Auctions Done Right.
AnnuAl Re po Rt 2008
2008
2008 was another record-breaking
year at Ritchie Bros. Auctioneers –
as well as our 50th anniversary.
We conducted 193 unreserved
industrial auctions and 147
unreserved agricultural auctions
in 13 countries around the world,
selling $3.57 billion of used
and unused equipment for the
construction, transportation,
agricultural and other industries.
Like every Ritchie Bros. auction,
these auctions were all unreserved,
which means there were no minimum
bids or reserve prices. We think
our commitment to holding only
unreserved auctions is an important
factor in the transparency of these
auctions – and has played a big part
in our success over the past 50 years.
contents
Letter to Shareholders
Auctions Done Right.
About Our Auctions
About Our Customers
Why Buyers Choose Ritchie Bros.
Why Sellers Choose Ritchie Bros.
50 Years of Change
Our Web Site
Our Auction Sites
The Future of Ritchie Bros.
Financial Information
Supplemental Quarterly Data
Selected Financial and Operating Data
Board of Directors
Shareholder Information
3
10
12
13
14
16
22
25
26
28
35
60
61
63
64
Gross Auction Proceeds in billions of US dollars
7
5
.
3
3.5
9
1
.
3
2
7
.
2
9
0
.
2
9
7
.
1
6
5
.
1
84 85
86
87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05
06 07 08
3.0
2.5
2.0
1.5
1.0
0.5
0
Buyers in thousands
.
0
4
8
3
.
0
8
0
.
4
7
75.0
8
.
2
6
9
.
8
5
9
.
5
5
84 85
86
87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05
06 07 08
Consignors in thousands
0
.
7
3
9
.
4
3
1
.
2
3
9
.
7
2
5
.
3
2
9
.
4
2
84 85
86
87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05
06 07 08
50.0
25.0
0
30.0
20.0
10.0
0
In this annual report, all dollar amounts are stated in United States dollars unless a different currency is indicated.
Gross auction proceeds represent the total proceeds from all items sold at our auctions. Our definition of gross auction proceeds may differ from those used by other participants in our
industry. Gross auction proceeds is an important measure we use in comparing and assessing our operating performance. It is not a measure of our financial performance, liquidity
or revenue and is not presented in our consolidated financial statements. Auction revenues is the most directly comparable measure in our Statement of Operations and represents
the revenues we earn in the course of conducting our auctions. Auction revenues are primarily comprised of the commissions earned on straight commission and gross guarantee
contracts, plus the net profit on the sale of lots purchased and sold by the Company as principal.
Forward-looking statements: The discussion in this Annual Report includes forward-looking statements, which involve risks and uncertainties as to possible future outcomes. Readers
should refer to the discussion concerning forward-looking statements and risk factors included in our Management’s Discussion and Analysis of Financial Condition and Results of
Operations for the year ended December 31, 2008, which is included in the Financial Information section of this Annual Report.
Our cOre values
1. We dO What is right
2. We maintain the highest level
Of business integrity
3. We build and maintain strOng and
enduring custOmer relatiOnships
4. We never lOse track Of the basics
5. We face Our issues immediately and
are sOlutiOn Oriented
6. We have a hunger and passiOn
fOr the deal
7. We are nimble and OppOrtunistic
8. We have fun
Caorso, Italy
Letter to SharehoLderS
2008 will go down in the
record books as a year
to remember. In the
face of turmoil in financial markets and the
resultant shocks to economies around the
world, Ritchie Bros. was able to deliver
growth by continuing to create compelling
value for our customers, our employees and
our shareholders.
We generate value for our customers by
using unreserved auctions to create a global
marketplace where people can buy and sell
equipment in a fair and transparent way. The
key to that transparency is the open and honest
nature of our auctions. At its core, our business
is about one key thing: Auctions Done Right.
These three simple words capture the essence
of what we strive to accomplish at Ritchie Bros.
In our minds, the words Auctions Done Right
have very powerful connotations and are
centered on some very basic principles that are
near and dear to us. Every Ritchie Bros. auction
is strictly unreserved, which means there are no
minimum bids or reserve prices and the owner
is contractually forbidden from participating
in the sale of his assets; every item sells to
the highest bidder on auction day. To us,
unreserved means integrity in the auction
process from start to finish. At our unreserved
auctions, owners are not permitted to bid on
their own items or artificially manipulate the
prices.
When we say Auctions Done Right, we mean
auctions that are efficient, customer-oriented
and conducted with integrity, fairness, certainty
and transparency. We mean that we offer
our customers a local presence with a global
reach; that we treat customers fairly; and
that we provide transparency in the buying
and selling process by assembling assets
in yards strategically located around the world
and making the items available for interested
bidders to inspect, test and compare for
themselves.
These simple principles have endured in our
company for decades, and they remain the
driving force behind our innovation and growth.
We strive to create enduring value, in an
environment where integrity and fairness guide
our way. In these uncertain times, we deliver
certainty.
We help our customers manage change
by making the sale and purchase of
assets convenient, certain and rewarding.
Convenient? We save our customers time, effort
and money by making the process easy, flexible
and comfortable. Our auction yards, complete
with environmentally certified refurbishing
facilities, are well located around the globe and
all have regularly scheduled auctions. We take
care of all the details, allowing our customers to
focus on their business while we deliver results.
Certainty? Having care, custody and control of
the equipment we sell means our sellers do
not have to worry about their assets while we
prepare them for sale and our buyers can bid
in confidence knowing that transactions will
be completed. We provide our customers with
peace of mind and instill confidence because
we back up our promises with results. In
addition, every item in all of our auctions sells
to the highest bidder, no matter what, and our
financial strength means we are able to stand
behind our word and our obligations.
Rewarding? We deliver global value to
consignors in part because of our reputation for
integrity and conducting fair and transparent
auctions, which helps to attract bidders.
And we provide better tangible financial results
to our consignors with a combination of local,
global and online bidding audiences, giving
them the best of all worlds. At the end of the
day, we have created an auction experience for
our customers that saves them time and effort
and helps them achieve their business goals.
We invest in relationships with our customers
in an effort to transform the way the world buys
and sells commercial and industrial assets.
We believe that our future growth and
expansion is directly dependent on our ability
to create compelling value for our customers,
and we are always looking for new and
better ways to accomplish that, by creating
convenience, providing certainty and delivering
rewards when it comes time for our customers
to buy and sell equipment. We strive to do this
better than anyone else in the world, and better
than anyone expects, by concentrating on our
people, our places and our processes.
Our focus on Auctions Done Right has helped
us become the world’s largest industrial
auction company. At the end of 2008, our team
was comprised of 1,077 employees working
out of more than 110 offices in 25 countries,
including 38 auction sites. During 2008,
we sold over 253,000 lots for nearly 37,000
consignors. We held 193 unreserved industrial
auctions, attracting over 277,000 bidder
registrations. As the charts and graphs in this
report show, all these numbers have been
increasing. To us, this is a clear sign that our
strategy is working.
Today, as we plan for the future, we see
ourselves becoming the world’s largest
marketplace for commercial and industrial
assets. That may sound like a lofty goal, but it’s
very much in our long-term sights. Right now
we are looking towards gross auction proceeds
Ritchie Bros. Auctioneers 2008 Annual Report
3
Steve Simpson
Senior Vice-President –
Western United States
Vic Pospiech
Senior Vice-President –
Administration and Human
Resources
Peter Blake
Chief Executive Officer
Bob Armstrong
Chief Operating Officer
Rob Whitsit
Senior Vice-President
Our bidders do not appear to be having
significant difficulty accessing credit to
fund their auction purchases. And the main
participants in the equipment finance world are
still offering credit to buyers of equipment.
Our most recent statistics from the fourth
quarter of 2008 showed that our bidder
registrations remained strong. We saw more
bidders at our auctions in spite of the economic
slowdown. And more than 80% of those
of $10 billion and beyond, and that motivates
us to maintain our focus on our strategy, and
not get distracted by the current economic
challenges the world is facing. In fact, these
challenges create opportunities for us, and
we are well positioned to capitalize on these
opportunities. We continue to serve just a tiny
share of a large and extremely fragmented
market, and the factor that has the biggest
impact on our growth is not the world economy;
it’s us, and our ability to design and execute
our strategy.
We have proven our capacity to grow in good
times and bad, but we are not resting on our
laurels. We are driven by the desire to continue
to grow and innovate with new systems and
processes that meet the needs and demands
of our customers and our employees, and we
will be rolling out some exciting things in 2009
to keep us on pace for continued growth.
Many people have asked us about how the
world economic turmoil is impacting
Ritchie Bros. today – and, perhaps more
importantly, how it’s going to impact us going
forward. We believe our business model is well
suited to current economic conditions and
that executing our strategy will continue to be
a more significant determinant of our ability
to grow our earnings per share than macro
economic factors, just as it has been for the last
50 years. Our strategy remains consistent,
in good times and in bad.
In our world, uncertainty gives equipment
owners a reason to buy and sell equipment.
And it’s important to understand that people
have not stopped buying equipment in the face
of the current economic challenges, and nor do
we expect them to. There is still an enormous
amount of work underway – with infrastructure
spending on the rise and residential and
other non-residential projects still being
undertaken. Also, when times are tough and
cash flow or credit is tight, traditional buyers
of new equipment are more likely to look for
good quality, late model used equipment.
All of these behaviors draw people to our fair
and transparent auctions, often resulting
in increased demand for the equipment
at our auctions.
4
Ritchie Bros. Auctioneers 2008 Annual Report
Curt Hinkelman
Senior Vice-President –
Eastern United States
Kevin Tink
Senior Vice-President –
Canada and Agriculture
Nick Nicholson
Senior Vice President –
Central United States,
Mexico and South America
Rob Mackay
President
Guylain Turgeon
Senior Vice-President,
Managing Director –
Europe, Middle East and Asia
are dealing with a well-capitalized organization,
which is an added level of comfort they can’t
get in many other places. They know they will
be paid.
In uncertain times, when work is harder to
come by and equipment owners are less
optimistic about the future, they need certainty.
They also need to ensure that they’re extracting
maximum value from the sale of their surplus
assets. They can’t rely just on the local market
bidders were equipment end-users: people
with work to do and an immediate need for
a particular type of equipment. That makes
a big difference – people with jobs to complete
buying income-producing assets at fair market
value in an open and transparent auction gives
banks and finance companies confidence
when lending money.
Sellers also behave differently in tough
economic conditions. Waiting indefinitely for
idle machines to sell is not a luxury most
companies can afford, especially now.
They need to turn those surplus assets into
cash – quickly, efficiently and for fair market
value. Our unreserved auctions are one of
the best ways to create liquidity, which is
what we do every day. At our auctions, every
item sells on auction day and sellers have
cash in hand within 21 days of the auction.
That’s tremendously valuable for all of our
customers, not just companies facing liquidity
challenges or finance companies looking to sell
repossessed assets. And in these uncertain
times, sellers are reassured knowing that they
– they need to cast the net wide and reach the
most potential buyers from as many regions
and sectors as possible. Because we have
over 450,000 customers in more than 200
countries, and a reputation for conducting fair
and transparent auctions, we are able to attract
large and diverse mainly end-user audiences
of on-site and online bidders from around the
world to each of our auctions. This is part of
why we sell more equipment for more people
every year, and more used equipment than any
other organization in the world.
Many people automatically assume that
in tough economic times used equipment
prices fall dramatically. That hasn’t been our
experience – equipment prices do not act like
stock or commodity prices. While we saw a
general softening of prices in many categories
of equipment through 2007 and 2008, with
the exception of some of the more specialized
equipment we sell, overall returns remained
stronger than many people had expected
thanks to the depth and diversity of our
bidding audiences.
Ritchie Bros. Auctioneers 2008 Annual Report
5
While equipment prices are lower than the
historically high prices we experienced in 2006,
the decreases were nowhere near as dramatic
as the declines we have witnessed recently in
some financial markets. Additionally, the mix
of equipment in our auctions changes constantly
so we are not reliant on the prices in any one
category of equipment remaining high or on the
performance of any one industry or geographic
region. Our mix and volume of business
changes from period to period, more than
compensating for the impact of price changes
in particular asset categories.
It’s very important to recognize that, yes, times
are tough for many of our customers – but
there is still a lot of work going on and over
$100 billion of used equipment is still trading
hands every year. We are the world’s largest
auctioneer of industrial equipment but we
handle only a small fraction of the used
equipment that’s bought and sold around the
world. That means we enjoy both the benefit
of market leadership and the potential for
tremendous growth.
Despite all the records and success we’ve
enjoyed in recent years, we still believe that we
are just beginning to scratch the surface. One
of the keys to our ability to grow is our people.
Without continuing to attract, train, develop
and retain the right people, we will not continue
to grow over the long term. This is an often-
misunderstood aspect of our business.
Our business is built on relationships, meaning
that our growth is limited by our capacity to
meet and develop relationships with customers.
We build these relationships in many ways,
including interactively and online via our
industry-leading web site at rbauction.com, over
the phone when customers are dealing directly
with our sale sites and our customer service
group, and, most importantly, the old-fashioned
way – face to face. Our customer relationships
are multi-dimensional and deep, which is why
it takes time to develop them.
Our growth strategies are geared towards our
dual goals of maintaining and enhancing our
corporate culture and growing our earnings per
share at an average annual rate of 15% while
generating a reasonable return on invested
capital. We fear that chasing faster growth could
dilute our high level of customer service and
make it more challenging for us to maintain and
enhance our corporate culture. That is a risk we
are not prepared to take.
It’s hard to say what 2009 holds in store for
Ritchie Bros. – precise visibility into the year
ahead is a challenge for us at the best of times.
With the current global economic turmoil and
uncertainty many of our customers are facing,
our short-term visibility is even more clouded.
There is one thing we are clear about though
– we know we are well positioned for ongoing
growth and that’s our focus for the future.
Over the past 50 years, we have demonstrated
our ability to grow our business at all points in
the economic cycle. What makes this downturn
particularly interesting for us is the fact that our
global reach is significantly greater today than
it was during previous economic downturns.
We are able to offer a unique and very compelling
service to equipment owners who want to
access the global marketplace rather than
simply buy and sell in the local market.
Equipment owners look to us to help them
transcend local market conditions, especially
during downturns.
2008 was a tremendous year for Ritchie Bros.;
however, we could not have accomplished
these results without the hard work and
dedication of all the men and women on
the Ritchie Bros. team. Our sincere thanks
go to each and every one of them for their
commitment to Auctions Done Right. Thanks
to the energy, dedication and passion of our
team, we are getting closer every year to our
ultimate goal of becoming the world’s largest
marketplace for commercial and industrial
assets. We are all very fortunate to be on a team
full of bright, hardworking people with such
incredibly positive attitudes.
And finally, thanks to our shareholders –
for their confidence and ongoing loyalty
to us – and to the ever-increasing number
of equipment owners who are choosing to
participate in our unreserved auctions. We truly
appreciate your confidence in us.
Auctions Done Right – it’s what motivates us
to be our best. It’s what generates compelling
value for our customers and returns for our
shareholders. It’s time to buckle up – we have
auctions to build!
