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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------
FORM 6-K
REPORT OF FOREIGN ISSUER
PURSUANT TO RULE 13a-16 or 15d-16
UNDER
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE MONTH OF MARCH, 2003
RITCHIE BROS. AUCTIONEERS INCORPORATED
6500 RIVER ROAD
RICHMOND, BRITISH COLUMBIA, CANADA V6X 4G5
(604) 273-7564
Indicate by check mark whether the registrant files or will file annual reports
under cover of Form 20-F or Form 40-F.
Form 20-F [ ] Form 40-F [X]
Indicate by check mark if the registrant is submitting the Form 6-K in paper as
permitted by Regulation S-T Rule 101(b)(1): ______
Note: Regulation S-T Rule 101(b)(1) only permits the submission in paper of a
Form 6-K if submitted solely to provide an attached annual report to security
holders.
Indicate by check mark if the registrant is submitting the Form 6-K in paper as
permitted by Regulation S-T Rule 101 (b)(7):_______
Note: Regulation S-T Rule 101(b)(7) only permits the submission in paper of a
Form 6-K if submitted to furnish a report or other document that the registrant
foreign private issuer must furnish and make public under the laws of the
jurisdiction in which the registrant is incorporated, domiciled or legally
organized (the registrant's "home country"), or under the rules of the home
country exchange on which the registrant's securities are traded, as long as the
report or other document is not a press release, is not required to be and has
not been distributed to the registrant's security holders, and, if discussing a
material event, has already been the subject of a Form 6-K submission or other
Commission filing on EDGAR.
Indicate by check mark whether by furnishing the information contained in this
Form, the registrant 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]
If "Yes" is marked, indicate below the file number assigned to the registrant in
connection with Rule 12g3-2(b): 82- ______
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant, Ritchie Bros. Auctioneers Incorporated, has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly authorized.
Date: March 18, 2003 Ritchie Bros. Auctioneers Incorporated
By: /s/ Robert S. Armstrong
--------------------------------
Robert S. Armstrong
Corporate Secretary
[ANNUAL REPORT COVER - AERIAL PHOTO OF
AUCTION FACILITY - FORT WORTH, TEXAS USA]
[RITCHIE BROS. Auctioneers LOGO]
ANNUAL REPORT 2002
OUR GOAL IS TO CREATE LIFETIME CUSTOMERS BY EXCEEDING EXPECTATIONS AT EACH AND
EVERY ENCOUNTER.
CONTENTS
To Our Fellow Shareholders 4
Opportunities for Growth 7
How We Create Value for Our Customers 8
Customer Service - The Buyer's Perspective 11
Customer Service - The Consignor's Perspective 14
The Future of Ritchie Bros. 18
The Ritchie Bros. Auction Process 24
Financial Information 25
Selected Financial and Operating Data 40
Supplemental Quarterly Data 41
Shareholder Information 42
In this annual report, all dollars amounts are stated in United States dollars
unless a different currency is indicated.
[PHOTO OF ARTICULATED DUMP TRUCK ON AUCTION RAMP - MOERDIJK, THE NETHERLANDS]
"TREAT YOUR CUSTOMERS LIKE YOUR FRIENDS AND THEY WILL ALWAYS BE YOUR CUSTOMERS"
- DAVE RITCHIE
2002 BY THE NUMBERS
141 AUCTIONS IN 10 COUNTRIES
$1.37 BILLION IN GROSS AUCTION SALES
156,000 REGISTERED BIDDERS
50,100 BUYERS
20,900 CONSIGNORS
150,900 LOTS
TWENTY YEAR SUMMARY
[20 YEAR SUMMARY GRAPH - GROSS AUCTION SALES]
[20 YEAR SUMMARY GRAPH - BUYERS AND CONSIGNORS]
2
[PHOTO OF CROWD GATHERED AROUND SALE OF ASPHALT PLANT - FORT WORTH, TEXAS USA]
IN DECEMBER 2002 THIS ASPHALT PLANT AT OUR FORT WORTH, TEXAS AUCTION SITE SOLD
FOR $775,000 TO AN INTERNET BIDDER IN CALIFORNIA.
3
TO OUR FELLOW SHAREHOLDERS
In 2002 we reached record levels of gross auction sales, auction revenues and
net earnings. We were able to take advantage of the foundation we have been
building in recent years and capitalize on opportunities in the truck and
equipment markets. Salesforce productivity, which had been a focus for us in
2002, improved significantly - gross auction sales per member of our sales force
increased from an average of $6.7 million in 2001 to $7.2 million in 2002. And
perhaps most importantly, our customer base continued to expand.
During the year we also launched the rbauctionBid-Live Internet bidding service
and by the end of the year, with the system fully deployed, Internet bidders
were representing 10% to 15% of our registered bidders. Customers from over 50
countries are now using the rbauctionBid-Live service; they are now the buyer or
runner-up bidder on over 15% of the lots offered online and in some auctions
they are bidding on as many as 40% of the lots offered. The rapid growth of this
service has exceeded our expectations and helped us to remain at the forefront
of our industry.
As further evidence of our continued growth, sales records were set at several
of our locations. During 2002, we held our largest-ever auctions at our sites in
Olympia, Washington; Denver, Colorado; North East, Maryland; Atlanta, Georgia;
Edmonton, Alberta and Dubai, United Arab Emirates. At CAD 31 million the
Edmonton sale was our largest-ever sale in Canada and was the first sale at our
new Edmonton auction facility. Replacing our previous 24-acre site, the new yard
covers more than 100 acres and the auction building features two ramps, allowing
for simultaneous auctions of rolling stock so that more trucks and equipment can
be sold in a single day.
Fortunately, the significant investments in our network of auction sites made
since 1998 have given us the capacity and operating leverage to grow our
business profitably for many years to come. We are now able to hold larger more
cost-effective auctions and we rarely find ourselves turning equipment away from
full yards. In fact, with sufficient capacity now in place to grow our business
by as much as 50% from present levels, we have been able to turn our attention
to productivity, efficiency and customer service.
[PHOTO OF RUSSELL CMOLIK]
AFTER 30 YEARS WITH RITCHIE BROS., RUSSELL CMOLIK RETIRED IN 2002. RUSS PLAYED A
KEY ROLE IN THE GROWTH AND DEVELOPMENT OF THE COMPANY AND SERVED AS PRESIDENT
SINCE 1991,PROVIDING GUIDANCE AND LEADERSHIP TO THE CURRENT MANAGEMENT
TEAM. THERE IS NO DOUBT THAT EMPLOYEES, CUSTOMERS AND SHAREHOLDERS WILL CONTINUE
TO BENEFIT FROM HIS CONTRIBUTIONS FOR MANY YEARS TO COME. THANKS RUSS.
4
Much of our effort in 2002 - from new building designs to the launch of our
Internet bidding service - was focused on customer service and we are carrying
that theme into 2003. We've never put much weight in mission statements,
preferring to let our actions speak for themselves; however, Ritchie Bros.
started 2003 by committing to a simple objective: to create lifetime customers
by exceeding expectations at each and every encounter. We are challenging every
member of the Ritchie Bros. team to find ways of improving the service we
provide our customers.
Ritchie Bros. sells more used trucks and equipment than anybody else in the
world. We believe that we have achieved this market position by adhering to the
basic values of honesty and fairness and by continually striving to deliver
superior customer service. Ours has always been a relationship business and we
believe it will always be a relationship business.
We are beginning our 40th year by recommitting ourselves to the pursuit of
superior customer service. The 570 full-time employees and over 1,000 part-time
employees that make up the Ritchie Bros. team share this commitment. You won't
find a harder working or more energetic group anywhere in the world. We are
proud to stand beside them every day and we thank them for their dedication. We
also thank our customers for choosing to do business with Ritchie Bros. There
are other ways to buy and sell industrial assets; but in 2002 record numbers of
buyers and consignors chose Ritchie Bros. We look forward to raising the bar on
customer service so that an ever increasing number of buyers and sellers of
industrial assets will choose to participate in Ritchie Bros. auctions.
[CELEBRATING 40 YEARS LOGO]
THE RITCHIE BROS. AUCTIONEERS
EXECUTIVE COMMITTEE
[David E. Ritchie signature] [Randall J. Wall signature]
David E. Ritchie Randall J. Wall
CHAIRMAN, CHIEF EXECUTIVE OFFICER PRESIDENT, CHIEF OPERATING
OFFICER
[Peter J. Blake signature] [Robert K. Mackay signature]
Peter J. Blake Robert K. Mackay
SENIOR VICE PRESIDENT, EXECUTIVE VICE PRESIDENT
CHIEF FINANCIAL OFFICER
[Roger W. Rummel signature] [Robert K. Whitsit signature]
Roger W. Rummel Robert K. Whitsit
SENIOR VICE PRESIDENT, SENIOR VICE PRESIDENT,
SOUTHWEST & MEXICO DIVISIONS SOUTHEAST DIVISION
5
UNRESERVED
AT RITCHIE BROS., "UNRESERVED" MEANS THAT THERE ARE NO MINIMUM PRICES -
EVERYTHING SELLS TO THE HIGH BIDDER ON SALE DAY. THERE ARE NO BUY-BACKS OR
BID-INS; THERE IS NO ARTIFICIAL PRICE MANIPULATION.
"UNRESERVED" IS ALSO A FOUNDING PRINCIPLE OF OUR COMPANY AND ONE OF OUR MOST
SIGNIFICANT COMPETITIVE ADVANTAGES. WE ARE COMMITTED TO TREATING OUR CUSTOMERS
WITH FAIRNESS AND INTEGRITY AND IN OUR VIEW THE ONLY AUCTION THAT ACHIEVES THAT
IS AN UNRESERVED AUCTION. "UNRESERVED" IS WHY AN AVERAGE OF 1,100 BIDDERS FROM
ALL OVER THE WORLD PARTICIPATE IN EACH OF OUR AUCTIONS - THEY KNOW THEY AREN'T
WASTING THEIR TIME.
BY ATTRACTING A LARGE NUMBER OF BIDDERS AND ALLOWING THEM TO COMPETE IN AN OPEN
AND FAIR AUCTION ENVIRONMENT, WE ARE ABLE TO TRANSCEND LOCAL MARKET CONDITIONS
AND DELIVER THE BEST POSSIBLE PRICES.
[PHOTO OF AUCTIONEER AND TWO AUCTION CLERKS IN AUCTIONEER'S BOOTH - EDMONTON,
ALBERTA CANADA]
6
OPPORTUNITIES FOR GROWTH
Ritchie Bros. sells more used trucks and equipment than anybody else in the
world. Our target markets include mobile and stationary equipment used in the
construction, mining, forestry, marine, petroleum, agriculture and
transportation industries.
THE USED EQUIPMENT MARKET IS HUGE. Over $1 trillion worth of used equipment in
our target markets is estimated to be in circulation worldwide, with
approximately $100 billion worth being bought and sold each year. Dealers and
brokers have historically handled most of the transactions in this largely
fragmented market; auctioneers currently deal with about 5% of the business. In
our most mature markets, we believe that auctioneers are now handling as much as
25% of the used equipment business; and in several markets Ritchie Bros. has 50%
or more of the auction share. As the largest participant in a fragmented market,
we see strong growth opportunities for many years.
THE INTERNET IS ENHANCING OUR GROWTH. One of the main reasons for our continued
growth, even during a market environment that has led to declining sales for
most equipment distribution companies, is the leveling of the playing field in
the used equipment market. Thanks in part to the Internet, equipment owners are
now much better informed about market values. They have easy access to
information about what's available for sale and recent selling prices. While
some market participants used to have an information advantage, the increasing
transparency in today's market has changed that significantly. In an environment
where all players have equal access to information, transactions migrate to the
most efficient marketplace. This is a trend that favors Ritchie Bros.
WE HAVE OPPORTUNITIES IN NON-TRADITIONAL MARKETS. In addition to growth in our
traditional truck and equipment markets, we have been doing an increasing amount
of work in areas such as agriculture and industrial marine and we are being
engaged for an increasing number of special projects. Notable examples of growth
in these markets include:
o Sales of industrial real estate, including excess Ritchie Bros. properties,
at several auctions in 2002.
o The creation of the APA Agricultural Auction division in August, following
the acquisition of the business of All Peace Auctions, an Alberta based
auction company.
o The October sale of a large quantity of machine shop tools in Torino,
Italy.
o Sales in October of industrial marine equipment in Cheboygan, Michigan and
Jacksonville, Florida.
o Sales of unused asphalt plants in Phoenix, Arizona in November and Ft.
Worth, Texas in December.
o The March 2003 sale in Vancouver, British Columbia of three of the largest
catamaran fast ferries in the world for the British Columbia Ferry
Corporation.
WE HAVE A UNIQUE ABILITY TO CREATE VALUE FOR CUSTOMERS. As we identify further
expansion opportunities, we look for ways to capitalize on the competitive
advantages we have to offer. These include our reputation for fairness and
integrity, our international network of offices and auction sites, our customer
base, our marketing systems, our Internet tools and perhaps most importantly,
the ability of our unreserved auctions to deliver the best possible price. Where
there are opportunities for us to bring some or all of these factors into play
and assist an owner in realizing the best possible return on the sale of assets,
we will pursue that opportunity.
THIS UNUSED ASPHALT PLANT SOLD IN PHOENIX, ARIZONA FOR $1.1 MILLION, BECOMING
RITCHIE BROS.' HIGHEST SELLING ITEM TO DATE.
[PHOTO OF CROWD GATHERED AROUND SALE OF ASPHALT PLANT - PHOENIX, ARIZONA USA]
[PHOTO OF THREE CATAMARAN FAST FERRIES]
7
HOW WE CREATE VALUE FOR OUR CUSTOMERS
THE FOUNDATION FOR THE CUSTOMER SERVICE WE PROVIDE IS MADE UP OF OUR PEOPLE, OUR
INTERNATIONAL NETWORK OF AUCTION FACILITIES AND OUR INFRASTRUCTURE.
PEOPLE
At the end of 2002, we had 189 sales representatives calling on equipment owners
around the world. Ours is a relationship business and the members of our sales
team, together with our Customer Service Managers, are critical to our success.
