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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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Form 6-K
REPORT OF FOREIGN ISSUER
PURSUANT TO RULE 13a-16 OR 15d-16 OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Annual Report filed in March, 2000
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RITCHIE BROS. AUCTIONEERS INCORPORATED
9200 Bridgeport Road
Richmond, BC, Canada
V6X 1S1
(604) 273 7564
(Address of principal executive offices)
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[indicate by check mark whether the registrant files or will file annual reports
under cover Form 20-F or Form 40-F]
Form 20-F ___ Form 40-F X
[indicate by check mark whether the registrant by furnishing information
contained
in this Form is also thereby furnishing the information to the Commission
pursuant to
rule 12g3-2(b) under the Securities Exchange Act of 1934]
Yes __ No X
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[GRAPHIC + 3 PHOTOS OF AUCTIONEER]
rb RITCHIE BROS. Auctioneers
ANNUAL REPORT 1999
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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]
In this annual report, all dollar amounts are stated in United States dollars
unless a different currency is indicated.
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[GRAPHIC]
THE RITCHIE BROS. DIFFERENCE
WHY DID 116,000 BIDDERS
AND 16,000 CONSIGNORS
CHOOSE RITCHIE BROS. IN 1999?
OUR AUCTIONS ARE UNRESERVED.
There are no minimum prices.
Everything sells to the highest bidder - always
ALL BIDS ARE REAL.
Bidders only compete against each other - not the
owner, not the auctioneer, just other legitimate
bidders. This is free enterprise in
its purest form; transactions take place at fair
market value.
WE DELIVER A GLOBAL MARKETPLACE.
Because bidders travel from around the world to
participate in our auctions, we are able to
transcend local market conditions.
WE COVER THE GLOBE.
Our international network of offices and auction
facilities
spans 19 countries.
WE GUARANTEE CLEAR TITLE.
We guarantee lien-free ownership of everything we
sell.
WE UNDERSTAND OUR INDUSTRY.
Our customers don't want to buy and sell equipment
as if they are buying and selling commodities or
collectibles.
WE FOCUS ON CUSTOMER SERVICE.
For 36 years we have been providing an efficient
forum for
buyers and sellers of industrial equipment.
Why do so many people choose to do business with Ritchie Bros.?
Because there is a difference. The Ritchie Bros. difference.
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[GRAPHIC]
TABLE OF CONTENTS
<TABLE>
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Page
<S> <C>
Shareholders' Report: Another Year of Excellence 2
Shareholders' Q&A 5
The Advantages of Buying at a Ritchie Bros. Auction 11
The Advantages of Selling at a Ritchie Bros. Auction 13
A New Millennium of Opportunities 16
Financial Information 19
Our 1999 Milestones 34
Shareholder Information 36
The Ritchie Bros. Auction Process 37
</TABLE>
RITCHIE BROS. [LOGO PG 1] ANNUAL REPORT 1999
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[GRAPHIC + PHOTO]
TO OUR FELLOW SHAREHOLDERS:
ANOTHER YEAR OF EXCELLENCE.
1999 WAS A YEAR OF FURTHER EXPANSION AND BUILDING A PLATFORM FOR GROWTH.
Since Ritchie Bros.' first industrial auction in 1963, we have held more than
1,850 auctions in 18 countries. And we have helped over 160,000 consignors sell
over 1.3 million pieces of equipment to more than 450,000 buyers.
We enjoyed another strong year in 1999 but we still have plenty of room to grow.
Among our many significant accomplishments was the acquisition of the Forke
auction business in the U.S., holding our first auctions in Singapore and
Panama, achieving record gross auction sales, and breaking the $100 million mark
in auction revenues. We spent over $50 million on auction facilities in 1999,
opening new auction sites in Rotterdam, Brisbane and Nova Scotia, acquiring the
Forke sites in North Carolina and New Mexico, and commencing development of
sites in Illinois, California, Maryland, Singapore, Dubai and Quebec (these
latter six are scheduled to open in 2000).
Ongoing global expansion also gave us new offices in South Africa, Singapore,
Hong Kong and Panama as well as in several cities in North America and Europe.
But even with our growing network of 70-plus offices and auction sites in 19
countries, and Internet initiatives that are introducing our auctions to new
people every day, we are serving only a fraction of the global market for used
equipment. There is still work to be done.
Today, as throughout our 36-year history, we spend considerable time and energy
explaining the merits of live unreserved auctions. It's an understandable task;
buyers and sellers have options, including regional auctioneers, equipment
dealers, brokers and the new Internet listing services, each with its own pros
and cons. We explain that we're not like these other options. There is a
difference.
The industrial auction business doesn't fit into the equipment distribution or
manufacturing categories. It's not retail or wholesale. And it's very different
from the art and antique auction business. So while potential investors
appreciate our margins, our cash flow and our ability to ride out business
cycles, they also have questions about us - our growth potential, our quarterly
volatility and the impact of the Internet. Most of our time with investors is
spent explaining our business and answering their very legitimate questions. We
explain that we're not like other companies. There is a difference.
The people who define the Ritchie Bros. difference day in and day out are the
450 full-time and over 1,000 part-time people in our organization. We're a lean
group and we have our running shoes on every day. At Ritchie Bros., everybody
works and everybody contributes. We are proud of the energy, commitment and
effort contributed by each member of our team in 1999.
We have worked hard to achieve the success that has brought us to this point.
But we recognize that our customers are the most important factor in that
success. These are hard-working people with many alternatives to consider when
they need to buy or sell equipment. We are pleased that during the past year,
16,185 of them chose to sell equipment and 116,325 chose to bid on equipment at
our auctions. That's the strongest endorsement we could ask for.
[PHOTO] [PHOTO]
Dave Ritchie Russ Cmolik
CHAIRMAN AND CEO PRESIDENT AND COO
RITCHIE BROS. [LOGO PG 2] ANNUAL REPORT 1999
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[GRAPHIC + 2 PHOTOS]
[PHOTO]
MANY OF OUR CUSTOMERS USE RITCHIE BROS. FOR BOTH BUYING AND SELLING EQUIPMENT.
IN FACT, OVER 50 PERCENT OF OUR CONSIGNORS IN 1999 HAD ALSO BEEN BUYERS AT OUR
AUCTIONS IN RECENT YEARS.
RITCHIE BROS. [LOGO PG 3] ANNUAL REPORT 1999
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[GRAPHIC]
[PHOTO]
EVEN WITH ALL THE TECHNOLOGY AVAILABLE TO THEM, THE VAST MAJORITY OF OUR
CUSTOMERS WANT TO ATTEND OUR AUCTIONS IN PERSON, SO THEY CAN INSPECT, TEST AND
COMPARE THE EQUIPMENT.
RITCHIE BROS. [LOGO PG 4] ANNUAL REPORT 1999
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[GRAPHIC]
SHAREHOLDERS' Q&A
WHAT SHAREHOLDERS WANT TO KNOW ABOUT RITCHIE BROS.
Investors who are new to Ritchie Bros. have many reasonable questions about
our unique business model. The following are answers to the questions we most
often receive. Answers to questions about our strategies for future growth
are contained in the "A New Millennium of Opportunities" section of this
Annual Report.
Q WHY IS 'UNRESERVED' SO IMPORTANT?
A The fact that we sell everything on an unreserved basis is one of the key
differences between Ritchie Bros. and almost all other marketers of used
equipment. While some other companies use the word 'unreserved,' we at
Ritchie Bros. adhere to it strictly. At Ritchie Bros., 'unreserved' means
that everything sells to the highest bidder on sale day. There are no minimum
prices and no buy-backs. Neither the auctioneer nor the consignor is
permitted to bid on the equipment. There is no artificial price manipulation.
Every bid is a real bid.
To us, 'unreserved' is more than an auction style - it's a fundamental
principle. It's why bidders from all corners of the world see value in
participating in our auctions. Attracting a large number of bidders to our
auctions, and allowing them to compete fairly against one another, generates
fair market pricing. It is legitimate bidders who determine the selling
prices at a Ritchie Bros. auction.
Q WHERE DOES THE EQUIPMENT COME FROM?
A A lot of the equipment comes to us when a large project is completed - a dam,
bridge, road or pipeline, for example, when the owner doesn't need the
equipment for his next job. Fleet upgrades and realignments are also common
sources. In addition, we sell equipment for rental companies and equipment
dealers and brokers, who benefit from the fact that about 50 percent of the
equipment at our auctions is sold to buyers outside the local region. People
are often surprised to learn that less than 5 percent of the equipment we
sell comes from receivership and bankruptcy situations.
Because of our ability to provide international distribution and exposure for
a cost that is well below the cost of typical in-house sales and marketing
operations, we have also begun distributing new equipment for some innovative
manufacturers. We see strong and continued growth potential in this area.
[PHOTO]
Q HOW DO WE MANAGE THE 'AT-RISK' BUSINESS?
A About 70 percent of our consignments are done on straight commission. In
these cases, the consignors are at risk if their equipment sells for less
than they expect, but they enjoy maximum upside potential if their equipment
sells for more than expected. The other 30 percent of our consignments
involve either a guarantee of minimum proceeds to the consignor or an
outright purchase by Ritchie Bros. - in these cases we charge a risk premium
in the form of a higher commission.
Our unique ability to appraise a fleet of equipment allows us to mitigate the
risk of underwriting its sale. Our proprietary appraisal database contains
detailed information on over
RITCHIE BROS. [LOGO PG 5] ANNUAL REPORT 1999
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[GRAPHIC]
[PHOTO]
REGARDLESS OF WHERE THEY ARE HELD, OUR AUCTIONS ARE ALWAYS CONDUCTED IN
THE SAME MANNER. BIDDERS KNOW WHAT TO EXPECT WHEN THEY PARTICIPATE IN A RITCHIE
BROS. AUCTION, WHETHER THEY ARE IN ATLANTA, SINGAPORE, TORONTO OR DUBAI.
one million pieces of equipment sold at auction. And because we are aware of
most major equipment deals around the world, we are able to build forecasts
of the supply and demand (and ultimately the pricing) of most equipment
categories. Further mitigating the risk, our exposure is usually limited to a
30 to 60 day period.
Q WHAT IMPACT HAS THE INTERNET HAD ON OUR BUSINESS?