Robert W. Murdoch
Chairman
Peter J. Blake
Chief Executive Officer
6
Ritchie Bros. Auctioneers 2008 Annual Report
Brisbane, Queensland, Australia
Ritchie Bros. Auctioneers 2008 Annual Report
7
Kansas City, Missouri, USA
8
Ritchie Bros. Auctioneers 2008 Annual Report
Ritchie Bros. Auctioneers 2008 Annual Report
9
Edmonton, Alberta, Canada
auctionS
done right.
10
Ritchie Bros. Auctioneers 2008 Annual Report
as a year of turmoil, change
Many people will remember 2008
as the year our company turned 50. A year of
Bros. We’ll remember 2008
and chaos. Not at Ritchie
fair, consistent and transparent is one of the
on their own items. Everyone at the auction
reasons people travel from around the world to
knew that the bids were legitimate and the
attend our auctions – or participate online. It’s
market set the prices – not the auctioneer or
also why we register record numbers of on-site
the seller. These standards still hold true today.
At Ritchie Bros., we stress the transparency and
integrity of our auctions. The main reason is
that many equipment auction companies don’t
have the best reputation. Price manipulation
is common, with owners bidding in and
auctioneers making sure the “right” customers
become buyers.
and online bidders year after year: more than
setting records and opening auction sites and
277,000 in 2008 alone. And the fact that we
helping thousands upon thousands of people
register hundreds, even thousands of bidders
around the world buy and sell equipment. A
from around the world at every auction is one
year of continuing to deliver compelling value
of the reasons we attract record numbers of
for our customers, our employees and our
equipment sellers year after year: more than
shareholders. For Ritchie Bros., 2008 was a
37,000 in 2008. Our consignors know that a
year of growth and progress.
Ritchie Bros. unreserved auction is one of the
Our ability to grow in challenging times has a lot
to do with the way we conduct our business –
and the way we serve our customers, especially
best ways for them to sell their surplus assets
quickly, efficiently and for global fair market
value, especially in slower economic periods.
during market downturns. At its core, our
Ritchie Bros. auctions are Auctions Done Right
business is about Auctions Done Right.
– for both buyers and sellers of equipment.
These three simple words summarize
everything we stand for at Ritchie Bros. – and
everything that makes us stand out. From our
very first auction in 1958 to our last auction
of 2008 we have made a conscious effort
50 years of doing the right thing
The concept of “Auctions Done Right” can be
traced back to three Canadian brothers and a
small furniture auction in 1958.
“the difference between ritchie broS. and other auction coMpanieS waS juSt night and day.
ritchie broS. waS abSoLuteLy Straight;
every auction waS unreServed, aS advertiSed; they were firM, fair and tranSparent.
that haSn’t changed in aLL the yearS i’ve been a cuStoMer.”
ted carLSon (canada)
to do the right thing by all of our customers:
Dave, Ken and John Ritchie conducted their
The Ritchie brothers were determined to set
first-timers and familiar faces, buyers and
first auction to repay a $2,000 loan. They didn’t
a new standard. By staying true to their values,
sellers, owner-operators with one machine
have the cash, so they set up an auction and
they earned the respect of their customers
and multinational companies with millions of
sold some furniture from their secondhand
and established their auctions as a fair
dollars in assets.
store. That could have been the end of the story
and legitimate means of buying and selling
That’s why every Ritchie Bros. auction is
unreserved. Why owners are not allowed to bid
on their own items. Why we marshall assets at
our secure sites under our care, custody and
– but it wasn’t, because the brothers realized
equipment. They set Ritchie Bros. on the
they’d found a unique way of doing business
path to being the world’s largest industrial
that benefited and appealed to both buyers
auctioneer.
and sellers.
Doing the right thing set us apart in the early
control. Why we encourage interested buyers
Of course, there was nothing new about
days – and it’s what continues to set us
to inspect, test and compare equipment before
auctions. But there was something unique
apart today. We’re a lot bigger; we have more
the auction. Why we search every item for
liens before we sell it. And why we publish the
about Ritchie Bros. auctions. The brothers
prevented any price manipulation at their sales.
customers, more locations and more auctions
on our annual calendar. But the essence of
selling price of every piece of equipment on
They opened their auctions to the general
Ritchie Bros. – Auctions Done Right – has not
our web site.
public and did not set any minimum bids or
changed over the last 50 years.
Put together, all of these factors spell one thing:
transparency. The fact that our auctions are
reserve prices; they forbid owners from bidding
Ritchie Bros. Auctioneers 2008 Annual Report
11
about our auctionS
ritchie Bros. is the world’s largest
38 auction sites in North America, Europe,
auctioneer of industrial equipment
Vancouver, B.C., Canada, we have
and trucks. Headquartered in
they bid.
mobile equipment is driven over a ramp in front
of the bidders so they can see it in operation as
All of these practices are designed with fairness
and transparency in mind. We strive to create
the Middle East and the Asia-Pacific region –
with more sites under development. In 2008
we sold $3.57 billion of used and unused
equipment at 340 unreserved industrial and
agricultural auctions around the world.
Our industrial auctions range in size from two
or three million dollar, single-owner auctions
at a customer’s yard to multi-day auctions at
our permanent auction sites. In February 2008
we conducted the largest auction in company
history, selling $190 million of equipment and
a level playing field for our customers, giving
every potential buyer the opportunity to find,
inspect and buy the equipment they need at
fair market prices.
Although the size of our auctions varies, the
average Ritchie Bros. auction continues to
grow. In 2008, an average industrial auction
featured 1,301 lots from 189 consignors,
generating $17.7 million in gross auction
proceeds and attracting 1,431 on-site and
online bidders from around the world.
An Average Ritchie Bros.
Industrial Auction in 2008
$17.7 million in gross
auction proceeds
1,301 lots
189 consignors
1,431 bidders (total)
410 online bidders
$10.6 million of equipment
sold to out-of-region
bidders (60%)
82% end-user purchases
about our auctionS
“you go to other auctionS and there are
Maybe one hundred peopLe. you go to a ritchie broS. auction and
there are two thouSand.
what doeS that teLL you?”
john Spadaro (auStraLia)
trucks over five days at our Orlando, Florida
permanent auction site and attracting more
than 6,000 on-site and online bidders from
71 countries.
No matter how big or small, our auctions have
many features in common. They are always
unreserved, with no minimum bids or reserve
prices. They are open to the public, with free
registration. Most auctions are broadcast
live on our web site, rbauction.com, so our
customers can choose to bid in person, over
the internet or by proxy. Whether the auction
is conducted at one of our permanent auction
sites or at a temporary yard, we display all of
the equipment at the site so that our customers
can inspect, test and compare items before
they bid on auction day. And at most auctions,
12
Ritchie Bros. Auctioneers 2008 Annual Report
about our cuStoMerS
every year, we help more people in
regular fleet turnover program or at the start or
are shutting down, but most of our customers
are buying and selling equipment as part of a
for people who are retiring or companies that
We sometimes conduct complete dispersals
200 countries. Some are buyers, some are
are a diverse bunch. They come from
and sell equipment. Our customers
more places around the world buy
sellers; an increasing number are both. Many
finish of projects.
people have been attending our auctions
for years; others recently bid for the first
time. Some own multi-million dollar fleets
of equipment; others operate one or two
machines.
In spite of these differences, our customers
have many similarities. They appreciate
honesty, integrity and transparency. They want
to be treated right. They want to know that
they are paying a fair price when they buy and
Our customers include end-users of equipment
getting a fair return when they sell. They want
and dealers; finance companies and banks;
value – and they want their business to be
rental companies and manufacturers. They
valued. They want certainty in these uncertain
work in the construction, transportation,
agricultural, material handling, mining, forestry,
petroleum, marine and other industries.
times. They want Auctions Done Right.
That’s why an increasing number of people turn
to Ritchie Bros. auctions every year for their
equipment buying and selling needs.
Our Customers
– 2008 Statistics
277,000 bidder registrations
84,000 buyers (total)
16,000 buyers (online)
37,000 consignors
450,000 customers
in 200 countries
99,000 qualified
online bidders
from 181 countries
Orlando, Florida, USA
Ritchie Bros. Auctioneers 2008 Annual Report
13
why buyerS chooSe
ritchie broS.
in 2008, we had a record 277,000 bidder
for their equipment buying needs for a number
world. Our customers can usually find what
online, our customers choose Ritchie Bros.
registrations at our industrial auctions.
Whether they are bidding on-site or
of the best sources for used equipment in the
they’re looking for in our auctions, whether it’s
down the road or on the other side of the world.
Convenient locations around the world
Whether we’re conducting an auction at one
of reasons:
can verify the condition and assess the value
of a machine for themselves. They also know
exactly where their purchases are located –
in Ritchie Bros.’ care.
Lien-free equipment
Our search department works to identify and
Fair, transparent auction processes
Every Ritchie Bros. auction is unreserved,
of our 38 auction sites worldwide or at a
release any liens and encumbrances before
temporary location, we gather the equipment
auction day, so our customers can be confident
with no minimum bids or reserve prices. We
at the site so our customers can inspect and
that the equipment they are buying comes with
also forbid owners from bidding on their own
compare items from many different sellers
clear title. If we can’t deliver clear title, we offer
items. Our customers can be confident that the
in one convenient location. Our auction
a full refund of the purchase price.
bidders – not the sellers or the auctioneer – set
the prices at our auctions, so they always pay
sites are strategically located close to major
transportation routes and services, making it
fair market value. And they know that every
more convenient and cost-effective for out-of-
item will be sold on auction day, regardless
region bidders to participate on auction day.
of price.
Comprehensive selection of equipment
Over 1,300 items are sold at an average
Ritchie Bros. industrial auction – everything
from skid steer loaders and forklifts to motor
graders and truck tractors. In 2008, we sold a
total of 253,000 lots, making our auctions one
The ability to inspect, test and
compare items
We marshal most of the equipment we sell at
our secure auction sites so our customers can
inspect, test and compare items before they
bid on auction day. Our customers don’t have
to rely on a third-party inspection report: they
Garrison, North Dakota, USA
14
Ritchie Bros. Auctioneers 2008 Annual Report
No hidden fees or premiums
Our auctions are open to the public;
registration to bid is free. Unlike some auction
companies, we do not charge any fees to bid on
or buy equipment, except for a two percent fee
on internet purchases and an administrative
fee charged on the purchase of low value lots.
And we never place reserve prices on any item
we sell. Our customers can be confident that
the price they bid is the price they pay.
Convenient bidding options
Our customers have three convenient bidding
options at most Ritchie Bros. auctions:
in person, online or by proxy. Most of our
customers still prefer to bid in person but if
they can’t make it to the auction site, they
appreciate having the ability to bid online in
real time at our auctions around the world.
Knowing that every bid is legitimate and that
they are bidding against live on-site bidders
who can see the equipment moving across the
ramp gives them added confidence when they
are bidding online.
Value-added services
We continue to enhance our customers’ buying
experience by inviting third-party vendors to
our auctions (such as finance companies,
transportation companies, customs brokers
and caterers) and partnering with companies
that offer value-added services (such as Like-
Kind Exchange services, credit card payments
and shipping quotes).
Singapore
“i know i aM not bidding againSt the owner of the Machine;
it’S a LeveL pLaying fieLd…
the priceS at ritchie broS. auctionS are fair – you pay what the
Machine iS worth, the Market price.”
navneet Mathur (india)
Ritchie Bros. Auctioneers 2008 Annual Report
15
Los Angeles, California, USA
why SeLLerS chooSe
ritchie broS.
16
Ritchie Bros. Auctioneers 2008 Annual Report
consignments at our industrial auctions –
in 2008, we handled a record 37,000
are selling one machine or their entire fleet,
sellers around the world. Whether they
representing 253,000 lots – for equipment
beyond the local market for buyers enables
our consignors to sell their equipment for its
Selling experience and expertise
Selling equipment takes time, expertise and
global market value, regardless of local market
resources. We take care of every aspect of
conditions. Our auctions transcend local and
the sale of our customers’ equipment – from
regional market conditions to achieve the
advertising to meeting potential buyers to
our customers rely on us to turn their assets
highest possible return.
collecting proceeds – so they can focus on what
into cash – quickly, efficiently and for global fair
market value. They choose Ritchie Bros. over
other methods of selling because we offer:
Access to end-users
We attract large numbers of end-users to our
auctions because they know they can buy a
they do best: running their business.
Almost instant liquidity
At Ritchie Bros. unreserved auctions, every
Fair, transparent auction processes
Our commitment to unreserved auctions
piece of equipment today and put it to work
single item is sold on auction day. Within three
almost instantly. End-users represented roughly
weeks our consignors receive the net proceeds
with no bid-ins or buy-backs clearly benefits
80 percent of the purchases at our auctions in
of the sale. Unlike most other sales channels,
bidders. But our sellers value the fairness and
2008, which helps drive higher prices. Unlike
our unreserved auctions provide almost instant
transparency of our auctions just as much. For
wholesale buyers or resellers, end-users are
liquidity for equipment sellers.
a start, many of them are also buyers. More
rarely speculative buyers; they tend to bid
importantly, they know that it’s the transparency
when they need a machine for a specific
of our auctions that helps draw hundreds, even
project, which motivates them to outbid
thousands of people from around the world to
their competitors.
bid – helping sellers achieve the best possible
returns on auction day.
Peace of mind
Ritchie Bros. is listed on the New York and
Toronto stock exchanges. We have a solid
balance sheet and a history of over 50 years
in the auction business. Our customers feel
“we couLd See the Market Softening in SoMe partS of the worLd but not in otherS, and we reaLized that
reaching thoSe areaS of Strength
wouLd heLp bring better priceS... SeLLing through ritchie broS.
iS the beSt way to Mitigate riSk in a Soft Market.”
hugh edeLeanu (u.k.)
Flexible contract options
We offer different contract options to meet our
Exposure to online and on-site bidders
Despite the convenience of online bidding,
confident placing their equipment in our hands
because we have the experience, integrity and
customers’ sale objectives and risk tolerance,
most Ritchie Bros. customers still prefer to bid
financial ability to deliver on our commitments.
including straight commission, guarantee and
in person at our auction sites. They like “kicking
outright purchase options.
Unparalleled marketing
We employ a comprehensive global marketing
campaign for each and every industrial
auction using our high-traffic web site,
rbauction.com; full-color auction brochures;
print and online advertising; and often, media
relations campaigns. Our consignors can be
confident that they are reaching the maximum
number of potential buyers from around the
world when they sell through Ritchie Bros.
Global fair market value
An average Ritchie Bros. industrial auction
attracts more than 1,400 on-site and online
bidders from around the world. Reaching
the tires” on the equipment they’re interested
in and they like to see it running over the ramp
The global marketplace:
More important than ever
as they bid. When you’re selling a machine
In 2008, more than 60 percent of the gross
that’s worth tens or hundreds of thousands of
auction proceeds at our auctions came from
dollars, it’s important to reach every potential
buyers living outside the region of the auction.
buyer – not just the ones who bid online.