Recruiting these people is a challenge for Ritchie Bros. because there is no
ready pool to draw from. Most of our salespeople come to us with an equipment
background - having worked for a dealership, rental company or contractor - and
then apprentice with an experienced member of our team before taking on their
own territory. It takes up to 24 months or longer for a new Territory Manager to
reach the level of productivity that we expect. Adding quality people to our
team, giving them the right tools and then helping them up the learning curve is
a core part of our strategy for delivering superior customer service.
FACILITIES
We now have 28 auction sites around the world, many of which are equipped with
environmentally certified painting and refurbishing facilities. This network of
sites allows us to offer customers an unparalleled level of service. Our 22
permanent auction sites have, on average, over 50 acres of developed land, and
some have over 100 acres. We have ample room at most of our locations to hold
larger auctions and grow our business.
[DIAGRAM OF EDMONTON FACILITY]
OUR NEW EDMONTON, ALBERTA FACILITY, COMPLETED IN 2002, FEATURES DUAL RAMPS,
ENABLING US TO SELL MORE ITEMS PER DAY - THIS SAVES OUR CUSTOMERS VALUABLE TIME.
INFRASTRUCTURE
Less visible but no less important is the supporting infrastructure that enables
us to deliver our services efficiently and effectively. To support the size and
breadth of our operations, we have developed extensive marketing and information
technology operations. Most of our systems have been developed in-house as there
simply are no other companies in the world quite like Ritchie Bros. While we are
continually refining the way we do things and always looking for better ways to
help our customers, our systems today - from marketing to salesite operations to
Internet bidding - enable us to provide an unparalleled level of service to our
customers.
At the end of the day, the bricks in this foundation are simply tools. As a
Company, our challenge is to use these tools to deliver a service that creates
value for our customers. The ever increasing numbers of buyers and consignors
who choose Ritchie Bros. are the proof that we are creating that value.
8
[PHOTO OF THREE MEN STANDING IN AUCTION YARD]
WHAT DRIVES THE SUPPLY OF EQUIPMENT FOR OUR AUCTIONS?
WE CAN DO WELL IN GOOD OR BAD TIMES, AS LONG AS THINGS ARE CHANGING. ECONOMIC
UNCERTAINTY FUELS THE SUPPLY OF USED EQUIPMENT. SO DO FLEET REALIGNMENTS,
FINANCIAL PRESSURE, MERGERS AND ACQUISITIONS, INVENTORY REDUCTIONS, LEASE
RETURNS, PROJECT COMPLETIONS AND EVEN RETIREMENTS. AS LONG AS A FEW OF THESE
FACTORS ARE AT WORK SOMEWHERE IN THE WORLD, RITCHIE BROS. HAS CUSTOMERS TO CALL
ON. MANY OF THE FACTORS THAT PROMPT OWNERS TO SELL EQUIPMENT ALSO CREATE AN
ENVIRONMENT IN WHICH EQUIPMENT BUYERS OPT FOR HIGH QUALITY USED EQUIPMENT RATHER
THAN MORE EXPENSIVE NEW EQUIPMENT. THIS IS PARTICULARLY TRUE DURING ECONOMIC
DOWNTURNS AS CONTRACTORS STILL HAVE WORK TO DO BUT THEY ARE RELUCTANT TO COMMIT
CAPITAL TO NEW EQUIPMENT.
OUR ONGOING INVESTMENTS IN PEOPLE, FACILITIES AND INFRASTRUCTURE ENABLE US TO
DELIVER THE HIGHEST POSSIBLE LEVEL OF CUSTOMER SERVICE.
[PHOTO OF FIVE ROCK TRUCKS ON AUCTION RAMP - MOERDIJK, THE NETHERLANDS]
9
[PHOTO OF AUCTIONEER AND AUCTION PARTICIPANT]
OUR GREATEST ASSETS ARE THE RELATIONSHIPS WE'VE BUILT WITH OUR CUSTOMERS.
10
CUSTOMER SERVICE - THE BUYER'S PERSPECTIVE
WE SELL EVERYTHING ON AN UNRESERVED BASIS
Bidders at a Ritchie Bros. auction do not need to be concerned about artificial
price manipulation because only legitimate bidders are allowed to participate in
our auctions. There are no minimum prices and sellers are not allowed to bid on
their own equipment. While some auctioneers openly permit sellers to bid on
their own items, or will bid on the equipment themselves to artificially support
prices, we are well known for our policy prohibiting consignors from bidding on
their own equipment, either directly or through agents.
Not only does every item sell on sale day to the highest bidder, once the
auctioneer says "SOLD" the negotiations are over. The buyer simply pays Ritchie
Bros. and then takes possession of the equipment without any need to haggle over
payment or delivery terms.
Our commitment to selling everything on an unreserved basis is one of our most
significant competitive advantages when it comes to attracting bidders.
BUYERS PAY A FAIR MARKET PRICE
Because everything is sold unreserved, buyers at a Ritchie Bros. auction always
pay a fair market price. All bidders compete on an equal basis irrespective of
their negotiating skills or buying power; and they know that the people they are
bidding against are legitimate bidders like themselves. We don't promise any
bargains, but our buyers can always be confident that they are paying fair
market value.
CLEAR TITLE IS GUARANTEED TO OUR BUYERS
We do not pass on title or ownership problems. A buyer at a Ritchie Bros.
auction does not need to be concerned about the financial condition of the
sellers. If we can't deliver clear title, the buyer receives a full refund.
Without such a guarantee, buyers run the risk of having their equipment
repossessed by the bank that financed the previous owner - something most buyers
don't think about until it's too late. We commit considerable resources to
identifying and coordinating the release of all liens before we sell the
equipment.
CUSTOMERS CAN INSPECT, TEST AND COMPARE BEFORE BIDDING.
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 who intends to take the equipment to the jobsite and use it to earn income.
We organize our auction yards so that customers can accurately determine the
condition and value of the equipment.
[PHOTO OF MAN INSPECTING CRANE] [PHOTO OF RITCHIE BROS. EMPLOYEE AND
AUCTION PARTICIPANT]
11
[PHOTO OF MAN AT COMPUTER SCREEN]
WE MAKE IT EASY TO BUY
Registration is fast and efficient. Our sale sites feature covered theater-style
seating for the bidders - during the auction, the rolling stock is driven over
an elevated ramp in front of the bidders. In addition to displaying the
equipment to facilitate on-site inspections, we arrange for transportation,
finance and other service companies to be present at our auction sites so
customers can get quotes before they bid. Of course, our staff is always
available if bidders need additional help or information.
[PHOTO OF BID CATCHER STANDING IN FRONT OF TWO CRAWLER TRACTORS ON AUCTION RAMP]
BUYERS DON'T WASTE THEIR TIME
An average Ritchie Bros. auction includes over 1,000 lots from 150 different
consignors, covering a diverse array of truck and equipment categories and
manufacturers. At our auctions, an equipment buyer can inspect in one day what
might have taken weeks if the equipment were being offered for sale by a number
of vendors in various locations. A buyer can purchase all manner of equipment
and attachments in one place, on one day, with one invoice - rather than having
to negotiate with multiple vendors. This one-stop shopping approach addresses
the needs of our customers, most of whom are contractors who can only afford to
spend a limited amount of time away from their jobsites.
12
BIDDERS CAN BE IN TWO PLACES AT ONCE
Customers who are able to satisfy themselves as to the value of particular
pieces, but can't be at the auction site on sale day, can still participate in
one of two ways:
o RBAUCTIONBID-LIVE is our Internet bidding service. This service allows
qualified bidders to hear the auctioneer, follow the bid and ask numbers
and see the item being sold, live and in real-time over the Internet.
Bidding is as simple as clicking the bid button, which continuously updates
to reflect the auctioneer's current asking price. This service was launched
in March 2002 and has already become very popular with our customers.
[RBAUCTIONBID-LIVE ICON]
o PROXY BIDS from qualified bidders can be submitted via our website, via
fax, or by calling the sale site. Customers placing proxy bids specify the
maximum they are willing to pay for given lots. Proxy bids are inserted
into the auction process just as they would have been if the bidders had
been able to attend the auction in person. The auctioneer ensures that
proxy bidders never pay more than they would have if they had been there to
place their own bids on auction day.
[ANNOTATED RBAUCTIONBID-LIVE WEB PAGE]
SERVICES FOR EQUIPMENT OWNERS @ RBAUCTION.COM
EQUIPMENT SEARCH A SOPHISTICATED TOOL THAT ALLOWS YOU TO
SEARCH THROUGH ALL ITEMS CONSIGNED TO
UPCOMING AUCTIONS
SALE DAY CATALOGS ON-LINE ACCESS TO AUCTION CATALOGS WITH
ALL LOTS LISTED IN SALE ORDER
RBAUCTIONRE$ULTS ACCESS TO 24 MONTHS OF RITCHIE BROS.
AUCTION RESULTS
RBAUCTIONFLEETVALUATOR A TOOL THAT ALLOWS EQUIPMENT OWNERS TO
ESTIMATE THE VALUE OF THEIR FLEETS WITH
REFERENCE TO RITCHIE BROS. AUCTION RESULTS
RBAUCTIONBID-LIVE A TOOL THAT ALLOWS CUSTOMERS TO PLACE LIVE
REAL-TIME BIDS INTO OUR AUCTIONS
RBAUCTIONBID-PROXY A TOOL FOR SUBMITTING BIDS IN ADVANCE OF
THE LIVE AUCTION
RBAUCTIONVIEW LIVE INTERNET BROADCASTS OF RITCHIE BROS.
AUCTIONS
RBAUCTIONCONSIGN A STREAMLINED CONSIGNMENT PROCESS FOR
CUSTOMERS WITH ANNUAL CONTRACTS
[PHOTO OF RBAUCTION.COM WEB PAGE]
13
WHY EQUIPMENT SELLERS CHOOSE RITCHIE BROS.
WE DELIVER A GLOBAL MARKETPLACE
By marketing our auctions to a strategic selection from our proprietary database
of over 400,000 potential bidders in over 200 countries, we are able to directly
expose the trucks and equipment in our auctions to a large and geographically
diverse pool of buyers. In addition, all of the equipment is listed on our
website, and our auctions are advertised in trade journals and industry
publications, as well as promoted to the bidders attending other Ritchie Bros.
auctions. All told, we believe we are able to market the equipment in our
auctions to a larger base of potential purchasers than could be reached by any
of our competitors. Interested bidders can then participate in our auctions
either in person, by placing a proxy bid or by bidding on-line using the
rbauctionBid-Live service, ensuring that the largest possible bidding audience
is participating in the auction.
OUR AUCTIONS ARE ABLE TO TRANSCEND LOCAL MARKET CONDITIONS
Our auctions attract a large number of foreign and out-of-state/out-of-province
buyers. Transportation costs are frequently not an issue for these bidders
because, compared to the value of the equipment, such costs can be relatively
insignificant - particularly the costs of ocean freight. As a result, we are
able to deliver world market prices for our consignors' equipment regardless of
local market conditions. On average, over 50% of our gross auction sales go to
buyers from outside the region in which the auction is held.
[PHOTO OF CUSTOMER BEING ASSISTED AT AUCTION REGISTRATION COUNTER]
WE HELP OUR CONSIGNORS GET THE MOST NET DOLLARS FOR THEIR EQUIPMENT
Not only do we help our consignors sell their equipment quickly and efficiently,
we help them achieve the highest net return on their sale. We charge higher
commissions than some other auctioneers, some of whom charge inspection fees and
buyers premiums, but the substantially higher level of service we provide
enables us to achieve higher prices. An increasing number of consignors choose
Ritchie Bros. each year (over 20,000 in 2002) because they understand that our
unreserved auctions put the most net dollars in their pockets at the end of the
day.
On average, over 1,100 bidders participate in each of our auctions. Bidders
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, selling up to 100 lots per hour. And with the majority of our
buyers being end users, prices are often closer to retail than wholesale. Our
auctions provide the environment needed to generate the best prices.
In addition, our experience over 39 years and 2,200 auctions has taught us that
some pieces sell better in their "working clothes", while in other cases, an
investment in new tires, some body work or a fresh coat of paint can increase
the value of a piece well beyond the cost of the work itself. If we see an
opportunity for a consignor to invest $5,000 to generate an increase in value of
$10,000, we'll recommend it. A prudent plan to make a machine auction-ready can
sometimes generate a return of up to three times the refurbishing costs.
WE OFFER AN INTERNATIONAL NETWORK OF AUCTION SITES
With regularly scheduled auctions at 28 auction sites, and numerous off-site
sales, owners can sell their equipment when and where they want. This gives us
an unparalleled ability to help owners sell their equipment whether they have a
single piece in their yard, or a fleet spread out over several states, provinces
or countries.
14
[PHOTO OF CROWD WATCHING AUCTION OF A VARIETY OF CRANES -
OLYMPIA, WASHINGTON USA]
15
[PHOTO OF CRAWLER TRACTOR BEING PAINTED - BRISBANE, AUSTRALIA]
THE RITCHIE BROS. VALUE PROPOSITION IS SIMPLE: WE GET YOU THE BEST NET RETURN ON
THE SALE OF YOUR EQUIPMENT.
[PHOTO OF GROUP OF AUCTION PARTICIPANTS - DUBAI, UNITED ARAB EMIRATES]
16
WE DO ALL THE WORK
We take care of selling the equipment so our customers can concentrate on their
business. We help consignors sell their equipment quickly, efficiently and with
a minimum commitment of time, energy or costs. We can coordinate transporting
the equipment to the auction site and look after any cleaning, refurbishing or
painting required to get the equipment auction-ready. We store the equipment in
our secure yards. We also handle questions from prospective bidders, take care
of the marketing and title searches, and set up the auction yard so bidders can
inspect, test and compare the equipment. Perhaps most importantly, we help our
consignors with all of their equipment -- any make, model or manufacturer,
high-value or low-value, big or small, young or old. After the auction, we
handle the collections and we pay out the net proceeds. Our consignors don't
have to negotiate with multiple buyers.
[PHOTO OF MAN INSPECTING TRUCK CHASSIS]
OUR REFURBISHING FACILITIES ARE ENVIRONMENTALLY CERTIFIED
At many of our auction sites, we have built environmentally certified
refurbishing facilities and can arrange for all necessary painting and
refurbishing work to be done right in our yards. With environmental regulations
tightening in many of the jurisdictions in which we operate, equipment owners
who want to paint their equipment before selling it are finding that they have
fewer and fewer alternatives. As a result, these refurbishing facilities have
become a valuable competitive advantage.
