece of
equipment sold. We believe our commitment to the unreserved auction process has
helped make us the world's leading auctioneer of industrial equipment. Bidders
trust us to assemble a wide selection of trucks and equipment. Consignors trust
us to attract large numbers of buyers from around the country and around the
world. And all of our customers trust us to hold efficient, professional, fair
auctions. What's more, every member of our team, from our territory managers and
field accountants to our receptionists and software developers, is committed to
maintaining that trust.
In today's world of satellite communications and suborbital space stations,
industrial auctions aren't the most complicated things to understand.
That said, if you look behind the scenes of a Ritchie Bros. auction, you will
quickly gain an appreciation for the complexities of the business.
From our sophisticated database marketing, to our systematic approach for
developing new markets and expanding our network of permanent auction sites,
every operational detail is rigorously managed by our experienced, hands-on
management team.
We conduct a large number of "off-site" auctions
every year, taking our auction system to the
equipment rather than taking the equipment to
one of our permanent sites.
[PHOTO]
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ATTRACTING THE BEST EQUIPMENT
Assembling a wide selection of equipment is one of the keys to holding a
successful auction. Consequently, Ritchie Bros. goes to great lengths to create
the ideal environment for potential consignors -- from first-class auction
facilities and professional personnel, to comprehensive service and a large
international bidding audience.
[PHOTO]
Ritchie Bros. sold over $150 million worth of
trucks and trailers in 1998.
That environment is what allows a Ritchie Bros. auction to transcend local
market conditions, enabling our consignors to receive a world market price for
their equipment.
Ritchie Bros. offers consignors several contract options to meet their
individual needs. These can include a straight commission contract whereby the
seller receives the gross proceeds on the sale minus an agreed commission rate,
as well as alternate arrangements including guaranteed proceeds or an outright
purchase of the equipment. Typically, about two-thirds of our auction business
is consigned on a straight commission basis, and one-third of the arrangements
involve us taking some or all the risk. Our guarantee is a powerful way for us
to help our consignors minimize their risk. Just as importantly, that guaranteed
return demonstrates our willingness to stand behind our performance. We don't
overpromise, and our customers know it.
Our financial strength is what enables us to underwrite these risks. Moreover,
our ability and willingness to offer guarantees also translates into a
significant competitive advantage.
[GRAPHIC]
Effectively managing the risks associated with guaranteed contracts is a
critical component of our business. But then, we have sold over $8.5 billion
worth of trucks and equipment in the last 35 years. Add to that an appraisal
database containing information on over one million pieces of auctioned
equipment from around the world, along with a sophisticated centrally-controlled
appraisal process, and it becomes clear how we're able to turn a calculated risk
into profitable business.
THE AUCTION PROCESS
[PHOTO]
STEP 3. To ensure an organized and efficient auction, we set up the yard
so prospective bidders can examine and compare the equipment. We have
knowledgeable staff on hand to answer questions. And to make the process
even easier, we have caterers, finance company representatives, customs
brokers, transportation companies and other services on site.
RITCHIE BROS. ANNUAL REPORT 1998
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Skid-steer loaders being sold in Toronto, Ontario.
[PHOTO]
There's no question that offering consignors a choice of contract options is
important. But it's just one component of our pragmatic and flexible approach
for attracting equipment to our auctions. Our team of territory managers and
field personnel is committed to providing all our consignors with comprehensive,
hands-on service that begins with the consignor's first meeting with a Ritchie
Bros. representative. It involves equipment appraisals and title searches,
followed by equipment repairs and refurbishing coordinated by our staff at the
auction site. We also take care of marketing, collection and disbursement of
auction proceeds, and coordination of payments to lien-holders. And if a
consignor with a significant fleet wants his equipment auctioned at his own
site, we can usually accommodate that request as well. Ultimately, our goal is
to provide our consignors with superior service and to assemble a spread of
equipment that will attract a large and diverse group of bidders.
ATTRACTING BIDDERS FROM AROUND THE WORLD
In many respects, it's like the chicken and the egg. Equipment attracts bidders,
which in turn attracts more equipment, which attracts more bidders.
It's a self-reinforcing process that's been feeding on itself for 35 years,
giving us a strong competitive edge. That's why we take such a rigorous and
systematic approach to attracting buyers from around the world.
Before every auction, a targeted mailing is generated from our proprietary
database of over 250,000 customers from over 160 countries. This sophisticated
database, which contains attendance histories, equipment preferences and buying
activity, allows us to identify which customers might be interested in a
particular auction. Prior to each auction, an average of 50,000 customers
receive full-colour auction brochures.
RITCHIE BROS. ANNUAL REPORT 1998
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THE AUCTION PROCESS
STEP 4. On auction day, our auctioneers, ringmen and field staff conduct
the auction. We sell 80 to 100 items every hour.
In conjunction with this direct mail campaign, strong regional and
industry-specific advertising and marketing campaigns are conducted. And
information about all of the consigned equipment is posted on our web site.
[PHOTO]
At the auction site, we provide bidders with a comprehensive range of important
services, including access to finance companies and customs brokers, as well as
catering, transportation and translation services. We also provide a wide range
of information about the items in the auction, and customers are encouraged to
inspect and test the equipment before bidding. Finally, everything sold at a
Ritchie Bros. auction is sold "as is -- where is", on an unreserved basis, with
a clear and unencumbered title guaranteed.
It's an intensive process focused on delivering the ultimate in customer
service.
The result is an average attendance of over 1,000 bidders at each auction, with
a significant number of these attendees traveling from outside the region.
Depending on the location of the auction, these outside buyers will often
account for 50% or more of the sales at the auction. It's this breadth of
participants that allows us to transcend local market conditions, and to sell
equipment at world market prices.
"It's not complicated. Just bring in more equipment, and you'll attract more
buyers, which in turn attracts more equipment, and so on. The cycle feeds
itself. The formula is simple. It's the execution that takes so much work."
Dave Ritchie
Chairman and CEO
Over 100,000 bidders participated
in Ritchie Bros. auctions in 1998.
[PHOTO]
RITCHIE BROS. ANNUAL REPORT 1998
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Understanding our
Growth.
At the core of our growth strategy is a 5-stage approach for developing our
permanent auction sites. This approach may sound simple. But we believe that it
has been instrumental in getting us to where we are today.
LET THEM COME. THEN BUILD IT.
At Ritchie Bros., we don't build a permanent auction site and then wait for the
market to develop. We do it the other way around. Our permanent auction sites
usually evolve out of a 5-stage strategy that begins years before any permanent
structure is ever erected.
The first stage is to identify where our buyers are traveling from. Second, an
auction is held at a temporary "off-site" location in that region with the
intention of developing our consignor base in the area and exploring its
potential for growth. Third, a modest sales office is established and staffed
with one or more territory managers. These are full-time Ritchie Bros.
representatives who are tasked with developing the territory, sourcing equipment
and organizing more off-site auctions.
As a rule of thumb, the fourth stage, the development of a regional auction
unit, requires about $25 million in anticipated yearly gross auction sales. Once
we believe that target can be met, a regional auction unit is established. Land
and facilities are leased, additional personnel are deployed, and auctions are
held every 3-6 months.
The final stage, the development of a permanent auction site, is typically based
on anticipated annual gross auction sales of about $40 million. At this stage,
we purchase land and construct permanent facilities that include an auction
theater, administrative offices, as well as other conveniences that aren't
usually provided at our off-site and regional facilities. In addition to
enhancing our corporate profile in the region and drawing more buyers, permanent
sites generate a higher profit margin. At a permanent auction site, territory
managers can concentrate on signing up equipment and servicing customers, rather
than dealing with essentials like hooking up phone and power lines and arranging
for temporary permits.