On-site refurbishing
Many of our consignors get their equipment
“auction ready” by having their equipment
painted or refurbished at the convenient,
cost-competitive refurbishing facilities at our
permanent auction sites. Buyers will often pay
Because our auctions are unreserved and
owners are forbidden from bidding on their
equipment, every item sells for its true fair
market value on auction day. And because
we attract bidders from all over the world,
both in person and online, every item sells for
its global market value – regardless of the local
a premium for a machine that is ready to be put
market conditions. That’s why an increasing
straight to work. They can finance the full price
number of equipment owners choose
of a painted machine but will not be able to
Ritchie Bros. to help them get the best return
finance a paint job done after the auction.
on their assets each year.
Ritchie Bros. Auctioneers 2008 Annual Report
17
Orlando, Florida, USA
“with a truLy unreServed auction
you know that every bid
iS LegitiMate.
peopLe feeL coMfortabLe bidding,
and that bringS higher priceS for the equipMent.“
frank fowLer (uSa)
18
Ritchie Bros. Auctioneers 2008 Annual Report
Why unreserved?
Every Ritchie Bros. auction is unreserved. That means there is no
minimum bid or reserve price on any item we sell. We also forbid
owners and their agents, by contract, from bidding on the items they
are selling. As a result, every item is sold to the highest bidder on
auction day, regardless of price. In our view, the only truly fair and
transparent auctions are unreserved auctions.
At Ritchie Bros. unreserved auctions, prices are set by the bidders –
not by the sellers or the auctioneer. Bidders come to our auctions
in the thousands because they know that there are no hidden
reserves; they know that every item will be sold to a new owner on
auction day; and they know that they will always pay fair market
value. And because those bidders come from all over the world, in
person and online, our consignors know that their equipment will be
sold for its true global fair market value.
Moerdijk, The Netherlands
our firSt 50 yearS
ritchie broS.: froM 1958 to 2008
1958 First auction, in Kelowna,
British Columbia, Canada
1963 First industrial auction, in Radium,
British Columbia, Canada
1970 U.S. expansion: first auction outside
Canada, in Oregon, U.S.A
1976 First permanent auction site,
in Edmonton, Alberta, Canada
1985 $1 billion in lifetime auction proceeds
1987 First auctions outside North America,
in the U.K. and the Netherlands
2008:
a year of records, milestones, developing people, expanding places and improving processes
records
geographic expansion
•
Highest annual gross auction proceeds:
$3.57 billion
•
•
First ever auction in Poland
Grand opening of permanent auction
•
Highest annual online gross auction
sites in Kansas City, Missouri and
proceeds: $700 million
Paris, France; both replaced regional
•
•
First billion-dollar quarter
Largest auction in company history:
$190 million (Orlando, FL)
•
Largest Australia, Spain, Italy, France
and Mexico auctions in company history
auction units
•
New regional auction unit established
in Las Vegas, Nevada
•
Three regional auction units relocated
to larger sites: from Livorno, Italy to
Caorso, Italy; from Sagunto, Spain to
•
Regional gross auction proceeds records
nearby Moncofa; and from Melbourne,
1990 First auction in Australia
set at 12 auction sites:
Australia to nearby Geelong
1991 1,000th auction
1994 First auction in Asia
1995 First auction in Mexico
1996 Launch of rbauction.com
1997 First auction in the Middle East
- Orlando, Florida ($190 million)
•
Commencement of construction on
- Atlanta, Georgia ($60 million)
- Fort Worth, Texas ($57 million)
- Las Vegas, Nevada ($54 million)
- Brisbane, Australia
($52 million/AU$55 million)
- North East, Maryland ($42 million)
new or replacement permanent auction
sites in Houston, Texas; Minneapolis,
Minnesota; Grande Prairie, Alberta;
London, Ontario; and Mexico City, Mexico
•
Land purchased for a replacement
permanent auction site in Vancouver, BC
and a new permanent auction site
- Moncofa, Spain ($38 million/
in Tokyo, Japan
1998 Listed on the New York Stock Exchange
€30 million)
First $1 billion year
2000 2,000th auction
2002 Online bidding service introduced
2003 First auction in Africa
2004 Listed on Toronto Stock Exchange
2005 First $2 billion year
2006 3000th auction
2007 First $3 billion year
2008 50th anniversary
First auction in Eastern Europe
First $1 billion quarter
Others with gross auction proceeds
less than $20 million.
- Caorso, Italy
•
Approximately 74 acres of land
purchased to expand permanent
auction site in Orlando, Florida
- Albuquerque, New Mexico
process improvements
•
•
•
•
Electronic Auction Clerking
Virtual Ramp
Automated electronic signboards
Credit card services
• Online shipping service
- Melbourne, Australia
- Toluca, Mexico
- Paris, France
Milestones
•
•
•
50th anniversary
10th anniversary as a public company
$2 billion in lifetime auction proceeds
over the internet
•
Added to S&P/TSX Composite Index
Ritchie Bros. Auctioneers 2008 Annual Report
21
Saskatoon, Saskatchewan, Canada
50 yearS of change
– and Staying the SaMe
22
Ritchie Bros. Auctioneers 2008 Annual Report
celebrated its 50th anniversary. Much
in 2008, Ritchie Bros. Auctioneers
of industrial equipment, with a global
are now the world’s largest auctioneer
has changed over the past 50 years: we
network of world-class auction facilities and
an annual calendar of hundreds of auctions
that attract on-site and online bidders from
across the globe. But a lot has also stayed
the same. Our company was founded on two
basic principles: every auction should be
unreserved and every customer should be
treated fairly and with respect. We hold true
to those principles to this day – and believe
that commitment has played a large part in
our success.
Our customers and employees shared in many
50th anniversary celebrations this year. Among
the highlights:
50 Stories for 50 Years
We collected 50 stories from a wide range
of customers in 2008, from the seasoned
online bidder in New York to the first-time seller
in Canada to the well-traveled buyer from India,
and posted them on our web site. They told us
what brought them to Ritchie Bros. in the first
place – and what keeps them coming back.
The same words came up repeatedly:
integrity, honesty, fairness, transparency.
Auctions Done Right.
RitchieWiki.com
In September 2008 we launched RitchieWiki
to share our wealth of equipment knowledge
with our customers and other industry
participants. RitchieWiki is a collaborative
web site containing hundreds of articles about
equipment that anyone can read, add to or edit.
The wiki is supported by a free public database
with specifications for more than 11,000
different pieces of equipment – making it the
world’s largest free equipment specifications
database. And we’re still adding to it.
Ritchie Bros. Auctioneers 2008 Annual Report
23
Paris, France
24
Ritchie Bros. Auctioneers 2008 Annual Report
our web Site
our web site, rbauction.com, has
make a point of visiting the site daily. That’s
Many of our regular customers
become an important point of
contact with our customers.
Look up past auction results
We publish the results for every item sold
over the previous 24 months within 48
We’re looking forward to introducing our
enhanced web site and online bidding service
to our customers in 2009.
hours of the auction, giving our customers
free access to worldwide equipment values
why we strive to make the site as accessible,
and adding to the transparency of our
informative and transparent as possible.
auctions
Our customers visit rbauction.com to:
Check the auction calendar
We listed 340 auctions around the world on
our web site in 2008
Search for equipment
We post photos and details, including serial
numbers, on our web site for every item we
sell so our customers can make accurate
and informed buying decisions
Place bids
If they can’t make it to the auction site
on auction day, our customers can visit
rbauction.com to place real-time or proxy
bids in auctions around the world
Find their local Ritchie Bros.
representative or office
We have offices and auction sites in more
than 25 countries to serve our global
customer base
In 2008,
rbauction.com
Received:
4.6 million unique visitors
who conducted –
22.9 million equipment
searches and looked up –
1.9 million past
auction results.
“there are coMpeting auction coMpanieS,
SoMe onLine, SoMe conventionaL, but
nobody coMbineS the internet with the
proven on-Site auction Method aS weLL
aS ritchie broS.”
toM StevenSon (canada)
Bidding online at rbauction.com
transparency of our live auctions and enables
Our buyers aren’t the only ones who
We introduced our innovative real-time internet
bidding service in 2002. Today, most Ritchie
Bros. auctions are broadcast live on our web
site, giving our customers unprecedented
access to the global equipment marketplace.
Our online bidding service was designed to
mirror the experience of bidding on-site as
closely as possible: internet bidders can hear
the auctioneer, see pictures and details of the
items being sold, make selections from choice
groups, keep track of bids coming from on-site
and online bidders, and place bids – all in real
time. Our internet bidding service maintains the
our online and on-site bidders to compete on a
benefit from our online bidding service: the
level playing field.
Consider these numbers:
participation of on-site and online bidders from
around the world enables our consignors to
reach the greatest and most diverse audience
- 99,000 registered online bidders from 181
of potential buyers, ensuring maximum possible
countries
- $700 million of equipment sold to online
bidders in 2008
- Almost $2.5 billion of equipment sold to
online bidders since 2002
- In 2008, 29 percent of our bidders
participated online
returns on the sale of their equipment. Our
ability to create this international marketplace
and help our customers sell their equipment for
its global market value is even more important
now, with so many regions and markets facing
challenging economic times. In these uncertain
times, combining on-site and online bidders
means our auctions offer what few others
channels can – the best of both worlds.
Ritchie Bros. Auctioneers 2008 Annual Report
25
our auction SiteS
in 2008, over 70 percent of our customers
attend our auctions, despite the ease and
chose to bid in person at our unreserved
hundreds, even thousands of miles to
auctions. Many customers will travel
sites also enable us to have full care, custody
and control of the equipment we sell from the
time it enters our yard to the time we release it
to the new owner, which gives our customers
make an informed decision before they bid. Our
convenience of our online bidding service.
a greater level of comfort when they bid on
They like being able to inspect, test and
auction day.
38 auction sites in North America, Europe,
the Middle East and Australia, including 31
permanent auction sites.
When assessing the potential for a new auction
site we look at many factors, including our
auction history and the size and growth of our
customer base in that region; local regulations
compare equipment items to assess their
value and condition before the auction; they
like seeing the machines in operation as they
bid; and they like meeting with other people
in their industry.
We believe our auction sites contribute to the
and conditions that impact buying, selling and
transparency of our auction processes and
moving equipment; and the availability and
offer one of our most significant competitive
suitability of land near major transportation
advantages, which is why we are continuing
routes, airports, hotels and other services.
to invest in the expansion and improvement
Our secure auction sites enable us to gather
of our global network. We currently have
equipment from multiple sellers in one place so
our customers can compare different items and
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The evolution of an auction site
The process of developing a Ritchie Bros. auction site begins with
our first foray into a new territory and ends with a Grand Opening
auction at a new permanent auction site. We don’t develop sites
one at a time; rather, we are always in the process of developing
our business in new regions around the world. This is the typical
process – and some of the progress we made in 2008.
1. Get to know customers from
a new region when they attend
our auctions in other regions
In 2008 we welcomed the first
bidders from Serbia, among
other countries, to our auctions.
2. Send a Territory Manager
into that region to assess
the market opportunity and
establish a sales office
In 2008 we opened a new
sales office in Hong Kong
26
Ritchie Bros. Auctioneers 2008 Annual Report
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2
4
3
5
6
7
“there’S StiLL a deSire to kick the tireS.
peopLe Like to Look at what they’re buying
and check the MechanicaL condition of a Machine for theMSeLveS. ”
frank rizzardo (canada)
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europe
Moerdijk, The Netherlands
Paris, France
Caorso, Italy
Moncofa, Spain
Middle east
Dubai, UAE
australia
Brisbane, QLD
Geelong, VIC
canada
Vancouver, BC
Prince George, BC
Grande Prairie, AB
Edmonton, AB
Saskatoon, SK
Regina, SK
London, ON
Toronto, ON
Montréal, QC
Truro, NS
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uSa
Olympia, WA
Sacramento, CA
Los Angeles, CA
Las Vegas, NV
Phoenix, AZ
Albuquerque, NM
Denver, CO
Fort Worth, TX
Houston, TX
Kansas City, MO
Buxton, ND
Minneapolis, MN
Chicago, IL
Nashville, TN
Atlanta, GA
Columbus, OH
Statesville, NC
Orlando, FL
North East, MD
Hartford, CT
Mexico
Mexico city
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3. Help new consignors in that
region sell equipment at our
auctions in other regions and
help bidders participate in
other auctions
In 2008 we sold equipment on
behalf of our first consignors
from Israel, Hungary and other
countries
4. Conduct an auction at a
temporary location in the
new region
In 2008 we conducted our
first ever auction in Poland
5. After several successful
auctions, open a regional
auction unit on leased land
with limited auction and
administrative facilities
6. When the growth in gross
auction proceeds warrants the
investment, purchase land
and establish a full-service
permanent auction site
In 2008 we established
a regional unit
in Las Vegas, NV, USA
In 2008 we opened new
permanent auction sites
in Kansas City, Missouri
and Paris, France
Ritchie Bros. Auctioneers 2008 Annual Report
27
Paris, France
the future
of ritchie broS.
28
Ritchie Bros. Auctioneers 2008 Annual Report
the mission of Ritchie Bros. is simple:
to be the world’s largest marketplace
for commercial and industrial assets.
We believe this mission is both
realistic and achievable, as long as we stay
true to our founding principles: conducting
strictly unreserved auctions and treating every
customer fairly and with respect. As we pursue
this long-term mission we intend to remain
focused on two core goals: to maintain and
enhance our corporate culture and to grow our
earnings per share at an average of 15% per
year while maintaining a reasonable return on
invested capital.
Our corporate culture is captured in our core
values. While our stated mission is growth,
we will not pursue growth opportunities that
offer short-term rewards but run counter to our
core values. We believe that compromising our
corporate culture would in fact inhibit our long-
term growth potential and be a disservice to
our customers, employees and shareholders.
Opportunities for growth
The worldwide market for used equipment
is massive and highly fragmented. Analysts
estimate that over $100 billion of used
equipment is bought and sold around the
world each year. Our auctions represent a small
segment of that market; most people still sell
their surplus equipment privately, by placing
ads in magazines or on the internet, or through
dealers or brokers. We believe our unreserved
auctions offer significant benefits over these
sales channels – and the annual growth in
our gross auction proceeds suggests that our
customers agree.
For years we have enjoyed the position of being
the world’s largest auctioneer of industrial
equipment. We also sell more used equipment
than any other organization (auctioneers
and non-auctioneers) in the world. Yet we
sold only $3.57 billion of equipment at our
auctions in 2008. In other words, we are the
dominant player in the highly fragmented used
equipment industry, with a very small share
of a very large market – giving us significant
potential for long-term growth.
We will continue to focus on increasing
our market share in our core markets of
construction, transportation and agricultural
equipment, as well as complementary markets
such as mining, material handling, forestry and
petroleum assets. We also intend to penetrate
deeper in our existing regions and expand our
presence in new geographic markets.
Our growth strategy
To achieve our growth objectives we are
investing simultaneously on three fronts: our
people, places and processes. We are pleased
with the progress we made in all three areas
in 2008.