WE TAILOR OUR AUCTION CONTRACTS TO MEET THE NEEDS OF OUR CUSTOMERS
Most of our consignments are done on a straight commission basis. In these
cases, consignors take the risk that their equipment may sell for less than they
expect, but enjoy maximum upside potential if it sells for more. If a consignor
is selling a significant fleet, we will typically offer to underwrite the sale
by providing the consignor with a guarantee or by purchasing the equipment
outright. In these cases, we charge a higher commission rate but our consignor's
downside risk is eliminated. Our goal is to come up with the contract that best
suits the needs of the customer.
RITCHIE BROS. IS A RELIABLE AND REPUTABLE BUSINESS PARTNER
Ritchie Bros. has a strong balance sheet, has been conducting unreserved
industrial auctions for 39 years and is a public company listed on the New York
Stock Exchange. Our customers know that we have the financial strength to live
up to our commitments -- when they sign a contract with Ritchie Bros. they know
that their equipment will sell, that it will sell for fair market value, and
that they will be paid in full. They can also be proud that they are doing
business with a trusted and reputable business partner that adheres to the
highest standards of business ethics.
[PHOTO OF PERSON HOLDING COFFEE AND AUCTION CATALOGUE]
[PHOTO OF TWO MEN SHAKING HANDS]
17
[PHOTO OF AUCTION FACILITY WITH THREE AGRICULTURAL TRACTORS BEING SOLD ON
AUCTION RAMP - TORONTO, ONTARIO CANADA]
18
THE FUTURE OF RITCHIE BROS.
EXPANSION ON NUMEROUS FRONTS
Our strategy for 2003 is essentially the same strategy we have been following
since our first industrial auction in 1963. Now in our 40th year, we are still
focused on customer service, we are still committed to the unreserved auction
process and we are still looking to grow. Growth will continue to come from
expansion in our traditional markets of construction and transportation
equipment. In addition, we will continue to look for opportunities outside these
markets -- opportunities where we can use our strengths to create value for
customers. These strengths include our customer base, our reputation for honesty
and integrity, our international network of offices and auction sites, and the
way that we use our unreserved auctions to create a global marketplace for the
assets we are selling.
Thanks to aggressive expansion in recent years, we are now working from a very
solid base. As we saw in both 2001 and 2002, we have the infrastructure and
capacity to grow revenues faster than costs and we plan to continue along that
path. Working off this platform and seeking out opportunities to enhance
customer service and develop new markets, our plan is to deliver continued
earnings growth and increased shareholder value.
[PHOTO OF BID CATCHER TALKING TO AUCTION PARTICIPANT]
As we head into 2003, we will be concentrating on the following areas:
WORKING WITH MORE CUSTOMERS IN MORE COUNTRIES
During 2002, we worked for 20,900 consignors, an increase of 6% over 2001. The
total number of registered bidders increased 12% to 156,000. One of the drivers
behind the growth in registered bidders was the launch of rbauctionBid-Live, our
Internet bidding service. By the end of the year, Internet bidders were
representing an average of 10% to 15% of the registered bidders at our auctions.
The growing numbers of consignors and bidders choosing Ritchie Bros. point to
the increasing popularity of our auctions. While we have an extensive customer
base, introducing our services to equipment owners who don't yet know us, and to
industries where we are only scratching the surface, remains a critical growth
strategy for Ritchie Bros.
In terms of geographic expansion, most of our growth in recent years has come
from the United States. In 2002, we also saw significant growth in our Middle
Eastern operation -- demand for equipment in the Middle East remained very
strong throughout the year. However, our Asian operation remained weak. While we
were able to help our Asian consigners access stronger markets in other parts of
the world, Asia remained a very tough market in 2002 due to the lack of demand
for equipment and depressed purchasing power throughout the region.
In 2003, we are looking for another strong year in the Middle East but we are
mindful that instability in that region could have a negative impact on our
sales volumes. We also expect continued growth in the United States and we are
looking for further expansion in our European operations. European sales volumes
were up in 2002 and we held auctions in The Netherlands, the United Kingdom,
Spain and Italy. In 2003 we will be holding our first ever sale in Greece. There
continue to be significant growth opportunities for Ritchie Bros. in Europe.
EXPANDING OUR INTERNATIONAL NETWORK OF AUCTION SITES
Since 1997 we have made significant investments in our network of auction sites
-- adding several new sites and upgrading several older ones. During 2002, we
opened new permanent auction sites in Phoenix, Arizona and Edmonton, Alberta,
replacing the smaller facilities we had been operating in those cities. We also
added a permanent auction site in Grande Prairie, Alberta when we acquired the
business of All Peace Auctions. We now have 22 permanent auction sites (each
with an average of over 50 acres of developed land) and 6 regional auction
units. A regional auction unit is an auction site on leased land, typically with
fairly modest facilities, whereas a permanent auction site is on land owned by
Ritchie Bros.
19
We will be holding the grand opening of our new Orlando, Florida facility in the
first quarter of 2003 and we plan to open our new facility in Prince George,
British Columbia in the second quarter -- both are replacements for existing
permanent auction sites. While we will continue to add permanent auction sites
and regional auction units to our network when opportunities present themselves,
we do not expect capital expenditures in the next few years to reach the levels
seen from 1998 through 2001.
BUILDING OUR CUSTOMER SERVICE TEAM
As ours is a relationship business and because our future growth depends on our
ability to deliver superior customer service, it is critical that we continue to
recruit, train and develop the best people. In 2002 we placed a significant
focus on sales force productivity and due in part to initiatives undertaken last
year, we increased average sales per sales representative from $6.7 million in
2001 to $7.2 million in 2002. In late 2002 we piloted a new customer
relationship management system and we expect to roll this system out to our full
sales force in 2003. This new system, together with ongoing training and
development initiatives, should help us build on our success to date and improve
productivity even further. We are working towards a target of an average of $8.0
million in gross auction sales per sales representative.
While our front line Territory Managers are the most visible members of our
customer service team, every Ritchie Bros. employee has contact with our
customers and plays an important role in our customer relations efforts. In
recognition of this, we have added a customer relations training specialist to
our training department and expanded the responsibilities of our Marketing
department (and renamed it "Marketing and Customer Relations"). We have also
elevated the profile of some of the most important people working at our
auctions -- the people who deal directly with our customers, whether they are
registering for an auction, requesting information or paying their invoice. In
recognition of their significant role, the people previously known as Field
Accountants are now Customer Service Managers and have assumed an enhanced level
of responsibility for customer relations.
EXPANDING INTO NEW MARKETS
We will continue to look for growth outside our traditional markets where we can
see opportunities to create value for customers. In recent years, we have looked
to boost our sales of agricultural equipment and over-the-road trucks and
trailers. We have also been expanding our activities in the marine sector --
including industrial marine and pleasure craft, and in March 2003, fast ferries
-- and have been selling an increasing amount of industrial and agricultural
real estate. We are open to new opportunities, especially when we have a
competitive advantage by virtue of our reputation, our network of auction sites,
our customer base, and the ability of a Ritchie Bros. unreserved auction to
generate world market prices.
[PHOTO OF CROWD GATHERED AROUND SALE OF SEVERAL TUG-BOATS - CHEBOYGAN, MICHIGAN
USA]
20
[PHOTO OF AUCTION PARTICIPANT ON MOBILE PHONE]
OUR FOCUS ON CUSTOMER SERVICE WILL HELP US DELIVER CONTINUED INCOME GROWTH AND
INCREASED SHAREHOLDER VALUE.
[PHOTO OF AUCTIONEER]
RISK MANAGEMENT
STRAIGHT COMMISSION CONTRACTS POSE LITTLE RISK TO RITCHIE BROS. HOWEVER, IN
CASES WHERE WE UNDERWRITE A CONTRACT, EITHER BY OFFERING A GUARANTEE OR AN
OUTRIGHT PURCHASE, WE ASSUME THE RISK OF THE SALE. THESE CONTRACTS REPRESENTED
ABOUT 20% OF OUR BUSINESS IN 2002.
WE MITIGATE OUR RISK WHEN ENTERING INTO UNDERWRITTEN CONTRACTS BY BUILDING A
RISK PREMIUM INTO OUR COMMISSION RATE AND BY RELYING ON AN APPRAISAL PROCESS
THAT DRAWS ON OUR EXTENSIVE FIELD EXPERIENCE AND OUR PROPRIETARY APPRAISAL
DATABASE. WE ALSO USE OUR KNOWLEDGE OF MAJOR EQUIPMENT DEALS AROUND THE WORLD TO
FORM A VIEW OF THE PIPELINE OF EQUIPMENT COMING TO MARKET AND TO ANTICIPATE ANY
POTENTIAL SUPPLY/DEMAND IMBALANCES. FURTHER MITIGATING THE RISK IS OUR LIMITED
EXPOSURE TO CHANGES IN EQUIPMENT VALUES -- THE TIME FROM SIGNING A CONTRACT TO
THE DATE OF THE AUCTION IS TYPICALLY BETWEEN 30 AND 45 DAYS.
21
USING THE INTERNET TO ENHANCE CUSTOMER SERVICE
We will continue to use the Internet to enhance our auctions, not replace them.
We fully understand that used equipment buyers like to kick tires and that
success in our market will continue to be based largely on personal
relationships, reputation and trust. However, it has been exciting to watch the
Internet become an increasingly valuable tool for our customers. We remain
committed to being technology leaders in the used equipment industry and to the
extent that we can use the Internet and other technologies to expand our
services further, we will do so.
Our most exciting Internet service, rbauctionBid-Live, was launched in March
2002 and was fully deployed by the end of the year. This service allows
customers to follow the auction, hear the auctioneer, and place bids, all live
and in real-time over the Internet. By the end of the year, over 3,500 customers
from over 50 countries were using the service. Internet bidders were competing
on as many as 40% of the items being offered on-line and were buyer or runner-up
bidder on over 15%. This success far exceeded our initial expectations. We will
enhance this service in 2003 and ensure that it remains the leading Internet
bidding tool in our industry.
QUARTERLY SEARCH ACTIVITY ON RBAUCTION.COM
NUMBER OF RBAUCTION.COM ----------------------------------------------------------------------------
USER SESSIONS PER QUARTER NUMBER OF EQUIPMENT SEARCHES NUMBER OF RBAUCTIONRE$ULTS SEARCHES
------------------------- -------------------------------- -----------------------------------
[GRAPH] [GRAPH] [GRAPH]
A user session is a visit to the An Equipment Search is a search of our database of equipment for sale in upcoming
rbauction.com website. At the end auctions; an rbauctionRe$ults Search is a search of our database of historic
of 2002, user sessions lasted auction results.
between 20 and 30 minutes on average.
[PHOTO OF AUCTION THEATRE AND RAMP DURING AUCTION - EDMONTON, ALBERTA CANADA]
22
[PHOTO OF BID CATCHER AT MICROPHONE]
WE ARE TAKING ADVANTAGE OF TECHNOLOGY TO DELIVER SERVICES THAT CREATE REAL VALUE
FOR OUR CUSTOMERS.
[PHOTO OF AUCTION PARTICIPANT HOLDING UP BIDDER NUMBER]
23
[PHOTO OF AUCTION YARD - OLYMPIA, WASHINGTON USA]
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. Photographs and particulars of the equipment are
circulated to the people participating in the appraisal; a typical 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, members of the appraisal team compare notes and
conclude 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 the auction contract.
Straight commission contracts are the most common. In some cases, we also offer
the consignor a guarantee of gross proceeds or an outright purchase contract. In
certain circumstances, we offer cash advances and other options. 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 the consignor requires in order to get
the equipment ready for auction. When we see an opportunity to add value in
excess of the costs of refurbishing, we'll recommend doing the work.
STEP 4
MARKETING THE EQUIPMENT TO THE WORLD
Marketing is done through full-color auction brochures that are mailed to a
targeted selection from our extensive customer database. In addition, every
piece of equipment is posted on our highly trafficked website at 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.
[PHOTO OF MAN CLIMBING ABOARD EXCAVATOR]
STEP 5
SEARCHING THE EQUIPMENT FOR LIENS
To ensure that buyers can purchase with confidence, we guarantee them 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. We also 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, Internet coordinators and
customer relations team conduct an efficient and exciting auction. We sell
between 50 and 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.
[PHOTO OF DAVE RITCHIE]
24
FINANCIAL INFORMATION
PAGE
MANAGEMENT'S DISCUSSION AND ANALYSIS 25
INDEPENDENT AUDITOR'S REPORT 30
CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Statements of Operations 30
Consolidated Balance Sheets 31
Consolidated Statements of Shareholders' Equity 31
Consolidated Statements of Cash Flows 32
Notes to Consolidated Financial Statements 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, 2002 COMPARED TO THE YEAR ENDED DECEMBER 31, 2001. THIS DISCUSSION
SHOULD BE READ IN CONJUNCTION WITH THE CONSOLIDATED FINANCIAL STATEMENTS AND
NOTES THERETO INCLUDED ELSEWHERE IN THIS REPORT.
THE COMPANY PREPARES ITS CONSOLIDATED FINANCIAL STATEMENTS IN ACCORDANCE WITH
GENERALLY ACCEPTED ACCOUNTING PRINCIPLES IN CANADA WHICH, EXCEPT AS SET OUT IN
NOTE 12 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 AND ARE PRESENTED IN UNITED
STATES DOLLARS. THE FOLLOWING DISCUSSION SHOULD ALSO BE READ IN CONJUNCTION WITH
THE DISCLOSURES BELOW REGARDING FORWARD-LOOKING STATEMENTS AND RISK FACTORS.
Ritchie Bros. is the world's largest auctioneer of industrial equipment. At
December 31, 2002, the Company operated from over 90 locations in more than 20
countries around the world. The Company sells, through unreserved public
auctions, a broad range of equipment, including equipment utilized in the
construction, transportation, mining, forestry, petroleum, marine and
agricultural industries. Ritchie Bros.' customers are primarily end users of
equipment, such as contractors, and they also include equipment manufacturers,
dealers, brokers and finance companies. The business is driven mainly by regular
fleet upgrades and reconfigurations, as well as by the timing of the completion
of major construction and other projects.