A Clearly, the Internet has spawned significant changes in many industries and
has affected the way consumers and businesses buy and sell goods and conduct
business in general. Since launching our first website in 1996, we've been
paying close attention to the Internet, assessing its evolution and the
effect it could have on the used equipment market. Internet technology has
allowed us to enhance our marketing efforts and take our customer service to
a new level; we are broadcasting auctions live over the Internet and we plan
to make our auction results available on our website. We are also working
towards Internet-based real-time participation in our live auctions. These
are exciting developments and should ensure that Ritchie Bros. remains the
first choice for buyers and sellers of used equipment.
To date, we have not seen a transformation of the used equipment business
into a virtual trading community. What we have seen is a proliferation of
websites listing equipment for sale - essentially classified advertising
sites used primarily by
RITCHIE BROS. [LOGO PG 6] ANNUAL REPORT 1999
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[GRAPHIC + 3 PHOTOS]
brokers and dealers who want to advertise to a broader audience. Because the
used equipment market is quite unlike the markets for commodities and
collectibles, most used equipment transactions are still conducted in
traditional ways.
Unquestionably, the growth of the Internet and the buzz surrounding
high-profile dot-com companies have raised awareness of auctions as a way of
buying and selling goods - a very positive development for Ritchie Bros.
However, the fact that these virtual marketplaces are very different from
our auctions has made it more important than ever that we show people the
advantages of dealing with Ritchie Bros.
Success in the used equipment market has always been based largely on
personal relationships, trust and confidence. People who trust us to help
sell their equipment are committing their most valuable assets to our
experience, reputation and industry knowledge. That level of confidence
doesn't develop overnight. We've been building our customer relationships
for over 35 years.
Our Internet initiatives, aimed at enhancing our auction process rather than
replacing it, will allow us to provide buyers and sellers with all the
on-line services and functionality they want and need, including such
fundamentals as clear title and transactions that close.
[PHOTO]
Q WHY ARE OUR QUARTERS SO UNEVEN?
A Ours is an event-driven business, dependent in part on the timing of fleet
upgrades and realignments, retirements and the completion of major projects.
As a result, auction dates are often
WHAT'S HAPPENING @ rbauction.com?
The biggest changes at Ritchie Bros. can be seen on our website at
www.rbauction.com. All the traditional functionality remains, including on-line
brochures and catalogs and the searchable database of all equipment in our
upcoming auctions. But we are also introducing several new features:
- - ON-LINE ABSENTEE BIDDING was introduced in March 1999. Customers who can't
attend our live auctions can now submit absentee bids over the Internet.
- - ON-LINE CONSIGNING was also introduced in March 1999, streamlining the
consignment process for customers with annual contracts.
- - LIVE AUCTION BROADCASTS were launched in February 2000. We had been
experimenting with live broadcasts for several years, using satellite,
video-conference, Internet and other technologies. We have now commenced a
program of regular Internet broadcasts to (1) introduce more people to our
auction process, (2) support our absentee bidding program and (3) get our
customers ready for live-real time bidding over the Internet.
- - LIVE REAL-TIME BIDDING over the Internet is being developed as an enhancement
to our live auctions. Today, customers who can't attend an auction participate
by placing absentee bids. Live real-time bidding will be a superior
alternative.
- - ADDITIONAL SERVICES will be added to help our customers manage their equipment
fleets. We will start by giving our customers free access to our historic
auction results.
www.rbauction.com is becoming a portal for equipment owners - the place to go
for the tools you need to manage your fleet of equipment. Ritchie Bros.
representatives have always helped our customers with the management of their
equipment fleets. Our website is simply an extension of that service.
RITCHIE BROS. [LOGO PG 7] ANNUAL REPORT 1999
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[GRAPHIC + 3 PHOTOS]
[PHOTO OF PERSON MARKING IN AUCTION BOOK]
set as little as four to six weeks in advance, making accurate forecasting
difficult. In addition, most of our customers don't buy or sell consistent
amounts of equipment each year. That is why our auction events - there were
114 in 1999 - are scheduled to suit our customers rather than our
accountants. We focus on long-term growth rather than smooth quarters.
Q HOW BIG IS OUR POTENTIAL MARKET?
A Most of the equipment we sell is used in the construction, transportation,
mining, forestry, petroleum and agriculture industries. Much of it can serve
several of these industries. Not being restricted to particular product
lines, manufacturers or regions means we can target the equipment markets
offering the most potential at any given time.
Analysts have estimated the total value of used industrial equipment changing
hands around the world each year to be approximately $100 billion - a figure
we think is probably conservative. Regardless of the actual number, the
market is huge. Ritchie Bros. accounts for just over 1 percent of that $100
billion, with all auctioneers combined accounting for an estimated 4 percent
to 5 percent of the total.
Since some equipment is destined to be sold outside the auction channel, we
don't pretend that all $100 billion is potential business. But clearly there
is substantial room for growth.
Q WHY DID WE BUY FORKE BROTHERS?
A In 1999, we bought the auction business of Forke Brothers, an outstanding
organization that had been conducting industrial auctions in the United
States since 1921. There have been no other acquisitions in our 36-year
history. But because Forke adhered to the unreserved auction method, it had a
similar culture to ours. This transaction allowed us to acquire a number of
experienced and talented sales representatives, several of whom have already
assumed senior management positions with us.
We also added two auction sites to our network and a first-rate U.S.
administrative team based in Lincoln, Nebraska. We have traditionally grown
our company by adding auction sites and sales representatives; the Forke
acquisition enabled us to achieve roughly two years of growth in one
transaction. It was an excellent move for Ritchie Bros.
Q WHY HAVEN'T WE BEEN GROWING FASTER?
A Apart from the Forke acquisition, we've relied on internal growth because
we've been reluctant to risk any impairment to customer service.
Relationships aren't built by opening stores and distributing flyers.
But being conservative hardly means standing still. Over the last 20 years,
we're proud to have grown our gross auction sales at a compound annual rate
of 15 percent. Because of the law of large numbers, we don't expect to
continue growing at that pace, but we are still planning for very healthy
growth in the coming years.
One of our biggest challenges is to recruit and train high-quality sales
representatives.
RITCHIE BROS. [LOGO PG 8] ANNUAL REPORT 1999
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[GRAPHIC]
WE TAKE GREAT CARE WHEN SETTING UP OUR AUCTION YARDS. WE PRESENT THE EQUIPMENT
SO THAT BIDDERS CAN EASILY INSPECT, TEST AND COMPARE THE PIECES THAT INTEREST
THEM.
[PHOTO OF TWO MEN TALKING IN AUCTION YARD]
RITCHIE BROS. [LOGO PG 9] ANNUAL REPORT 1999
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[GRAPHIC + PHOTO]
[PHOTO OF TWO MEN TALKING IN AUCTION YARD]
OUR SALES REPRESENTATIVES ARE DEDICATED, EXPERIENCED AND KNOWLEDGEABLE; AS A
RESULT, THEY ARE ABLE TO ADD REAL VALUE TO OUR CUSTOMERS' BUSINESSES.
RITCHIE BROS. [LOGO PG 10] ANNUAL REPORT 1999
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[GRAPHICS + 2 PHOTOS]
THE ADVANTAGES OF BUYING AT A RITCHIE BROS. AUCTION.
GUARANTEE OF CLEAR TITLE.
If you don't obtain clear title when you buy a piece of equipment, a lienholder
such as a bank that had financed the previous owner may be able to take
possession of your equipment even if you don't owe that bank any money -
something many buyers don't think about until it's too late.
Because we guarantee clear title, you don't need to be concerned about the
financial condition of the seller. Our Search Department goes through an
exhaustive process to identify and coordinate the release of liens before we
sell the equipment to you.
YOU CAN INSPECT BEFORE YOU BID.
We recognize that a piece of used equipment needs to be inspected and compared
to other units before being purchased, particularly when the buyer is an
end-user. So we do everything we can to help our customers accurately determine
the value of the equipment and bid with complete confidence. On-site testing and
comparing is one of the advantages of buying equipment at our auctions. Another
is the presence of transportation, finance and other service companies, so you
can get quotes before you bid. And our staff is always available if you need any
additional information.
ALL BIDS ARE REAL BIDS.
We go to great lengths to ensure that only legitimate bidders compete for the
equipment we sell. Neither the auctioneer nor the sellers are allowed to bid.
Our large and active bidding audiences generate market values for our consignors
legitimately. While some auctioneers openly permit owners to bid on their own
equipment, we are well known for our strict position against consignors doing
this, either directly or through agents. In fact, our consignors are
contractually prohibited from bidding on their own equipment.
As a result, bidders at a Ritchie Bros. auction do not need to be concerned
about artificial price manipulation. Our 36-year commitment to the unreserved
auction process has earned us considerable trust among our customers.
EVERYTHING SELLS.
Everything sells on sale day to the highest bidder. The buyer simply pays
Ritchie Bros. and takes possession of the equipment without any need to
negotiate payment, escrow or delivery terms.
ABSENTEE BIDDING.
If you have inspected and tested the equipment, but you can't be at the auction
site on sale day, you can still participate. 'Absentee Bids' from qualified
bidders can be submitted via our website, by fax, or by calling the sale site. A
customer placing an absentee bid indicates the maximum he is willing to pay for
a
[PHOTO]
RITCHIE BROS. [LOGO PG 11] ANNUAL REPORT 1999
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[GRAPHIC]
given lot. The bid is confidential and the auctioneer inserts the absentee
bidder intermittently during the bidding process just as the bidder would have
done if he had been able to attend the auction in person. Unless his maximum
amount is exceeded, the absentee bidder buys the item for whatever price he is
in at when there are no further advances from other bidders.
For example, if an absentee bidder's maximum bid is $80,000 and he is in at
$62,500, if no further bids are received, the absentee bidder buys the lot for
$62,500. In this way, the auctioneer ensures that absentee bidders never pay
more than they would have if they had been able to place their own bids on
auction day. To enhance the service we provide to our absentee bidders, we are
developing Internet-based real-time bidding as an enhancement to our live
auctions.
YOU PAY A TRUE FAIR MARKET PRICE.
Everything is sold unreserved, and the price you pay is not determined by your
negotiating skills or buying power, so all bidders are on an equal footing. We
don't promise that you will always get a bargain. But when you buy something at
a Ritchie Bros. auction, you know that you are paying the fair market price.
Your finance company knows this too, which means financing based on prices paid
at a Ritchie Bros. auction is straightforward.
NO BUYER PREMIUMS OR REGISTRATION FEES.
Unlike some other auctioneers and intermediaries, we do not charge buyer
premiums or registration fees. What you bid is what you pay.
WE SELL 80 TO 100 LOTS EVERY HOUR, AND AN AVERAGE OF OVER 1,000 PER AUCTION.