The result is bigger auctions with lower costs.
[GRAPHIC]
RITCHIE BROS. ANNUAL REPORT 1998
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A DISCIPLINED APPROACH TO GROWTH
Our approach to growth may seem logical and sound, but it does require an
unusual amount of discipline and common sense. That discipline stems from our
leadership. With an average of 19 years of experience, the 18 senior regional
and head-office managers who make up our Management Advisory Committee bring an
unparalleled level of expertise and commitment to the company.
That commitment is reflected throughout the organization, translating into a
strong sense of corporate loyalty. It's that commitment and loyalty that have
allowed us to grow at such a steady and disciplined rate.
An aerial photograph of our Rotterdam auction site taken just before a
$59 million auction in November 1998 - the largest auction in the
company's history.
[PHOTO]
"A key part of our growth strategy is to provide our bidders with the same
Ritchie Bros. experience whether they're at an auction in Dubai, Atlanta or
Prince George. When bidders travel to a Ritchie Bros. auction, they know exactly
what to expect."
Dave Ritchie
Chairman and CEO
THE AUCTION PROCESS
STEP 5. After the auction we collect the proceeds, coordinate the
release of the equipment to its new owners, and disburse the proceeds to
the consignors.
[PHOTO]
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A Look at Our
1998 Milestones.
[GRAPHIC]
[PHOTO]
March 10
Ritchie Bros. shares begin
trading on the New York Stock
Exchange.
[PHOTO]
March 11 & 12
Our largest North American auction ever.
Gross auction sales of $30 million.
Fort Worth, Texas
[PHOTO]
June 16
The highest price achieved at auction for
a single piece of equipment sold in
our history. P&H 2800XP Front Shovel.
Selling price: $1.5 million (AUD).
Hunter Valley, Australia
[PHOTO]
September 23
Our 1,750th auction.
Fort Worth, Texas
[PHOTO]
November 18-20
Our largest auction ever.
Gross auction sales
of $59 million.
Rotterdam, Netherlands
RITCHIE BROS. ANNUAL REPORT 1998
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"Quality used equipment is always in high demand, because there's always lots of
work to be done. Even during times of economic uncertainty, contractors need
equipment, but may not have the confidence to buy new equipment. We see them at
our auctions regardless of the economic climate."
Russ Cmolik
President
[GRAPHIC]
- - Permanent Auction Sites
- - Regional Auction Units
- - Sales Offices
[PHOTO]
December 2
Annual gross auction sales
surpassed $1 billion.
Fort Worth, Texas
[PHOTO]
December 4
Cumulative gross auction
sales for the company reached
$8.5 billion.
Riverside, California
[PHOTO]
December 17
Our 1,500,000th registered
bidder.
Stockton, California
RITCHIE BROS. ANNUAL REPORT 1998
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[PHOTO]
RITCHIE BROS. ANNUAL REPORT 1998
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Financial Information
INDEX
<TABLE>
<S> <C>
Management's Discussion and Analysis 19
Independent Auditors' Report 22
Consolidated Financial Statements
Consolidated Statements of Income 23
Consolidated Balance Sheets 24
Consolidated Statements of Shareholders' Equity 24
Consolidated Statements of Cash Flows 25
Notes to Consolidated Financial Statements 26
Selected Financial and Operating Data 34
Supplemental Quarterly Data 35
</TABLE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
OVERVIEW
The following discussion summarizes the significant factors affecting the
consolidated operating results and financial condition of Ritchie Bros.
Auctioneers Incorporated ("Ritchie Bros." or the "Company") for the year ended
December 31, 1998 compared to the twelve months ended December 31, 1997. This
discussion should be read in conjunction with the consolidated financial
statements and notes thereto included herein. The Company prepares its
consolidated financial statements in accordance with generally accepted
accounting principles in Canada which, except as set out in note 9 to the
consolidated financial statements, results in materially consistent financial
position and results of operations to that which would be reported under
generally accepted accounting principles in the United States. Amounts discussed
below are based on consolidated financial statements prepared in accordance with
Canadian accounting principles.
Effective December 31, 1997, the Company changed its fiscal year end from April
30 to December 31. The financial results for the year ended December 31, 1998
represent the first full fiscal year on the basis of the Company's new reporting
year. The financial results for the transition period from May 1, 1997 to
December 31, 1997 are also reported in the consolidated financial statements.
Results for the transition period are not necessarily indicative of operations
for a full year.
For comparative information purposes, unaudited consolidated statements of
income and cash flows prepared by management are presented for the twelve-month
period ended December 31, 1997. Such information reflects all adjustments that
are, in the opinion of management, necessary to reflect a fair presentation of
the results of operations for such period. The discussion that follows compares
the audited results for the year ended December 31, 1998 to the unaudited
results for the twelve months ended December 31, 1997. The Company believes that
this approach provides readers with the most meaningful information.
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 14 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.
RITCHIE BROS. ANNUAL REPORT 1998
19
<PAGE> 23
Management's Discussion and Analysis, continued
The Company's gross auction sales and auction revenues are also affected on a
period-to-period basis by the timing of major auctions. In newer markets where
the Company is developing operations, the number and size of auctions and, as a
result, the level of gross auction sales and auction revenues, is likely to vary
more dramatically from period-to-period than in the Company's established
markets where the number, size and frequency of the Company's auctions are more
consistent. Finally, economies of scale are achieved as the Company's operations
in a region mature from conducting intermittent auctions, establishing a
regional auction unit, and ultimately to developing a permanent auction site.
Economies of scale are also achieved when the size of the Company's auctions
increases.
The Company is aware of potential restrictions that may affect the ability of
equipment owners to transport certain equipment between some jurisdictions.
Management believes that these potential restrictions have not had a significant
impact on the Company's business, financial condition or results of operations
to date. However, the extent of any future impact on the Company's business,
financial condition or results of operations from these potential restrictions
cannot be predicted at this time.
Income taxes reported in periods prior to the completion of a corporate
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 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 affects the comparability
of general and administrative expense between 1997 and 1998.
On February 19, 1999, Ritchie Bros. entered into an agreement to acquire the
auction business of Forke Auctioneers, Inc. ("Forke"), a major auctioneer of
industrial equipment headquartered in Lincoln, Nebraska. Whereas Ritchie Bros.
operates through over 50 locations in 14 countries in North America, Europe,
Asia, Australia and the Middle East, Forke operates primarily in the United
States. Forke has been conducting industrial auctions since 1921 and pioneered
the industrial auction business in the United States. The transaction is
expected to close in March or April 1999, subject to customary conditions. The
Company is not acquiring Forke's equipment finance business. The parties have
agreed not to disclose the terms of the agreement until the transaction has
closed. The Company intends to finance the acquisition substantially with a bank
term loan.
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
AUCTION REVENUES
Auction revenues of $94.9 million for the year ended December 31, 1998 increased
by $9.9 million, or 11.6%, from the twelve months ended December 31, 1997 due to
increased gross auction sales, partially offset by a marginally lower average
percentage of auction revenues earned by the Company on gross auction sales.
Gross auction sales of $1.088 billion for the year ended December 31, 1998
increased by $141.3 million, or 14.9%, from the prior period, primarily as a
result of increased gross auction sales in the United States and Europe. Results
for 1998 included significant gross auction sales for certain auctions held by
the Company in Rotterdam, the Netherlands, Fort Worth, Texas, and Dubai, the
United Arab Emirates. Auction revenues as a percentage of gross auction sales
have averaged 8.80% on a long-term basis. In 1998, the auction revenue rate of
8.72% was fractionally lower than the long-term average and lower than the 8.98%
rate experienced in 1997. The Company's expectations with respect to the
long-term average auction revenue rate remain unchanged.