Ritchie Bros. operates in the auction segment of the global used equipment
marketplace - a market that continues to grow as a result of the increasing,
cumulative world supply of used equipment. The auction segment is highly
fragmented and has grown over the last number of years. Based on market
knowledge and discussions with participants in the global used equipment market,
management believes that the auction segment will continue to grow. The Company
believes that it has several key strengths that will enable Ritchie Bros. to
continue to attract an increasing number of consignors and bidders to its
auctions. These strengths include, but are not limited to, the Company's
reputation for conducting fair auctions, the Company's size and international
scope of operations, and the Company's in-depth experience in the marketplace.
In the coming years, one of Ritchie Bros.' goals is to grow its gross auction
sales. The Company's strategies for accomplishing this objective include
continued development of markets and regions in which Ritchie Bros. already
operates and expansion of the Company's presence into new and emerging markets
and regions, particularly within Europe and North America. The Company also
intends to continue to work with equipment manufacturers to expand sales of
unused equipment at its auctions.
An example of the Company's growth strategy is the extension of the business
into related, complementary markets, such as agricultural equipment,
over-the-road trucks and trailers, and marine equipment. This expansion is being
accomplished in part by hiring sales personnel with experience in these markets.
The Company is also using the Internet to enhance its business and service
offerings and to further extend the geographic reach of its auctions (see
discussion below). As well, the Company continues to develop its infrastructure
in order to improve the productivity of its employees and enhance the service it
provides to its customers.
Although the Company cannot accurately anticipate the future effect of inflation
on its financial condition or results of operations, inflation historically has
not had a material effect on the Company's operations.
SOURCES OF REVENUE AND REVENUE RECOGNITION
A key indicator of the Company's financial performance is gross auction sales,
representing the total proceeds from all items sold at auction by Ritchie Bros.
during the period. Gross auction sales is a not a measure of revenue and is not
presented in the Company's consolidated financial statements; however, the
Statement of Operations caption "auction revenues" is directly related to the
value of gross auction sales (see discussion below under Results of Operations).
Certain other Statement of Operations line items are also best understood
considering the relationship to gross auction sales. Auction revenues are
comprised of auction commissions, net profits on the sale of inventory,
incidental interest income, and handling fees on the sale of certain lots. All
revenue is recognized when the auction sale is complete and the company has
determined that the auction proceeds are collectible.
Auction commissions are comprised of two main components. The most common type
of commission is generated by the Company when it acts as agent for consignors
and earns a straight commission on the gross sales price of the consigned
equipment at auction. In certain other cases, the Company guarantees minimum
gross sales proceeds to the consignor and earns a commission based on the actual
results of the auction, including a negotiated percentage of sales proceeds, if
any, in excess of the guaranteed amount. If the actual auction proceeds are less
than the guaranteed amount, the Company's commission is reduced and, if proceeds
are sufficiently lower, the Company can incur a loss on the sale. Ritchie Bros.
factors in a higher rate of commission on these sales to compensate for the
increased risk assumed by the Company. The Company's exposure from these
guarantee contracts fluctuates over time but guarantees are generally
outstanding for 30 to 45 days and the combined exposure at any point in time
from all outstanding guarantees is typically less than $30 million. Losses, if
any, resulting from guarantee contracts are recorded in the period in which the
relevant auction is held.
Auction revenues also include the net profit on the sale of inventory in cases
where the Company acquires title to a piece of equipment for a short time prior
to an auction sale. When purchased, this equipment is assigned to a specific
auction sale and sold at that auction in the same manner as consigned equipment.
During the period that the Company retains ownership, the cost of the equipment
is recorded as inventory on the Balance Sheet. The auction revenue recorded upon
sale of the equipment is the net gain or loss on the sale. Net profit on sales
of inventory represented approximately 7% of auction revenues for the year ended
December 31, 2002 (2001 - 10%).
The composition of auction revenues is tied to the nature of contracts entered
into with consignors in any particular year. The choice by consignors between
straight commission, gross guarantee, or outright purchase arrangements is
dependent upon many factors including general economic conditions. As a result,
the mix of contracts and the effective auction revenue rate in 2002 are not
necessarily indicative of future performance.
25
Beginning in 2002, auction revenues include a handling fee, payable by the
buyer, equal to 10% of the selling price on all lots sold for 2,500 or less in
the currency of the auction. The impact of this fee on auction revenues and the
Company's auction revenue rate in any future period will depend on the quantity
and the value of lots sold during that period. The Company originally estimated
that the impact of this fee would be to increase auction revenues by
approximately 0.3% of gross auction sales. For the year ended December 31, 2002,
the impact of this fee was an increase in auction revenues of approximately 0.4%
of gross auction sales and the Company believes that it is reasonable to project
a similar impact in 2003.
Beginning January 1, 2003, the Company implemented fees to recover some of the
costs involved in running its proxy bidding service and the rbauctionBid-Live
Internet bidding service. The Proxy Purchase Fee and the Internet Purchase Fee
will affect only buyers using these services. The fees will be calculated as 2%
of the selling price to a maximum of 500 per lot in the currency of the auction.
The company currently estimates that these fees will be applicable to
approximately 5% of gross auction sales in 2003 and will therefore increase
auction revenues by approximately 0.1% of gross auction sales.
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 time the Company generally conducts more business 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.
DEVELOPMENTS IN 2002
Ritchie Bros. entered 2002 with the primary goals of growing gross auction sales
and net earnings, improving sales force productivity, and increasing the
customer base. Related goals included expansion into related markets and regions
and using the Internet and other technology to enhance the Company's business.
All of these goals were achieved in 2002.
During the first quarter of 2002, the Company launched rbauctionBid-Live. This
service enhances Ritchie Bros.' live auctions by allowing qualified bidders to
bid on and purchase equipment over the Internet in real time. Purchases through
the rbauctionBid-Live system represented approximately 6% of gross auction sales
for the year ended December 31, 2002 and are expected to be in the range of 10%
to 15% in 2003. Also during the first quarter the Company opened a new permanent
auction site in Phoenix, Arizona, replacing an existing auction facility.
During the second quarter of 2002, the Company opened a new auction facility in
Edmonton, Alberta, Canada replacing an existing auction site. The new 125-acre
facility includes a two auction ramp auction theatre and offers combined seating
for 1,800 bidders, allowing for two simultaneous auctions of rolling stock. Also
during the second quarter, C. Russell Cmolik announced his plan to retire
effective August 31, 2002; and on July 1, 2002, Randall J. Wall was appointed
President and Chief Operating Officer of the Company, the position previously
held by Mr Cmolik.
On August 1, 2002, the Company acquired the auction business of All Peace
Auctions, an Alberta, Canada based auctioneer of industrial and agricultural
equipment (the "All Peace Acquisition"). As part of the acquisition the Company
also acquired the assets used in the business, including a 30-acre permanent
auction site in Grande Prairie, Alberta. The All Peace Acquisition helped expand
the Company's presence in northern Alberta and the Company's share of the
agricultural equipment market.
During the fourth quarter of 2002 the Company began holding auctions at its new
auction facility in Orlando, Florida, which replaced its previous permanent
auction site in Florida.
The Company expects to open a new, replacement auction facility in Prince
George, British Columbia in the second quarter of 2003. This will bring to a
close the aggressive facilities expansion program begun with the Company's
initial public offering in 1998. Although the Company will continue to improve
existing auction facilities and add new sites as appropriate opportunities
arise, the level of capital expenditures in the next few years is expected to be
lower than the average level experienced over the past four years.
CRITICAL ACCOUNTING POLICIES
In preparing the consolidated financial statements in conformity with generally
accepted accounting principles, the Company's management must make decisions
that impact the reported amounts and the related disclosures. Such decisions
include the selection of the appropriate accounting principles to be applied and
the assumptions on which to base accounting estimates. In reaching such
decisions, management applies judgments based on their understanding and
analysis of the relevant circumstances and historical experience. Actual amounts
could differ from those estimated at the time the consolidated financial
statements are prepared.
The following discussion of critical accounting policies is intended to
supplement the Significant Accounting Policies presented as Note 1 to the
Company's 2002 audited consolidated financial statements. Note 1 summarizes the
accounting policies and methods used in the preparation of the consolidated
financial statements. The policy discussed below was selected because it
requires more significant judgments and estimates in the preparation and
presentation of the consolidated financial statements than other policies. On an
ongoing basis, the Company evaluates these judgments and estimates, including
consideration of uncertainties relating to revenue recognition criteria,
recoverability of capital assets and goodwill, and the assessment of possible
contingent assets or liabilities that should be recognized or disclosed in the
consolidated financial statements. The Company bases its estimates on historical
experience, as well as other events and assumptions that are believed to be
reasonable at the time. Actual results could differ from these estimates under
different conditions.
VALUATION OF GOODWILL
Management assesses the possible impairment of goodwill in accordance with
standards recently issued by the Canadian Institute of Chartered Accountants in
Canada and the Financial Accounting Standards Board in the US. The new standards
stipulate that reporting entities with previously recorded goodwill cease
amortizing goodwill commencing January 1, 2002. Instead,the carrying value of
goodwill is tested for impairment annually at the reporting unit level using a
two-step impairment test, or more frequently if events or changes in
circumstances indicate that the asset might be impaired.
In the first step of the impairment test, the net book value of each reporting
unit is compared with its fair value. The Company operates as a single reporting
unit, which is the consolidated public company. As a result, the Company is able
to refer to the stock market for a third party assessment of its fair value. As
long as the fair value of the reporting unit exceeds its net book value,
goodwill is considered not to be impaired and the subsequent step of the
impairment test is unnecessary. Changes in the market value of the Company's
stock may impact the assessment as to whether goodwill has been impaired. These
changes may result from changes in Ritchie Bros.' business plans or other
factors that are outside management's control. The Company performs the goodwill
test each year as at September 30, unless events or changes in circumstances
indicate that goodwill might be impaired. The test was conducted as at September
30, 2002 and the Company determined that no impairment had occurred.
RESULTS OF OPERATIONS
Year Ended December 31, 2002 Compared to Year Ended December 31, 2001
AUCTION REVENUES
Auction revenues grew to $133.6 million during the year ended December 31, 2002,
an increase of $16.6 million or 14% compared to the prior year's auction
revenues of $117.0. The improvement is a result of higher gross auction sales
for the year, combined with a higher average auction revenue rate on those
sales. Gross auction sales totaled $1.38 billion for the year ended December 31,
2002, an increase of $90.0 million or 7% over the prior year, primarily as a
result of increased auction volume in Europe and the Middle East in 2002.
During 2002, the Company experienced an auction revenue rate (auction revenues
as a percentage of gross auction sales) of 9.70% compared to a rate of 9.10% in
2001 and a long-term (prior to 2002) average of approximately 8.80%.The
improvement can be attributed partly to the handling fee introduced at the
beginning of 2002 and above-average performance of the Company's straight
commission and underwritten business. Management does not believe that the above
average experience in 2002 is indicative of a trend.
For the year ended December 31, 2002, the handling fee introduced in 2002 (see
"Sources of Revenue and Revenue Recognition") generated auction revenues of
approximately 0.40% of gross auction sales, slightly higher than had been
expected by the Company. For 2003 the Company expects that this handling fee
will once again generate auction revenues in the range of 0.40% of gross auction
sales.
Commencing January 1, 2003 auction revenues will include the Proxy Purchase Fee
and the Internet Purchase Fee (see "Sources of Revenue and Revenue
Recognition"). The Company currently anticipates that these fees will on a
combined basis generate incremental auction revenues in the range of 0.10% of
gross auction sales.
26
Prior to 2002, the Company's auction revenue rate had averaged approximately
8.80%. With the introduction of the handling fee in 2002 and the Proxy and
Internet Purchase Fees in 2003, management believes that the Company's auction
revenue rate will be in the range of 9.30% in 2003.
DIRECT EXPENSES
Direct expenses consist of costs 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, advertising specifically related to the auction, travel
costs for full time employees to attend and work at the auction site, security
hired to safeguard equipment at the auction site and lease expenses for
temporary auction sites.
Direct expenses for the year ended December 31, 2002 totaled $19.7 million, an
increase of $0.8 million or 4% compared to prior year direct expenses of $18.9
million. Direct expenses as a percentage of gross auction sales improved to
1.43% compared to the 1.46% ratio experienced in 2001. Direct expenses as a
percentage of gross auction sales fluctuate based on the size and location of
auctions held each period. As the size of auctions increase, the direct expense
rate generally decreases. Moreover, auctions held at permanent auction sites
tend to have lower direct expense rates than auctions held at temporary
locations. Management expects that direct expenses as a percentage of gross
auction sales will average approximately 1.45% in 2003.
DEPRECIATION EXPENSE
Depreciation is calculated on either a straight line or a declining balance
basis on capital assets employed in the Company's business, including building
and site improvements, automobiles, yard equipment, and computer hardware and
software. Depreciation expense for the year ended December 31, 2002 totaled $9.2
million, an increase of $0.1 million over depreciation of $9.1 million recorded
in 2001. The balance for the prior year included goodwill amortization of $1.7
million. The Company stopped amortizing goodwill effective January 1, 2002 in
accordance with new accounting pronouncements in Canada and the United States
(see "Recent Accounting Pronouncements "below). After factoring out goodwill
amortization, depreciation expense grew by $1.8 million in 2002 primarily as a
result of the depreciation of new auction facilities constructed over the past
few years and increasing charges related to capitalized software development
costs. Management anticipates that depreciation expense will continue to
increase as existing auction sites are improved and additional permanent auction
sites are acquired and developed.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses ("G&A") include items such as employee
expenses (salaries, wages, performance bonuses and benefits), non-auction
related travel, institutional advertising, insurance, general office, and
information technology expenses. G&A increased to $63.8 million for the year
ended December 31, 2002, an increase of $7.3 million or 13% compared to G&A of
$56.5 million in 2001. The increase in G&A is attributable to costs incurred in
2002 to support the growth initiatives of the Company, as well as to costs
associated with the operation of new permanent auction sites opened during the
year. In addition, the Company accrued higher performance bonuses in 2002 than
in 2001 due to the strong growth in earnings before income taxes and bonuses in
2002. Future levels of G&A will continue to be affected by the expansion of
infrastructure and workforce necessary to support the Company's growth plans, as
well as other factors.