Our people
1.
At its heart, our business is about relationships.
We don’t sell a product, we sell a service –
and we need the right people interacting
with our customers, explaining the value that
we provide and reflecting the integrity of our
auction processes. Recruiting, training and
retaining the right people – especially sales
staff – is one of our key priorities. We look
for bright, hardworking people with positive
attitudes to join our team. We give them the
tools and training they need to be effective
and productive, and offer them competitive
compensation and opportunities for growth
within our organization.
We also remain focused on active succession
planning and leadership development, with
an emphasis on developing our employees from
within. We are committed to making Ritchie Bros.
the kind of company where motivated
individuals can build a rewarding career.
While other companies were laying off
employees in 2008, we remained in hiring
mode. At the close of 2008 we had 1,077 full-
time employees around the world, including
265 sales representatives and 29 Trainee
Territory Managers, versus 943, 265 and 11 at
the end of 2007. We have been working hard
to find and train new sales representatives,
Recipients of the 2007
Gold level Dave Ritchie
Excellence Awards for
sales with members
of the Management
Advisory Committee.
Managing Deal Risk
Most of our business is conducted on a
straight commission basis and is therefore
relatively risk free. In 2008, approximately
75 percent of our business was straight
commission, which is in line with our typical
business mix in recent years. The other 25
percent of our business involved a guarantee
of minimum sale proceeds or an outright
purchase of a customer’s assets.
The economic turmoil of the latter half of 2008
generated increased demand for underwritten
contracts from customers concerned about
the value of their equipment in the face of
an economic downturn. We’re one of the few
companies in our industry still in a position to
offer guarantee contracts; on the other hand,
we are more conservative during periods of
market volatility such as we’ve seen recently.
As a result, the proportion of our business that
was underwritten did not shift significantly in
late 2008.
We mitigate risk when entering into
underwritten contracts by building a risk
premium into our commission rate and by
following a rigorous inspection and appraisal
process that draws on our extensive field
experience and unparalleled database
of equipment values. We sell more used
equipment than any other company in the
world, giving us a unique window into the
global equipment marketplace and, in
particular, the pipeline of equipment coming to
market. We use this information in an effort to
stay ahead of changing market conditions and
anticipate any shifts in supply and demand,
then adjust our appraisals accordingly.
Equipment values are more stable than stock
and commodity prices and tend not to
fluctuate dramatically over short periods
of time, so the limited timeframe that our
guarantee and purchase contracts are
outstanding also mitigates our risk on
underwritten business. The time from signing
a contract to selling on auction day is typically
between 30 and 45 days, which enables us to
give more confident assessments of potential
auction day prices.
Ritchie Bros. Auctioneers 2008 Annual Report
29
and are pleased to have so many Trainee TMs
on staff. These people represent the future of
our sales force – and future sales. Our sales
force productivity (gross auction proceeds
divided by number of revenue producers)
increased to $13.5 million per revenue producer
for 2008 compared to $12.5 million in 2007.
This is a key metric in our business and the
improved performance demonstrates the
results of our people efforts.
2. Our places
We intend to increase our share of existing
markets while simultaneously developing
new markets and expanding our international
network of auction sites. When we talk about
markets, we are referring to both market sectors
and geographic areas.
Although we expect that most of our short-term
growth will come from regions where we are
already well established, such as the United
States and Western Europe, we believe that
emerging markets in developing countries
offer significant potential for long-term growth.
That is why we are establishing offices and
developing relationships with new customers
in countries like China, India and Poland.
We plan to expand our international network
of auction sites, adding at least two new sites
every year, with a short-term focus on the
United States and Western Europe. We will also
continue conducting off-site auctions to expand
our presence in new regions.
At the end of 2008 we had more than 110
offices in more than 25 countries, including
38 auction sites in North America, Europe,
the Middle East and Australia. We also have
new permanent auction sites currently under
development in other locations such as Japan,
Mexico and Australia.
3. Our processes
We are committed to making our business
more consistent, efficient and scalable by
implementing new and improved processes
and systems. Technology will continue to
play a large role in our business, enabling us
to improve the quality of our auctions and
deliver added value to our buyers and sellers.
We believe that the continuous improvement
mindset we’ve developed over the past few
years will help us improve our margins over the
long term.
30
Ritchie Bros. Auctioneers 2008 Annual Report
Among the process improvements
we introduced or expanded in 2008:
Electronic Auction Clerking – This software
relays auction information such as proxy
bids, buyer numbers and sold prices almost
instantly between the auctioneer, clerk and
administrative offices. Proxy bids can now be
placed minutes before an item is sold and
buyers can pay almost immediately. The system
has resulted in significant efficiency gains at
our auctions.
The Virtual Ramp – Equipment photos are
projected onto a large screen so bidders can
see each item as they bid. First used at Ritchie
Bros. auctions for assets located off-site, such
as boats or real estate, the Virtual Ramp is now
being used to increase speed,
efficiency and bidder comfort when selling
stationary equipment items. Deployed outside
North America for the first time in 2008, it is
now in use at most Ritchie Bros. auction sites.
Automated electronic signboards – Linked
to our online bidding service, the signboards
display the current ask prices to the bidders at
the auction site: a valuable service for our non-
English speaking customers.
Credit card services – On-site and online
bidders at Ritchie Bros. auctions in the United
States, Canada, Australia, the Middle East and
most countries in Europe can pay by credit card.
Online shipping services – We entered into
a partnership with uShip to provide real-time
shipping estimates and competitive shipping
quotes through our web site, rbauction.com, for
our auctions in the United States and Canada.
We believe the three aspects of our growth
strategy complement each other: our people
help us achieve our goals and grow our gross
auction proceeds, our places give us the
capacity to handle future growth, and our
processes enable us to become more efficient
and effective as we expand around the world.
Success comes from making progress on all
three fronts, and not by focusing on any one
in isolation.
Environmental Principles
We have always taken pride in our
environmental practices. Whether it be the
fact that our business model provides a
channel for used equipment to be re-used
by new owners, or that all our state-of-
the-art refurbishment facilities meet the
highest level of environmental standards.
In 2008 we articulated a set of environmental
principles designed to guide our behavior.
Ritchie Bros. is committed to contributing
to the protection of the natural environment
by preventing and reducing adverse
impacts of our operations. Our objective
is to be more than compliant – we want
to make a positive contribution and be true
to our core value: “We do what is right.”
As part of this commitment, we aim to:
1) empower our employees to identify
and address environmental issues;
2) consider environmental impacts as part
of all business decisions;
3) conduct business in compliance with
applicable regulations and legislation,
and where appropriate, adopt the most
stringent as our global benchmark;
4) use resources wisely and efficiently
to minimize our environmental impact;
5) communicate transparently with our
stakeholders about environmental matters;
6) conduct ongoing assessments to ensure
compliance and good stewardship;
7) hold management accountable for
providing leadership on environmental
matters, achieving targets, and providing
education to employees.
Our objective is to stimulate local decision-
making in line with these environmental
principles, with executive leadership
as necessary.
Los Angeles, California, USA
“the peopLe at ritchie broS. know what they’re doing.
they have the SySteMS in pLace
to conduct an auction, in any Location, and that Made the whoLe
experience Straightforward, SiMpLe and painLeSS.”
ray Scott (auStraLia)
Ritchie Bros. Auctioneers 2008 Annual Report
31
Step one getting to know the cuStoMer
The process of selling a piece of equipment usually begins when one of our Territory Managers meets with the
owner to find out how we can best meet that owner’s particular needs. Ours is a relationship business, and
to deliver value to our customers we need to take time to get to know them well.
Step two aSSeSSing the vaLue of the cuStoMer’S equipMent
We assess the value of a customer’s equipment, often conducting a professional appraisal drawing on the
expertise of our team of experienced appraisers and our extensive knowledge of the global used equipment
market.
Step three drafting the auction contract
We offer our consignors a range of contract options, including straight commission, guarantee and outright
purchase. Straight commission contracts represent about 75 percent of our business. We strive to offer flexible
contract options for our customers while accepting appropriate levels of risk.
Step four getting the equipMent ready for the auction
We will recommend and coordinate any cleaning, painting, repairs or refurbishing that’s needed to help our
consignors achieve maximum value for their equipment on auction day. Most of our permanent auction sites have
environmentally certified refurbishing facilities so this work can be done on-site.
Step five Marketing the equipMent to the worLd
We undertake comprehensive marketing campaigns to ensure the participation of the widest possible audience
of bidders in each of our auctions. We post equipment details and photos on our high-traffic web site, rbauction.com,
which receives tens of thousands of unique visitors daily. For each auction, we mail tens of thousands of full-color
brochures to a targeted group of customers from our database of 450,000 people in 200 countries. We advertise
in trade magazines, newspapers and on radio, and create added awareness of our auctions through strategic
media relations campaigns.
Step Six
Searching the equipMent for LienS
Our search department works to identify and resolve any title issues before the auction. If we can’t deliver clear
and marketable title to our buyers, we will offer them a full refund. Our customers bid knowing that they can take
possession of their auction purchases as soon as they’ve paid and put their new equipment straight to work.
Step Seven Setting up the auction yard
We display and sell most of the equipment we sell right on site at the auction location. Knowing that we have full
care, custody and control of all equipment we sell, from the time it arrives at our auction site until the time the
new buyers take possession, gives both our sellers and our buyers tremendous comfort. Our sellers know the
equipment is safe and available for inspection. We arrange the equipment in logical groupings at the site so our
customers can easily inspect, test and compare different items before they bid on auction day. We also make any
additional documentation, including work and repair history, available to potential buyers so they can assess
the value of the equipment for themselves and be prepared to bid on auction day. And our knowledgeable staff
is always on hand to answer any questions. And at the end of the day, buyers don’t have to worry about trying
to locate or get access to their purchases.
Step eight conducting the auction
Months of preparation go into an auction, but on auction day our team of auctioneers, bid catchers, clerks, yard
crew, internet services staff and customer service representatives work together to ensure the auction progresses
smoothly and efficiently. We do everything possible to make our bidders feel comfortable and confident on
auction day. At most sites, we drive mobile equipment over a ramp in front of the bidders so they can see the
machines in operation as they bid. In some locations we sell stationary items indoors using our proprietary virtual
ramp technology. We sell every item unreserved and prevent owners from bidding in; our customers know that
every item will be sold to a new owner on auction day. And we allow third party finance companies, transportation
companies, customs brokers, caterers and other service providers to offer their services to our customers at the
auction site.
Step nine
taking care of buSineSS
Once the auction is over, we collect the proceeds from the buyers, including applicable sales taxes (which we remit
to the appropriate authorities); only then do we release the equipment to the new owner. Within three weeks of
the auction we deliver the net proceeds of the sale to our consignors, along with a detailed settlement statement –
making our unreserved auctions one of the fastest, most efficient ways to create liquidity.
32
Ritchie Bros. Auctioneers 2008 Annual Report
Our auctiOn prOcess
the ritchie brOs. auctiOn prOcess: fRoM suRplus To sold
our auction process is well defined, consistent and transparent.
Whether our customers are consigning one piece of equipment
or selling an entire fleet, they can be confident that we will
take care of their needs and follow through on our commitments.
At its heart, it’s about Auctions done Right.
Kansas City, Missouri, usA
Financial inFormation
Management’s Discussion and Analysis
Auditors’ Reports
Consolidated Financial Statements
Consolidated Statements of Operations
Consolidated Balance Sheets
Consolidated Statements of Shareholders’ Equity
Consolidated Statements of Comprehensive Income
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
PAGE
35
48
49
50
50
51
51
52
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Overview
The following discussion summarizes significant factors affecting the consolidated operating
results and financial condition of Ritchie Bros. Auctioneers Incorporated (“Ritchie Bros.”, the
“Company”, “we” or “us”) for the year ended December 31, 2008 compared to the year ended
December 31, 2007. This discussion should be read in conjunction with our audited consolidated
financial statements for the year ended December 31, 2008 and notes thereto, and with the
disclosures below regarding forward-looking statements and risk factors. The date of this
discussion is as of February 23, 2009. Additional information relating to our company, including
our Annual Information Form, is available by accessing the SEDAR website at www.sedar.com.
None of the information on the SEDAR website is incorporated by reference into this document
by this or any other reference.
We prepare our consolidated financial statements in accordance with generally accepted accounting
principles in Canada, or Canadian GAAP. There are no material measurement differences between
the financial position and results of operations reflected on those financial statements and the
financial position and results of operations that would be reported under generally accepted
accounting principles in the United States, or U.S. GAAP, except as described in note 13 to the
audited consolidated financial statements. Amounts discussed below are based on our audited
consolidated financial statements prepared in accordance with Canadian GAAP and are presented
in United States dollars. Unless indicated otherwise, all tabular and related footnote dollar amounts
presented below are expressed in thousands of dollars, except per share amounts.
Ritchie Bros. is the world’s largest industrial auctioneer, selling more equipment to on-site and
online bidders than any other company in the world. Our world headquarters are located in
Richmond, British Columbia, Canada, and as of the date of this discussion, we operated from over
110 locations in more than 25 countries, including 38 auction sites worldwide. We sell, through
unreserved public auctions, a broad range of used and unused industrial assets, including
equipment, trucks and other assets utilized in the construction, transportation, agricultural,
material handling, mining, forestry, petroleum and marine industries. Our purpose is to use
unreserved auctions to create a global marketplace for our customers.
We operate mainly in the auction segment of the global industrial equipment marketplace. Our
primary target markets within that marketplace are the used truck and equipment sectors, which
are large and fragmented. The world market for used trucks and equipment continues to grow,
primarily as a result of the increasing, cumulative supply of used trucks and equipment, which
is driven by the ongoing production of new trucks and equipment. Industry analysts estimate
that the world-wide value of used equipment transactions, of the type of equipment we sell at
our auctions, is approximately $100 billion per year. Although we sell more used equipment than
any other company in the world, our share of this fragmented market is only in the range 3%.
In 2008, approximately 80% of the lots at our auctions were purchased by end users of equipment
(retail buyers), such as contractors, with the remainder being sold primarily to truck and equipment
dealers and brokers (wholesale buyers). This is roughly consistent with the relative proportions
of buyers in recent periods. Consignors to our auctions represent a broad mix of equipment
owners, the majority being end users of equipment, with the balance being finance companies,
truck and equipment dealers and equipment rental companies, among others. Consignment
volumes at our auctions are affected by a number of factors, including regular fleet upgrades
and reconfigurations, financial pressure, retirements, and inventory reductions, as well as by
the timing of the completion of major construction and other projects.
We compete directly for potential purchasers of industrial assets with other auction companies.
Our indirect competitors include truck and equipment manufacturers, distributors and dealers
that sell new or used industrial assets, and equipment rental companies that offer an alternative
to purchasing. When sourcing equipment to sell at our auctions, we compete with other auction
companies, truck and equipment dealers and brokers, and equipment owners that have
traditionally disposed of equipment through private sales.