DIRECT EXPENSES
Direct expenses are expenses that are incurred as a direct result of an auction
sale being held. Direct expenses include the costs of hiring personnel to assist
in conducting the auction, lease expenses for temporary auction sites, travel
costs for full time employees to attend and work at the auction site, security
hired to safeguard equipment while at the auction site, and advertising costs
specifically related to the auction. Direct expenses decreased by $1.3 million
to $16.0 million for the year ended December 31, 1998 compared to the prior
period. As a percentage of gross auction sales, direct expenses were 1.47% for
the year ending December 31, 1998, lower than the 1.83% experienced during 1997.
This decrease was primarily a result of fewer but larger auctions being held in
1998 as compared to 1997 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 1998 and 1997 than in other prior periods.
The Company anticipates that it will continue to hold these large auctions and
that direct expenses as a percentage of gross auction sales will, in future
periods, be lower than the average that the Company has experienced over the
last several years.
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 year ending December 31, 1998, depreciation increased
marginally from 1997, due to an increase 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.
RITCHIE BROS. ANNUAL REPORT 1998
20
<PAGE> 24
Management's Discussion and Analysis, continued
GENERAL AND ADMINISTRATIVE EXPENSE
General and administrative expense ("G&A") includes employee expenses, such as
salaries, wages, performance bonuses and benefits, non-auction related travel,
institutional advertising, insurance, general office, and computer expenses. For
the year ended December 31, 1998, the Company incurred G&A of $39.3 million.
Management does not consider G&A of $37.7 million in 1997 to be meaningful as a
comparable number since the expenses incurred in 1997 reflect results prior to
the reorganization and, as a result, certain components are not comparable on a
period to period basis with the expenses incurred in 1998. 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.
EMPLOYEE EQUITY PARTICIPATION EXPENSE
Employee equity participation expense of $10.3 million incurred in the twelve
months ended December 31, 1997 related to the issuance of shares and options to
employees of the Company on a discounted basis pursuant to the Employee Equity
Participation Program described in note 5 to the consolidated financial
statements included herein. In 1998, no such discounted shares or options were
issued and management does not anticipate further issuances of shares or grants
of options under the Employee Equity Participation Program.
INCOME FROM OPERATIONS
Income from operations was $36.8 million in the year ended December 31, 1998.
Management does not consider the 1997 results to be meaningful as a comparable
number because certain components of G&A are not comparable on a period to
period basis, and because of the effect of the employee equity participation
expense in 1997.
INTEREST EXPENSE
Interest expense includes interest and bank charges paid on term bank debt.
Interest expense for the year ended December 31, 1998 decreased $0.4 million to
$1.6 million, compared to $2.0 million incurred in the twelve months ended
December 31, 1997. Management plans to partially finance the acquisition of
additional permanent auction sites and the Forke assets by incurring debt, which
should 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. Other income for the year ended December 31, 1998
of $3.3 million increased by $2.5 million from 1997 due primarily to $1.8
million of non-recurring income ($1.2 million after giving effect to income tax)
during 1998. This non-recurring income was generated primarily as a result of a
gain on the disposal of a permanent auction site that has been replaced with a
new facility. The balance of the increase resulted primarily from increased
appraisal revenues and the recovery of miscellaneous prior period charges.
INCOME TAXES
Income taxes of $13.7 million for the year ended December 31, 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 1998 of
35.5% is marginally lower than the rate the Company would normally expect for
subsequent years because, during 1998, the Company earned a slightly higher than
usual percentage of its income in lower tax rate jurisdictions. Income taxes for
the twelve months ended December 31, 1997 are not meaningful as a comparable
number because of the non-comparability of net income before tax and, since
prior to the reorganization, many of the predecessor entities to the Company
were partnerships not subject to corporate income taxation. See "- Overview."
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash can fluctuate significantly from period to period, largely
due to differences in timing of receipt of gross sale proceeds from buyers and
the payment of net amounts due to consignors. If auctions are conducted near a
period end, the Company may hold cash in respect of those auctions that will not
be paid to consignors until after the period end. Accordingly, management
believes a more meaningful measure of the Company's liquidity is working
capital, including cash.
At December 31, 1998 and December 31, 1997, working capital was $49.1 million
and $3.3 million respectively. The increase in working capital of $45.8 million
resulted primarily from the receipt of proceeds from the Company's initial
public offering in March 1998 of approximately $51.6 million, and from net
income earned during the year ended December 31, 1998. This increase was
partially offset by capital expenditures incurred by the Company during the
period.
Net capital expenditures by the Company during the year ended December 31, 1998
were $37.1 million as compared to $5.1 million for the twelve months ended
December 31, 1997. In 1998, the Company acquired land for use as permanent
auction sites and incurred site development costs in the United States, Canada,
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.
The Company has completed negotiations of credit facilities with financial
institutions in the United States, Canada, Europe, and Australia. The Company
presently has access to credit lines for operations exceeding $95.0 million and
to credit lines for funding property acquisitions exceeding $40.0 million. Of
these credit lines, at December 31, 1998, the Company had no bank debt relating
to operations, and bank debt related to property acquisitions totaled $9.6
million.
RITCHIE BROS. ANNUAL REPORT 1998
21
<PAGE> 25
MANAGEMENT'S DISCUSSION AND ANALYSIS, CONTINUED
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.
The Company initiated its "Year 2000" compliance efforts in 1997. Management
believes that only minor modifications remain to be completed to make its
systems Year 2000 compliant and that related costs incurred to date have not,
and estimated future costs will not, have a material impact on the Company's
business, financial condition, or results of operations.
The most reasonable likely worst case Year 2000 scenario would involve the
failure of one or more of the Company's key suppliers to become Year 2000
compliant. In such a scenario, the Company's ability to adequately advertise its
auctions and account for receipts and payments as efficiently as it does at
present could be negatively affected.
The Company is presently developing contingency plans in the event of the
Company's or its key suppliers' failure to achieve full Year 2000 compliance and
management anticipates these will be completed prior to June 1999. The plan
includes identifying alternate organizations that may act as replacements for
those with which the Company presently conducts business and which may not
achieve full Year 2000 compliance, including one or more of its lenders,
marketing service suppliers, or external software providers. The plan also
includes development of internal back-up systems and identification of available
replacement resources to restore operations to present levels in the event of
Year 2000 non-compliance. Failure by the Company or any of its key suppliers to
achieve full Year 2000 compliance in a timely manner or consistent with its
current cost estimates, or to rectify deficiencies through any contingency
plans, could have a material adverse effect on the Company's business, financial
condition and results of operations.
FORWARD-LOOKING STATEMENTS
This Management's Discussion and Analysis of Financial Condition and Results of
Operations and other sections of this Annual Report contain forward-looking
statements that involve risks and uncertainties. These statements are based on
current expectations and estimates about the Company's business. These
statements include, in particular, statements relating to auction revenue rates,
direct expense rates, G&A increases, income tax rates, the anticipated
improvement, acquisition and development of permanent auction sites, the
anticipated acquisition of Forke assets, financing available to the Company, and
the future-oriented comments contained throughout this Annual Report. Words such
as "expects", "intends", "plans", "believes", "estimates" and variations of such
words and similar expressions are intended to identify such forward-looking
statements. These statements are not guarantees of future performance and
involve certain risks, uncertainties and assumptions that are difficult to
predict. The following important factors, among others, could affect the
Company's actual results and could cause such results to differ materially from
those expressed in the Company's forward-looking statements: the many factors
that 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; the possibility that the Forke
acquisition will not be completed; 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. The Company undertakes no
obligation to update publicly any forward-looking statements, whether as a
result of new information, future events or otherwise. Forward-looking
statements should be considered in light of these factors.