EARNINGS FROM OPERATIONS
Earnings from operations for 2002 were $40.9 million compared to $32.5 million
in 2001 ($34.2 million after excluding goodwill amortization). Earnings from
operations increased in 2002 compared to 2001 primarily as a result of increased
gross auction sales and an above average auction revenue rate (due in part to
the introduction of the handling fee discussed above), offset in part by growth
in G&A.
INTEREST EXPENSE
Interest expense includes mainly interest and bank charges paid on bank term
debt and operating credit lines. Interest expense for the year ended December
31, 2002 was $4.3 million compared to $4.0 million in 2001. During 2002, the
Company capitalized interest of $1.5 million (2001 - $1.7 million) related to
properties under development. Interest expense may increase in the future as the
capitalization of interest decreases in conjunction with the completion of
building projects currently under development. See "Overview" and "Liquidity and
Capital Resources" for further discussion.
OTHER INCOME
Other income arises primarily from net fees earned by the Company for conducting
appraisals for its customers, as well as from other miscellaneous sources. Other
income for the year ended December 31, 2002 was $2.5 million compared to $1.4
million in 2001. The increase can be attributed mainly to increased appraisal
activity during 2002. Management expects appraisal revenue to increase in the
future as the Company attempts expand its activities in this area. Other income
in 2002 also includes a $1.0 million gain on the sale of redundant property.
INCOME TAXES
Income taxes of $10.7 million for the year ended December 31, 2002 (2001 - $9.9
million) 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 27.3% for
the year ended December 31, 2002 is lower than the 33.0% rate the Company
experienced in 2001 in part as a result of a one-time charge of $2.0 million for
withholding taxes paid on an inter-company dividend in 2001. Excluding this
charge, the effective tax rate in 2001 would have been 26.3%. Variations in
effective tax rates between different periods are primarily a result of
differences in the amount of earnings attributable to the different tax
jurisdictions in which the Company operates and earns its income. Income tax
rates in future periods will fluctuate depending upon the impact of unusual
items and the distribution of earnings between the different tax jurisdictions
in which the Company operates and earns its income.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash position can fluctuate significantly from period to period,
largely as a result of differences between the timing of the receipt of auction
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. The Company generally pays out auction proceeds to consignors approximately
21 days following an auction. Accordingly, management believes a more meaningful
measure of the Company's liquidity is working capital, including cash.
Working capital including cash was $25.4 million at December 31, 2002, which is
within the Company's current target for working capital. The comparable balance
at the end of fiscal 2001 was $19.3 million.
Capital expenditures for the year ended December 31, 2002 were $35.8 million
compared to $38.1 million in 2001. The 2002 expenditures include $2.8 million
for the acquisition of tangible assets by virtue of the All Peace Acquisition
and the reclassification to capital assets of land with a book value of $3.3
million, which had previously been recorded as capital assets available for sale
and a $3.9 million foreign exchange effect relating to capital assets held in
2002 in currencies other than the United States dollar. Excluding these latter
two items, capital asset additions were $28.6 million in 2002, a decrease of
$9.5 million from 2001.
The Company continued to incur site development and building costs in 2002 in
the United States and Canada relating to expansion projects commenced in prior
years. During 2002 the Company opened new permanent auction sites in Phoenix,
Arizona, Edmonton, Alberta, and Orlando, Florida and acquired a new permanent
auction site in Grand Prairie, Alberta as part of the All Peace Acquisition. The
Company will continue to add additional permanent auction sites in selected
locations as opportunities arise, and is presently in various stages of
commitments to acquire land for development in the United States. Actual
expenditure levels in the future will depend on the Company's ability to
identify, acquire and develop suitable auction sites. Capital expenditures,
including maintenance capital expenditures, are expected to be in the range of
$15 million to $20 million per year on average for the next few years.
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 $97.0 million and to credit
lines for funding property acquisitions of approximately $101.2 million. At
December 31, 2002, the Company had bank debt related to operations of 2.8
million (2001 - nil), and bank debt related to property acquisitions totaled
$71.4 million (2001 - $74.5 million), leaving a net credit line of $94.2 million
available for operations and net credit lines of $29.8 million available for
property acquisitions.
27
RECENT ACCOUNTING PRONOUNCEMENTS
In 2001 the Accounting Standards Board in Canada and the Financial Accounting
Standards Board in the United States announced new standards related to the
accounting for goodwill. As a result of the new standards, reporting entities
with previously recorded goodwill ceased amortizing that goodwill on January 1,
2002. The carrying value of goodwill is now subject to a regular test for
impairment. Amortization expense on goodwill recognized to December 31, 2001
totaling $1.7 million is included in the Consolidated Statements of Operations
and no such charge is recorded in 2002.
In 2001 the Accounting Standards Board in Canada issued Handbook Section 3870
establishing standards for the recognition, measurement and disclosure of
stock-based compensation to employees and non-employees. The Company adopted
Section 3870 beginning January 1, 2002. The adoption of this standard has not
had a material impact on the Company's financial condition or results of
operations because, to date, stock based compensation has been granted with
exercise prices based on the market price at the date of grant. The Company
applies the intrinsic value method of accounting for stock-based compensation,
consistent with the principles it applies under United States accounting
standards. Section 3870 requires additional disclosures for options granted to
employees, including disclosure of pro forma earnings and pro forma earnings per
share. This information is provided in note 8 to the consolidated financial
statements for the year ended December 31, 2002.
In January 2003 the Accounting Standards Board in Canada issued Handbook Section
3063, Impairment of long-lived assets, establishing standards for the
recognition, measurement and disclosure of the impairment of long-lived assets.
The new Canadian standard is substantially the same as the existing standards in
the United States. The Company does not expect the adoption of the new Canadian
standard in 2003 to have a material impact on disclosure of financial condition
or results of operations.
In February 2003 the Accounting Standards Board in Canada issued Accounting
Guideline 14, Disclosure of Guarantees, clarifying the financial statement
disclosures to be made by a guarantor about its obligations under guarantees.
The new Canadian guidance is substantially the same as standards adopted in the
United States in 2002 (Financial Accounting Standards Board Interpretation No.
45). The Company has not yet determined what, if any, impact this new guidance
will have on its reported results in future periods.
FORWARD-LOOKING STATEMENTS
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, general and
administrative expenses, income tax rates, the anticipated improvement,
acquisition and development of permanent auction sites, Internet 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 risk 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 Company undertakes no
obligation to update publicly any forward-looking statements, whether as a
result of new information, future events or otherwise, except as required by
securities legislation. Forward-looking statements should be considered in light
of these factors.
RISK FACTORS
POTENTIAL INABILITY TO ACHIEVE AND MANAGE GROWTH
A principal component of the Company's strategy is to continue to grow by
increasing earnings from operations in the Company's existing markets and by
expanding into new geographic markets and into auction market segments that the
Company has not historically emphasized. The Company's future growth will depend
upon a number of factors, both within and outside of the Company's control,
including: the identification and development of new markets; the identification
and acquisition on favorable terms of suitable new auction sites and, possibly,
of suitable acquisition candidates; the ability to hire, train and retain
qualified personnel; the successful integration of new sites and any acquired
businesses with the Company's existing operations; the acceptance by potential
consignors and industrial equipment buyers of the auction process generally, as
well as of the Company's expansion into new markets and market segments; the
establishment and maintenance of favorable relationships with consignors and
bidders in new markets and the maintenance of such relationships in existing
markets; the receipt of any required governmental authorizations for proposed
development or expansion; and the Company's ability to manage expansion and to
obtain required financing. There can be no assurance that the Company will
successfully expand its operations or that any expansion will be profitable.
Further, the results achieved by the Company to date may not be indicative of
its prospects or its ability to penetrate new markets, many of which may have
different competitive conditions and demographic characteristics than the
Company's current markets.
As a result of expanding its operations, the Company will experience growth in
the number of its employees, the scope of its operating and financial systems
and the geographic area of its operations. This growth will increase the
operating complexity of the Company and the level of responsibility of existing
and new management personnel. There can be no assurance that the Company will be
able to attract and retain qualified management and employees, that the
Company's current operating and financial systems and controls will be adequate
as the Company grows, or that any steps taken to attract and retain management
and employees and to improve such systems and controls will be sufficient.
QUARTERLY AND SEASONAL VARIATIONS IN OPERATING RESULTS
The Company's revenues and operating results historically have fluctuated from
quarter to quarter. These fluctuations have been and are expected to continue to
be caused by a number of factors, including the timing of auctions; seasonal
results of operations; general economic conditions in the Company's markets; the
timing of acquisitions and development of auction sites and related costs; and
the effectiveness of integrating new sites or acquired businesses. Additionally,
the Company generally incurs substantial costs in entering new markets and the
profitability of operations at a new location is uncertain, in part because the
number and size of auctions at new locations is more variable than at the
Company's more established locations. These factors, among others, may cause the
Company's results of operations in some future quarters to be below the
expectations of investors or results of previous quarters, which could have a
material adverse effect on the market price of the Common Shares.
POTENTIAL LOSSES FROM PRICE GUARANTEES, PURCHASES OF INVENTORY, ADVANCES BY THE
COMPANY AND GUARANTEES OF CLEAR TITLE
The Company generally offers its services to consignors of used industrial
equipment on a straight commission basis. In certain circumstances the Company
will, subject to its evaluation of the equipment, either (1) offer to guarantee
the consignor a minimum level of gross sale proceeds, regardless of the ultimate
results of the auction or (2) offer to purchase the equipment directly from the
consignor for sale in a particular auction. 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. If auction proceeds are less
than the purchase price paid by the Company, the Company would incur a loss.
Because all its auctions are unreserved, the Company cannot protect itself
against such losses by bidding on or acquiring any items at the auctions. In
recent periods, guarantees and purchases and sales by the Company of inventory
have represented approximately one-quarter of the Company's annual gross auction
sales.
Occasionally, the Company advances to consignors a portion of the estimated
auction proceeds prior to the auction. The Company generally makes such advances
only after taking possession of the equipment to be auctioned and upon receipt
of a security interest in the equipment to secure the obligation. If the Company
were unable to auction the equipment or if auction proceeds were less than
amounts advanced, the Company could incur a loss.
The Company guarantees that each item purchased at its auctions is free of liens
and other encumbrances up to the purchase price paid by the buyer. While the
Company expends considerable effort ensuring that all liens have been identified
and, if necessary, dealt with prior to the auction sale, there have been
instances where liens have not been properly identified or discharged and the
Company has had to make payments to the relevant lienholders or purchasers. If
the Company is not able to recover sufficient funds from the consignors to
offset the payment to the lienholders, the Company would incur a loss and such
losses could be material.
ADVERSE CHANGES IN ECONOMIC CONDITIONS; INDUSTRY CYCLICALITY
A substantial portion of the Company's revenues is derived from customers in
industries that are cyclical in nature and subject to changes in general or
regional economic conditions. Adverse changes or downturns in a given industry
may decrease demand for related equipment and lead to lower auction revenues.
Although auction sales to residents of countries or regions other than the
country or region in which the auction is held have generally been increasing in
recent years, approximately one-half of auction revenues is generated by same
country or same region purchasers. As a result, the Company's operating results
in a particular country or region may be adversely affected by events or
conditions in that country or region, such as a local economic slowdown, adverse
weather affecting local industries and other factors. The Company's operating
results may also be adversely affected by increases in interest rates that may
lead to a decline in economic activity.
28
RISKS OF COMPETITION
The international industrial equipment market and the industrial equipment
auction market are highly fragmented. The Company competes for potential
purchasers of industrial equipment with other auction companies and with
indirect competitors such as equipment manufacturers, distributors and dealers
that sell new or used equipment, as well as equipment rental companies. The
Company also competes for potential consignors with other auction companies and
with indirect competitors such as used equipment dealers. The Company's direct
competitors are primarily regional auction companies. Some of the Company's
indirect competitors have significantly greater financial and marketing
resources and name recognition than the Company. New competitors with greater
financial and other resources than the Company may enter the industrial
equipment auction market in the future. Additionally, existing or future
competitors may succeed in entering and establishing successful operations in
new geographic markets prior to the Company's entry into such markets. They may
also compete against the Company via Internet-based services. To the extent
existing or future competitors seek to gain or retain market share by reducing
commission rates, the Company may also be required to modify its commission
rates, which may adversely affect the Company's results of operations and
financial condition.
SUPPLY OF, DEMAND FOR, AND MARKET VALUES OF USED EQUIPMENT
There are many factors that have an impact on the supply of and demand for used
equipment, most of which the Company cannot control. In addition, market values
for used equipment fluctuate based on circumstances beyond the Company's
control. Price competition for new equipment has a direct impact on the supply
of, demand for, and market value of used equipment. Some industrial equipment
manufacturers have special promotions offering low or no down payment and low or
no interest charges to increase sales of new equipment. In addition, competition
between manufacturers of equipment exerts downward pressure on new equipment
prices, which in turn impacts the supply of, demand for, and market values of
used equipment. A significant erosion in the supply of, demand for and market
values of used equipment could have a material impact on the Company's financial
condition and results of operations.
RISKS OF NONCOMPLIANCE WITH AND RESTRICTIONS IMPOSED BY GOVERNMENTAL AND
ENVIRONMENTAL REGULATION
In the countries in which it operates, the Company is subject to a variety of
federal, provincial, state and local laws, rules and regulations relating to,
among other things, the auction business, imports and exports of equipment,
worker safety, and the use, storage, discharge and disposal of environmentally
sensitive materials. Failure to comply with such laws, rules and regulations
could result in a substantial liability to the Company, suspension or cessation
of certain of the Company's operations, restrictions on the Company's ability to
expand at its present locations or into new locations, requirements for the
acquisition of additional equipment or other significant expenses.
The development or expansion of auction sites is contingent upon receipt of
required licenses, permits and other governmental authorizations. The inability
of the Company to obtain such required items could have an adverse effect on its
results of operations and financial condition. Additionally, changes or
concessions required by regulatory authorities could result in significant
delays in, or prevent completion of, such development or expansion. Under
certain of the laws regulating the use, storage, discharge and disposal of
environmentally sensitive materials, an owner or lessee of real estate may be
liable for the costs of removal or remediation of certain hazardous or toxic
substances located on or in, or emanating from, such real estate, as well as
related costs of investigation and property damage. Such laws often impose such
liability without regard to whether the owner or lessee knew of or was
responsible for the presence of such hazardous or toxic substances. There can be
no assurance that environmental contamination does not exist at the Company's
acquired or leased auction sites from prior activities at such locations or from
neighboring properties or that additional auction sites acquired or leased by
the Company will not prove to be so contaminated. Any such contamination could
materially adversely affect the Company's financial condition or results of
operations.