We have several key strengths that we believe provide distinct competitive advantages and will
enable us to grow and make our auctions more appealing to both buyers and sellers of industrial
assets. Some of our principal strengths include:
Our reputation for conducting only unreserved auctions and our widely recognized commitment
to honesty and fair dealing.
Our ability to transcend local market conditions and create a global marketplace for industrial
assets by attracting diverse audiences of mainly end-user bidders from around the world
to our auctions.
Our size, our financial strength and access to capital, the international scope of our operations,
our extensive network of auction sites, and our marketing skills.
Our ability to enhance our live auctions with technology using our rbauctionBid-Live internet
bidding service.
Our in-depth experience in the marketplace, including our equipment valuation expertise
and proprietary customer and equipment databases.
Our dedicated and experienced workforce, which allows us to, among other things, enter
new geographic markets, structure deals to meet our customers’ needs and provide high
quality and consistent service to consignors and bidders.
Strict adherence to the unreserved auction process is one of our founding principles and, we
believe, one of our most significant competitive advantages. When we say “unreserved” we
mean that there are no minimum bids or reserve prices on anything sold at a Ritchie Bros.
auction – each item sells to the highest bidder on sale day, regardless of the price. In addition,
consignors (or their agents) are not allowed to bid on or buy back or in any way influence the
selling price of their own equipment. We maintain this commitment to the unreserved auction
process because we believe that an unreserved auction is a fair auction.
We attract a broad base of bidders from around the world to our auctions. Our worldwide marketing
efforts help to attract bidders, and they are willing to travel long distances or participate online
in part because of our reputation for conducting fair auctions. These multinational bidding
audiences provide a global marketplace that allows our auctions to transcend local market
conditions, which we believe is a significant competitive advantage. Evidence of this is the fact
that in 2008 an average of approximately 60% of the value of equipment sold at our auctions
left the region of the sale.
We believe that our ability to consistently draw significant numbers of local and international
bidders to our auctions, most of whom are end users rather than resellers, is appealing to sellers
of used trucks and equipment and helps us to attract consignments to our auctions. Higher
consignment volumes attract more bidders, which in turn attract more consignments, and so on in
a self-reinforcing process that has helped us to achieve substantial momentum in our business.
During 2008, we had over 277,000 bidder registrations at our industrial auctions, compared to
approximately 254,000 in 2007. We received over 36,000 industrial asset consignments (typically
comprised of multiple lots) in 2008, compared to nearly 35,000 in 2007.
In spite of the difficulties being faced by many companies as a result of the current economic
environment, we believe our business remains strong. Financial and economic uncertainty acts
as an incentive for equipment owners to turn their surplus assets into cash quickly, efficiently and
for fair market value, which benefits our business by increasing consignments to our auctions. In
addition, at our auctions in the fourth quarter of 2008 and to date in 2009, we have not experienced
any meaningful decrease in the number of bidder registrations; our strategy (please see further
discussion below) is designed in part to increase our share of the large and highly fragmented
used equipment market, and market share gains tend not to be impacted by economic uncertainty.
Also, there is still a significant amount of infrastructure and other construction projects being
undertaken around the world, which means there are still many equipment owners buying and
selling equipment, which benefits our business by generating activity at our auctions. In our
Ritchie Bros. Auctioneers 2008 Annual Report
35
experience over the last 50 years, when cash flow or credit is tight and there is uncertainty in
the market, traditional buyers of new equipment are more likely to look for good quality, late
model used equipment, resulting in steady demand for equipment at our auctions. That being
said, our customers so far do not appear to be having material difficulty accessing credit to fund
their auction purchases, as most of the main participants in the equipment finance world are
still offering credit to buyers of equipment. Although equipment prices generally trended down
in the latter half of 2008, the decreases have not been dramatic; in past downward cycles we
have generally seen price decreases more than offset by increased consignment volumes at our
auctions. We have re-examined our growth strategy, including operating and capital plans, and
overall we continue to believe our business model is well suited to current economic conditions.
We also believe that designing and executing our strategy will continue to be a more significant
determinant of our ability to grow our earnings than the macro economic environment, in part
because our share of the world market for used trucks and equipment is so small, while the
market continues to grow in good times and bad with the ongoing sale of new equipment.
Growth Strategies
Our long-term mission is to be the world’s largest marketplace for commercial and industrial
assets. Our principal goals are to grow our earnings per share at a manageable pace over the
long term while maintaining a reasonable return on invested capital, and to maintain the
Ritchie Bros. culture. Our preference is to pursue sustainable growth with a consistently high
level of customer service, rather than targeting aggressive growth and risking erosion of the
strong customer relationships and high level of customer service that we believe differentiate
us from our competitors.
To grow our business, we are focusing simultaneously on three different fronts, and we believe
these three key components of our strategy work in unison.
1. Our people
People are a key driver of our growth, and one of our key strategies is to build the team that
will help us achieve our goals. This includes recruiting, training and developing the right
people, as well as enhancing the productivity of our sales force and our administrative support
teams by giving them the tools and training they need to be effective. This component of our
strategy also includes active succession planning and leadership development, with a focus
on developing employees from within our company.
Our ability to recruit, train and retain capable new members for our sales team has a significant
influence on our rate of growth. Ours is a relationship business and our Territory Managers are
the main point of contact with our customers. We look for bright, hard-working individuals with
positive attitudes, and we are committed to providing our people with a great workplace and
opportunities to grow with the company and become future leaders of our global team.
2. Our places
We intend to continue to expand our presence in existing markets and enter new markets, and
to expand our international auction site network to handle expected growth in our business.
When we talk about markets, we are referring to geographic markets and industry sectors.
Although we expect that most of our growth in the near future will come from expanding our
business and increasing our penetration in regions where we already have a presence, such
as the United States and Western Europe, we anticipate that emerging markets in developing
countries will be important in the longer term. Our sales offices in many of these emerging
markets have been established to position us to take advantage of these future growth
opportunities and we will continue to invest in frontier markets in the future.
We plan to expand our worldwide network of auction sites, opening an average of at least two
new or replacement sites per year. Our shorter-term focus for this expansion is the United
States and Western Europe. In addition, we intend to continue to hold off-site auctions in
new regions to expand the scope of our operations.
We also aim to increase our market share in our core markets of construction, transportation
and agricultural equipment, and to sell more assets in categories that are complementary to
these core markets. Examples of these complementary categories include mining, forestry
and petroleum assets.
3. Our processes
We are committed to developing and continually refining the processes and systems that we
use to conduct our business. We believe that this continuous improvement focus will allow us to
grow our revenues faster than our operating costs in the future. We also intend to use technology
to facilitate our growth and enhance the quality and service level of our auctions.
Over the past few years, we have made significant progress in developing business processes
and systems that are efficient, consistent and scalable, including the successful implementation
of a new enterprise resource planning (or ERP) system.
We believe that these three components work together because our people help us to achieve
our growth objectives, our places give us focus areas for and the capacity to handle growth,
and our processes help us to achieve that growth with efficiency and consistency and deliver
value to our customers.
36
Ritchie Bros. Auctioneers 2008 Annual Report
Operations
The majority of our industrial auctions are held at our permanent auction sites, where we own the
land and facilities, or at regional auction units, where we lease the land and typically have more
modest facilities. We also hold off-site auctions at temporary locations, often on land owned by
one of the main consignors to the particular auction. Most of our agricultural auctions are off-site
auctions that take place on the consignor’s farm. During 2008, 89% of the gross auction proceeds
from our auctions was attributable to auctions held at our permanent auction sites and regional
auction units (2007 – 88%). Gross auction proceeds represent the total proceeds from all items
sold at our auctions (please see “Sources of Revenue and Revenue Recognition” below).
During 2008, we conducted 193 unreserved industrial auctions at locations in North America,
Europe, the Middle East, South East Asia and Australia (2007 – 183 auctions). We also held 147
unreserved agricultural auctions during the year, primarily in Canada and the United States
(2007 – 177). Although our auctions have varied in size over the last 12 months, our average
industrial auction in 2008 attracted over 1,400 bidder registrations (2007 – almost 1,400) and
featured over 1,300 lots (2007 – over 1,400) consigned by 189 consignors (2007 – 191), generating
average gross auction proceeds of approximately $17.7 million, compared to approximately $16.7
million in 2007. Our agricultural auctions in 2008 averaged approximately $0.9 million in size,
compared to $0.7 million in 2007.
In 2008, approximately 54% of our auction revenues was earned from operations in the United
States (2007 – 56%), 21% was earned in Canada (2007 – 23%) and the remaining 25% was earned
from operations in countries other than the United States and Canada (primarily Europe, the
Middle East, Australia, and Mexico) (2007 – 21%). We had 1,077 full-time employees at December
31, 2008, including 265 sales representatives and 29 trainee territory managers, compared to
943, 265 and 11, respectively, at the end of 2007.
We are a public company and our common shares are listed under the symbol “RBA” on the
New York and Toronto Stock Exchanges. On February 23, 2009 we had 104,899,720 common
shares issued and outstanding and stock options outstanding to purchase a total of 2,461,634
common shares. On April 24, 2008, our issued and outstanding common shares were split on
a three-for-one basis. All share and per share amounts in this document reflect the stock split
on a retroactive basis.
Sources of Revenue and Revenue Recognition
Gross auction proceeds represent the total proceeds from all items sold at our auctions. Our
definition of gross auction proceeds may differ from those used by other participants in our
industry. Gross auction proceeds is an important measure we use in comparing and assessing
our operating performance. It is not a measure of our financial performance, liquidity or revenue
and is not presented in our consolidated financial statements. We believe that auction revenues,
which is the most directly comparable measure in our Statements of Operations, and certain
other line items, are best understood by considering their relationship to gross auction proceeds.
Auction revenues represent the revenues we earn in the course of conducting our auctions. The
portion of gross auction proceeds that we do not retain is remitted to our customers who consign
the items we sell at our auctions.
Auction revenues are comprised of auction commissions earned from consignors through
straight commission and guarantee contracts, net profits or losses on the sale of inventory
items, administrative and documentation fees on the sale of certain lots, auction advertising
fees, and the fees applicable to purchases made through our internet and proxy bidding systems.
All revenue is recognized when the auction sale is complete and we have determined that the
auction proceeds are collectible.
Effective January 1, 2008, we made certain reclassifications in our Statements of Operations that
affected our reported auction revenues. Interest income, which was previously included as part of
auction revenues, is now recorded in “other income”. Auction advertising fees and documentation
fees, which were previously recorded as an offset to direct expenses, are now included in auction
revenues. These changes were made to improve the presentation in our financial statements
and had no impact on our net earnings. Our comparative historical quarterly financial results
have been reclassified to conform with the presentation adopted in 2008.
Straight commissions are our most common type of auction revenues and are generated when we
act as agent for consignors and earn a pre-negotiated, fixed commission rate on the gross sales
price of the consigned equipment at auction. In 2008, straight commission sales represented
approximately 75% of gross auction proceeds volume, which is consistent with the annual
straight commission proportion in recent years.
In some situations, we guarantee minimum sales proceeds to the consignor and earn a commission
based on the actual results of the auction, typically including a pre-negotiated percentage of
any sales proceeds in excess of the guaranteed amount. The consigned equipment is sold on an
unreserved basis in the same manner as other consignments. If the actual auction proceeds are
less than the guaranteed amount, our commission is reduced, and if proceeds are sufficiently
less, we can incur a loss on the sale.
Our financial exposure from guarantee contracts fluctuates over time, but our industrial and
agricultural auction guarantees have had an average period of exposure (days remaining
until date of auction as at quarter-end) of approximately 30 days and 90 days, respectively.
The combined exposure at any time from all outstanding guarantee contracts can fluctuate
significantly from period to period, but the quarter-end balances averaged approximately $54
million over the last 12 months. As at December 31, 2008, outstanding guarantee contracts
totaled approximately $18 million (2007 – $56 million). Losses, if any, resulting from guarantee
contracts are recorded in the period in which the relevant auction is completed, unless the loss
is incurred after the period end but before the financial reporting date, in which case the loss is
accrued in the financial statements for the period end. In 2008, guarantee contracts represented
approximately 15% of gross auction proceeds, which is consistent with the annual guarantee
proportion in recent years.
Auction revenues also include the net profit or loss on the sale of inventory in cases where we
acquire ownership of equipment for a short time prior to an auction sale. We purchase equipment
for specific auctions and sell it at those auctions in the same manner as consigned equipment.
During the period that we retain ownership, the cost of the equipment is recorded as inventory
on our balance sheet. The net gain or loss on the sale is recorded as auction revenues. In 2008,
inventory contracts represented approximately 10% of our gross auction proceeds, which is
consistent with the annual inventory sales proportion in recent years. We generally refer to our
guarantee and outright purchase business as our underwritten or at-risk business.
The choice by consignors between straight commission, guarantee, or outright purchase
arrangements depends on many factors, including the consignor’s risk tolerance and sale
objectives. In addition, we do not have a target for the relative mix of contracts. As a result, the
mix of contracts in a particular quarter or year fluctuates and is not necessarily indicative of the
mix in future periods. The composition of our auction revenues and our auction revenue rate
(i.e. auction revenues as a percentage of gross auction proceeds) are affected by the mix and
performance of contracts entered into with consignors in the particular period and fluctuate from
period to period. Our auction revenue rate performance is presented in the table below.
Quarterly Auction Revenue Rate and Trailing Twelve Month Average Auction Revenue Rate – 5 Year History(1)
Quarterly Auction Revenue Rate
Trailing Twelve Month Average Auction Revenue Rate
11%
10%
9%
8%
Q4
03
Q1
04
Q2
04
Q3
04
Q4
04
Q1
05
Q2
05
Q3
05
Q4
05
Q1
06
Q2
06
Q3
06
Q4
06
Q1
07
Q2
07
Q3
07
Q4
07
Q1
08
Q2
08
Q3
08
Q4
08
(1) Historical auction revenue rates have been restated to conform with the presentation adopted in 2008. The revised presentation had an insignificant impact on auction revenue rates for the
periods 2003 through 2007. On an annual basis, the impact on auction revenue rates during this period was between one to 12 basis points.
In 2003, our expected average annual auction revenue rate was 9.50%, and at the end of
2003 we increased our expected average annual auction revenue rate to the range of 9.50%
to 10.00%. At the beginning of 2008, we made changes to certain of our existing fees charged
to our customers, including the minimum commission rate applicable to low value lots and
the consignor document and administration fees. These fees were increased slightly to reflect
increased costs of conducting auctions. In addition, effective January 2008, we reclassified our
interest income to “other income” and made certain other revenue classifications, as discussed
above under “Sources of Revenue and Revenue Recognition.” As a result of these fee changes
and reclassifications, we increased our expected annual average auction revenue rate to be in
the range of 9.75% to 10.25%. However, our past experience has shown that our auction revenue
rate is difficult to estimate precisely, meaning our actual auction revenue rate in future periods
may be above or below our expected range. For 2008, we achieved an auction revenue rate of
9.95% (2007 – 9.79%).