INDEPENDENT AUDITORS' REPORT
To the Shareholders of Ritchie Bros. Auctioneers Incorporated
We have audited the consolidated balance sheets of Ritchie Bros. Auctioneers
Incorporated (the "Company") as at December 31, 1998 and 1997 and the
consolidated statements of income, shareholders' equity and cash flows for the
years ended December 31, 1998 and 1997 (Unaudited), for the eight months ended
December 31, 1997 and the year ended April 30, 1997. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with Canadian generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
In our opinion, these consolidated financial statements present fairly, in all
material respects, the financial position of the Company as at December 31, 1998
and 1997 and the results of its operations and the changes in its cash flows for
the years ended December 31, 1998 and 1997 (Unaudited), for the eight months
ended December 31, 1997 and the year ended April 30, 1997 in accordance with
generally accepted accounting principles in Canada.
Significant measurement differences between Canadian and United States
accounting principles are explained and quantified in note 9.
/s/ KPMG LLP
- ---------------------
Chartered Accountants
Vancouver, Canada
February 26, 1999
RITCHIE BROS. ANNUAL REPORT 1998
22
<PAGE> 26
CONSOLIDATED STATEMENTS OF INCOME
(Expressed in thousands of United States Dollars)
<TABLE>
<CAPTION>
Year ended Year ended Eight months ended Year ended
December 31, December 31, December 31, April 30,
1998 1997 1997 1997
------------ ------------ ------------------ ------------
(Unaudited)
<S> <C> <C> <C> <C>
Auction revenues $ 94,899 $ 85,009 $ 60,034 $ 72,186
Direct expenses (16,010) (17,351) (13,041) (13,908)
------------ ------------ ------------ ------------
78,889 67,658 46,993 58,278
Expenses
Depreciation 2,752 2,548 1,540 2,014
General and administrative 39,315 37,724 27,414 31,099
Employee equity participation (note 5(d)) -- 10,346 10,346 --
------------ ------------ ------------ ------------
42,067 50,618 39,300 33,113
------------ ------------ ------------ ------------
Income from operations 36,822 17,040 7,693 25,165
Other income (expenses)
Interest expense (1,569) (2,034) (1,380) (1,081)
Other 3,251 754 576 917
------------ ------------ ------------ ------------
1,682 (1,280) (804) (164)
------------ ------------ ------------ ------------
Income before income taxes 38,504 15,760 6,889 25,001
Income taxes (note 7)
Current 13,962 7,438 4,491 5,992
Future (292) -- -- --
------------ ------------ ------------ ------------
13,670 7,438 4,491 5,992
------------ ------------ ------------ ------------
Net income $ 24,834 $ 8,322 $ 2,398 $ 19,009
============ ============ ============ ============
Net income per share (note 1(l))
Basic $ 1.56 $ 0.65 $ 0.19 $ 1.49
Diluted 1.54 0.64 0.18 1.49
------------ ------------ ------------ ------------
Weighted average number of shares outstanding 15,918,214 12,877,777 12,958,753 12,715,667
============ ============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
Approved on behalf of the Board of Directors
/s/ C. RUSSELL CMOLIK /s/ PETER J. BLAKE
- --------------------- ------------------
C. Russell Cmolik Peter J. Blake
Director Director
RITCHIE BROS. ANNUAL REPORT 1998
23
<PAGE> 27
CONSOLIDATED BALANCE SHEETS
(Expressed in thousands of United States Dollars)
<TABLE>
<CAPTION>
December 31, December 31,
1998 1997
------------ ------------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 73,620 $ 27,149
Accounts receivable 6,771 6,744
Inventory 2,355 7,081
Advances against auction contracts 5,345 1,261
Prepaid expenses and deposits 711 1,218
-------- --------
88,802 43,453
Capital assets (note 3) 61,324 27,007
Future income taxes (note 7) 2,467 --
-------- --------
$152,593 $ 70,460
======== ========
</TABLE>
<TABLE>
<CAPTION>
December 31, December 31,
1998 1997
------------ ------------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Auction proceeds payable $ 14,030 $ 17,728
Accounts payable and accrued liabilities 21,751 17,131
Current bank loans (note 4) 793 730
Income taxes payable 3,079 4,542
--------- ---------
39,653 40,131
Bank term loans (note 4) 8,768 4,623
--------- ---------
48,421 44,754
Shareholders' equity
Share capital (note 5) 64,728 10,866
Retained earnings 41,772 16,958
Foreign currency translation adjustment (2,328) (2,118)
--------- ---------
104,172 25,706
Subsequent event (note 10)
--------- ---------
$ 152,593 $ 70,460
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(Expressed in thousands of United States Dollars)
<TABLE>
<CAPTION>
Foreign
Currency Total
Share Retained Translation Shareholders'
Capital Earnings Adjustment Equity
--------- --------- ----------- -------------
<S> <C> <C> <C> <C>
Balance, April 30, 1996 $ 3,337 $ 47,015 $ (1,551) $ 48,801
Net proceeds on common shares issued 28 -- -- 28
Capital contributions to partnerships -- 166 -- 166
Net income -- 19,009 -- 19,009
Drawings and dividends -- (8,073) -- (8,073)
Refundable taxes on investment income -- (29) -- (29)
Foreign currency translation adjustment -- -- (577) (577)
--------- --------- --------- ---------
Balance, April 30, 1997 3,365 58,088 (2,128) 59,325
Common shares redeemed (2,845) -- -- (2,845)
Employee equity participation (note 5(d)) 10,346 -- -- 10,346
Net income -- 2,398 -- 2,398
Drawings and dividends -- (42,175) -- (42,175)
Reorganization costs -- (1,353) -- (1,353)
Foreign currency translation adjustment -- -- 10 10
--------- --------- --------- ---------
Balance, December 31, 1997 10,866 16,958 (2,118) 25,706
Net proceeds on common shares issued 53,862 -- -- 53,862
Net income -- 24,834 -- 24,834
Reorganization costs -- (20) -- (20)
Foreign currency translation adjustment -- -- (210) (210)
--------- --------- --------- ---------
Balance, December 31, 1998 $ 64,728 $ 41,772 $ (2,328) $ 104,172
========= ========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
RITCHIE BROS. ANNUAL REPORT 1998
24
<PAGE> 28
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Expressed in thousands of United States Dollars)
<TABLE>
<CAPTION>
Eight
Year ended Year ended months ended Year ended
December 31, December 31, December 31, April 30,
1998 1997 1997 1997
----------- ------------ ------------- -----------
(Unaudited)
<S> <C> <C> <C> <C>
Cash provided by (used in)
Operations
Net income $ 24,834 $ 8,322 $ 2,398 $ 19,009
Items not involving the use of cash
Depreciation 2,752 2,548 1,540 2,014
Employee equity participation -- 10,346 10,346 --
Future income taxes (2,467) -- -- --
Changes in non-cash working capital
Accounts receivable (27) (2,389) 7,363 20,788
Inventory 4,726 455 11,073 (8,148)
Advances against auction contracts (4,084) 1,395 5,211 (351)
Prepaid expenses and deposits 507 (711) (446) (202)
Auctions proceeds payable (3,698) 10,434 (35,749) (22,526)
Accounts payable and accrued liabilities 4,620 9,329 8,203 (1,272)
Payables to affiliated entities -- (3,078) (3,818) 459
Income taxes payable (1,463) 2,077 (540) 1,845
Foreign currency translation adjustment (210) (417) 10 (577)
-------- -------- -------- --------
25,490 38,311 5,591 11,039
-------- -------- -------- --------
Financing
Issuance (redemption) of share capital 53,862 (2,833) (2,845) 28
Payables to employees and others -- (1,317) (1,279) 57
Bank loans 4,208 (1,326) (5,596) 2,802
Drawings and dividends paid -- (42,756) (42,175) (8,073)
Capital contributions -- -- -- 166
Refundable taxes on investment income -- (29) -- (29)
Reorganization costs (20) (1,353) (1,353) --
-------- -------- -------- --------
58,050 (49,614) (53,248) (5,049)
-------- -------- -------- --------
Investments
Capital asset additions, net (37,069) (5,120) (3,174) (5,171)
-------- -------- -------- --------