The Company is aware of potential restrictions in the United States and Europe
that may affect the ability of equipment owners to transport certain equipment
between certain jurisdictions. If these restrictions were to materially affect
the ability of customers to ship equipment to or from the Company's auction
sites, the restrictions could materially adversely affect the Company's
business, financial condition and results of operations.
The imposition of additional export or import regulations or of additional
duties, taxes or other charges on exports or imports could have a material
adverse impact on participation in the Company's auctions by international
bidders and consignors. Reduced participation by such parties could materially
adversely affect the Company's business, financial condition and results of
operations.
POTENTIAL INADEQUACY OF INSURANCE COVERAGE
The Company maintains property and general liability insurance. There can be no
assurance that such insurance will remain available to the Company at
commercially reasonable rates or that the amount of such coverage will be
adequate to cover any liability incurred by the Company. If the Company is
liable for amounts exceeding the limits of its insurance coverage or for claims
outside the scope of its coverage, its business, results of operations and
financial condition could be materially adversely affected.
RISKS OF INTERNATIONAL OPERATIONS
The Company conducts business in North, South and Central America, Europe, Asia,
Australia, Africa and the Middle East and intends to expand its international
presence. The Company's operations in international markets may be affected by
fluctuating currency exchange rates, acts of terrorism or war, and by changing
social, economic, political and governmental conditions and regulations.
DEPENDENCE ON KEY PERSONNEL
The Company's future performance and development will depend to a significant
extent on the efforts and abilities of David E. Ritchie, a co-founder of the
Company and its Chairman and Chief Executive Officer, and of its other executive
officers. The loss of the services of one or more of such individuals or other
senior managers could have a material adverse effect on the Company's business.
The Company does not maintain key man insurance for any of its employees. The
Company's ongoing success will depend on its continuing ability to attract,
develop and retain skilled personnel in all areas of its business.
FAILURE, PACE, OR LACK OF DEVELOPMENT OF INTERNET-RELATED INITIATIVES
Although the Company expects its Internet presence in general, and its
rbauctionBid-Live Internet bidding service in particular, to enhance rather than
replace its current auction business, there can be no assurances that the
investments incurred to date in these new technologies will result in a material
improvement in the Company's financial condition or results of operations. In
addition, the Company may not be able to successfully adapt its businesses to
Internet commerce. Furthermore, the Company faces risks associated with
implementing its new initiatives in the competitive and rapidly changing
Internet environment.
Internet-related products are complex and rapidly evolving. The Company may
encounter difficulties or delays in the development, implementation and market
acceptance of it Internet initiatives. In addition, there can be no assurance
that its infrastructure, networks and applications and systems will be able to
successfully accommodate accelerated growth of peak traffic volumes as the
rbauctionBid-Live service is rolled out to a greater number of auctions.
Specific risks include: the extent to which the equipment auction market accepts
the Internet as a method of purchasing; the Company's ability to develop or
acquire enhancements to its Internet technologies; and, the Company's ability to
market and implement Internet auction technologies that compete effectively
against the on-line bidding technologies offered by its competitors.
29
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, 2002 and 2001 and the
consolidated statements of operations, shareholders' equity and cash flows for
each of the years in the three year period ended December 31, 2002. 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, 2002
and 2001 and the results of its operations and its cash flows for each of the
years in the three year period ended December 31, 2002 in accordance with
Canadian generally accepted accounting principles.
[KPMG LLP signature]
Chartered Accountants
Vancouver, Canada
February 14, 2003
CONSOLIDATED STATEMENTS OF OPERATIONS
(Expressed in thousands of United States Dollars, except share and
per share amounts.)
Year Ended December 31 2002 2001 2000
----------------------------------------------------------------------------------------------------
Auction revenues $ 133,552 $ 116,991 $ 106,125
Direct expenses (19,684) (18,861) (17,936)
----------------------------------------------------------------------------------------------------
113,868 98,130 88,189
Expenses
Depreciation and amortization 9,208 9,076 7,761
General and administrative 63,786 56,517 52,942
----------------------------------------------------------------------------------------------------
72,994 65,593 60,703
----------------------------------------------------------------------------------------------------
Earnings from operations 40,874 32,537 27,486
Other income (expenses)
Interest expense (4,302) (4,024) (3,378)
Other 2,455 1,409 1,252
----------------------------------------------------------------------------------------------------
(1,847) (2,615) (2,126)
----------------------------------------------------------------------------------------------------
Earnings before income taxes 39,027 29,922 25,360
Income taxes (note 10)
Current 8,097 6,720 7,979
Withholding taxes on intercompany dividend -- 2,000 --
Future 2,559 1,148 176
----------------------------------------------------------------------------------------------------
10,656 9,868 8,155
----------------------------------------------------------------------------------------------------
Net earnings $ 28,371 $ 20,054 $ 17,205
====================================================================================================
Net earnings per share (notes 1(l) and 8(e))
Basic $ 1.69 $ 1.20 $ 1.03
Diluted 1.68 1.19 1.02
----------------------------------------------------------------------------------------------------
Weighted average number of shares outstanding 16,793,202 16,761,247 16,743,433
====================================================================================================
Approved on behalf of the Board of Directors
[G. EDWARD MOUL - SIGNATURE] [DAVID E. RITCHIE - SIGNATURE]
G. EDWARD MOUL DAVID E. RITCHIE
Director Director
See accompanying notes to consolidated financial statements.
30
CONSOLIDATED BALANCE SHEETS
(Expressed in thousands of United States Dollars)
December 31 2002 2001
------------------------------------------------------------------------------------------------------
ASSETS
Current assets:
Cash and cash equivalents $ 62,222 $ 49,533
Accounts receivable 13,700 12,375
Inventory 7,402 3,027
Prepaid expenses and deposits 2,060 1,327
Income taxes recoverable 2,485 1,410
------------------------------------------------------------------------------------------------------
87,869 67,672
Capital assets (note 3) 193,490 170,919
Funds committed for debt repayment (note 7) 13,000 7,893
Future income tax asset (note 10) -- 593
Other assets 421 --
Goodwill (notes 2(a),4 and 6) 34,356 28,466
------------------------------------------------------------------------------------------------------
$329,136 $275,543
======================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Auction proceeds payable $ 17,360 $ 11,807
Accounts payable and accrued liabilities 33,544 23,274
Short-term debt (note 5) 2,758 5,314
Current bank term loans (note 7) 8,764 7,998
------------------------------------------------------------------------------------------------------
62,426 48,393
Bank term loans (note 7) 62,612 61,217
Other liabilities (note 6) 2,758 --
Future income tax liability (note 10) 1,966 --
------------------------------------------------------------------------------------------------------
129,762 109,610
Shareholders' equity:
Share capital (note 8) 69,499 69,134
Additional paid-in capital 4,646 4,332
Retained earnings 129,682 101,311
Foreign currency translation adjustment (4,453) (8,844)
------------------------------------------------------------------------------------------------------
199,374 165,933
------------------------------------------------------------------------------------------------------
$329,136 $275,543
======================================================================================================
Commitments and Contingencies (note 11)
Subsequent Events (note 8(c))
See accompanying notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(Expressed in thousands of United States Dollars)
Foreign
Additional currency Total
Share paid-in Retained translation shareholders'
capital capital earnings adjustment equity
---------------------------------------------------------------------------------------------------------------
Balance, December 31, 1999 $69,130 $4,332 $ 64,052 $(3,119) $134,395
Net proceeds on stock options exercised 2 -- -- -- 2
Net earnings -- -- 17,205 -- 17,205
Foreign currency translation adjustment -- -- -- (2,838) (2,838)
---------------------------------------------------------------------------------------------------------------
Balance, December 31, 2000 69,132 4,332 81,257 (5,957) 148,764
Net proceeds on stock options exercised 2 -- -- -- 2
Net earnings -- -- 20,054 -- 20,054
Foreign currency translation adjustment -- -- -- (2,887) (2,887)
---------------------------------------------------------------------------------------------------------------
Balance December 31, 2001 69,134 4,332 101,311 (8,844) 165,933
Net proceeds on stock options exercised 365 -- -- -- 365
Stock compensation tax adjustment -- 314 -- -- 314
Net earnings -- -- 28,371 -- 28,371
Foreign currency translation adjustment -- -- -- 4,391 4,391
---------------------------------------------------------------------------------------------------------------
Balance December 31, 2002 $69,499 $4,646 $129,682 $(4,453) $199,374
===============================================================================================================
See accompanying notes to consolidated financial statements.
31
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Expressed in thousands of United States Dollars)
Year Ended December 31 2002 2001 2000
---------------------------------------------------------------------------------------------------
Cash provided by (used in)
Operating activities:
Net earnings $ 28,371 $ 20,054 $ 17,205
Items not involving the use of cash
Depreciation 9,208 7,426 6,110
Amortization of goodwill -- 1,650 1,651
Future income taxes 2,559 1,148 176
Net gain on disposition of capital assets (758) (721) --
Changes in non-cash working capital:
Accounts receivable (1,325) (1,810) (920)
Inventory (4,375) 6,148 5,116)
Prepaid expenses and deposits (733) (93) (13)
Income taxes recoverable (1,075) (499) (46)
Auction proceeds payable 5,553 (11,749) 7,378
Accounts payable and accrued liabilities 10,270 (5,572) 10,955
Other (653) 447 655
---------------------------------------------------------------------------------------------------
47,042 16,429 38,035
---------------------------------------------------------------------------------------------------
Investing activities:
Acquisition of business (note 6) (8,743) -- --
Capital asset additions (29,037) (38,098) (46,539)
Proceeds on disposition of capital assets 4,789 5,221 --
Increase in other assets (421) -- --
---------------------------------------------------------------------------------------------------
(33,412) (32,877) (46,539)
---------------------------------------------------------------------------------------------------
Financing activities:
Issuance of share capital 365 2 2
Increase in paid up capital 314 -- --
Issuance of bank term loans 5,000 8,139 26,669
Repayment of bank term loans (3,628) (3,270) (2,045)
Increase in other liabilities 2,758 -- --
Increase (decrease) in short-term debt (2,556) 3,257 (4,472)
Increase in funds committed for debt repayment (5,107) (4,643) (3,250)
---------------------------------------------------------------------------------------------------
(2,854) 3,485 16,904
---------------------------------------------------------------------------------------------------
Effect of foreign currency rates on cash and cash equivalents 1,913 (939) (886)
---------------------------------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents 12,689 (13,902) 7,514
Cash and cash equivalents, beginning of year 49,533 63,435 55,921
---------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of year $ 62,222 $ 49,533 $ 63,435
===================================================================================================
Supplemental information
Interest paid $ 3,951 $ 3,821 $ 3,948
Income taxes paid 8,861 9,233 8,123
See accompanying notes to consolidated financial statements.
32
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollar amounts expressed in thousands of United States Dollars)
Years ended December 31, 2002, 2001 and 2000
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. All significant intercompany
balances and transactions have been eliminated.
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 12, also comply, in all material
respects, with generally accepted accounting principles in the United
States.
(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) Capital assets
All capital assets are stated at cost and include capitalized interest
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:
ASSET BASIS RATE/TERM
-----------------------------------------------------------------------
Improvements declining balance 10%
Buildings straight-line 30 years
Automotive equipment declining balance 30%
Computer equipment declining balance 30%
Computer software straight-line 3 years
Yard equipment declining balance 20-30%
Office equipment declining balance 20%
Leasehold improvements straight-line Terms of leases
Long-lived assets are reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of the asset
may not be recoverable. In such situations, long-lived assets are
considered impaired when undiscounted estimated future cash flows
resulting from the use of the asset and its eventual disposition are
less than the asset's carrying amount.
(e) Goodwill
Goodwill represents non-identifiable intangible assets acquired on
business combinations. Goodwill is not amortized and is tested for
impairment annually, or more frequently if events or changes in
circumstances indicate that the asset might be impaired. The impairment
test compares the carrying amount of the goodwill against its implied
fair value. To the extent that the carrying amount of goodwill exceeds
its fair value, an impairment loss is charged against earnings.
(f) Revenue recognition
Auction revenues earned in the Company's capacity as agent for
consignors of equipment are comprised mostly of auction commissions,
but also include net profits on the sale of inventory, incidental
interest income, and handling fees on the sale of certain lots. All
revenue is recognized when the auction sale is complete and the company
has determined that the auction proceeds are collectible.
Auction commissions represent the percentage earned by the Company on
the gross proceeds from equipment sold at auction. The majority of
auction commissions is earned as a fixed rate of the gross selling
price. Other commissions are earned when the Company guarantees a
certain level of proceeds to a consignor. This type of commission
includes a percentage of the guaranteed gross proceeds plus a
percentage of proceeds in excess of the guaranteed amount. If actual
auction proceeds are less than the guaranteed amount, commission is
reduced; if proceeds are sufficiently lower, the Company can incur a
loss on the sale. The Company's exposure from these guarantee contracts
fluctuates over time (see note 11(b)). Losses, if any, resulting from
guarantee contracts are recorded in the period in which the relevant
auction is held.
Auction revenues also include net profit on the sale of inventory
items. In some cases, incidental to its regular commission business,
the Company temporarily acquires title to items for a short time prior
to a particular auction sale. The auction revenue recorded is the net
gain or loss on the sale of the items.
(g) 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 substantively enacted or 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 earnings in the period in which the future tax
benefit is enacted. Future tax benefits, such as non-capital loss
carryforwards, are recognized to the extent that realization of such
benefits is considered more likely than not.
(h) Foreign currency translation
The Company's reporting currency is the United States dollar. The
functional currency for each of the Company's operations is the
currency of the country of residency or the United States dollar. 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 earnings.
Any gains or losses from this translation have been included in the
foreign currency translation adjustment account which is included as a
separate component of 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 earnings.
33
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollar amounts expressed in thousands of United States Dollars)
Years ended December 31, 2002, 2001 and 2000
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(i) Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires the Company to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting periods. Significant financial
statement items requiring the use of estimates include the
determination of useful lives for depreciation, the valuation of
goodwill and capital assets, and the estimation of future income tax
balances. Actual results could differ from such estimates and
assumptions.