[PHOTO]
RITCHIE BROS. [LOGO PG 12] ANNUAL REPORT 1999
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[GRAPHIC]
THE ADVANTAGES OF SELLING AT A RITCHIE BROS. AUCTION.
HUGE EXPOSURE.
Our unreserved auctions deliver a global marketplace that transcends local
market conditions. Numerous and geographically diverse bidders from various
industries means maximum exposure for our consignors' equipment. On average,
over 1,000 bidders participate in each of our auctions.
Target marketing our auctions to a strategic selection of customers from our
database of over 300,000 equipment owners in over 180 countries means your
equipment is marketed directly to a large target audience. In addition, all of
your equipment is listed on our website, and our auctions are advertised in
trade journals and industry publications. And at each of our auctions we promote
our upcoming auctions. All told, we are able to directly market your equipment
to more potential purchasers than most of our competitors have in their entire
database.
HIGH-QUALITY BIDDERS FROM ALL OVER THE WORLD.
Thanks to the large number of foreign participants we attract - most of whom
tend to be very serious bidders, having committed significant time and expense
to attend the auction - you can achieve good prices even if your local market is
depressed. Often, transportation costs are not an issue because, compared to the
value of the equipment, such costs are not significant - particularly the costs
of ocean freight.
TOP SELLING PRICES.
Buyers participate aggressively because they know our auctions are fair and
open. On sale day, our experienced auctioneers and ringmen create an exciting
atmosphere and a rapid pace - we sell 80 to 100 lots per hour. And with the
majority of our buyers being end-users, pricing is closer to retail than
wholesale. Result: top dollar for your equipment.
[PHOTO]
ONE-STOP HASSLE-FREE SERVICE.
This is a major advantage of dealing with Ritchie Bros. We can coordinate
transporting your equipment to the auction site and any cleaning, refurbishing
or painting required to make your equipment auction-ready. Many of our auction
yards are equipped with environmentally-certified painting and refurbishing
facilities so we can do all necessary work right on site. We handle questions
from prospective bidders. We take care of the marketing and title searches and
we set up the auction yard so bidders can inspect, test and compare the
equipment.
Perhaps most important, we'll help you with all of your equipment - any make,
model or manufacturer, high-value or low-value, big or small, young or old.
RITCHIE BROS. [LOGO PG 13] ANNUAL REPORT 1999
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[GRAPHIC + 3 PHOTOS]
[PHOTO]
After the auction, we handle the collections and we pay out the net proceeds to
you. You don't have to negotiate with multiple buyers or worry that your deal
might fall apart at the last minute. We take care of selling your equipment so
you can concentrate on your business.
[PHOTO]
EXCELLENT VALUE.
We may charge slightly higher commissions than other auctioneers, but with good
reason: our one-stop hassle-free service is a higher level of service. Our
marketing programs are extensive and our purpose-built facilities enable us to
properly display and safeguard your equipment. We assemble an audience of
bidders (primarily end-users) from around the world, enabling us to transcend
local market conditions and achieve world market prices. In short, you get what
you pay for.
Compared to other channels for selling your equipment, we run a very lean
operation with low overhead. We do not have to cover the costs of warranty
programs, inventory, or other overheads typically associated with equipment
sales. We also sell everything as-is-where-is. As a result, we are able to
minimize the amount that we need to earn on each transaction.
At the end of the day, your goal is to achieve the highest net return on the
sale of your equipment. Our auctions help you achieve that goal.
FLEXIBLE OPTIONS.
We recognize that by seeking our help, you are entrusting us with some of your
most valuable assets. We take that trust seriously. So we offer flexible
contract options and regularly customize contracts to suit the needs of our
customers. If you are selling a significant fleet, we are willing to consider
underwriting its sale, either by providing a guarantee of gross proceeds or by
purchasing it outright. In either case, we assume the risk. We are comfortable
doing this because we have confidence in our system.
A REPUTABLE BUSINESS PARTNER.
Ritchie Bros. is listed on the New York Stock Exchange and has a strong balance
sheet as well as a 36-year history in the industrial auction business. Our
customers always get paid.
OUR EXTENSIVE MARKETING PROGRAMS, PURPOSE-BUILT FACILITIES AND UNRESERVED
AUCTION PROCESS HELP OUR CONSIGNORS ACHIEVE THE HIGHEST NET RETURN ON THE SALE
OF THEIR EQUIPMENT.
RITCHIE BROS. [LOGO PG 14] ANNUAL REPORT 1999
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[GRAPHIC]
[PHOTO]
RITCHIE BROS. [LOGO PG 15] ANNUAL REPORT 1999
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[GRAPHIC]
A NEW MILLENNIUM OF OPPORTUNITIES
The last few years have been very exciting for all of us at Ritchie Bros. In
March 1998, we took our company public and raised the money we needed to
kick-start an expansion campaign that has taken us into regions where previously
we had only been scratching the surface. If our success in 1998 and 1999 was any
indication of what our future has in store, we have good reason to be excited
about 2000 and beyond.
These are the questions we typically get from investors when they ask us about
our plans for the future.
Q WHERE WILL YOUR GROWTH COME FROM?
A We are looking for growth in a number of areas:
a) GEOGRAPHIC EXPANSION. In the next five years, we expect that most of our
growth will probably come from:
(i) regions of the United States we have not fully penetrated;
(ii) Europe, beyond our current operations in The Netherlands;
(iii) Asia, using Singapore as a hub for development of the
region.
b) LATERAL EXPANSION. To boost our sales of agricultural equipment and
over-the-road trucks and trailers in the coming years, we have been hiring
people with expertise in both of these market segments and are
aggressively pursuing business opportunities. While the transportation
opportunities outweigh the agricultural opportunities, both segments are
complementary to our core business.
c) MARKET SHARE. Unreserved auctions are the first choice of equipment buyers
and sellers in our mature markets. We will continue to promote unreserved
auctions in less mature markets as the preferred way for people to buy and
sell equipment.
Q WHAT ARE YOUR MANAGEMENT SUCCESSION PLANS?
A Although some of our senior managers will be retiring in the near term, we
are fortunate to have the next generation already in place. We don't
anticipate any difficulties in managing what is shaping up to be a very
gradual transition. Neither Dave Ritchie nor Russ Cmolik has plans to retire
in the near future. As long as they are healthy and having fun, they can't
think of anything they would rather be doing.
Q WHEN AND WHERE WILL YOU CONSTRUCT NEW AUCTION FACILITIES?
A We intend to expand our network of facilities - in most cases, in accordance
with the five-stage approach we have been following since we held our first
auctions in Western Canada in the 1960s.
STAGE 1: Identify patterns of bidder travel and the regions that are home to
new bidders.
STAGE 2: Hold auctions at temporary 'off-site' locations in those regions in
order to introduce our auctions to more people and expand our customer base.
STAGE 3: Establish a modest sales office, and staff it with one or two
territory managers who will develop the region, hold additional off-site
auctions and source equipment for other sites.
STAGE 4: Develop a Regional Auction Unit when, as a rule of thumb, we see the
potential for about $25 million in gross auction sales per year. At this
stage we lease a site, deploy additional people and hold auctions every three
to six months.
STAGE 5: In areas where we see the potential for roughly $40 million in
annual gross auction sales, we consider purchasing
[PHOTO]
RITCHIE BROS. [LOGO PG 16] ANNUAL REPORT 1999
<PAGE> 22
[GRAPHIC]
land and constructing purpose-built auction facilities. Experience tells us
these Permanent Auction Sites help us mount larger auctions with lower costs.
Our goal is to construct an average of two permanent sites each year for the
next several years, but as in the past, we will be opportunistic in
identifying and developing permanent auction sites.
Q WHAT IS YOUR INTERNET STRATEGY?
A Our intention is to use the Internet, and other available technology, to
build on our strong market position and to ensure that we continue to provide
the best venue for the purchase and sale of used equipment. Even in the
pre-Internet days, we provided a global marketplace for used equipment. Now
the Internet has given us new opportunities to grow our business and improve
the services we offer our customers. Rather than using the Internet to
replace our auctions, our strategy is to use the Internet to enhance our
auctions.
Our customers have told us that they like our auctions because, in addition
to providing a business and social network for equipment owners, we provide
the necessary opportunity for used equipment to be inspected and tested
before being purchased. The value of these used assets is extremely condition
sensitive. Even with 100-point inspection reports, digital photos and
independent appraisals, buyers tell us they want to see the equipment before
buying it. And they certainly want to see it before they will pay top dollar.
We intend to continue holding live unreserved auctions and to enhance the
auctions by allowing our customers to participate live and in real-time over
the Internet, thereby providing the best possible venue for attracting the
highest possible prices.
We also want to ensure that the contractor who bids $75,000 for a five-year
old excavator (that he needs on a job next week) can be 100 percent certain
that once he pays for the machine, he can load it on his truck and take it to
his jobsite. And we
[PHOTO]
want to ensure that he doesn't have any surprises, that he gets the exact
machine he inspected, free of all liens. Our Internet initiatives are being
designed to ensure that our customers can always have this level of
confidence.
During 2000, we will be broadcasting several of our auctions over the
Internet and working towards the introduction of live, real-time bidding. We
will also be giving our customers other on-line services to help them manage
their fleets of equipment. One of these initiatives involves giving our
customers access to our historic auction results. While they haven't been
asking us for on-line auctions, equipment owners have been asking for access
to our sale price data.
We are committed to remaining at the forefront of technology in the used
equipment industry and we will be taking advantage of the Internet to achieve
that goal.
RITCHIE BROS. [LOGO PG 17] ANNUAL REPORT 1999
<PAGE> 23
[GRAPHIC]
AT OUR PERMANENT FACILITIES LIKE FT. WORTH, TEXAS (PICTURED HERE), WE HOST
BETWEEN 3 AND 6 AUCTIONS PER YEAR. WE TYPICALLY ESTABLISH A REPEATING PATTERN OF
AUCTION DATES REFLECTING THE TIMING OF EQUIPMENT FLOWS IN THE REGION. THE LOCAL
EQUIPMENT COMMUNITY IS THEN ABLE TO PLAN ITS BUYING AND SELLING WITH THE RITCHIE
BROS. AUCTION CALENDAR IN MIND.