Increase (decrease) in cash and cash equivalents 46,471 (16,423) (50,831) 819
Cash and cash equivalents, beginning of period 27,149 43,572 77,980 77,161
-------- -------- -------- --------
Cash and cash equivalents, end of period $ 73,620 $ 27,149 $ 27,149 $ 77,980
======== ======== ======== ========
Supplemental disclosure of cash flow information
Interest paid $ 1,570 $ 1,853 $ 1,242 $ 1,068
Income taxes paid $ 16,735 $ 5,098 $ 5,332 $ 4,147
======== ======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
RITCHIE BROS. ANNUAL REPORT 1998
25
<PAGE> 29
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31, 1998 and 1997 (Unaudited), eight months ended
December 31, 1997 and year ended April 30, 1997
(Tabular dollar amounts expressed in thousands of United States Dollars)
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
(a) Basis of presentation
These consolidated financial statements present the financial position,
results of operations and changes in shareholders' equity and cash flows
of Ritchie Bros. Auctioneers Incorporated (the "Company"), a company
incorporated in July 1997 under the Canada Business Corporations Act,
and its subsidiary predecessor businesses. These predecessor businesses
comprised the Ritchie Bros. Auctioneers group of companies and
partnerships (the "Group"). In the eight-month period ended December 31,
1997, the businesses of the partnerships within the Group were
transferred into corporations, the shares of which, together with the
shares of the corporations within the Group, were exchanged by their
owners for shares of the Company (the "Reorganization"). All
inter-entity accounts and transactions have been eliminated on
consolidation.
On November 1, 1997, prior to completion of the Reorganization, the
owners of the Group entered into the Equity Interest and Income Sharing
Agreement (the "Agreement") which confirmed the existing voting,
earnings allocation and liquidation rights of each owner. These rights
were based upon the owners' interests in the Group, taken as a whole,
which was treated as a single global enterprise since prior to May 1,
1992. The rights and obligations specified in the Agreement were those
of an agreement which has been in effect at all times since May 1, 1992
and which modified the terms of any written agreements containing
provisions that may have been inconsistent with the Agreement. Each
owner's rights under the Agreement were determined in accordance with
such owner's ownership percentage of the Group ("Global Ownership
Percentage"), which was equal to the number of units of ownership of the
Group allocated to the owner divided by the total number of units
outstanding. The owners' respective Global Ownership Percentages were
determined on the basis of the Group taken as a whole, and not on the
basis of the documentation governing the owners' equity interests in the
predecessor entities within the Group. The Group has been legally
obligated to make and has made earnings allocations in accordance with
the terms of the Agreement since prior to May 1, 1992. As a result of
these agreements and practices, each owner's ownership interest in the
Company upon completion of the Reorganization represents a substantially
identical interest to such owner's ownership interest in the Group prior
to the Reorganization.
Because the Reorganization was a non-substantive exchange, the Group's
assets, liabilities, revenues and expenses have been consolidated at the
historical cost amounts recorded in the individual entity accounts, and
carried forward into the consolidated accounts of the Company together
with costs of the Reorganization.
The consolidated financial statements of the Company have been prepared
in accordance with generally accepted accounting principles in Canada
which, except as disclosed in note 9, also comply, in all material
respects, with generally accepted accounting principles in the United
States.
The Group included three partnerships, one situated in Canada and two
situated in the United States, all of which were non-taxable entities.
The Group also included the companies that were partners of the United
States partnerships and certain, but not all, of the companies that were
partners of the Canadian partnership. To the extent that the Group
included these partner entities, these consolidated financial statements
include provisions for taxes chargeable against partnership income. To
the extent that the partner entities did not form part of the Group, no
taxes have been provided on the net income allocated to those companies.
Note 9 sets out the pro forma impact as if all income were taxed within
the Group. These consolidated financial statements also do not include
any of the other assets, liabilities, revenues or expenses of the
partner entities not included in the Group.
RITCHIE BROS. ANNUAL REPORT 1998
26
<PAGE> 30
Notes to Consolidated Financial Statements, continued
Years ended December 31, 1998 and 1997 (Unaudited), eight months ended
December 31, 1997 and year ended April 30, 1997
(Tabular dollar amounts expressed in thousands of United States Dollars)
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
In calendar 1997, the Company changed its fiscal year-end from April 30
to December 31. As a result, the transition period from May 1, 1997 to
December 31, 1997 is separately reported herein. In addition, for
information purposes only, the consolidated statements of income and
cash flows for the 12 months ended December 31, 1997 have been
presented.
The financial information for the year ended December 31, 1997 is
unaudited; however, in the opinion of management, such information
includes all adjustments (consisting only of normal recurring
adjustments) necessary for a fair presentation of such financial
information.
(b) Cash equivalents
Cash equivalents consist of highly liquid investments having an original
term to maturity of three months or less when acquired.
(c) Inventory
Inventory is primarily represented by goods held for auction and has
been valued at the lower of cost, determined by the specific
identification method, and net realizable value.
(d) Advances against auction contracts
Advances against auction contracts represent funds advanced to
consignors against proceeds from future auctions.
(e) Capital assets
All capital assets are stated at cost. Depreciation is provided to
charge the cost of the assets to operations over their estimated useful
lives based on their usage predominantly as follows:
<TABLE>
<S> <C>
Improvements 30 years straight-line
Buildings 30 years straight-line
Automotive equipment 30% declining balance
Computer equipment 30% declining balance
Yard equipment 20-30% declining balance
Office equipment 20% declining balance
Leasehold improvements Term of leases
</TABLE>
(f) Revenue recognition
Auction revenues are recognized when the specific items are sold and
title passes to the purchaser and are represented by the commissions
received from the consignor and the net proceeds received from the sale
of self-owned equipment.
(g) Income taxes
Income taxes are accounted for using the asset and liability method
pursuant to Section 3465, Income Taxes, of The Handbook of the Canadian
Institute of Chartered Accountants. Future taxes are recognized for the
tax consequences of "temporary differences" by applying enacted
statutory tax rates applicable to future years to differences between
the financial statement carrying amounts and the tax bases of existing
assets and liabilities. The effect on deferred taxes for a change in tax
rates is recognized in income in the period that includes the enactment
date. In addition, Section 3465 requires the recognition of future tax
benefits to the extent that realization of such benefits is more likely
than not.