(j) Financial instruments
Carrying amounts of certain of the Company's financial instruments,
including cash and cash equivalents, accounts receivable, income taxes
recoverable, 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.
(k) Credit risk
The Company does not extend credit to purchasers of auctioned items.
Equipment is not normally released to the purchasers until it is paid
for in full.
(l) Net earnings per share
Net earnings per share has been calculated based on the weighted
average number of common shares outstanding. Diluted net earnings per
share has been calculated after giving effect to outstanding dilutive
options calculated by the treasury stock method (note 8(e)).
(m) Stock-based compensation
The Company has a stock-based compensation plan, which is described in
note 8(d). The Company recognizes compensation expense using the
intrinsic value method at the date of grant. The pro forma effect of
accounting for stock option grants using the fair value accounting
method is presented in note 8(d). Compensation expense is recognized
over the vesting period of the underlying grant. Any consideration paid
by employees on exercise of stock options or purchase of stock is
credited to share capital. If stock or stock options are repurchased
from employees, the excess of the consideration paid over the carrying
amount of the stock or stock option cancelled is charged to retained
earnings.
(n) Comparative figures
Certain comparative figures have been reclassified to conform with the
presentation adopted in the current year.
2. CHANGES IN ACCOUNTING POLICIES
(a) Goodwill
Effective January 1, 2002, the Company adopted the Canadian Institute
of Chartered Accountants ("CICA") new handbook section 3062 regarding
goodwill. Under section 3062, goodwill is not amortized but is tested
for impairment at least annually. Section 3062 requires the assignment
of all assets, including goodwill, and liabilities to reporting units
and assessments for impairment to be made at the reporting unit level.
The Company currently considers itself to have a single reporting unit.
The impairment test compares the carrying amount of the goodwill
against its implied fair value. To the extent that the carrying amount
of goodwill exceeds its fair value, an impairment loss is charged
against income.
As of January 1, 2002, the Company had goodwill in the amount of
$28,466,000 which is no longer being amortized. This change in
accounting policy at January 1, 2002 resulted in a reduction of
amortization expense related to goodwill of $1,650,000 ($1,086,500 net
of taxes) for the year ended December 31, 2002 from that which would
have been reported under the Company's previous accounting policy.
In accordance with the requirements of section 3062, this change in
accounting policy has not been applied retroactively and the amounts
presented for prior periods have not been restated to reflect this
change. Had the Company adopted this change in accounting policy
retroactively, the effect on the prior year would have been as
indicated below.
Year ended December 31 2002 2001 2000
----------------------------------------------------------------------------------
Net earnings as reported $28,371 $20,054 $17,205
Goodwill amortized in year, net of taxes -- 1,007 1,007
----------------------------------------------------------------------------------
Adjusted net earnings $28,371 $21,061 $18,212
==================================================================================
Net earnings per share as reported:
Basic $ 1.69 $ 1.20 $ 1.03
Diluted 1.68 1.19 1.02
Adjusted net earnings per share:
Basic $ 1.69 $ 1.26 $ 1.09
Diluted 1.68 1.25 1.08
(b) Stock-based compensation
Effective January 1, 2002, the Company adopted the CICA new handbook
section 3870 regarding stock-based compensation and other stock-based
payments. The new standard is applied prospectively to all stock-based
compensation issued on or after January 1, 2002. The Company uses the
intrinsic value method to account for stock-based employee compensation
awards; however, under section 3870, the Company is required to
disclose the pro forma effect of accounting for these awards under the
fair value method (see note 8(d)).
34
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollar amounts expressed in thousands of United States Dollars)
Years ended December 31, 2002, 2001 and 2000
3. CAPITAL ASSETS
Accumulated Net Book
December 31, 2002 Cost Depreciation Value
---------------------------------------------------------------------------------
Buildings $ 96,377 $10,234 $ 86,143
Land and improvements 87,265 2,539 84,726
Land and buildings under development 5,001 -- 5,001
Automotive equipment 8,954 3,444 5,510
Yard equipment 6,644 2,902 3,742
Office equipment 4,874 2,492 2,382
Computer equipment 3,463 1,397 2,066
Computer software 5,766 2,613 3,153
Leasehold improvements 1,207 440 767
---------------------------------------------------------------------------------
$219,551 $26,061 $193,490
=================================================================================
Accumulated Net Book
December 31, 2001 Cost Depreciation Value
---------------------------------------------------------------------------------
Buildings $ 70,731 $ 7,154 $ 63,577
Land and improvements 69,820 2,040 67,780
Land and buildings under development 25,607 -- 25,607
Automotive equipment 8,366 3,095 5,271
Yard equipment 4,803 2,293 2,510
Office equipment 4,135 1,970 2,165
Computer equipment 3,325 1,845 1,480
Computer software 3,182 1,334 1,848
Leasehold improvements 1,008 327 681
---------------------------------------------------------------------------------
$190,977 $20,058 $170,919
=================================================================================
During the year, interest of $1,458,000 (2001 -- $1,697,000) was
capitalized to the cost of buildings under development.
4. GOODWILL
December 31 2002 2001
---------------------------------------------------------------------------
Goodwill $38,893 $33,003
Accumulated amortization 4,537 4,537
---------------------------------------------------------------------------
$34,356 $28,466
===========================================================================
Goodwill at December 31, 2002 includes the goodwill recorded from
acquisitions during the year (note 6).
5. SHORT-TERM DEBT
Short-term debt consists of draws on lines of credit in the amounts of
$1,520,000 and $1,238,000 with a weighted average interest rate of 5.12%.
35
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollar amounts expressed in thousands of United States Dollars)
Years ended December 31, 2002, 2001 and 2000
6. ACQUISITION
On August 1, 2002, the Company acquired certain assets of All Peace
Auctions (2001) Ltd., an industrial and agricultural equipment auctioneer,
and All Peace Auctions Ltd., the owner of the property on which the
majority of auction business was conducted (collectively, "All Peace"). All
Peace was based in Grande Prairie, Alberta, Canada.
The aggregate purchase price was $9,111,000 plus costs of approximately
$79,000. The purchase price was settled through the payment of $5,409,000
of cash and future annual installments totaling $3,781,000 with a present
value of $3,255,000 at the date of acquisition. To reflect the fact that
the future payments are due over time, $526,000 was recorded as a discount
to the long-term liability and is being amortized to interest expense over
the four-year term of repayment. The future installments are unsecured and
non-interest bearing. The total purchase price including expenses net of
discount was $8,664,000.
The following table summarizes the estimated fair value of the assets
acquired and the consideration paid at the date of acquisition:
Capital assets $2,809
Goodwill 5,855
---------------------------------------------------------------------------
Net assets acquired $8,664
===========================================================================
Cash paid $5,409
Present value of future payments at date of acquisition 3,255
---------------------------------------------------------------------------
Total consideration $8,664
===========================================================================
Other liabilities at December 31, 2002 are as follows:
Present value of future payments at December 31, 2002 $3,356
Current portion 598
---------------------------------------------------------------------------
Other liabilities $2,758
===========================================================================
75% of the balance of goodwill (including the amount of the discount) will
be deductible for income tax purposes in future periods.
All Peace was acquired to expand the Company's presence in northern
Alberta. All Peace was a leading auction company in that market and had
strong customer relationships in the industrial and agricultural sectors.
7. BANK TERM LOANS
December 31 2002 2001
------------------------------------------------------------------------------------------------
Term loans, unsecured, bearing interest between 7.1% and
7.21%,due in minimum annual installments of $5 million ($1.75
million towards principal,$3.25 million towards a sinking
fund) plus interest, with the final payment occurring in 2004 $29,750 $31,500
Term loans, denominated in Canadian dollars, unsecured, bearing
interest between 6.355% and 7.195%, due in monthly
installments of interest only, with the full amount of the
principal due in 2004 9,509 9,417
Term loans, unsecured, bearing interest between 7.81% and
7.91%,due in minimum annual installments of $500,000 plus
interest, with final payment occurring in 2005 9,000 9,500
Term loans, unsecured, bearing interest between 5.95% and
7.91%,due in minimum annual installments of $2.9 million
($1.0 million towards principal,$1.9 million towards a
sinking fund), with the final payment occurring in 2005 and
2006 18,250 14,250
Term loans, denominated in Australian dollars, secured by deeds
of trust on specific property, bearing interest between the
Australian prime rate and 6.5%,due in quarterly installments
of AUD75,000, plus interest, with final payment occurring in
2008 999 1,062
Term loan denominated in Euros, secured by deeds of trust on
specific property, bearing interest at the Amsterdam
Interbank Offered Rate plus 0.88%,due in quarterly
installments of EUR56,723 including interest, with the final
payment occurring in 2013 3,868 3,486
------------------------------------------------------------------------------------------------
71,376 69,215
Current portion 8,764 7,998
------------------------------------------------------------------------------------------------
$62,612 $61,217
================================================================================================
Funds committed for debt payment 13,000 7,893
------------------------------------------------------------------------------------------------
$49,612 $53,324
================================================================================================
As at December 31, 2002, principal repayments including sinking
fund requirements are as follows for the next five years:
2003 $ 8,764
2004 38,023
2005 13,621
2006 7,728
2007 407
Thereafter 2,833
---------------------------------------------------------------------------
$71,376
===========================================================================
36
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollar amounts expressed in thousands of United States Dollars)
Years ended December 31, 2002, 2001 and 2000
8. 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
Issued and outstanding, December 31, 1999 16,733,264
Number of common shares issued during the year ended December 31, 2000:
For cash, pursuant to stock options exercised 15,299
-----------------------------------------------------------------------------------------
Issued and outstanding, December 31, 2000 16,748,563
Number of common shares issued during the year ended December 31, 2001:
For cash, pursuant to stock options exercised 18,667
-----------------------------------------------------------------------------------------
Issued and outstanding, December 31, 2001 16,767,230
Number of common shares issued during the year ended December 31, 2002:
For cash, pursuant to stock options exercised 42,102
-----------------------------------------------------------------------------------------
Issued and outstanding, December 31, 2002 16,809,332
=========================================================================================
(c) Options
The Company has a stock option plan that 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, 2002, there were 911,717 (2001 -- 1,004,917) shares
authorized an d available for grants of options under the stock option
plan. Stock option activity for 2000, 2001 and 2002 is presented below:
Number of Options Weighted Average
Outstanding Exercise Price
-----------------------------------------------------------------------
Outstanding, December 31, 1999 195,236 $ 9.20
Granted 78,000 26.66
Cancelled (16,301) 5.00
Exercised (15,299) 0.10
-----------------------------------------------------------------------
Outstanding, December 31, 2000 241,636 15.70
Granted 157,750 23.44
Cancelled (4,000) 24.60
Exercised (18,667) 0.10
-----------------------------------------------------------------------
Outstanding, December 31, 2001 376,719 19.62
Granted 93,200 26.10
Exercised (42,102) 8.68
-----------------------------------------------------------------------
Outstanding, December 31, 2002 427,817 $22.11
=======================================================================
Exercisable, December 31, 2002 286,617 $20.29
=======================================================================
The options outstanding at December 31, 2002 expire on dates ranging to
February 11, 2012.
The following is a summary of stock options outstanding and exercisable
at December 31, 2002:
Options Outstanding Options exercisable
------------------------------------------- ---------------------------------
Range of Number Weighted average Weighted average Number Weighted average
exercise prices Outstanding remaining life (years) exercise price exercisable exercise price
-------------------------------------------------------------------------------------------------------------------------
$0.10 57,867 1.58 $ 0.10 57,867 $ 0.10
$23.35 -- $38.625 369,950 7.43 25.55 228,750 25.40
-------------------------------------------------------------------------------------------------------------------------
427,817 286,617
=========================================================================================================================
Subsequent to December 31, 2002 the Company granted options to purchase
a total of 154,400 common shares of the Company to certain employees
and directors of the Company. The options have an exercise price of
$31.05 per share and an expiry date of January 30, 2013.
37
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollar amounts expressed in thousands of United States Dollars)
Years ended December 31, 2002, 2001 and 2000
8. SHARE CAPITAL (CONTINUED)
(d) Stock based compensation plan
The Company uses the intrinsic value method to account for stock-based
compensation awards. This method did not result in any compensation
expense for the period. Had compensation expense for option grants made
under the Company's stock option plan since December 31, 2001 been
recorded in accordance with the fair value method at the applicable
grant dates, the Company's net earnings for 2002 would have been
reduced as indicated by the pro forma amounts below:
Per Share Amount
------------------
Year ended December 31, 2002 Earnings Basic Diluted
-----------------------------------------------------------------------
Net earnings:
As reported $28,371 $1.69 $1.65
Adjusted $27,644 $1.68 $1.63
-----------------------------------------------------------------------
The fair value of the 2002 option grants was estimated on the date of
the grant using the Black-Scholes option pricing model with the
following assumptions: risk-free interest rate of 5%; dividend yield of
0%; expected lives of 5 years; and volatility of 27%. The weighted
average grant date fair value of options granted in the year ended
December 31, 2002 was $8.74 per option. The fair value method requires
that this amount be amortized over the relevant vesting periods of the
underlying options.
(e) Net earnings per share
Year ended December 31, 2002 Earnings Shares Per Share Amount
-----------------------------------------------------------------------------------------
Basic net earnings per share $28,371 16,793,202 $ 1.69
Effect of dilutive securities:
Share options -- 122,222 (0.01)
-----------------------------------------------------------------------------------------
Diluted net earnings per share $28,371 16,915,424 $ 1.68
=========================================================================================
As at December 31, 2002, the Company had 10,000 stock options
outstanding with an exercise price of $38.625 per share. These options
were not included in the computation of diluted net earnings per share
because the options' exercise price was greater than the average market
price of the Company's shares for the year then ended.
9. SEGMENTED INFORMATION
The Company's principal business activity is the sale of consignment and
self-owned equipment at auctions. This business represents a single
reportable segment.