[PHOTO]
RITCHIE BROS. [LOGO PG 18] ANNUAL REPORT 1999
<PAGE> 24
[GRAPHIC]
FINANCIAL INFORMATION
Page
MANAGEMENT'S DISCUSSION AND ANALYSIS 19
INDEPENDENT AUDITORS' REPORT 22
CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Statements of Income 22
Consolidated Balance Sheets 23
Consolidated Statements of Shareholders' Equity 23
Consolidated Statements of Cash Flows 24
Notes to Consolidated Financial Statements 25
SELECTED FINANCIAL AND OPERATING DATA 32
SUPPLEMENTAL QUARTERLY DATA 33
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, 1999 COMPARED TO THE YEAR ENDED DECEMBER 31, 1998. THIS DISCUSSION
SHOULD BE READ IN CONJUNCTION WITH THE CONSOLIDATED FINANCIAL STATEMENTS AND
NOTES THERETO INCLUDED HEREIN. THE COMPANY PREPARES ITS CONSOLIDATED FINANCIAL
STATEMENTS IN ACCORDANCE WITH GENERALLY ACCEPTED ACCOUNTING PRINCIPLES IN CANADA
WHICH, EXCEPT AS SET OUT IN NOTE 9 TO THE CONSOLIDATED FINANCIAL STATEMENTS,
RESULT IN MATERIALLY CONSISTENT FINANCIAL POSITION AND RESULTS OF OPERATIONS TO
THAT WHICH WOULD BE REPORTED UNDER GENERALLY ACCEPTED ACCOUNTING PRINCIPLES IN
THE UNITED STATES. AMOUNTS DISCUSSED BELOW ARE BASED ON CONSOLIDATED FINANCIAL
STATEMENTS PREPARED IN ACCORDANCE WITH CANADIAN ACCOUNTING PRINCIPLES.
Ritchie Bros. is the world's leading auctioneer of industrial equipment. At
December 31, 1999, the Company operated from over 70 locations in North and
Central America, Europe, Asia, Australia, Africa and the Middle East. The
Company sells, through unreserved public auctions, a broad range of used
equipment, including equipment utilized in the construction, transportation,
mining, forestry, petroleum and agricultural industries.
Gross auction sales represent the aggregate selling prices of all items sold at
Ritchie Bros. auctions during the periods indicated. Gross auction sales are key
to understanding the financial results of the Company, since the amount of
auction revenues and to a lesser extent, certain expenses, are dependent on it.
Auction revenues include commissions earned as agent for consignors through both
straight commission and gross guarantee contracts, plus the net profit on the
sale of equipment purchased and sold by the Company as principal. Under a gross
guarantee contract, the consignor is guaranteed a minimum amount of proceeds on
the sale of its equipment. When the Company guarantees gross proceeds, it earns
a commission on the guaranteed amount and typically participates in a negotiated
percentage of proceeds, if any, in excess of the guaranteed amount. If auction
proceeds are less than the guaranteed amount, the Company's commission would be
reduced, or, if sufficiently lower, the Company would incur a loss. Auction
revenues are reduced by the amount of any losses on gross guarantee consignments
and sales by the Company as principal. Auction revenues also include interest
income earned that is incidental to the auction business.
The Company's gross auction sales and auction revenues are affected by the
seasonal nature of the auction business. Gross auction sales and auction
revenues tend to increase during the second and fourth calendar quarters during
which the Company generally conducts more auctions than in the first and third
calendar quarters. The Company's gross auction sales and auction revenues are
also affected on a period-to-period basis by the timing of major auctions. In
newer markets where the Company is developing operations, the number and size of
auctions and, as a result, the level of gross auction sales and auction
revenues, is likely to vary more dramatically from period-to-period than in the
Company's established markets where the number, size and frequency of the
Company's auctions are more consistent. Finally, economies of scale are achieved
as the Company's operations in a region mature from conducting intermittent
auctions, establishing a regional auction unit, and ultimately to developing a
permanent auction site. Economies of scale are also achieved when the size of
the Company's auctions increases.
The Company is aware of potential restrictions that may affect the ability of
equipment owners to transport certain equipment between some jurisdictions.
Management believes that these potential restrictions have not had a significant
impact on the Company's business, financial condition or results of operations
to date. However, the extent of any future impact on the Company's business,
financial condition or results of operations from these potential restrictions
cannot be predicted at this time.
Although the Company cannot accurately anticipate the future effect of
inflation, inflation historically has not had a material effect on the Company's
operations.
On April 1, 1999, Ritchie Bros. acquired the auction business of Forke, Inc.
("Forke"), a major auctioneer of industrial equipment headquartered in Lincoln,
Nebraska. Whereas Ritchie Bros. operates throughout North and Central America,
Europe, Asia, Australia, Africa, and the Middle East, Forke operated primarily
in the United States. Forke had been conducting industrial auctions since 1921
and pioneered the industrial auction business in the United States. The Company
did not acquire Forke's equipment finance business. To acquire Forke's auction
business, the Company paid cash of $25 million, issued 100,000 common shares of
the Company, and granted warrants to acquire 400,000 common shares of the
Company at an exercise price of $26.69 per share. The Company recorded goodwill
of $33.0 million on the acquisition, consisting of the cash paid plus $7.4
million recorded for the fair value of the shares and warrants issued and $0.6
million of capitalized acquisition expenses. In related transactions, in the
second quarter of 1999, the Company acquired an office building in Nebraska for
$1.3 million and in the third
RITCHIE BROS. [LOGO PG 19] ANNUAL REPORT 1999
<PAGE> 25
[GRAPHIC]
quarter of 1999, the Company acquired permanent auction sites in North Carolina,
New Mexico, and Florida, and land and buildings in Texas for combined
consideration of $10.8 million. Operating expenses related to the acquisition
commenced in the second quarter of 1999; however, incremental revenues did not
commence until the third quarter of 1999.
During 1999 the Company held auctions for the first time in Singapore and Panama
and opened sales offices in those countries as well as in Hong Kong, South
Africa, Austria, Italy and several cities in North America. In addition, new
permanent auction sites were opened in the Port of Moerdijk, The Netherlands and
on the Gold Coast of Australia, near Brisbane. As well, an upgraded permanent
auction site was opened in Truro, Nova Scotia. Also during 1999, the Company
purchased 60 acres of land in Montreal, Quebec and 192 acres (with plans to
develop approximately 55 acres) in Baltimore, Maryland. The Company intends to
construct permanent auction sites in each of these locations in 2000 which will
replace existing regional auction units, once the new auction facilities have
been constructed. During the year, the Company also purchased 152 acres (with
plans to develop approximately 60 acres) in Prince George, British Columbia, and
intends to construct a permanent auction site on this property in 2000,
replacing the Company's existing Prince George facility which is located on a 32
acre site.
Also during 1999 the Company entered into lease agreements in Singapore and
Dubai, U.A.E. The Singapore lease includes up to 15 acres of land. The Dubai
lease includes up to 26 acres of land and will enable the company to replace its
existing Dubai location with an expanded regional auction unit. Construction of
modest purpose-built auction facilities in both Singapore and Dubai is expected
to be completed in 2000.
Finally, in 1999, the Company improved the functionality of its Internet site to
better service its customers, and plans to further improve the site during 2000
and beyond. The Company plans to introduce initiatives that include live
Internet broadcasts of some of its auctions, amongst other features.
RESULTS OF OPERATIONS
AUCTION REVENUES
Auction revenues of $104.6 million for the year ended December 31, 1999
increased by $9.7 million, or 10.2%, from 1998 due to higher average auction
revenue rates and increased gross auction sales. Gross auction sales of $1.17
billion for the year ended December 31, 1999 increased $82.7 million, or 7.6%,
over the prior year, primarily as a result of increased gross auction sales in
the United States, partially offset by decreased gross auction sales in Europe.
Results for 1999 included significant auctions in Fort Worth, Texas; Houston,
Texas; Las Vegas, Nevada; Dubai, the United Arab Emirates; and in the Port of
Moerdijk, the Netherlands. In addition, the Company held auctions for the first
time in Singapore and Panama. Auction revenues as a percentage of gross auction
sales have averaged approximately 8.80% on a long-term basis. In the year ended
December 31, 1999, the auction revenue rate of 8.94% was higher than the
long-term average and higher than the 8.72% rate experienced in the year ended
December 31, 1998. 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
specifically related to the auction. Direct expenses of $17.5 million for the
year ended December 31, 1999 increased by $1.5 million compared to 1998 due to
increased auction activity generated by the Company in 1999. As a percentage of
gross auction sales, direct expenses were 1.49% for the year ended December 31,
1999, roughly consistent with the 1.47% ratio experienced in the prior year.
Direct expenses as a percentage of gross auction sales are expected to fluctuate
slightly based on the size and location of auctions held each period. Management
expects that, on average, direct expenses as a percentage of gross auction sales
should remain fairly close to the 1.5% level in 2000.
DEPRECIATION AND AMORTIZATION EXPENSE
Depreciation is calculated on capital assets employed in the Company's business,
including building and site improvements, automobiles, yard equipment, and
computers. Amortization results from expensing, over 20 years, the $33.0 million
of goodwill recorded as a result of the acquisition of the auction business of
Forke in April 1999. In the year ended December 31, 1999, depreciation and
amortization expense was $5.6 million, compared to $2.8 million in 1998. This
increase is the result of the depreciation of new auction facilities constructed
over the past year and goodwill amortization charges of $1.2 million for the
period from April 1, 1999 to December 31, 1999. Management anticipates that
depreciation expense will increase as existing auction sites are improved and
additional permanent auction sites are acquired and developed.
GENERAL AND ADMINISTRATIVE EXPENSE
General and administrative expense ("G&A") includes employee expenses such as
salaries, wages, performance bonuses and benefits, non-auction related travel,
institutional advertising, insurance, general office, and computer expenses. For
the year ended December 31, 1999, the Company incurred G&A of $47.3 million, as
compared to $39.3 million in 1998. This increase in expenditures is attributable
to an increase in employee numbers and infrastructure to support the growth
initiatives of the Company. Included in these expenditures are costs related to
the operation of new permanent auction sites and an administrative office in the
United States as part of the acquisition of the auction business of Forke. In
addition, during the first quarter of 1999 the Company incurred a special
compensation expense of approximately $1.3 million related to a share issuance
to an employee. Future levels of G&A will be affected by infrastructure and
workforce expansion necessary to support the Company's growth plans and other
factors.
INCOME FROM OPERATIONS
Income from operations was $34.2 million for the year ended December 31, 1999
compared to $36.8 million in 1998. This decrease is the result of higher G&A and
depreciation and amortization expenses in 1999, partially offset by increased
gross auction sales and higher auction revenue rates in 1999 compared to 1998.
INTEREST EXPENSE
Interest expense includes interest and bank charges paid on term bank debt.