RITCHIE BROS. ANNUAL REPORT 1998
27
<PAGE> 31
Notes to Consolidated Financial Statements, continued
Years ended December 31, 1998 and 1997 (Unaudited), eight months ended
December 31, 1997 and year ended April 30, 1997
(Tabular dollar amounts expressed in thousands of United States Dollars)
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
(h) Foreign currency translation
The Company's reporting currency is the United States dollar. The
functional currency for each of the Company's operations is the country
of residency. Each of these operations is considered to be
self-sustaining. Accordingly, the financial statements of operations of
the Company that are not located in the United States have been
translated into United States dollars using the exchange rate at the
end of each reporting period for asset and liability amounts and the
average exchange rate for each reporting period for amounts included in
the determination of income. Any gains or losses from this translation
have been included in the foreign currency translation adjustment
account which is included in equity.
Monetary assets and liabilities recorded in foreign currencies are
translated into the appropriate functional currency at the rate of
exchange in effect at the balance sheet date. Foreign currency
denominated transactions are translated into the appropriate functional
currency at the exchange rate in effect on the date of the transaction.
Any exchange gains and losses are included in the determination of
income.
(i) Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires the Company to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting periods. Actual results could differ
from such estimates and assumptions.
(j) Financial instruments
Carrying amounts of certain of the Company's financial instruments,
including cash and cash equivalents, accounts receivable, auction
proceeds payable and accounts payable and accrued liabilities,
approximate fair value due to their short maturities. Based on
borrowing rates currently available to the Company for loans with
similar terms, the carrying value of its bank loans approximates fair
value.
(k) Credit risk
The Company does not extend credit to purchasers of auctioned items.
Equipment is not normally released to the purchasers until it is paid
for in full.
(l) Net income per share
Net income per share has been calculated based on the weighted average
number of common shares outstanding after giving retroactive effect to
the 12,715,667 common shares issued on the reorganization. Diluted net
income per share has been calculated after giving effect to the
outstanding options.
2. CHANGE IN ACCOUNTING POLICY
In the fourth quarter of 1998, the Company changed its policy for accounting
for income taxes by adopting the provisions of Section 3465, Income Taxes,
of The Handbook of the Canadian Institute of Chartered Accountants. Under
this standard, current income taxes are recognized for the estimated income
taxes payable for the current period. Future income tax assets and
liabilities are recognized for temporary differences between the tax and
accounting bases of assets and liabilities as well as for the benefit of
losses available to be carried forward to future years for tax purposes that
are likely to be realized.
The adoption of Section 3465 did not impact amounts reported in the prior
period.
RITCHIE BROS. ANNUAL REPORT 1998
28
<PAGE> 32
Notes to Consolidated Financial Statements, continued
Years ended December 31, 1998 and 1997 (Unaudited), eight months ended
December 31, 1997 and year ended April 30, 1997
(Tabular dollar amounts expressed in thousands of United States Dollars)
- --------------------------------------------------------------------------------
3. CAPITAL ASSETS
Capital assets at December 31, 1998 are as follows:
<TABLE>
<CAPTION>
Accumulated Net book
Cost depreciation value
-------- ------------ --------
<S> <C> <C> <C>
Land and improvements $36,631 $ 900 $35,731
Buildings 21,056 2,825 18,231
Automotive equipment 5,164 1,606 3,558
Computer equipment 1,920 739 1,181
Yard equipment 2,619 1,124 1,495
Office equipment 1,996 1,018 978
Leasehold improvements 200 50 150
------- ------- -------
$69,586 $ 8,262 $61,324
======= ======= =======
</TABLE>
Capital assets at December 31, 1997 are 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>
4. BANK TERM LOANS
<TABLE>
<CAPTION>
December 31, December 31,
1998 1997
------------ ------------
<S> <C> <C>
7.88% term loan, due in monthly instalments of $31,162
including interest, settled September 8, 1998 $ -- $ 1,720
8.75% term loan, due in monthly instalments of $60,967
including interest, settled September 8, 1998 -- 3,633
6.90% term loan, due in monthly instalments of $81,200
including interest, with the final payment occurring
on July 1, 2004 4,499 --
Term loan, bearing interest at the Amsterdam Interbank
Offered Rate plus 7/8%, due in quarterly instalments of $66,600
including interest, with the final payment
occurring on June 30, 2013 5,062 --
------- -------
9,561 5,353
Less current portion (793) (730)
------- -------
$ 8,768 $ 4,623
======= =======
</TABLE>
At December 31, 1998, the Company had undrawn operating credit lines
available of in excess of $95,000,000. In addition, the Company had undrawn
credit lines of approximately $31,000,000 available to fund property
acquisitions.
The bank term loans are secured by deeds of trust on specific property.
As at December 31, 1998, principal repayments are required as follows in the
next five years:
<TABLE>
<S> <C>
1999 $ 793
2000 1,001
2001 1,053
2002 1,109
2003 1,169
Thereafter 4,436
------
$9,561
======
</TABLE>
RITCHIE BROS. ANNUAL REPORT 1998
29
<PAGE> 33
Notes to Consolidated Financial Statements, continued
Years ended December 31, 1998 and 1997 (Unaudited), eight months ended
December 31, 1997 and year ended April 30, 1997
(Tabular dollar amounts expressed in thousands of United States Dollars)
- --------------------------------------------------------------------------------
5. SHARE CAPITAL
(a) Authorized
Unlimited number of common shares, without par value
Unlimited number of senior preferred shares, without par value, issuable
in series
Unlimited number of junior preferred shares, without par value, issuable
in series
(b) Issued
<TABLE>
<S> <C>
Number of common shares issued during the period ended December 31, 1997:
For cash, pursuant to the Employee Equity Participation Program 497,999
On reorganization 12,715,667
----------
Balance December 31, 1997 13,213,666
Number of common shares issued during the year ended December 31, 1998,
pursuant to an equity offering 3,335,000
----------
Issued and outstanding, December 31, 1998 16,548,666
==========
</TABLE>
(c) Options
The Company has adopted a stock option plan which provides for the award
of stock options to selected employees, directors and officers of the
Company and to other persons approved by the Board of Directors. Stock
option activity for 1997 and 1998 is presented below:
<TABLE>
<CAPTION>
Number of Exercise Price
Shares per Share
--------- --------------
<S> <C> <C>
Outstanding, April 30, 1997 -- $ --
Granted (note 5(d)) 196,333 0.10
------- -------------
Outstanding, December 31, 1997 196,333 0.10
Granted 36,000 26.12
Cancelled (25,333) 0.10
------- -------------
Outstanding, December 31, 1998 207,000 $0.10 - 26.12
======= =============
</TABLE>
The options outstanding at December 31, 1998 expire from dates ranging
to July 31, 2004.
(d) Employee equity participation
Substantially all the full-time employees who were not beneficial owners
of the predecessor entities to the Company have been granted an equity
interest in the Company pursuant to the Employee Equity Participation
Program by means of issuances of common shares at a cash price of $0.10
per share or grants of stock options having an exercise price of $0.10
per share. During the year ended December 31, 1997, the Company issued
497,999 common shares and granted stock options to purchase 196,333
common shares under the Program. The shares issued and options granted
have fully vested with the holders. The excess of the estimated
mid-point of the offering price range of the shares estimated at the
time to be issued to the public of $15.00 over the issuance price of the
shares or the exercise price of the options granted, as applicable in
the circumstances, pursuant to the Program is considered to be
compensatory for accounting purposes and has been recorded as employee
equity participation expense in the accompanying consolidated financial
statements.
(e) Offering
The Company filed a registration statement with the Securities and
Exchange Commission in the United States pursuant to which the Company
issued and sold 3,335,000 common shares (the "Offering"). For services
provided in connection with the Offering, the Company paid the
underwriters a per share commission.