The largest contributor to the variability in our auction revenue rate is the performance, rather
than the amount, of our underwritten business. In a period when our underwritten business
performs better than average, our auction revenue rate typically exceeds the expected average
rate. Conversely, if our underwritten business performs below average, our auction revenue rate
will typically be below the expected average rate.
Our gross auction proceeds and auction revenues are influenced by the seasonal nature of the
auction business, which is determined mainly by the seasonal nature of the construction and
natural resource industries. Gross auction proceeds and auction revenues tend to be higher during
the second and fourth calendar quarters, during which time we generally conduct more business
than in the first and third calendar quarters. This seasonality contributes to quarterly variability
in our net earnings because a significant portion of our operating costs is relatively fixed.
Gross auction proceeds and auction revenues are also affected on a period-to-period basis by
the timing of major auctions. In newer markets where we are developing operations, the number
and size of auctions and, as a result, the level of gross auction proceeds and auction revenues,
are likely to vary more dramatically from period to period than in our established markets where
the number, size and frequency of our auctions are more consistent. In addition, economies of
scale are achieved as our operations in a region evolve from conducting intermittent auctions,
to establishing a regional auction unit, and ultimately to developing a permanent auction site.
Economies of scale are also achieved when our auctions increase in size.
Because of these seasonal and period-to-period variations, we believe that gross auction
proceeds and auction revenues are best compared on an annual basis, rather than on a
quarterly basis.
Developments in 2008
Highlights of the year ended December 31, 2008, our 50th anniversary year, included:
People
On April 25, 2008, our Board of Directors appointed Robert S. Armstrong Chief Operating
Officer (formerly Chief Financial Officer and Chief Operating Officer) and Robert A. McLeod
Chief Financial Officer (formerly Director, Global Accounting).
In addition to Mr. Armstrong and Mr. McLeod, our other executive officers with effect from
January 1, 2008 are as follows:
Peter Blake, Chief Executive Officer;
Robert Mackay, President (formerly President – United States, Asia and Australia);
Robert Whitsit, Senior Vice-President (formerly Senior Vice-President – Southeast and
Northeast Divisions);
David Nicholson, Senior Vice-President – Central United States, Mexico and South
America (formerly Senior Vice-President – South Central United States, Mexico and
South America Divisions);
Guylain Turgeon, Senior Vice-President – Managing Director Europe, Middle East and Asia
(formerly Senior Vice-President – Managing Director European Operations).
Steven Simpson, Senior Vice-President – Western United States (formerly Vice-President,
South West and North West Divisions);
Curtis Hinkelman, Senior Vice-President – Eastern United States (formerly Vice-President,
Great Lakes Division);
Kevin Tink, Senior Vice-President – Canada and Agriculture (formerly Vice-President,
Western Canada and Agricultural Divisions);
Victor Pospiech, Senior Vice-President – Administration and Human Resources (formerly
Vice-President, Administration and Human Resources); and
Jeremy Black, Corporate Secretary and Director, Business Development (formerly
Director, Finance).
At our annual meeting on April 11, 2008, our shareholders elected Christopher Zimmerman
to our Board of Directors. Our Board appointed Robert W. Murdoch as Chairman, replacing
Charles E. Croft who retired as a director in April 2008. In addition, C. Russell Cmolik retired
Ritchie Bros. Auctioneers 2008 Annual Report
37
from our Board in April 2008. With the retirement of Mr. Croft, Mr. Murdoch replaced Mr.
Croft as a member of the Nominating and Corporate Governance Committee of our Board of
Directors. Mr. Zimmerman was also appointed a member of the Compensation Committee
of our Board of Directors.
We entered into a new five-year committed credit facility and a new three-year uncommitted
credit facility, increasing our available credit facilities to approximately $550 million. We
have entered into these credit facilities to give us long-term flexibility and access to capital
to support future growth initiatives.
Our Board of Directors increased the size of our Board from six to seven directors, and on
April 25, 2008, they appointed a new independent director, James M. Micali, to our Board.
Mr. Micali replaced Edward B. Pitoniak on the Audit Committee of our Board of Directors and
is also a member of the Compensation Committee of our Board of Directors. Mr. Pitoniak
was appointed chair of the Compensation Committee of our Board of Directors.
Our common stock was added to the S&P/TSX Composite Index for the first time.
Subsequent to year end, we completed the construction of and relocated to our new permanent
auction facilities in Houston, Texas and Minneapolis, Minnesota, and will be holding our first
auctions at the new sites in the first quarter of 2009. In addition, we closed our regional auction
unit in Singapore as we were unable to renew the lease at that location.
Places
We held the largest auction in our history, at our permanent auction site in Orlando, Florida,
with gross auction proceeds of $190 million.
We broke regional gross auction proceeds records in Fort Worth, Texas; Las Vegas, Nevada;
North East, Maryland; Atlanta, Georgia; Albuquerque, New Mexico; Toluca, Mexico; Paris,
France; Caorso, Italy; Moncofa, Spain; Brisbane, Australia; and Melbourne, Australia.
Our cumulative gross auction proceeds to online bidders since the launch of our rbauctionBid-
Live internet bidding service in 2002 surpassed the $2 billion mark during the year.
We held our first auctions at our new permanent auction sites in Kansas City, Missouri and
Paris, France, which replaced our regional auction units in these areas.
We held our first auction in Eastern Europe in Poland.
We moved to a new regional auction unit in Moncofa, Spain, which replaced our regional
auction unit in Valencia, Spain, and conducted our largest ever auction in Spain at the
new location.
We moved to a new regional auction unit in Geelong, Australia, which replaced our regional
auction unit in Melbourne, Australia.
We established a new regional auction unit in Las Vegas, Nevada.
We completed the purchase of approximately 25 acres of land in Chilliwack, British Columbia,
on which we are building a new permanent auction site to replace our current permanent
facility in that region.
Overall Performance
For the year ended December 31, 2008, we recorded auction revenues of $354.8 million and
net earnings of $101.4 million, or $0.96 per diluted common share. This compares to auction
revenues of $311.9 million and net earnings of $76.0 million, or $0.72 per diluted share for the
year ended December 31, 2007. We ended 2008 with working capital of $47.1 million, compared
to $58.2 million at December 31, 2007.
Adjusted net earnings for the year ended December 31, 2008 were $85.5 million, or $0.81 per
diluted share, which compares to adjusted net earnings of $71.9 million, or $0.68 per diluted share
for the year ended December 31, 2007. We define adjusted net earnings as financial statement
net earnings excluding the after-tax effects of sales of excess properties and significant foreign
exchange gains or losses resulting from financing activities that we do not expect to recur in the
future (please see our reconciliation below).
Adjusted net earnings is a non-GAAP financial measure that does not have a standardized
meaning, and is therefore unlikely to be comparable to similar measures presented by other
companies. We believe that comparing adjusted net earnings as defined above for different
financial periods provides more useful information about the growth or decline of net earnings
for the relevant financial period, and isolates the impact of items which we do not consider to
be part of our normal operating results.
Our adjusted net earnings in 2008 grew by approximately 19% compared to 2007 primarily as a
result of increased gross auction proceeds and a stronger auction revenue rate, partially offset
by higher operating costs.
We completed the purchase of approximately 74 acres of land adjoining our permanent
auction site in Orlando, Florida, on which we have expanded our current facility.
A reconciliation of our net earnings under Canadian GAAP to adjusted net earnings is as
follows:
We completed the purchase of approximately 16 acres of land near Tokyo, Japan, on which
we are building a new permanent auction site, an important step in our strategy to expand
our presence in the Asian market.
We completed the sale of our headquarters property located in Richmond, British Columbia,
and entered into a leaseback arrangement with the purchaser. This sale transaction resulted
in a pre-tax gain of approximately $8.3 million.
We entered into a sale-leaseback arrangement for our new headquarters building under
construction in Burnaby, British Columbia, and committed to a long-term lease of the
property with the purchaser upon construction completion, which is expected to occur in
the later half of 2009.
Processes
We introduced our Electronic Auction Clerking software, which relays auction information
instantly between the auctioneer, clerk and administrative offices. The system has resulted
in significant efficiency gains at our auctions.
We continued to roll out our Virtual Ramp technology to auction sites around the world.
The Virtual Ramp, which projects photos of items being auctioned onto a large screen, is
used to increase speed, efficiency and bidder comfort when selling stationary equipment
items at our auctions.
We began accepting credit card payments from on-site and online bidders in the United
States, Canada, Australia, the Middle East and most countries in Europe.
We entered into a partnership with uShip to provide real-time shipping estimates and
competitive shipping quotes through our web site, rbauction.com, for our auctions in the
United States and Canada.
Other
On April 24, 2008, our issued and outstanding common shares split on a three-for-one
basis. All share and per share information in this document gives effect to the stock split
on a retroactive basis, unless indicated otherwise.
Year ended December 31,
Net earnings under Canadian GAAP
Gain on sale of excess property(1)
Net foreign exchange impact
on financing transactions(2)
Tax relating to reconciling items
Adjusted net earnings
2008
2007
$ 101,400
(8,304)
$ 75,983
–
(9,188)
1,571
$ 85,479
(4,789)
696
$ 71,890
(1) In 2008, we recorded a gain of $8,304 ($7,295, or $0.07 per diluted share, after tax) on
the sale of our headquarters property located in Richmond, British Columbia.
(2) During the year ended December 31, 2008, we reclassified to net earnings foreign currency
translation gains reported in the cumulated translation adjustment account of $15,023
($13,615, or $0.13 per diluted share, after tax) as a result of the settlement of a number
of foreign currency denominated intercompany loans that were considered long-term in
nature. We did not settle any intercompany loans in 2007. In addition, during the year ended
December 31, 2008, we recorded a foreign exchange loss of $5,835 ($4,989, or $0.05
per diluted share, after tax) on U.S. dollar denominated bank debt held by a subsidiary
that has the Canadian dollar as its functional currency. The equivalent amount in 2007
was a foreign exchange gain of $4,789 ($4,093, or $0.04 per diluted share, after tax). We
have highlighted this amount because subsequent to December 31, 2008, the Canadian
subsidiary assigned the bank debt to an affiliate whose functional currency is the U.S.
dollar to eliminate the impact of these currency fluctuations in the future. As such, we do
not expect such foreign exchange gains or losses to recur in future periods.
Selected Annual Information
The following selected consolidated financial information as at December 31, 2008, 2007 and
2006 and for each of the years in the three-year period ended December 31, 2008 has been
derived from our audited consolidated financial statements. This data should be read together
with those financial statements and the risk factors described below.
Our consolidated financial statements are prepared in United States dollars in accordance with
Canadian GAAP. These principles conform in all material respects with U.S. GAAP, except as disclosed
in note 13 of our consolidated financial statements for the year ended December 31, 2008.
38
Ritchie Bros. Auctioneers 2008 Annual Report
Year Ended December 31,
Statement of Operations Data:
Auction revenues(1)
Direct expenses(2)
Operating expenses(3)
Other income(4)
Earnings before income taxes
Income taxes
Net earnings
Net earnings per share — basic
Net earnings per share — diluted
Cash dividends declared per share(5)
Balance Sheet Data (year end):
Working capital (including cash)
Capital assets
Total assets
Long-term liabilities
Statement of Cash Flows Data:
Capital asset additions
2008
2007
2006
$ 354,818
(49,750)
305,068
(189,320)
23,536
139,284
37,884
$ 101,400
$
$
$
0.97
0.96
0.34
47,109
453,642
689,488
77,495
$ 311,906
(46,481)
265,425
(164,233)
10,703
111,895
35,912
75,983
0.73
0.72
0.30
58,207
390,044
672,887
58,793
$
$
$
$
$ 257,857
(40,457)
217,400
(132,731)
7,397
92,066
34,848
57,218
0.55
0.55
0.26
94,369
285,091
554,227
51,892
$
$
$
$
$ 145,024
$ 113,219
$
51,239
(1) Auction revenues are comprised of commissions earned from consignors through straight commission and guarantee contracts, the net profit or loss on the sale of inventory items, internet and
proxy purchase fees, administrative and documentation fees on the sale of certain lots, and auction advertising fees. Auction revenues for 2007 and 2006 have been reclassified to conform
with the presentation adopted in 2008. Please see further discussion in “Sources of Revenue and Revenue Recognition.”
(2) Direct expenses for 2007 and 2006 have been reclassified to conform with the presentation adopted in 2008. Please see further discussion in “Sources of Revenue and Revenue
Recognition.”
(3) Operating expenses include depreciation and amortization and general and administrative expenses.
(4) Other income in 2008 included an $8,304 ($7,295, or $0.07 per diluted share, after tax) gain recorded on the sale of our headquarters property located in Richmond, British Columbia; and
in 2006 included the $1,589 ($953, or $0.01 per diluted share, after tax) net effect of a gain recorded on the sale of excess property in Florida and a write-down of land held for sale in Texas.
In addition, other income in 2008 included the reclassification of $15,023 ($13,615, or $0.13 per diluted share, after tax) of foreign currency translation gains relating to the settlement of
foreign currency denominated intercompany loans, partially offset by a $5,835 million ($4,989, $0.05 per diluted share, after tax) foreign exchange loss relating to U.S. dollar denominated
bank debt held by a Canadian subsidiary. The impact of foreign exchange on the bank debt in 2007 was a gain of $4,789 ($4,093, or $0.04 per diluted share, after tax) and in 2006 was a
loss of $68 ($59, or less than $0.1 per diluted share, after tax). We have highlighted these amounts because we do not expect them to recur in future periods. Please see further discussion
above in “Overall Performance.”
(5) In addition to the cash dividends declared and paid in 2008, we declared a cash dividend of $0.09 per common share on January 23, 2009 relating to the quarter ended December 31, 2008,
which is not included in this amount.
Results of Operations
Year Ended December 31, 2008 Compared to Year Ended December 31, 2007
We conduct operations around the world in a number of different currencies, but our reporting currency is the United States dollar. In 2008, approximately 40% of our revenues and approximately
50% of our operating costs were denominated in currencies other than the United States dollar.
The main currencies other than the United States dollar in which our revenues and operating costs are denominated are the Canadian dollar and the Euro. In recent periods there have been significant
fluctuations in the value of the Canadian dollar and Euro relative to the United States dollar. These fluctuations affect our reported auction revenues and operating expenses when non-United States
dollar amounts are converted into United States dollars for financial statement reporting purposes. It is difficult, if not impossible, to quantify how foreign exchange rate movements affect such
variables as supply and demand for the assets we sell. However, excluding these impacts, the effect of foreign exchange fluctuations on our translated auction revenues and operating expenses
in our consolidated financial statements has largely offset, making the net effect of foreign exchange on our annual net earnings insignificant in 2008. Excluding the foreign exchange impacts on
financing transactions discussed in “Overall Performance” above, our 2008 adjusted net earnings included a $2.5 million pre-tax gain (2007 – $2.0 million pre-tax loss) resulting from the revaluation
and settlement of our foreign currency denominated monetary assets and liabilities.