Interest expense for the year ended December 31, 1999 was $1.7 million, compared
to $1.6 million incurred in 1998. The increase resulted primarily from debt
incurred by the Company in connection with the acquisition of the auction
business and certain assets of Forke in 1999. This increase was partially offset
by the capitalization of $0.9 million (1998 - nil) of interest related to
properties under development during the year. Management anticipates that
interest expense will increase
RITCHIE BROS. [LOGO PG 20] ANNUAL REPORT 1999
<PAGE> 26
[GRAPHIC]
further as debt is incurred to finance the development of additional permanent
auction sites. See " -- Overview" and "Liquidity and Capital Resources."
OTHER INCOME
Other income arises from equipment appraisals performed by the Company, and
other miscellaneous sources. Other income for the year ended December 31, 1999
was $1.2 million compared to $3.3 million for 1998. This decrease is
attributable primarily to a non-recurring $1.8 million gain in the 1998 period
that arose from the sale of property.
INCOME TAXES
Income taxes of $11.5 million for the year ended December 31, 1999 have been
computed based on rates of tax that apply in each of the tax jurisdictions in
which the Company operates. The effective tax rate of 33.9% on net income for
the year ended December 31, 1999 is lower than the 35.5% rate the Company
experienced in 1998 primarily due to initiatives undertaken by the Company.
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, 1999, working capital including cash was $26.0 million, compared
to $49.1 million at December 31, 1998. This decrease of $23.1 million during the
year was due in part to the allocation of working capital to fund a portion of
the Company's capital expenditure program. In addition, the Company's current
portion of bank debt increased from $0.8 million at December 31, 1998 to $5.4
million at December 31, 1999 reflecting debt incurred to partially finance the
acquisition of the Forke auction business and the acquisition and development of
certain permanent auction sites.
Net capital expenditures by the Company during the year ended December 31, 1999
were $53.5 million as compared to $37.1 million for the year ended December 31,
1998. In the 1999 period, the Company acquired land and buildings from Forke in
Albuquerque, NM, Statesville, NC, Fort Worth, TX, Ocala, FL and Lincoln, NB and
made unrelated purchases of property in Montreal, QC, Baltimore, MD, and Prince
George, BC. In addition, the Company continued to incur site development costs
in the United States, Canada, Australia and Europe. The Company is continuing
with its plan to add additional permanent auction sites in selected
international locations and is presently in various stages of commitments to
acquire land for development in the United States and Canada. The Company
expects that it will incur an average of $20 to $25 million per year in capital
expenditures over the next few years. Actual expenditure levels will depend on
the Company's ability to identify and capitalize on suitable auction site
development opportunities.
The Company has established credit facilities with financial institutions in the
United States, Canada, Europe, and Australia. The Company presently has access
to credit lines for operations of approximately $112.0 million and to credit
lines for funding property acquisitions of approximately $35.7 million. At
December 31, 1999, the Company had no bank debt relating to operations, and bank
debt related to property acquisitions totaled $12.7 million, leaving a net
credit line of $23.0 million available for property acquisitions. The Company
also has a $35.0 million term loan facility that was negotiated to finance a
portion of the Forke acquisition, which had been entirely drawn down at December
31, 1999. At December 31, 1999, the majority of the loan bore interest at a
fixed rate of 7.21%. Interest is payable quarterly and the Company is required
to make minimum annual payments of $5 million in respect of the principal amount
of the debt. See " -- Overview".
YEAR 2000 COMPLIANCE
The Company relies on computer systems 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 year
2000 issue, which is common to most companies, relates to the inability of such
computer systems to properly recognize and process date sensitive information
with respect to dates in the Year 2000 and thereafter. To the best of the
Company's knowledge, no disruptions to the Company's operations occurred or are
likely to occur as a result of the Year 2000 Issue. However, Management believes
that it is not yet possible to conclude that all aspects of the Year 2000 issue
that may affect the Company, including those related to customers, suppliers, or
other third parties, have been fully resolved.
The Company has developed contingency plans in the event of the Company's or its
key suppliers' failure to achieve full Year 2000 compliance. The plans include
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. 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 Annual Report, including this Management's Discussion and Analysis of
Financial Condition and Results of Operations, contains forward-looking
statements that involve risks and uncertainties. These statements are based on
current expectations and estimates about the Company's business. These
statements include, in particular, statements relating to auction revenue rates,
direct expense rates, G&A increases, income tax rates, the Forke transaction,
the anticipated improvement, acquisition and development of permanent auction
sites, the development of Internet-related initiatives, and the financing
available to the Company. Words such as "expects", "intends", "plans",
"believes", "estimates", "anticipates" and variations of such words and similar
expressions are intended to identify such forward-looking statements. These
statements are not guarantees of future performance and involve certain risks,
uncertainties and assumptions that are difficult to predict. The following
important factors, among others, could affect the Company's actual results and
could cause such results to differ materially from those expressed in the
Company's forward-looking statements: the many factors that have an impact on
the supply of and demand for used equipment; fluctuations in the market values
of used equipment; potential inability to achieve and manage growth; periodic
and seasonal variations in operating results or financial conditions; the timing
and location of auctions; potential delays in construction or development of
auction sites; actions of competitors; adverse changes in economic conditions;
restrictions affecting the ability of equipment owners to transport equipment
between jurisdictions; the ability of the Company to integrate the business
acquired and personnel hired as a result of the Forke transaction; potential
losses from price guarantees, purchases of inventory, advances by the Company
and guarantees of clear title; risks of noncompliance with governmental and
environmental regulation; potential inadequacy of insurance coverage; risks of
international operations; dependence of key personnel; failure, pace or lack of
development of Internet-related initiatives; and other risks and uncertainties
as detailed in the Company's periodic filings with the United States Securities
and Exchange Commission including its annual return for 1999 filed on Form 40-F
in March, 2000. 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.
RITCHIE BROS. [LOGO PG 21] ANNUAL REPORT 1999
<PAGE> 27
[GRAPHIC]
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, 1999 and 1998 and the
consolidated statements of income, shareholders' equity and cash flows for the
years ended December 31, 1999 and 1998 and for the eight months ended December
31, 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, 1999
and 1998 and the results of its operations and its cash flows for the years
ended December 31, 1999 and 1998 and for the eight months ended December 31,
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.
KPMG LLP
Chartered Accountants
Vancouver, Canada
February 18, 2000
CONSOLIDATED STATEMENTS OF INCOME
(Expressed in thousands of United States Dollars)
<TABLE>
<CAPTION>
Eight
Year ended Year ended Year ended months ended
December 31, December 31, December 31, December 31,
1999 1998 1997 1997
- ------------------------------------------------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C> <C> <C>
Auction revenues $ 104,624 $ 94,899 $ 85,009 $ 60,034
Direct expenses (17,469) (16,010) (17,351) (13,041)
- ------------------------------------------------------------------------------------------------------------------------------
87,155 78,889 67,658 46,993
Expenses
Depreciation and amortization 5,581 2,752 2,548 1,540
General and administrative 47,346 39,315 37,724 27,414
Employee equity participation (note 6(e)) -- -- 10,346 10,346
- ------------------------------------------------------------------------------------------------------------------------------
52,927 42,067 50,618 39,300
- ------------------------------------------------------------------------------------------------------------------------------
Income from operations 34,228 36,822 17,040 7,693
Other income (expenses)
Interest expense (1,705) (1,569) (2,034) (1,380)
Other 1,209 3,251 754 576
- ------------------------------------------------------------------------------------------------------------------------------
(496) 1,682 (1,280) (804)
- ------------------------------------------------------------------------------------------------------------------------------
Income before income taxes 33,732 38,504 15,760 6,889
Income taxes (note 8)
Current 10,902 13,962 7,438 4,491
Future 550 (292) -- --
- ------------------------------------------------------------------------------------------------------------------------------
11,452 13,670 7,438 4,491
- ------------------------------------------------------------------------------------------------------------------------------
Net income $ 22,280 $ 24,834 $ 8,322 $ 2,398
==============================================================================================================================
Net income per share (note 1(m))
Basic $ 1.34 $ 1.56 $ 0.65 $ 0.19
Diluted 1.31 1.54 0.64 0.18
- ------------------------------------------------------------------------------------------------------------------------------
Weighted average number of shares outstanding 16,686,595 15,918,214 12,877,777 12,958,753
==============================================================================================================================
</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. [LOGO PG 22] ANNUAL REPORT 1999
<PAGE> 28
[GRAPHIC]
CONSOLIDATED BALANCE SHEETS
(Expressed in thousands of United States Dollars)
<TABLE>
<CAPTION>
December 31, December 31,
1999 1998
- -------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 55,921 $ 73,620
Accounts receivable 9,645 6,771
Inventory 3,495 2,355
Advances against auction contracts 856 5,345
Prepaid expenses and deposits 1,221 711
Income taxes recoverable 865 --
- -------------------------------------------------------------------------------
72,003 88,802
Capital assets (note 2) 110,459 61,324
Goodwill (note 3) 31,767 --
Future income taxes (note 8) 1,917 2,467
- -------------------------------------------------------------------------------
$ 216,146 $ 152,593
===============================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Auction proceeds payable $ 16,178 $ 14,030
Accounts payable and accrued liabilities 17,891 21,751
Short-term debt (note 4) 6,529 --
Current bank term loans (note 5) 5,425 793
Income taxes payable -- 3,079
- -------------------------------------------------------------------------------
46,023 39,653
Bank term loans (note 5) 35,728 8,768
- -------------------------------------------------------------------------------
81,751 48,421
Shareholders' equity
Share capital (note 6) 69,130 64,728
Additional paid-in capital (note 6(h)) 4,332 --
Retained earnings 64,052 41,772
Foreign currency translation adjustment (3,119) (2,328)
- -------------------------------------------------------------------------------
134,395 104,172
===============================================================================
$ 216,146 $ 152,593
===============================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(Expressed in thousands of United States Dollars)
<TABLE>
<CAPTION>
Foreign
Additional Currency Total
Share Paid-in Retained Translation Shareholders'
Capital Capital Earnings Adjustment Equity
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance, April 30, 1997 $ 3,365 $ -- $ 58,088 $ (2,128) $ 59,325
Common shares redeemed (2,845) -- -- -- (2,845)
Employee equity participation (note 6(e)) 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
Net proceeds on stock options exercised 3 -- -- -- 3
Employee share compensation 1,344 -- -- -- 1,344