RITCHIE BROS. ANNUAL REPORT 1998
30
<PAGE> 34
Notes to Consolidated Financial Statements, continued
Years ended December 31, 1998 and 1997 (Unaudited), eight months ended
December 31, 1997 and year ended April 30, 1997
(Tabular dollar amounts expressed in thousands of United States Dollars)
- --------------------------------------------------------------------------------
6. SEGMENTED INFORMATION
The Company's principal business activities include the sale of consignment
and self-owned equipment at auctions. This business represents a single
operating segment.
Summarized information on the Company's activities generated by geographic
segment are as follows:
<TABLE>
<CAPTION>
United States Canada Other Combined
------------- ------- ------- --------
<S> <C> <C> <C> <C>
Year ended December 31, 1998
Auction revenues $49,747 $16,105 $29,047 $ 94,899
Identifiable assets 73,045 21,850 57,698 152,593
Year ended December 31, 1997
(Unaudited)
Auction revenues 44,615 16,095 24,299 85,009
Identifiable assets 53,441 2,357 14,662 70,460
Eight months ended December 31, 1997
Auction revenues 32,254 13,664 14,116 60,034
Identifiable assets 53,441 2,357 14,662 70,460
Year ended April 30, 1997
Auction revenues 36,845 16,910 18,431 72,186
Identifiable assets 82,045 27,650 33,163 142,858
</TABLE>
7. INCOME TAXES
Income tax expense differs from that determined by applying the United
States statutory tax rate to the Company's results of operations as follows:
<TABLE>
<CAPTION>
Eight
Year ended Year ended months ended Year ended
December 31, December 31, December 31, April 30,
1998 1997 1997 1997
------------ ------------ ------------- -----------
(Unaudited)
<S> <C> <C> <C> <C>
Statutory tax rate in the United States 39% 39% 39% 39%
-------- ------- ------- -------
Expected income tax expense $ 15,017 $ 6,147 $ 2,687 $ 9,750
Differences
Different tax rates in non-U.S. jurisdictions (2,028) (831) (247) (411)
Partnership income not taxed in Group -- (1,566) (806) (3,899)
U.S. income taxed at lower graduated rates -- (397) (128) (548)
Employee equity participation expense not tax deductible -- 2,894 2,894 --
Other 681 1,191 91 1,100
-------- ------- ------- -------
Actual income tax expense $ 13,670 $ 7,438 $ 4,491 $ 5,992
======== ======= ======= =======
</TABLE>
If all partnership income had been taxed in the Group, income taxes would
have been as follows:
<TABLE>
<CAPTION>
Eight
Year ended Year ended months ended Year ended
December 31, December 31, December 31, April 30,
1998 1997 1997 1997
------------ ------------ ------------- -----------
(Unaudited)
<S> <C> <C> <C> <C>
Income taxes $13,670 $9,004 $5,297 $9,891
======= ====== ====== ======
</TABLE>
RITCHIE BROS. ANNUAL REPORT 1998
31
<PAGE> 35
Notes to Consolidated Financial Statements, continued
Years ended December 31, 1998 and 1997 (Unaudited), eight months ended
December 31, 1997 and year ended April 30, 1997
(Tabular dollar amounts expressed in thousands of United States Dollars)
- --------------------------------------------------------------------------------
7. INCOME TAXES, CONTINUED
Future income taxes
<TABLE>
<CAPTION>
December 31, December 31,
1998 1997
------------ ------------
<S> <C> <C>
Future income tax benefit of options granted $ 853 $ --
Future income tax benefit resulting from tax deductible
financing costs incurred in the course of the Company's
initial public offering in March 1998 1,740 --
Future income tax recovery on unused tax losses, expiring
on December 31, 2005 324 --
Future income tax liabilities arising from temporary differences
between the tax basis of net assets and their carrying value
Capital assets (475) --
Accounts payable 25 --
------- ----
$ 2,467 $ --
======= ====
</TABLE>
8. UNCERTAINTY DUE TO THE YEAR 2000 ISSUE
The Year 2000 Issue arises because many computerized systems use two digits
rather than four to identify a year. Date-sensitive systems may recognize
the year 2000 as 1900 or some other date, resulting in errors when
information using year 2000 dates is processed. In addition, similar
problems may arise in some systems which use certain dates in 1999 to
represent something other than a date. The effects of the Year 2000 Issue
may be experienced before, on, or after January 1, 2000, and, if not
addressed, the impact on operations and financial reporting may range from
minor errors to significant systems failure which could affect an entity's
ability to conduct normal business operations. It is not possible to be
certain that all aspects of the Year 2000 Issue affecting the entity,
including those related to the efforts of customers, suppliers, or other
third parties, will be fully resolved.
9. UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
The consolidated financial statements are prepared in accordance with
generally accepted accounting principles ("GAAP") in Canada which differ, in
certain respects, from accounting practices generally accepted in the United
States and from requirements promulgated by the Securities and Exchange
Commission. Material measurement differences to these consolidated financial
statements are as follows:
Consolidated statements of comprehensive net income and net income per share
<TABLE>
<CAPTION>
Eight
Year ended Year ended months ended Year ended
December 31, December 31, December 31, April 30,
1998 1997 1997 1997
------------ ------------ ------------- ---------
(Unaudited)
<S> <C> <C> <C> <C>
Net income in accordance with Canadian GAAP $ 24,834 $ 8,322 $ 2,398 $ 19,009
Effect of differences in accounting for
reorganization costs (note 9(i)) (20) (434) (434) --
Income tax effect from the reorganization (note 9(i)) -- (919) (919) --
-------- ------- ------- --------
Net income in accordance with United States GAAP 24,814 6,969 1,045 19,009
Other comprehensive income (loss) adjustments (note 9(ii))
Foreign currency translation (210) (417) 10 (577)
-------- ------- ------- --------
Comprehensive net income in accordance with
United States GAAP $ 24,604 $ 6,552 $ 1,055 $ 18,432
======== ======= ======= ========
Net income per share in accordance with United States GAAP
Basic $ 1.56 $ 0.54 $ 0.08 $ 1.49
Diluted 1.54 0.54 0.08 1.49
======== ======= ======= ========
</TABLE>
RITCHIE BROS. ANNUAL REPORT 1998
32
<PAGE> 36
Notes to Consolidated Financial Statements, continued
Years ended December 31, 1998 and 1997 (Unaudited), eight months ended
December 31, 1997 and year ended April 30, 1997
(Tabular dollar amounts expressed in thousands of United States Dollars)
- --------------------------------------------------------------------------------
9. UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES, CONTINUED
(i) Reorganization costs
In accordance with generally accepted accounting principles in Canada,
costs incurred with respect to the Reorganization have been charged,
net of tax, against equity. Under generally accepted accounting
principles in the United States, such amounts are required to be
charged against income. Such costs have only been incurred in the eight
months ended December 31, 1997 and the years ended December 31, 1998
and 1997 (Unaudited).
(ii) Other comprehensive income (loss)
Beginning in fiscal year 1998, the Company adopted Statement of
Financial Accounting Standards No. 130 ("SFAS 130") "Reporting
Comprehensive Income". This statement established standards for
reporting and display of comprehensive income and its components.
Comprehensive income includes the change in equity or net assets of the
Company during the period from non-owner sources, including foreign
exchange adjustments, included as separate components of shareholders'
equity.