United States Dollar Exchange Rate Comparison
Years ended December 31,
2008
% Change
2007
% Change
2006
Value of one U.S. dollar:
Year-end exchange rate:
Canadian dollar
Euro
Average exchange rate:
Canadian dollar
Euro
$ 1.2168
€ 0.7159
22.5%
4.5%
$ 0.9937
0.685
€
$ 1.0671
€ 0.6839
-0.6%
-6.4%
$ 1.0740
€ 0.7305
-14.8%
-9.6%
-5.3%
-8.3%
$ 1.1660
€ 0.7575
$ 1.1344
€ 0.7969
Ritchie Bros. Auctioneers 2008 Annual Report
39
Auction Revenues
Years ended December 31,
Auction revenues – United States(1)
Auction revenues – Canada(1)
Auction revenues – Europe(1)
Auction revenues – Other(1)
Total auction revenues
Gross auction proceeds
Auction revenue rate
2008
2007
% Change
$ 191,459 $ 173,983
71,271
38,771
27,881
$ 354,818 $ 311,906
75,683
54,635
33,041
$ 3,567,160 $ 3,186,483
9.79%
9.95%
10%
6%
41%
19%
14%
12%
relating to new assets put into service in recent periods, such as our new permanent auction sites
in Kansas City, Missouri and Paris, France, and new computer hardware and software. We expect
our depreciation in future periods to increase in line with our on-going capital expenditures.
General and Administrative Expenses
Years ended December 31,
General and administrative expenses
G&A as a percentage of gross
2008
2007
% Change
$ 164,556
$ 144,816
14%
auction proceeds
4.61%
4.54%
(1) Information by geographic segment is based on auction location. Auction revenues have
been reclassified to conform with the presentation adopted in 2008.
The major categories of general and administrative expenses, or G&A, in order of magnitude
in 2008 were as follows:
Our auction revenues increased in 2008 compared to 2007 primarily as a result of higher gross
auction proceeds in most of our markets around the world, a higher auction revenue rate and
currency fluctuations. Our underwritten business (guarantee and inventory contracts) represented
24% of our total gross auction proceeds in 2008 (25% in 2007), which is in a similar range to the
proportions experienced in recent periods. Our agricultural division generated gross auction
proceeds of $132.5 million in 2008, compared to $131.9 million in 2007.
Our auction revenue rate was 9.95% for 2008, which was within our expected range of 9.75% to
10.25%. The increase compared to our experience in 2007 related primarily to the performance of
our underwritten business, which performed better in 2008 than in 2007, as well as the increase
in fees discussed above under “Sources of Revenue and Revenue Recognition.” We continue to
believe our sustainable average auction revenue rate will be in the range of 9.75% to 10.25%,
although our experience has shown that our auction revenue rate is difficult to estimate precisely.
Our actual auction revenue rate in future periods may be above or below our expected range.
Our auction revenues and our net earnings are influenced to a great extent by small changes
in our auction revenue rate. For example, a 10 basis point (0.1%) increase or decrease in our
auction revenue rate would have impacted auction revenues by approximately $3.7 million in
2008, of which approximately $2.4 million or $0.02 per share would have flowed through to
net earnings after tax in our statement of operations, assuming no other changes. This factor
is important to consider when evaluating our current and past performance, as well as when
judging future prospects.
Direct Expenses
Years ended December 31,
Direct expenses
Direct expenses as a percentage of
gross auction proceeds
2008
2007
% Change
$ 49,750
$ 46,481
7%
1.39%
1.46%
Direct expenses are the costs we incur specifically to conduct an auction. Direct expenses include
the costs of hiring temporary personnel to work at the auction, advertising costs directly related
to the auction, travel costs for employees to attend and work at the auction, security hired to
safeguard equipment at the auction site and rental expenses for temporary auction sites. During
2008, direct expenses were also affected by fee reclassifications, as discussed above under
“Sources of Revenue and Revenue Recognition” and our comparative direct expenses for 2007
have been reclassified to conform with the presentation adopted in 2008. At each quarter end,
we estimate the direct expenses incurred with respect to auctions completed near the end of
the period. In the subsequent quarter, these accruals are adjusted, to the extent necessary, to
reflect actual costs incurred.
Our direct expense rate, which represents direct expenses as a percentage of gross auction
proceeds, fluctuates from period to period based in part on the size and location of the auctions
we hold during a particular period. The direct expense rate generally decreases as the average
size of our auctions increases. In addition, we usually experience lower direct expense rates for
auctions held at our permanent auction sites compared to auctions held at offsite locations,
mainly as a result of the economies of scale and other efficiencies that we typically experience at
permanent auction sites. Our direct expense rate for 2008 decreased compared to 2007 mostly
due to the increase in the average size of our auctions.
personnel (salaries, wages, bonuses and benefits) – approximately 60% of total G&A;
information technology and telecommunications;
non-auction related travel;
repairs and maintenance;
leases and rentals;
utilities;
property taxes;
office supplies;
advertising; and
dues and fees.
During 2008, G&A was affected by the reclassification of foreign exchange gain to other income,
and our comparative G&A for 2007 has been reclassified to conform with the presentation adopted
in 2008. Our infrastructure and workforce have continued to expand in order to support our growth
objectives, and this, combined with other factors including currency fluctuations and the costs
associated with our business process improvement initiatives, has resulted in an increase in our
G&A. During 2008, the ongoing growth in many aspects of our business, including personnel,
facilities, and infrastructure, was the main reason for the increase in G&A.
Gross auction proceeds continued to increase during 2008, which has necessitated significant
investments in our people, places and processes. Our rapid growth has resulted in additions
to our workforce, which is one of the key components of our strategy. Our future success is
dependent upon adding people to grow our business, building the places required to handle our
anticipated future growth, and developing and implementing processes to help gain efficiencies
and improve consistency. Our sales force and administrative support teams are instrumental
in carrying out these building and development programs and are necessary to facilitate and
accommodate that growth. Personnel costs are the largest component of our G&A, and our
workforce increased 14% between 2007 and 2008. In addition, in order to support our workforce
and expanding network of auction sites, IT infrastructure and communications costs, as well
as facility-related expenses, increased in 2008 compared to 2007. Our ongoing expansion will
continue to influence future levels of G&A.
The impact of foreign currency fluctuations on our G&A expenses was an increase of approximately
$2.0 million when our foreign operations’ expenses were translated into our reporting currency,
the U.S. dollar.
Interest Expense
Years ended December 31,
2008
2007
% Change
Interest expense
$
859
$ 1,206
-29%
Interest expense is comprised mainly of interest paid on long-term debt and operating credit
lines. Interest expense decreased in 2008 compared to 2007 primarily because of an increase
in the amount of interest we capitalized to property under development, partially offset by an
increase in interest costs due to an increased level of borrowings.
Interest Income
Years ended December 31,
2008
2007
% Change
Depreciation and Amortization Expense
Years ended December 31,
2008
2007
% Change
Interest income
$ 4,994
$ 7,393
-32%
Depreciation and amortization expense
$ 24,764
$ 19,417
28%
Depreciation is calculated on either a straight line or a declining balance basis on capital assets
employed in our business, including buildings, computer hardware and software, automobiles
and yard equipment. Depreciation increased in 2008 compared to 2007 as a result of depreciation
Interest income, which is earned on our invested excess cash balances in conservative and
liquid investments, is mostly affected by market interest rates. In recent periods, market
interest rates in Canada and the United States have decreased significantly, which resulted in
a decrease in our interest income. In addition, our interest income can fluctuate from period
40
Ritchie Bros. Auctioneers 2008 Annual Report
to period depending on our cash position, which is affected by the timing, size and number of
auctions held during the period, as well as the timing of the receipt of auction proceeds from
buyers and payments to consignors.
of 2008 were $19.2 million, or $0.18 per diluted share. This compares to auction revenues of
$82.1 million and net earnings and adjusted net earnings of $16.9 million, or $0.16 per diluted
share, in the fourth quarter of 2007.
Foreign exchange gain
Years ended December 31,
2008
2007
% Change
Foreign exchange gain
$ 11,656
$ 2,802
N/A
Foreign exchange gains or losses arise when foreign currency denominated monetary items
are revalued to the exchange rates in effect at the end of the period. The amount of gain or
loss recognized in any given period is affected by changes in foreign exchange rates as well as
the composition of our foreign currency denominated assets and liabilities. In 2008, foreign
exchange included the reclassification of foreign exchange translation gains of $15.0 million
from the cumulative translation adjustment account as a result of the settlement of a number
of foreign currency denominated intercompany loans that were considered long-term. We did
not settle any intercompany loans in 2007. Partially offsetting the gain in 2008 was a $5.8 million
foreign exchange loss on U.S. dollar denominated bank debt held by a subsidiary that has the
Canadian dollar as its functional currency. The equivalent amount recorded in 2007 was a foreign
exchange gain of $4.8 million. We do not expect the items related to foreign exchange on internal
and external financing transactions to recur in future periods (please refer to discussion above
under “Overall Performance”).
Gain on Disposition of Capital Assets
Years ended December 31,
2008
2007
% Change
Gain on disposition of capital assets
$ 6,370
$
243
N/A
The gain on disposition of capital assets in 2008 included an $8.3 million gain recorded on the
sale of our headquarters property located in Richmond, British Columbia, partially offset by
write offs of costs incurred on property and software development projects that were no longer
considered viable.
Income Taxes
Years ended December 31,
Income taxes
Effective income tax rate
2008
2007
% Change
$ 37,884
27.2%
$ 35,912
32.1%
5%
Income taxes have been calculated using the tax rates in effect in each of the tax jurisdictions
in which we earn our income. The effective tax rate for the year ended December 31, 2008 was
lower than the rate we experienced in 2007 as a result of adjustments recorded in 2008 to reflect
our actual cash tax expenses arising from our 2007 income tax filings, and a lower proportion of
our earnings being earned in higher tax rate jurisdictions in 2008. In addition, the gain recorded
on the sale of the headquarters property, as well as the foreign exchange gains on financing
transactions, were subject to a lower tax rate. Income tax rates in future periods will fluctuate
depending upon the impact of unusual items and the level of earnings in the different tax
jurisdictions in which we earn our income.
Net Earnings
Years ended December 31,
Net earnings before income taxes
Net earnings
Net earnings per share – basic
Net earnings per share – diluted
2008
2007
% Change
$ 139,284
101,400
0.97
0.96
$ 111,895
75,983
0.73
0.72
24%
33%
33%
33%
Our net earnings increased in 2008 compared to 2007 as a result of higher gross auction proceeds
and a higher auction revenue rate, partially offset by higher operating costs. In addition, net
earnings in 2008 included a $7.3 million after-tax gain on the sale of excess property, and a net
after-tax foreign exchange gain on financing transactions of $8.6 million, which we do not expect
to recur in future periods. Adjusted net earnings for 2008 were $85.5 million, or $0.81 per diluted
share, compared to adjusted net earnings of $71.9 million, or $0.68 per diluted share in 2007,
representing a 19% increase. Adjusted net earnings in 2008 were higher compared to 2007
primarily due to increased gross auction proceeds and a higher auction revenue rate, partially
offset by higher operating costs.
Summary of Fourth Quarter Results
We earned auction revenues of $81.7 million and net earnings of $27.1 million, or $0.26 per
diluted share, during the fourth quarter of 2008. Adjusted net earnings for the fourth quarter
Quarter ended December 31,
Net earnings under Canadian GAAP
Net foreign exchange impact on internal
and external financing transactions(1)
Tax relating to reconciling items
Adjusted net earnings
2008
2007
$ 27,140
$ 16,966
(8,476)
558
$ 19,222
(24)
3
$ 16,945
(1) During the quarter ended December 31, 2008, we reclassified to net earnings foreign
currency translation gains reported in the cumulative translation adjustment account of
$12,254 ($11,148, or $0.11 per diluted share, after tax) as a result of the settlement of a
foreign currency denominated intercompany loans that was considered long-term in nature.
We did not settle any intercompany loans in 2007. In addition, during the quarter ended
December 31, 2008, we recorded a foreign exchange loss of $3,778 ($3,230, or $0.03 per
diluted share, after tax) on U.S. dollar denominated bank debt held by a subsidiary that
has the Canadian dollar as its functional currency. The equivalent amount in 2007 was
a foreign exchange gain of $24 ($21, or less than $0.01 per diluted share, after tax). We
have highlighted this amount because subsequent to December 31, 2008, the Canadian
subsidiary assigned the bank debt to an affiliate whose functional currency is the U.S.
dollar to eliminate the impact of these currency fluctuations in the future. As such, we do
not expect such foreign exchange gains or losses to recur in future periods.
Our gross auction proceeds were $853.9 million for the quarter ended December 31, 2008, which
is a decrease of 2% compared to the comparable period in 2007. This decrease in our gross auction
proceeds was mainly attributable to foreign exchange fluctuations in 2008. It is difficult to isolate
the effects of currency fluctuations on our customers’ buying and selling patterns and therefore,
our gross auction proceeds. However, had the foreign exchange rates in effect in the fourth quarter
of 2007 been applied to the gross auction proceeds achieved in the fourth quarter of 2008, our
reported gross auction proceeds would have increased by approximately 7%.
Our auction revenue rate increased to 9.57% in the fourth quarter of 2008 from 9.40% in the
comparable period in 2007, mainly as a result of the stronger performance of our underwritten
business in the fourth quarter of 2008. Our direct expense rate in the fourth quarter of 2008 was
lower compared to 2007 because a higher proportion of gross auction proceeds was earned from
auctions conducted at our permanent auction sites and regional auction units.
Our G&A expenses decreased to $38.3 million in the fourth quarter of 2008, compared to $41.7
million in the comparable 2007 period. During the fourth quarter of 2008, due to foreign currency
fluctuations, the translation into U.S. dollar of our foreign operations’ G&A expenses resulted
in a decrease in G&A expenses of approximately $4.0 million. Excluding the foreign exchange
impact noted above, G&A in 2008 was roughly consistent with 2007, despite a 14% increase in
workforce and increases in other facility-related expenses resulting from the ongoing expansion
of our auction site network and other infrastructure. This was mostly due to a decrease in the
number of IT initiatives in the fourth quarter of 2008, which resulted in lower support costs.
We experienced a 60% increase in our earnings in the fourth quarter of 2008 compared to the
equivalent period in the prior year primarily due to the non-recurring foreign exchange gain
recorded on financing-related transactions. Adjusted net earnings in the fourth quarter of 2008
increased by 13% compared to 2007, mostly due to lower operating costs in 2008.
Capital asset additions were $47.2 million for the fourth quarter of 2008, compared to $55.9
million in the fourth quarter of 2007. Our capital expenditures in the fourth quarter of 2008 related
primarily to construction of our new permanent auction sites in Houston, Texas; Minneapolis,
Minnesota; Grande Prairie, Alberta; Mexico City, Mexico; the expansion of our existing permanent
auction site at Orlando, Florida; and the acquisition of land near Tokyo, Japan. In addition, we
invested in computer software and hardware as part of our process improvement initiatives.
Exchange rate changes relating to capital assets held in currencies other than the United States
dollar resulted in a decrease in our reported capital assets on our consolidated balance sheet
of $14.8 million in the fourth quarter of 2008 compared to an increase of $0.9 million in the
equivalent period in 2007.