Common shares issued on acquisition of goodwill
(note 6(h)) 3,055 -- -- -- 3,055
Warrants issued on acquisition of goodwill (note 6(h)) -- 4,332 -- -- 4,332
Net income -- -- 22,280 -- 22,280
Foreign currency translation adjustment -- -- -- (791) (791)
- ----------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1999 $ 69,130 $ 4,332 $ 64,052 $ (3,119) $ 134,395
==================================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
RITCHIE BROS. [LOGO PG 23] ANNUAL REPORT 1999
<PAGE> 29
[GRAPHIC]
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Expressed in thousands of United States Dollars)
<TABLE>
<CAPTION>
Eight
Year Ended Year Ended Year Ended Months Ended
December 31, December 31, December 31, December 31,
1999 1998 1997 1997
- ------------------------------------------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C> <C> <C>
Cash and cash equivalents provided by (used in)
Operations
Net income $ 22,280 $ 24,834 $ 8,322 $ 2,398
Items not involving the use of cash
Depreciation 4,345 2,752 2,548 1,540
Amortization of goodwill 1,236 -- -- --
Employee equity participation -- -- 10,346 10,346
Employee share compensation 1,344 -- -- --
Future income taxes 550 (2,467) -- --
Changes in non-cash working capital
Accounts receivable (2,874) (27) (2,389) 7,363
Inventory (1,140) 4,726 455 11,073
Advances against auction contracts 4,489 (4,084) 1,395 5,211
Prepaid expenses and deposits (510) 507 (711) (446)
Auctions proceeds payable 2,148 (3,698) 10,434 (35,749)
Accounts payable and accrued liabilities (3,860) 4,620 9,329 8,203
Payables to affiliated entities -- -- (3,078) (3,818)
Income taxes (3,944) (1,463) 2,077 (540)
Foreign currency translation adjustment (791) (210) (417) 10
- ------------------------------------------------------------------------------------------------------------------------
23,273 25,490 38,311 5,591
- ------------------------------------------------------------------------------------------------------------------------
Financing
Issuance (redemption) of share capital 3 53,862 (2,833) (2,845)
Payables to employees and others -- -- (1,317) (1,279)
Bank term loans 31,592 4,208 (1,326) (5,596)
Short-term debt 6,529 -- -- --
Drawings and dividends paid -- -- (42,756) (42,175)
Refundable taxes on investment income -- -- (29) --
Reorganization costs -- (20) (1,353) (1,353)
- ------------------------------------------------------------------------------------------------------------------------
38,124 58,050 (49,614) (53,248)
- ------------------------------------------------------------------------------------------------------------------------
Investments
Capital asset additions (53,480) (37,069) (5,120) (3,174)
Acquisition of goodwill (25,616) -- -- --
- ------------------------------------------------------------------------------------------------------------------------
(79,096) (37,069) (5,120) (3,174)
- ------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents (17,699) 46,471 (16,423) (50,831)
Cash and cash equivalents, beginning of period 73,620 27,149 43,572 77,980
- ------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of period $ 55,921 $ 73,620 $ 27,149 $ 27,149
========================================================================================================================
Supplemental disclosure of cash flow information
Interest paid $ 2,633 $ 1,570 $ 1,853 $ 1,242
Income taxes paid 14,861 16,735 5,098 5,332
Non-cash investing activities
Common shares issued on acquisition of goodwill 3,055 -- -- --
Warrants issued on acquisition of goodwill 4,332 -- -- --
Non-cash financing activities
Employee equity participation -- -- 10,346 10,346
Employee share compensation 1,344 -- -- --
========================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
RITCHIE BROS.[LOGO PG 24] ANNUAL REPORT 1999
<PAGE> 30
[GRAPHIC]
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31, 1999, 1998 and 1997 (unaudited) and eight months ended
December 31, 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 subsidiaries and 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 (the "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 8 sets out the pro forma impact as if all income
earned by partnerships in the Group prior to the Reorganization 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.
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 and cash equivalents
Cash equivalents consist of highly liquid investments having an
original term to maturity of three months or less when acquired.
(c) Inventory
Inventory is primarily represented by goods held for auction and has
been valued at the lower of cost, determined by the specific
identification method, and net realizable value.
(d) Advances against auction contracts
Advances against auction contracts represent funds advanced to
consignors against proceeds from future auctions.
RITCHIE BROS.[LOGO PG 25] ANNUAL REPORT 1999
<PAGE> 31
[GRAPHIC]
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
Years ended December 31, 1999, 1998 and 1997 (unaudited) and eight months ended
December 31, 1997
(Tabular dollar amounts expressed in thousands of United States Dollars)
1. SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
(e) Capital assets
All capital assets are stated at cost and include capitalized interest
costs on property under development. Depreciation is provided to charge
the cost of the assets to operations over their estimated useful lives
based on their usage predominantly as follows:
Improvements 30 years straight-line
Buildings 30 years straight-line
Automotive equipment 30% declining balance
Computer equipment 30% declining balance
Computer software 3 years straight-line
Yard equipment 20-30% declining balance
Office equipment 20% declining balance
Leasehold improvements Term of leases
(f) Goodwill
Goodwill, which represents the intangible assets acquired, is being
amortized on a straight-line basis over the expected period to be
benefited, which is 20 years. The Company periodically assesses the
recoverability of this intangible asset by determining whether the
amortization of the goodwill balance over its remaining life can be
recovered through estimated future operating cash flows.
(g) 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.
(h) Income taxes
Income taxes are accounted for using the asset and liability method
whereby future taxes are recognized for the tax consequences of
"temporary differences" by applying enacted statutory tax rates
applicable to future years to differences between the financial
statement carrying amounts and the tax bases of existing assets and
liabilities. The effect on future taxes of a change in tax rates is
recognized in income in the period that includes the enactment date of
future tax benefits. To the extent that realization of future tax
assets is not considered to be more likely than not, a valuation
allowance is provided.
(i) Foreign currency translation
The Company's reporting currency is the United States dollar. The
functional currency for each of the Company's operations is the
currency of the country of residency. Each of these operations is
considered to be self-sustaining. Accordingly, the financial statements
of operations of the Company that are not located in the United States
have been translated into United States dollars using the exchange rate
at the end of each reporting period for asset and liability amounts and
the average exchange rate for each reporting period for amounts
included in the determination of income. Any gains or losses from this
translation have been included in the foreign currency translation
adjustment account which is included in shareholders' equity.
Monetary assets and liabilities recorded in foreign currencies are
translated into the appropriate functional currency at the rate of
exchange in effect at the balance sheet date. Foreign currency
denominated transactions are translated into the appropriate functional
currency at the exchange rate in effect on the date of the transaction.
Any exchange gains and losses on these are included in the
determination of income.
(j) 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.
(k) Financial instruments
Carrying amounts of certain of the Company's financial instruments,
including cash and cash equivalents, accounts receivable, auction
proceeds payable, accounts payable and accrued liabilities and
short-term debt, approximate their fair value due to their short
maturities. Based on borrowing rates currently available to the Company
for loans with similar terms, the carrying value of its bank term loans
approximates fair value.
(l) 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.
(m) 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 and warrants.
RITCHIE BROS.[LOGO PG 26] ANNUAL REPORT 1999
<PAGE> 32
[GRAPHIC]
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
Years ended December 31, 1999, 1998 and 1997 (unaudited) and eight months ended
December 31, 1997
(Tabular dollar amounts expressed in thousands of United States Dollars)
2. CAPITAL ASSETS
Capital assets at December 31, 1999 are as follows:
<TABLE>
<CAPTION>
Accumulated Net Book
Cost Depreciation Value
- ---------------------------------------------------------------------------------
<S> <C> <C> <C>
Land and buildings under development $ 12,764 $ -- $ 12,764
Land and improvements 48,723 1,426 47,297
Buildings 43,808 3,535 40,273
Automotive equipment 6,633 2,224 4,409
Computer equipment 2,492 1,131 1,361
Computer software 525 185 340
Yard equipment 3,474 1,391 2,083
Office equipment 2,999 1,329 1,670
Leasehold improvements 380 118 262
- ---------------------------------------------------------------------------------
$121,798 $ 11,339 $110,459
=================================================================================
</TABLE>
Capital assets at December 31, 1998 are as follows:
<TABLE>
<CAPTION>
Accumulated Net Book
Cost Depreciation Value
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Land and buildings under development $ 8,225 $ -- $ 8,225
Land and improvements 29,774 900 28,874
Buildings 19,688 2,825 16,863
Automotive equipment 5,164 1,606 3,558
Computer equipment 1,742 739 1,003
Computer software 178 -- 178
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>
During the year, interest of $918,581 (1998 - $Nil) was capitalized to
cost of the buildings.
3. GOODWILL
On April 1, 1999, the Company acquired goodwill of $33,003,000.
Consideration given was as follows:
<TABLE>
<S> <C>
Cash $ 25,000
Acquisition costs 616
Issue of shares and warrants (note 6(h)) 7,387
- ----------------------------------------------------------------------------------------
$ 33,003
========================================================================================
</TABLE>
Goodwill is disclosed net of accumulated amortization of $1,236,000.
4. SHORT-TERM DEBT
Short-term debt consists of a Banker's Acceptance in the amount of $3.4
million payable in March 2000 bearing interest at 6.13% and lines of credit
in the amount of $3.1 million with a weighted average interest rate of
8.21%.
5. BANK TERM LOANS
<TABLE>
<CAPTION>
December 31, December 31,
1999 1998
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
6.90% term loan, due in monthly instalments of $81,200
including interest, settled in 1999 $ -- $ 4,499
Term loan of NLG 9.6 million, secured by deeds of trust on
specific property, bearing interest at the Amsterdam Interbank
Offered Rate plus 7/8%, due in quarterly instalments of
$57,000 including interest, with the final payment
occurring in 2013 4,395 5,062
Term loan, unsecured, with $25 million bearing interest at
7.21% and $10 million bearing interest at 6.70%, due in
minimum annual instalments of $5 million ($1.75 million
towards principal, $3.25 million towards a sinking fund),
with the final payment occurring in 2004 35,000 --
Term loan of AUD $2.7 million, secured by deeds of trust on
specific property, with $1.5 million bearing interest at 6.5%
and $1 million bearing interest at the Australian prime rate,
due in quarterly instalments of $49,275, including interest,
with final payment occurring in 2010 1,758 --
- ------------------------------------------------------------------------------------------------
41,153 9,561
Less current portion (5,425) (793)
- ------------------------------------------------------------------------------------------------
$ 35,728 $ 8,768
================================================================================================
</TABLE>
RITCHIE BROS.[LOGO PG 27] ANNUAL REPORT 1999
<PAGE> 33
[GRAPHIC]
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
Years ended December 31, 1999, 1998 and 1997 (unaudited) and eight months ended
December 31, 1997
(Tabular dollar amounts expressed in thousands of United States Dollars)
5. BANK TERM LOANS, CONTINUED
At December 31, 1999, the Company had undrawn operating credit lines
available in excess of $112,000,000. In addition, the Company had undrawn
credit lines of approximately $23,000,000 available to fund property
acquisitions.