10. SUBSEQUENT EVENT
On February 19, 1999, the Company entered into an agreement to acquire the
auction business and certain assets of Forke Auctioneers, Inc., a major
auctioneer of industrial equipment headquartered in Lincoln, Nebraska. The
transaction is expected to close in March or April of 1999, subject to
regulatory clearance and other customary conditions. Terms and conditions of
this acquisition, by agreement, cannot be disclosed until closing. The
Company intends to finance this acquisition substantially with a bank term
loan.
RITCHIE BROS. ANNUAL REPORT 1998
33
<PAGE> 37
SELECTED FINANCIAL AND OPERATING DATA
(Tabular dollar amounts expressed in thousands of United States Dollars, except
per share data)
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended
December 31, December 31, April 30, April 30, April 30, April 30, April 30,
1998 1997 1997 1996 1995 1994 1993
----------- ---------- ---------- ---------- ---------- ---------- ----------
(Unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
GROSS AUCTION SALES $ 1,087,800 $ 946,415 $ 792,865 $ 752,735 $ 634,058 $ 567,506 $ 477,056
----------- --------- --------- --------- --------- --------- ---------
INCOME STATEMENT DATA
Auction revenues $ 94,899 $ 85,009 $ 72,186 $ 65,306 $ 51,326 $ 50,066 $ 45,003
Direct expenses (16,010) (17,351) (13,908) (13,138) (12,979) (11,925) (10,507)
----------- --------- --------- --------- --------- --------- ---------
78,889 67,658 58,278 52,168 38,347 38,141 34,496
Depreciation (2,752) (2,548) (2,014) (1,820) (1,708) (1,327) (1,198)
General and
administrative
expense (39,315)
-----------
Income from operations 36,822
Interest expense (1,569) (2,034) (1,081) (1,104) (1,274) (611) (411)
Other income 3,251 754 917 1,179 677 1,336 413
-----------
Income before income
taxes 38,504
Income taxes (13,670)
-----------
Net income $ 24,834
===========
Net income per
share-basic $ 1.56
===========
BALANCE SHEET DATA
(END OF PERIOD)
Working capital
(including cash) $ 49,149 $ 3,322 $ 39,707 $ 33,132 $ 21,822 $ 23,900 $ 19,461
Total assets 152,593 70,460 142,858 150,969 98,621 87,802 78,685
Long term debt 8,768 4,623 5,755 6,547 6,985 7,282 1,134
Total shareholders' equity 104,172 25,706 59,325 48,801 37,718 35,449 29,877
SELECTED OPERATING DATA
Auction revenues as
percentage of
gross auction sales 8.72% 8.98% 9.10% 8.68% 8.09% 8.82% 9.43%
Number of consignors 14,432 13,636 12,088 10,744 10,460 8,650 8,878
Number of buyers 34,613 33,340 30,630 27,837 27,401 25,812 24,593
Number of permanent
auction sites
(end of period) 13 13 13 12 11 10 8
=========== ========= ========= ========= ========= ========= =========
</TABLE>
Note: Information for periods prior to 1998 has been omitted if it is not
meaningful for comparative purposes. See Management's Discussion and
Analysis of Financial Condition and Results of Operations.
RITCHIE BROS. ANNUAL REPORT 1998
34
<PAGE> 38
SUPPLEMENTAL QUARTERLY DATA
(Unaudited; tabular dollar amounts expressed in thousands of
United States Dollars, except per share data)
<TABLE>
<CAPTION>
Net Income Per Share
Gross Auction Net -------------------- Closing
Period Auction Sales Revenue Income Basic Diluted Stock Price
- ------ ------------- ------- ------- ----- ------- -----------
<S> <C> <C> <C> <C> <C> <C>
1998
1st quarter $ 227,637 $21,229 $ 3,377 $0.24 $0.24 $24.06
2nd quarter 339,219 29,188 8,492 0.51 0.51 26.56
3rd quarter(1) 183,633 13,869 2,004 0.12 0.12 22.13
4th quarter 337,311 30,613 10,961 0.66 0.65 26.94
---------- ------- -------
$1,087,800 $94,899 $24,834 $1.56(2) $1.54(2)
========== ======= =======
1997(3)
1st quarter $ 146,915 $13,710
2nd quarter 329,700 30,525
3rd quarter 163,455 15,629
4th quarter 306,345 25,145
---------- -------
$ 946,415 $85,009
========== =======
</TABLE>
(1) Net Income for the third quarter of 1998 includes non-recurring income of
$1.2 million or $0.07 per share
(2) Net Income per share on a full year basis does not equal the sum of the
quarterly amounts because the number of shares outstanding changed
significantly in March 1998 when the company completed its initial public
offering.
(3) 1997 Net Income figures are not meaningful for comparative purposes. See
Management's Discussion and Analysis of Financial Condition and Results of
Operations.
[LOGO]
RITCHIE BROS. ANNUAL REPORT 1998
35
<PAGE> 39
Shareholder Information
Address
RITCHIE BROS. AUCTIONEERS INCORPORATED
9200 Bridgeport Road
Richmond, BC
Canada, V6X 1S1
Telephone: (604) 273-7564
Canada (toll-free) 1-800-663-1739
USA (toll-free) 1-800-663-8457
Facsimile: (604) 273-6873
Website: www.rbauction.com
Directors and Executive Officers
DAVID E. RITCHIE
Chairman and Chief Executive Officer
C. RUSSELL CMOLIK
Director, President and Chief Operating Officer
PETER J. BLAKE
Director, Vice President Finance
and Chief Financial Officer
CHARLES E. CROFT
Director
G. EDWARD MOUL
Director
ROBERT S. ARMSTRONG
Corporate Secretary
Investor Relations
Securities analysts, portfolio managers, investors and representatives of
financial institutions seeking financial and operating information may contact:
Investor Relations Department
9200 Bridgeport Road
Richmond, BC
Canada, V6X 1S1
Telephone: (604) 273-7564
Canada (toll-free) 1-800-663-1739
USA (toll-free) 1-800-663-8457
Facsimile: (604) 273-2405
Email: [email protected]
Copies of the Company's filings with the US Securities & Exchange Commission and
with the Canadian securities commissions are available to shareholders and other
interested parties on request or can be accessed directly on the internet at
www.rbauction.com.
Annual General Meeting
The Annual General Meeting of the Company's shareholders will be held at 4:00pm
on Friday May 14, 1999 at the Abercorn Inn, 9260 Bridgeport Road, Richmond, BC
Stock Exchange
Ritchie Bros. Auctioneers Incorporated is listed on the New York Stock Exchange
and trades under the symbol "RBA".
Transfer Agent
Communications concerning transfer requirements, address changes and lost
certificates should be directed to:
THE TRUST COMPANY OF BANK OF MONTREAL
129 Saint-Jacques Street
"A" Level North
Montreal, Quebec
Canada H2Y 1L6
Telephone: (514) 877-2584
Canada and USA (toll-free): 1-800-332-0095
Facsimile: (514) 877-9676
Email: [email protected]
Co-agent in the United States:
THE BANK OF MONTREAL TRUST COMPANY
New York, NY
Auditors
KPMG LLP
Vancouver, Canada
[LOGO]
RITCHIE BROS. ANNUAL REPORT 1998
36
<PAGE> 40
[PHOTO]
Richie Bros.' first Annual Report is dedicated to the memory of our good friend
Mark Stanbrook Clarke,
1957-1998
<PAGE> 41
RITCHIE BROS. AUCTIONEERS INCORPORATED
9200 Bridgeport Road, Richmond, BC, Canada V6X 1S1
Telephone: (604) 273-7564 Facsimile: (604) 273-6873
www.rbauction.com