Summarized information on the Company's activities by geographic segment is
as follows:
United States Canada Other Combined
---------------------------------------------------------------------------------------------
Year ended December 31, 2002:
Auction revenues $ 84,344 $17,627 $31,581 $133,552
Capital assets and goodwill 135,921 60,176 31,749 227,846
Year ended December 31, 2001:
Auction revenues 76,272 18,485 22,234 116,991
Capital assets and goodwill 127,702 42,939 28,744 199,385
Year ended December 31, 2000:
Auction revenues 66,425 18,517 21,183 106,125
Capital assets and goodwill 109,376 30,005 31,356 170,737
---------------------------------------------------------------------------------------------
10. INCOME TAXES
Income tax expense differs from that determined by applying the United
States statutory tax rates to the Company's results of operations as
follows:
Year ended December 31 2002 2001
---------------------------------------------------------------------------------
Statutory federal tax rate in the United States 35% 35%
=================================================================================
Expected income tax expense $ 13,660 $ 10,473
Differences:
State taxes in the United States 1,951 1,197
Earnings taxed in other countries (5,175) (3,839)
Withholding taxes on intercompany dividend -- 2,000
Other 220 37
---------------------------------------------------------------------------------
Actual income tax expense $ 10,656 $ 9,868
=================================================================================
38
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollar amounts expressed in thousands of United States Dollars)
Years ended December 31, 2002, 2001 and 2000
10. INCOME TAXES (CONTINUED)
Future income tax assets and liabilities are as follows:
December 31 2002 2001
----------------------------------------------------------------------------------------------------------------
Future income tax assets (liabilities):
Capital assets $ 397 $ 777
Tax deductible benefit of options granted 314 471
Tax deductible financing costs incurred in the course of the Company's initial
public offering in March 1998 -- 435
Unused tax losses, expiring on December 31, 2004 to 2007 1,085 1,613
Other 105 --
----------------------------------------------------------------------------------------------------------------
Total future income tax assets 1,901 3,296
Valuation allowance (288) (761)
----------------------------------------------------------------------------------------------------------------
Net future income tax assets 1,613 2,535
----------------------------------------------------------------------------------------------------------------
Future income tax liabilities arising from temporary differences between the tax
basis of net assets and their carrying value:
Capital assets (2,064) (1,350)
Goodwill (1,515) (592)
----------------------------------------------------------------------------------------------------------------
Total future income tax liabilities (3,579) (1,942)
----------------------------------------------------------------------------------------------------------------
$(1,966) $ 593
================================================================================================================
11. COMMITMENTS AND CONTINGENCIES
(a) Operating Leases
The Company is party to certain operating leases. These operating
leases relate to auction sites located in the United Arab Emirates,
Mexico, the United States, Australia and Singapore, and to automobile
leases. The future minimum lease payments as at December 31, 2002 are
approximately as follows:
2003 $1,077
2004 1,088
2005 1,097
2006 938
2007 483
Thereafter 725
---------------------------------------------------------------
Total rent expenses in respect of these leases for the year ended
December 31, 2002 was $1,069,000 (2001 -- $689,000;2000 -- $615, 000).
(b) Contingencies
Certain of the Company's operating leases for auction sites contain
clauses that require the Company to return the auction site to the
state and condition in which it was at the inception of the lease if
the Company terminates the lease or does not renew it at the end of the
lease term. The occurrence and amount of the potential liability, if
any, for these site restoration costs is not determinable at the date
of these financial statements.
In certain situations the company will guarantee to a consignor a
minimum level of proceeds in connection with the sale at auction of
that consignor's equipment (note 1(f)). At December 31, 2002 the
Company had no outstanding guarantees under contract.
12. 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. However, for the years ended December 31, 2002, 2001
and 2000, net earnings in accordance with Canadian GAAP equals net earnings
in accordance with United States GAAP.
US GAAP requires the preparation of a statement of comprehensive income.
Comprehensive income is defined as the change in equity of a business
enterprise during the period from transactions and other events and
circumstances from non-owner sources. The statement of comprehensive income
reconciles the reported net earnings to the comprehensive income amount as
follows:
Year ended December 31 2002 2001 2000
-------------------------------------------------------------------------------------------------------------
Net earnings in accordance with Canadian and United States GAAP $28,371 $20,054 $17,205
Other comprehensive income (loss):
Foreign currency translation adjustment 4,391 (2,887) (2,838)
-------------------------------------------------------------------------------------------------------------
Comprehensive income in accordance with United States GAAP $32,762 $17,167 $14,367
=============================================================================================================
Accumulated other comprehensive income (loss), which under U.S. GAAP is
presented as a separate component of shareholders' equity, is comprised of
the following:
Foreign currency
translation adjustment
---------------------------------------
December 31 2002 2001 2000
-------------------------------------------------------------------------
Balance, beginning of year $(8,844) $(5,957) $(3,119)
Current period change 4,391 (2,887) (2,838)
-------------------------------------------------------------------------
Balance, end of year $(4,453) $(8,844) $(5,957)
=========================================================================
39
SELECTED FINANCIAL AND OPERATING DATA
(Tabular dollar amounts expressed in thousands of United States Dollars,except
per share data)
Year ended December 31 2002 2001 2000 1999 1998
--------------------------------------------------------------------------------------------------------------------------------
GROSS AUCTION SALES (UNAUDITED) $1,376,206 $1,290,897 $1,232,974 $1,170,529 $1,087,800
=====================================================================
STATEMENT OF OPERATIONS DATA
Auction revenues $ 133,552 $ 116,991 $ 106,125 $ 104,624 $ 94,899
Direct expenses (19,684) (18,861) (17,936) (17,469) (16,010)
---------------------------------------------------------------------
113,868 98,130 88,189 87,155 78,889
Depreciation and amortization 9,208(4) (9,076)(4) (7,761)(4) (5,581)(4) (2,752)
General and administrative 63,786 (56,517) (52,942) (47,346) (39,315)
---------------------------------------------------------------------
Earnings from operations 40,874 32,537 27,486 34,228 36,822
Interest expense (4,302) (4,024) (3,378) (1,705) (1,569)
Other income 2,455(1) 1,409 1,252 1,209 3,251(1)
---------------------------------------------------------------------
Earnings before income taxes 39,027 29,922 25,360 33,732 38,504
Income taxes 10,656 (9,868)(3) (8,155) (11,452) (13,670)
---------------------------------------------------------------------
Net earnings $ 28,371 $ 20,054 $ 17,205 $ 22,280 $ 24,834
=====================================================================
Net earnings per share-diluted $ 1.68 $ 1.19(4) $ 1.02 $ 1.32 $ 1.54(2)
=====================================================================
BALANCE SHEET DATA (END OF YEAR)
Working capital (including cash) $ 25,443 $ 19,279 $ 30,857 $ 25,980 $ 49,149
Total assets 329,136 275,543 268,353 216,146 152,593
Long term debt 62,612 61,217 57,821 35,728 8,768
Total shareholders' equity 199,374 165,933 148,764 134,395 104,172
SELECTED OPERATING DATA (UNAUDITED)
Auction revenues as percentage of gross auction sales 9.70% 9.06% 8.61% 8.94% 8.72%
Number of consignors 20,919 19,196 18,177 16,185 14,432
Number of bidders 156,010 139,339 122,154 116,325 109,766
Number of buyers 50,126 46,647 41,940 38,958 34,613
Number of permanent auction sites (end of year) 22 21 20 17 13
(1) Other income in 2002 includes $1.0 million of non-recurring income and
other income in 1998 includes $1.8 million of non-recurring income.
(2) 1998 net earnings per share is not comparable to 1999 net earnings 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.
(3) 2001 Income tax expense includes a charge of $2.0 million for withholding
taxes paid on an intercompany dividend.
(4) The company stopped amortizing goodwill effective January 1,2002 in
accordance with new accounting pronouncements. The amortization expense in
prior years was $1.7 million in 2001,$1.7 million in 2000 and $1.2 million
in 1999.
40
SUPPLEMENTAL QUARTERLY DATA
(Unaudited; tabular dollar amounts expressed in thousands of
United States Dollars, except per share data)
Gross Auction Net Net Earnings Per Share Closing
2002 Auction Sales Revenues Earnings Basic Diluted Stock Price
---------------------------------------------------------------------------------------------------------------------------
1st quarter $ 293,208 $ 29,317 $ 5,363 $ 0.32 $ 0.32 $ 27.15
2nd quarter(2) 414,056 38,864 10,775 0.64 0.64 31.21
3rd quarter 208,071 20,991 1,111 0.07 0.07 29.80
4th quarter 460,871 44,380 11,122 0.66 0.65 32.35
-----------------------------------------------------------------------------------------------------------
$ 1,376,206 $ 133,552 $ 28,371(4) $ 1.69 $ 1.68
===========================================================================================================
Gross Auction Net Net Earnings Per Share Closing
2001 Auction Sales Revenues Earnings Basic Diluted Stock Price
---------------------------------------------------------------------------------------------------------------------------
1st quarter $ 289,724 $ 25,445 $ 3,062 $ 0.18 $ 0.18 $ 23.50
2nd quarter 373,990 35,025 6,351(1) 0.38(1) 0.38(1) 27.50
3rd quarter 179,294 16,851 (955) (0.06) (0.06) 24.85
4th quarter 447,889 39,670 11,596 0.69 0.69 24.88
-----------------------------------------------------------------------------------------------------------
$ 1,290,897 $ 116,991 $ 20,054(1) $ 1.20(1) $ 1.19(1)
===========================================================================================================
Gross Auction Net Net Earnings Per Share Closing
2000 Auction Sales Revenues Earnings Basic Diluted Stock Price
---------------------------------------------------------------------------------------------------------------------------
1st quarter $ 289,928 $ 26,769 $ 3,609 $ 0.22 $ 0.21 $ 25.50
2nd quarter 353,354 29,570 6,109 0.36 0.36 23.94
3rd quarter 231,550 21,554 1,503 0.09 0.09 21.38
4th quarter 358,142 28,232 5,984 0.36 0.36 20.75
-----------------------------------------------------------------------------------------------------------
$ 1,232,974 $ 106,125 $ 17,205(4) $ 1.03 $ 1.02
===========================================================================================================
Gross Auction Net Net Earnings Per Share Closing
1999 Auction Sales Revenues Earnings Basic Diluted Stock Price
---------------------------------------------------------------------------------------------------------------------------
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(4) $ 1.34 $ 1.32
===========================================================================================================
Gross Auction Net Net Earnings Per Share Closing
1998 Auction Sales Revenues Earnings Basic Diluted Stock Price
---------------------------------------------------------------------------------------------------------------------------
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)
===========================================================================================================
(1) Excluding the impact of $2.0 million in withholding taxes paid on an
intercompany dividend in the second quarter of 2001,net earnings for the
quarter would have been $8,351,000 ($0.60 per share, basic or diluted) and
net earnings for the full year would have been $22,054,000 ($1.32 per basic
share,$1.31 per diluted share).
(2) Net earnings for the second quarter of 2002 include non-recurring income of
$0.8 million or $0.05 per share and net earnings for the third quarter of
1998 include non-recurring income of $1.2 million or $0.07 per share.
(3) 1998 net earnings 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.
(4) The company stopped amortizing goodwill effective January 1,2002 in
accordance with new accounting pronouncements. The amortization expense in
prior years was $1.7 million in 2001,$1.7 million in 2000 and $1.2 million
in 1999.
41
SHAREHOLDER INFORMATION
ADDRESS
RITCHIE BROS. AUCTIONEERS INCORPORATED
6500 River Road
Richmond, BC
Canada,V6X 4G5
Telephone: 604.273.7564
Canada (toll-free) 1.800.663.1739
USA (toll-free) 1.800.663.8457
Facsimile: 604.273.6873
Website: rbauction.com
BOARD OF DIRECTORS
David E. Ritchie Chairman & Chief Executive Officer
Peter J. Blake Director, Senior VP & Chief Financial Officer
C. Russell Cmolik Director
Charles E. Croft Director
G. Edward Moul Director
Mr. Moul serves as Lead Independent Director. Shareholders wishing to speak to
the Lead Independent Director should call 604.233.6153 or send an email to
leaddirector@rbauction.com
MANAGEMENT ADVISORY COMMITTEE
David E. Ritchie* Chief Executive Officer
Robert S. Armstrong VP - Finance & Internet Services; Corporate Secretary
Peter J. Blake* Senior VP & Chief Financial Officer
Robert K. Mackay* Executive VP
Michael J. Murray Divisional VP - Northwest Division
David D. Nicholson Divisional VP - South Central Division
Michael G. Ritchie Divisional VP - Western Canada Division
Roger W. Rummel* Senior VP - Southwest & Mexico Divisions
J. Dean Siddle VP - Senior Valuation Analyst
Sylvain M. Touchette Divisional VP - Eastern Canada Division
Guylain Turgeon Managing Director - European Operations
Randall J. Wall* President & Chief Operating Officer
Robert K. Whitsit* Senior VP - Southeast Division
* Member of Executive Committee
INVESTOR RELATIONS
Securities analysts, portfolio managers, investors and representatives of
financial institutions seeking financial and operating information may contact:
INVESTOR RELATIONS DEPARTMENT
6500 River Road
Richmond, BC
Canada,V6X 4G5
Telephone: 604.273.7564
Canada (toll-free) 1.800.663.1739
USA (toll-free) 1.800.663.8457
Facsimile: 604.273.2405
Email: ir@rbauction.com
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
rbauction.com.
ANNUAL GENERAL MEETING
The Annual General Meeting of the Company's shareholders will be held at 11 am
on Monday April 14, 2003 at the Abercorn Inn, 9260 Bridgeport Road, Richmond, BC
V6X 1S1.
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:
COMPUTERSHARE TRUST COMPANY OF CANADA
Suite 600
530 - 8th Avenue S.W.
Calgary, Alberta
Canada T2P 3S8
Telephone: 403.267.6807
Canada and USA (toll-free): 1.800.332.0095
Facsimile: 403.267.6529
Email: philip.menard@computershare.com
Co-agent in the United States:
COMPUTERSHARE TRUST COMPANY OF NEW YORK
New York, NY
AUDITORS
KPMG LLP
Vancouver, Canada
42
[MAP OF WORLD-WIDE AUCTION SITES]
[ANNUAL REPORT BACK COVER - PHOTO OF AUCTION YARD
- FORT WORTH, TEXAS USA]
[RITCHIE BROS. Auctioneers LOGO]
6500 River Road, Richmond, BC, Canada V6X 4G5
Tel: 604-273-7564 Fax: 604-273-6873
www.rbauction.com
[CELEBRATING 40 YEARS LOGO]
This report was created by
employees of Ritchie Bros.