As at December 31, 1999, principal repayments including sinking fund
requirements are as follows for the next five years:
<TABLE>
<S> <C>
2000 $ 5,425
2001 5,425
2002 5,425
2003 5,425
2004 15,425
Thereafter 4,028
- ---------------------------
$41,153
===========================
</TABLE>
6. SHARE CAPITAL
(a) Authorized
Unlimited number of common shares, without par value
Unlimited number of senior preferred shares, without par value,
issuable in series
Unlimited number of junior preferred shares, without par value,
issuable in series
(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
----------------------------------------------------------------------------------------
Issued and outstanding, December 31, 1997 13,213,666
Number of common shares issued during the year ended December 31, 1998:
Pursuant to an equity offering 3,335,000
----------------------------------------------------------------------------------------
Issued and outstanding, December 31, 1998 16,548,666
Number of common shares issued during the year ended December 31, 1999:
For cash, pursuant to stock options exercised 34,598
Employee share compensation (note 6(g)) 50,000
Pursuant to acquisition of goodwill (note 6(h)) 100,000
----------------------------------------------------------------------------------------
Issued and outstanding, December 31, 1999 16,733,264
========================================================================================
</TABLE>
(c) Options
The Company has a stock option plan which provides for the award of
stock options to selected employees, directors and officers of the
Company and to other persons approved by the Board of Directors. At
December 31, 1999, there were 1,240,667 shares authorized for grants of
options under the stock option plan. Stock option activity for 1997,
1998 and 1999 is presented below:
<TABLE>
<CAPTION>
Number of Options Weighted Average
Outstanding Exercise Price
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
Outstanding, April 30, 1997 -- $ --
Granted (note 6(e)) 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 4.67
Granted 27,000 31.23
Cancelled (4,166) 0.10
Exercised (34,598) 0.10
- ----------------------------------------------------------------------------------------------
Outstanding, December 31, 1999 195,236 $ 9.20
==============================================================================================
Exercisable, December 31, 1999 175,236 $ 6.52
==============================================================================================
</TABLE>
The options outstanding at December 31, 1999 expire from dates ranging to
August 9, 2009.
The following is a summary of stock options outstanding and exercisable at
December 31, 1999.
<TABLE>
<CAPTION>
Options Outstanding Options exercisable
Weighted Weighted Weighted
average average average
Range of Number remaining exercise Number exercise
exercise prices Outstanding life (years) price exercisable price
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$0.10 132,236 4.58 $ 0.10 132,236 $ 0.10
$26.12 - $38.625 63,000 6.59 $ 28.31 43,000 $ 26.24
</TABLE>
With respect to the options granted in 1998 and 1999, the current
market price did not exceed the exercise price, therefore, no
compensation expense has been recorded.
RITCHIE BROS. [LOGO PG 28] ANNUAL REPORT 1999
<PAGE> 34
[GRAPHIC]
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
Years ended December 31, 1999, 1998 and 1997 (unaudited) and eight months ended
December 31, 1997
(Tabular dollar amounts expressed in thousands of United States Dollars)
6. SHARE CAPITAL, CONTINUED
(d) Warrants
<TABLE>
<CAPTION>
1999 1998
- ----------------------------------------------------------------------------------------
<S> <C> <C>
Warrants outstanding (note 6(h)) 400,000 Nil
========================================================================================
</TABLE>
(e) Employee equity participation
Substantially all the full-time employees at the time of the
Reorganization who were not beneficial owners of the predecessor
entities to the Company were 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 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.
(f) Offering
In 1998, 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.
(g) Employee share compensation
During 1999, the Company issued 50,000 common shares to an employee.
The transaction was recorded at the market value of the common shares
on the issuance date of $26.88 per share. Compensation expense of
$1,344,000 has been recorded for this issuance.
(h) Acquisition of goodwill
During 1999, the Company acquired intangible assets related to an
auction business through the payment of $25 million cash and the
issuance of 100,000 common shares and 400,000 warrants to acquire
common shares of the Company. The warrants are fully vested and have an
exercise price of $26.69 per share and expire on April 1, 2001. The
shares have been valued using the market price of $30.55 per share and
the warrants have been valued at $4,332,000 using an option pricing
model.
7. SEGMENTED INFORMATION
The Company's principal business activities include the sale of consignment
and self-owned equipment at auctions. This business represents a single
operating segment.
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, 1999
Auction revenues $ 64,766 $ 17,110 $ 22,748 $104,624
Capital assets and goodwill 94,662 17,463 30,101 142,226
Year ended December 31, 1998
Auction revenues 49,747 16,105 29,047 94,899
Capital assets 31,529 9,203 20,592 61,324
Year ended December 31, 1997 (unaudited)
Auction revenues 44,615 16,095 24,299 85,009
Capital assets 19,604 6,373 1,030 27,007
Eight months ended December 31, 1997
Auction revenues 32,254 13,664 14,116 60,034
Capital assets 19,604 6,373 1,030 27,007
</TABLE>
RITCHIE BROS. [LOGO PG 29] ANNUAL REPORT 1999
<PAGE> 35
[GRAPHIC]
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
Years ended December 31, 1999, 1998 and 1997 (unaudited) and eight months ended
December 31, 1997
(Tabular dollar amounts expressed in thousands of United States Dollars)
8. 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 Year ended months ended
December 31, December 31, December 31, December 31,
1999 1998 1997 1997
==========================================================================================================================
(unaudited)
==========================================================================================================================
<S> <C> <C> <C> <C>
Statutory tax rate in the United States 39% 39% 39% 39%
--------------------------------------------------------------------------------------------------------------------------
Expected income tax expense $ 13,155 $ 15,017 $ 6,147 $ 2,687
Differences
Different tax rates in non-U.S. jurisdictions (1,289) (2,028) (831) (247)
Partnership income not taxed in Group -- -- (1,566) (806)
U.S. income taxed at lower graduated rates -- -- (397) (128)
Employee equity participation expense not tax deductible -- -- 2,894 2,894
Other (414) 681 1,191 91
--------------------------------------------------------------------------------------------------------------------------
Actual income tax expense $ 11,452 $ 13,670 $ 7,438 $ 4,491
==========================================================================================================================
</TABLE>
If all partnership income for the period including the Reorganization had
been taxed in the Group, income taxes would have been as follows:
<TABLE>
<CAPTION>
Eight
Year ended months ended
December 31, December 31,
1997 1997
==========================================================================================================================
(unaudited)
<S> <C> <C>
Income taxes $ 9,004 $ 5,297
==========================================================================================================================
</TABLE>
Future income tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
December 31, December 31,
1999 1998
================================================================================
<S> <C> <C>
Future income tax assets
Tax deductible benefit of options granted $ 652 $ 853
Tax deductible financing costs incurred in
the course of the Company's initial public
offering in March 1998 1,305 1,740
Unused tax losses, expiring on December 31,
2005 and 2006 543 324
Accounts payable 20 25
--------------------------------------------------------------------------------
Total future income tax assets 2,520 2,942
Future income tax liabilities arising from
temporary differences between the tax basis of
net assets and their carrying value
Capital assets (441) (475)
Goodwill (162) --
--------------------------------------------------------------------------------
Total future income tax liabilities (603) (475)
--------------------------------------------------------------------------------
$1,917 $2,467
================================================================================
</TABLE>
9. UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
The consolidated financial statements are prepared in accordance with
generally accepted accounting principles ("GAAP") in Canada which differ,
in certain respects, from accounting practices generally accepted in the
United States and from requirements promulgated by the Securities and
Exchange Commission. Material measurement differences to these consolidated
financial statements are as follows:
Consolidated statements of net income per share
<TABLE>
<CAPTION>
Eight
Year ended Year ended Year ended months ended
December 31, December 31, December 31, December 31,
1999 1998 1997 1997
===============================================================================================
(unaudited)
<S> <C> <C> <C> <C>
Net income per share in accordance
with United States GAAP
Basic $1.34 $1.56 $0.54 $0.08
Diluted 1.32 1.54 0.54 0.08
===============================================================================================
</TABLE>
RITCHIE BROS. [LOGO PG 30] ANNUAL REPORT 1999
<PAGE> 36
[GRAPHIC]
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
Years ended December 31, 1999, 1998 and 1997 (unaudited) and eight months ended
December 31, 1997
(Tabular dollar amounts expressed in thousands of United States Dollars)
9. UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES, CONTINUED
Consolidated statements of comprehensive net income
<TABLE>
<CAPTION>
Eight
Year ended Year ended Year ended months ended
December 31, December 31, December 31, December 31,
1999 1998 1997 1997
----------------------------------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C> <C> <C>
Net income in accordance with Canadian GAAP $22,280 $24,834 $8,322 $2,398
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 22,280 24,814 6,969 1,045
Other comprehensive income (loss) (note 9(ii))
Foreign currency translation adjustment (791) (210) (417) 10
----------------------------------------------------------------------------------------------------------------
Comprehensive net income in accordance with
United States GAAP $21,489 $24,604 $6,552 $1,055
================================================================================================================
</TABLE>
(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)
Comprehensive income (loss) includes the change in equity or net
assets of the Company during the period from non-owner sources,
including foreign exchange adjustments, and reflected as a separate
component of shareholders' equity.
RITCHIE BROS. [LOGO PG 31] ANNUAL REPORT 1999
<PAGE> 37
[GRAPHIC]
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
December 31, December 31, December 31, April 30,
1999 1998 1997 1997
===================================================================================================
(unaudited)
<S> <C> <C> <C> <C>
GROSS AUCTION SALES $1,170,529 $1,087,800 $946,415 $792,865
===================================================================================================
INCOME STATEMENT DATA
Auction revenues $ 104,624 $ 94,899 $ 85,009 $ 72,186
Direct expenses (17,469) (16,010) (17,351) (13,908)
------------------------------------------------------------
87,155 78,889 67,658 58,278
Depreciation (5,581) (2,752) (2,548) (2,014)
General and administrative expense (47,346) (39,315)
----------------------------
Income from operations 34,228 36,822
Interest expense (1,705) (1,569) (2,034) (1,081)
Other income 1,209 3,251(2) 754 917
----------------------------
Income before income taxes 33,732 38,504
Income taxes (11,452) (13,670)
----------------------------
Net income $ 22,280 $ 24,834
============================
Net income per share=diluted(1) $ 1.32 $ 1.54(3)
============================
BALANCE SHEET DATA (END OF PERIOD)
Working capital (including cash) $ 25,980 $ 49,149 $ 3,322 $ 39,707
Total assets 216,146 152,593 70,460 142,858
Long term debt 35,728 8,768 4,623 5,755
Total shareholders' equity 134,395 104,172 25,706 59,325
SELECTED OPERATING DATA
Auction revenues as percentage of
gross auction sales 8.94% 8.72% 8.98% 9.10%
Number of consignors 16,185 14,432 13,636 12,088
Number of buyers 38,958 34,613 33,340 30,630
Number of permanent auction sites 17 13 13 13
(end of period)
---------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
April 30, April 30, April 30,
1996 1995 1994
---------------------------------------------------------------------------------
<S> <C> <C> <C>
GROSS AUCTION SALES $752,735 $634,058 $567,506
=================================================================================
INCOME STATEMENT DATA
Auction revenues $ 65,306 $ 51,326 $ 50,066
Direct expenses (13,138) (12,979) (11,925)
------------------------------------------
52,168 38,347 38,141
Depreciation (1,820) (1,708) (1,327)
General and administrative expense
Income from operations
Interest expense (1,104) (1,274) (611)
Other income 1,179 677 1,336
Income before income taxes
Income taxes
Net income
Net income per share-diluted(1)
BALANCE SHEET DATA (END OF PERIOD)
Working capital (including cash) $ 33,132 $ 21,822 $ 23,900
Total assets 150,969 98,621 87,802
Long term debt 6,547 6,985 7,282
Total shareholders' equity 48,801 37,718 35,449
SELECTED OPERATING DATA
Auction revenues as percentage of
gross auction sales 8.68% 8.09% 8.82%
Number of consignors 10,744 10,460 8,650
Number of buyers 27,837 27,401 25,812
Number of permanent auction sites 12 11 10
(end of period)
---------------------------------------------------------------------------------
</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.
(1) Diluted net income per share has been calculated in accordance with
United States GAAP.
(2) Other income in 1998 includes $1.8 million of non-recurring income.
(3) 1998 net income per share is not comparable to 1999 net income per
share because the average number of shares outstanding changed
significantly between the two periods due to the impact of the
Company's initial public offering in March 1998.
RITCHIE BROS. [LOGO PG 32] ANNUAL REPORT 1999
<PAGE> 38
[GRAPHIC]
SUPPLEMENTAL QUARTERLY DATA
(Unaudited; tabular dollar amounts expressed in thousands of United States
Dollars, except per share data)
<TABLE>
<CAPTION>
Gross Auction Net Net Income Per Share Closing
Period Auction Sales Revenue Income Basic Diluted(1) Stock Price
=====================================================================================
<S> <C> <C> <C> <C> <C> <C>
1999
1st quarter $ 201,764 $ 18,013 $ 1,632 $0.10 $0.10 $33.69
2nd quarter 387,288 35,589 10,471 0.63 0.62 38.13
3rd quarter 219,024 20,699 2,146 0.13 0.13 38.00
4th quarter 362,453 30,323 8,031 0.48 0.47 27.75
- --------------------------------------------------------------------
$1,170,529 $104,624 $22,280 $1.34 $1.32
====================================================================
</TABLE>
<TABLE>
<CAPTION>
Gross Auction Net Net Income Per Share Closing
Period Auction Sales Revenue Income Basic Diluted(1) 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(2) 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(3) $1.54(3)
=====================================================================
</TABLE>
(1) Diluted net income per share has been calculated in accordance with United
States GAAP.
(2) Net Income for the third quarter of 1998 includes non-recurring income of
$1.2 million or $0.07 per share.
(3) 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.
RITCHIE BROS. [LOGO PG 33] ANNUAL REPORT 1999
<PAGE> 39
[GRAPHIC]
OUR 1999 MILESTONES
[MAP]
MARCH 16, 17 & 18
Largest ever RBA sale in the United States: $37 million. Ft. Worth, Texas
MARCH 23
Launched new website and introduced on-line absentee bidding and on-line
consigning
APRIL 1
Acquisition of Forke Brothers' auction business
APRIL 20
Grand opening of new permanent auction site in Brisbane, Australia --
[PHOTO]
APRIL 28 & 29
Largest ever RBA sale in Canada: CAD$27 million. Edmonton, Alberta
JUNE 16
Grand opening of new permanent auction site in Rotterdam, The Netherlands
-- [PHOTO]
NOVEMBER 4-5
First auction in Singapore -- [PHOTO]
NOVEMBER 9
First auction in Panama -- [PHOTO]
DECEMBER 1 & 2
Six auctions in five time zones within 36 hours: Chicago, IL; Newcastle
Australia; Atlanta, GA; Montreal, QC; Toluca, Mexico; Olympia, WA.
RITCHIE BROS. [LOGO PG 34] ANNUAL REPORT 1999
<PAGE> 40
[GRAPHIC]
[MAP]
- PERMANENT AUCTION SITES
- REGIONAL AUCTION UNITS
- SALES OFFICES
RITCHIE BROS. [LOGO PG 35] ANNUAL REPORT 1999
<PAGE> 41
[GRAPHIC]
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 & Chief Financial
Officer
Charles E. Croft Director
G. Edward Moul Director
Robert S. Armstrong Corporate Secretary
MANAGEMENT ADVISORY COMMITTEE
David E. Ritchie Chief Executive Officer
C. Russell Cmolik President and Chief Operating Officer
Peter J. Blake VP - Finance and Chief Financial Officer
Edward H. Banser VP - South Central Division
Robert J. Carswell VP - Senior Valuations Analyst
Donald F. Chalmers VP - Western Canada & Prairie Divisions
Marvin R. Chantler VP - Eastern Canada & Great Lakes Divisions
Robert K. Mackay VP - Asia Pacific Division
Frank S. McFadden VP - Senior Valuations Analyst
Martin E. Pope VP - Southeast Division
Michael G. Ritchie VP - Northeast Division
Roger W. Rummel VP - Southwest & Mexico Divisions
Sylvain M. Touchette VP - Quebec Division
Randall J. Wall Managing Director - Europe & Middle East Divisions
Robert K. Whitsit VP - Central & North Central Divisions
John T. Wild VP - Administration & Human Resources
Robert S. Armstrong Manager - Finance & Corporate Relations; 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
11am on Thursday April 20, 2000 at the Delta Pacific Resort & Conference
Centre, 10251 St. Edwards Drive, 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
24th Floor, First Canadian Centre
350-7th Avenue S.W.
Calgary, Alberta
Canada T2P 3N9
Telephone: (403) 234-3867
Canada and USA (toll-free): 1-800-332-0095
Facsimile: (403) 234-3629
Email: [email protected]
Co-agent in the United States:
THE BANK OF MONTREAL TRUST COMPANY
New York, NY
AUDITORS
KPMG LLP
Vancouver, Canada
[RBA LISTED NYSE LOGO]
RITCHIE BROS. [LOGO PG 36] ANNUAL REPORT 1999
<PAGE> 42
[GRAPHIC]
THE RITCHIE BROS. AUCTION PROCESS
STEP 1 GETTING TO KNOW THE OWNER AND HIS EQUIPMENT
The auction process begins when an equipment owner meets with one of
our territory managers. We get to know the owner's needs and, if
necessary, we appraise his equipment. An appraisal starts with a field
inspection of the equipment. Photographs are taken and particulars of
the equipment are noted. The photographs and equipment descriptions are
circulated to the people participating in the appraisal; typically the
appraisal team includes two people from the local area, two from head
office and, if necessary, additional people with relevant expertise.
After their individual appraisals are complete, the appraisal team
compares notes and concludes on a final appraised value for the fleet.
STEP 2 DRAFTING THE AUCTION CONTRACT
We sit down with the consignor and work out the details of his
individual auction contract. Straight commission contracts are the most
common. If we have performed an appraisal, we can also offer the
consignor a guarantee of gross proceeds or an outright purchase
contract. In certain circumstances, we offer cash advances and other
options. Long story short: we draft a contract tailored to the
consignor's individual needs and requirements.
STEP 3 GETTING THE EQUIPMENT "AUCTION READY"
Once the equipment arrives at the auction site, we coordinate any
cleaning, refurbishing, repairwork or painting that is required in
order to get the equipment ready for the auction. All of this is done
in consultation with the consignor.
STEP 4 MARKETING THE EQUIPMENT TO THE WORLD
Marketing is done through full-colour auction brochures that are mailed
to a targeted selection from our extensive customer database (an
average of 50,000 are mailed for each auction). In addition, every
piece of equipment is posted on our website at www.rbauction.com. Our
auctions are also advertised through trade journals and press releases,
and we promote them at all intervening Ritchie Bros. auctions, ensuring
that the equipment is exposed to the widest possible audience of
potential buyers.
STEP 5 SEARCHING THE EQUIPMENT FOR LIENS
To ensure that buyers can purchase with confidence, we guarantee the
clear title of everything we sell. Our search department identifies and
arranges for the release of all liens and encumbrances.
STEP 6 SETTING UP THE AUCTION YARD
The equipment is sorted and displayed in logical groupings so
prospective buyers can easily inspect, test and compare similar pieces.
We have knowledgeable staff on hand to answer bidders' questions. And
to make the process even easier for the bidders, we arrange for
caterers, finance company representatives, customs brokers,
transportation companies and other services to be present on the site.
STEP 7 AUCTION DAY
On auction day, our auctioneers, ringmen, yard staff and administrative
team conduct an efficient and exciting auction. We sell 80 to 100 lots
every hour.
STEP 8 TAKING CARE OF BUSINESS
After the auction is over, we collect the proceeds from the buyers,
coordinate the release of the equipment to its new owners, and disburse
the proceeds (along with detailed settlement statements) to the
consignors.
THE RITCHIE BROS. [LOGO PG 37] ANNUAL REPORT 1999
<PAGE> 43
[GRAPHIC]
rb RITCHIE BROS. Auctioneers
9200 Bridgeport Road, Richmond, BC, Canada V6X 1S1
Tel: (604) 273-7564 Fax: (604)273-6873
www.rbauction.com