Summary of Quarterly Results
The following tables present our unaudited consolidated quarterly results of operations for each
of our last eight fiscal quarters. This data has been derived from our unaudited consolidated
financial statements, which were prepared on the same basis as our annual audited consolidated
financial statements and, in our opinion, include all normal recurring adjustments necessary for
the fair presentation of such information. These unaudited quarterly results should be read in
conjunction with our audited consolidated financial statements for the years ended December
31, 2008 and 2007, and our discussion above about the seasonality of our business.
Ritchie Bros. Auctioneers 2008 Annual Report
41
Q4 2008
Q3 2008
Q2 2008
Q1 2008
Gross auction proceeds(1)
$ 853,927
$ 767,718
$ 1,163,546
$ 781,969
Auction revenues
Net earnings
(3)
Net earnings per share — basic(6)
Net earnings per share — diluted(6)
$
$
81,693
27,140(2)(3)
0.26
0.26
$
$
75,909
11,934(2)
0.11
0.11
$ 115,822
45,919(2)(3)(4)
$
0.44
0.43
$
$
81,394
16,407(2)
0.16
0.16
Q4 2007
Q3 2007
Q2 2007
Q1 2007
Gross auction proceeds(1)
$ 873,306
$ 667,553
$ 945,256
$ 700,368
Auction revenues(5)
Net earnings
Net earnings per share — basic(6)
Net earnings per share — diluted(6)
$
$
82,129
16,966(2)
0.16
0.16
$
$
67,174
14,903(2)
0.14
0.14
$
$
94,054
26,555(2)
0.25
0.25
$
$
68,549
17,559(2)
0.17
0.17
(1) Gross auction proceeds represents the total proceeds from all items sold at our auctions. Gross auction proceeds is not a measure of revenue and is not presented in our consolidated financial
statements. See further discussion above under “Sources of Revenue and Revenue Recognition.”
(2) Net earnings included the foreign exchange impact of the U.S. dollar denominated bank debt held by a Canadian subsidiary, which is not expected to recur in future periods. See further discussion
above under “Overall Performance.” The foreign exchange impact of this bank debt in the fourth, third, second and first quarters of 2008 was a $3,778 loss ($3,230, or $0.03 per diluted share,
after tax), $1,276 loss ($1,091, or $0.01 per diluted share, after tax), $205 gain ($175, or less than $0.01 per diluted share, after tax), and $986 loss ($843, or $0.01 per diluted share, after
tax), respectively. The impact in the fourth, third, second and first quarters of 2007 was $24 gain ($21, or less than $0.01 per diluted share, after tax), $2,039 gain ($1,742, or $0.02 per diluted
share, after tax), $2,434 gain ($2,080, or $0.02 per diluted share, after tax), and $292 gain ($250, or less than $0.01 per diluted share, after tax), respectively.
(3) Net earnings in the fourth quarter of 2008 included the reclassification of foreign currency translation gain of $12,254 ($11,148, or $0.11 per diluted share, after tax) relating to the settlement
of foreign currency denominated intercompany loans. Amounts included in the first and second quarters of 2008 were $2,089 ($1,960, or $0.02 per diluted share, after tax) and $680 ($507,
or less than $0.01 per diluted share, after tax), respectively. We have highlighted these amounts as we do not expect these items to recur in future periods.
(4) Net earnings in the second quarter of 2008 included a gain of $8,304 recorded on the sale of our headquarters property in Richmond, British Columbia ($7,295, or $0.07 per basic and diluted
share, after tax). Excluding this amount, net earnings would have been $38,624, or $0.37 per basic and diluted share.
(5) Auction revenues have been reclassified to conform with the presentation adopted in 2008.
(6) Net earnings per share amounts have been adjusted on a retroactive basis to reflect the April 24, 2008 three-for-one stock split.
Liquidity and Capital Resources
December 31,
Working capital
2008
2007
% Change
$
47,109
$
58,207
-19%
Our cash position can fluctuate significantly from period to period, largely as a result of differences in the timing, size and number of auctions, the timing of the receipt of auction proceeds from buyers,
and the timing of the payment of net amounts due to consignors. We generally collect auction proceeds from buyers within seven days of the auction and pay out auction proceeds to consignors
approximately 21 days following an auction. If auctions are conducted near a period end, we may hold cash in respect of those auctions that will not be paid to consignors until after the period end.
Accordingly, we believe that working capital, including cash, is a more meaningful measure of our liquidity than cash alone.
There are a number of factors that could potentially impact our working capital, such as current global economic conditions, which may affect the financial stability of our buyers and their ability to
pay. However, we have substantial borrowing capacity in the event of any temporary working capital requirements. As at December 31, 2008, we have $512 million of unused credit facilities, of which
$170 million is a five-year committed credit facility expiring in January 2014, and $250 million is a three-year uncommitted credit facility expiring in November 2011. We believe our existing working
capital and established credit facilities are sufficient to satisfy our present operating requirements, as well as to fund future growth initiatives, such as property acquisitions and development.
Our access to capital resources has not been impacted by the current credit environment, and we do not expect that the current economic environment will have a material adverse impact on our
capital resources or our business in the near future. However, there can be no assurance that the cost or availability of future borrowings under our credit facilities will not be affected should there
be a prolonged capital market disruption.
Contractual Obligations
Payments Due by Year
Long-term debt obligations
Operating leases obligations
Other long-term obligations
Total contractual obligations
Total
In 2009
In 2010 and 2011
In 2012 and 2013
After 2013
$
67,803
114,910
60
$ 182,773
$
$
–
4,967
–
4,967
$
$
42,327
13,853
60
56,240
$
$
–
10,126
–
10,126
$
25,476
85,964
–
$ 111,440
Our long-term debt included in the table above is comprised mainly of term loans put in place in 2005 with original terms to maturity of five years, as well as a revolving loan drawn under a credit
facility that is available until January 2014. Our operating leases relate primarily to land on which we operate regional auction units and administrative offices. These properties are located in Canada,
the United States, Mexico, Italy, Spain, the Netherlands, the United Arab Emirates, Australia, Singapore, India, Japan and China.
In the normal course of our business, we will sometimes guarantee to a consignor a minimum level of proceeds in connection with the sale at auction of that consignor’s equipment. Our total
exposure at December 31, 2008 from these guarantee contracts was $17.9 million (compared to $55.7 million at December 31, 2007), which will be offset by the proceeds that we will receive from the
sale at auction of the related equipment. We do not record any liability in our financial statements in respect of these guarantee contracts, and they are not reflected in the contractual obligations
table above.
42
Ritchie Bros. Auctioneers 2008 Annual Report
Cash Flows
December 31,
Cash provided by (used in):
Operations
Investing
Financing
2008
2007
% Change
$
90,688
(110,211)
(6,194)
$ 101,269
(105,725)
(27,765)
-10%
-4%
78%
Similar to the discussion above about our cash position, our cash provided by operations can fluctuate significantly from period to period, largely as a result of differences in the timing, size and number
of auctions during the period, the timing of the receipt of auction proceeds from buyers, and the timing of the payment of net amounts due to consignors. During 2008, cash used for the investment
in capital assets exceeded our cash provided by operations. As we continue to execute our strategy to expand our presence in existing and new markets in the near term, cash used in investing
activities may continue to exceed cash provided by our operations. Depending on the timing of capital expenditures, we may be required to take on additional debt to fund these investments.
Capital asset additions were $145.0 million for 2008 compared to $113.2 million in 2007. Our capital expenditures in 2008 included construction of our new permanent auction sites in Houston,
Texas; Kansas City, Missouri; Minneapolis, Minnesota; Paris, France; Mexico City, Mexico; and Grande Prairie, Alberta. They also included the acquisition of land in Chilliwack, British Columbia;
Orlando, Florida and Tokyo, Japan; and investments in computer software and hardware as part of our process improvement initiatives. Exchange rate changes relating to capital assets held in
currencies other than the United States dollar, which are not reflected as capital asset additions on the consolidated statements of cash flows, resulted in a decrease of $26.0 million in the capital
assets reported on our consolidated balance sheet as at December 31, 2008, compared to an $18.2 million increase in 2007.
We intend to enhance our network of auction sites by adding facilities in selected locations around the world as appropriate opportunities arise, either to replace existing auction facilities or to
establish new sites. Our actual expenditure levels in future periods will depend largely on our ability to identify, acquire and develop suitable auction sites. We intend to add or replace at least two
auction sites per year.
For the next several years, we expect that our average annual capital expenditures will be in the range of $150 million per year, as we continue to invest in the expansion of our network of auction
facilities and fund our process improvement initiatives. Actual capital expenditures will vary, depending on the availability and cost of suitable expansion opportunities and prevailing business
and economic conditions. Depending on the scope of the required system improvements, the process improvement expenditures will likely be primarily for hardware, the development, purchase
and implementation of software, and related systems. We expect to fund future capital expenditures primarily from operating cash flows and credit facilities.
We paid regular cash dividends of $0.09 per share during the each of the quarters ended December 31 and September 30, 2008, and $0.08 per share during each of the quarters ended June 30 and
March 31, 2008. Total dividend payments were $35.6 million for 2008, compared to $31.3 million in 2007. On January 23, 2009, our Board of Directors declared a quarterly cash dividend of $0.09
per common share relating to the quarter ended December 31, 2008. The dividend will be payable on March 13, 2009 to shareholders of record on February 23, 2009 in the aggregate amount of
approximately $9.4 million. All dividends we pay are “eligible dividends” for Canadian income tax purposes unless indicated otherwise.
Long-term Debt and Credit Facilities
Our long-term debt and available credit facilities at December 31, 2008 and December 31, 2007 were as follows:
Long-term debt (including current portion of long-term debt)
$
67,411
$
45,085
December 31, 2008
December 31, 2007
% Change
50%
Revolving credit facilities – total available:
Revolving credit facilities – total unused:
Non-revolving credit facilities – total available and unused:
Total unused credit facilities
$ 287,792
$ 262,316
$ 250,000
$ 512,316
$ 132,039
$ 122,819
$
–
$ 122,819
Our credit facilities are with financial institutions in the United States, Canada, The Netherlands and The United Kingdom. Certain of the facilities include commitment fees applicable to the unused
credit amount. During 2008, we increased our revolving credit facilities in Canada by C$20 million and in Europe by approximately €8 million. In addition, we increased our global credit facilities
by $385 million in 2008. As at December 31, 2008, we had fixed rate and floating rate long-term debt with interest rates ranging from 2.27% to 5.61%. We were in compliance with all financial
covenants applicable to our debt at December 31, 2008.
Future scheduled interest expenses over the next five years under our existing term debt are as follows:
In 2009
In 2010
In 2011
In 2012
In 2013
Interest expense on long-term debt
$
2,808
$
2,555
$
657
$
579
$
579
Quantitative and Qualitative Disclosure about Market Risk
Although we cannot accurately anticipate the future effect of inflation on our financial condition or results of operations, inflation historically has not had a material impact on our operations.
Because we conduct operations in local currencies in countries around the world, yet have the United States dollar as our reporting currency, we are exposed to currency fluctuations and exchange rate
risk on all operations conducted in currencies other than the United States dollar. We cannot accurately predict the future effects of foreign currency fluctuations on our financial condition or results of
operations, or quantify their effects on the macroeconomic environment. For 2008, approximately 40% of our revenues were earned in currencies other than the United States dollar and approximately
50% of our operating costs were denominated in currencies other than the United States dollar. The proportion of revenues denominated in currencies other than the United States dollar in a given
period will differ from the annual proportion depending on the size and location of auctions held during the period. We have not adopted a long-term hedging strategy to protect against foreign currency
fluctuations associated with our operations denominated in currencies other than the United States dollar, but we will consider hedging specific transactions if we deem them appropriate.
During the year ended December 31, 2008, excluding the impact of the reclassification to net earnings of foreign currency translation gains $14.9 million, we recorded a decrease in our foreign currency
translation adjustment balance of $26.9 million, compared to an increase of $15.4 million in 2007. Our foreign currency translation adjustment arises from the translation at the end of each reporting
period of our net assets denominated in currencies other than the United States dollar into our reporting currency. Changes in this balance arise primarily from the strengthening or weakening of
non-United States currencies against the United States dollar.
We have not experienced significant interest rate exposure historically, as our term debts generally bear fixed rates of interest. However, borrowings under our new five-year global revolving credit
facility are only available at floating rates of interest. If our portfolio of floating rate debts increases, we will consider the use of interest rate swaps to mitigate our exposure to interest rate fluctuations.
As at December 31, 2008, we have a $25 million revolving loan that bears interest at bankers’ acceptance rate plus a margin.
Ritchie Bros. Auctioneers 2008 Annual Report
43
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements that have or are reasonably likely to have a current
or future material effect on our financial condition, changes in financial condition, revenues or
expenses, results of operations, liquidity, capital expenditures or capital resources.
Legal and Other Proceedings
From time to time we have been, and expect to continue to be, subject to legal proceedings and
claims in the ordinary course of our business. Such claims, even if lacking merit, could result
in the expenditure of significant financial and managerial resources. We are not aware of any
legal proceedings or claims that we believe will have, individually or in the aggregate, a material
adverse effect on us or on our financial condition or results of operation or that involve a claim
for damages, excluding interest and costs, in excess of 10% of our current assets.
Critical Accounting Policies and Estimates
In preparing our consolidated financial statements in conformity with Canadian GAAP, we must
make decisions that impact the reported amounts and 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, we apply judgments based
on our understanding and analysis of the relevant circumstances and historical experience.
On an ongoing basis, we evaluate these judgments and estimates, including consideration of
uncertainties relating to revenue recognition criteria, valuation of consignors’ equipment and
other assets subject to guarantee contracts, recoverability of capital assets, goodwill and future
income tax assets, and the assessment of possible contingent assets or liabilities that should
be recognized or disclosed in our consolidated financial statements. Actual amounts could
differ materially from those estimated by us at the time our consolidated financial statements
are prepared.
The following discussion of critical accounting policies and estimates is intended to supplement the
significant accounting policies presented as note 1 to our consolidated financial statements, which
summarizes the accounting policies and methods used in the preparation of those consolidated
financial statements. The policies and the estimates discussed below are included here because
they require more significant judgments and estimates in the preparation and presentation of
our consolidated financial statements than other policies and estimates.
Accounting for Income Taxes
We record income taxes relating to our business in each of the jurisdictions in which we operate.
We estimate our actual current tax exposure and the temporary differences resulting from differing
treatment of items for tax and book accounting purposes. These differences result in future income
tax assets and liabilities, which are included within our consolidated balance sheet. We must
then assess the likelihood that our future income tax assets will be recovered from future taxable
income. If recovery of these future tax assets is considered unlikely, we must establish a valuation
allowance. To the extent we either establish or increase a valuation allowance in a period, we
must include an expense within the tax provision in the consolidated statement of operations.
Significant management judgment is required in determining our provision for income taxes, our
measurement of future tax assets and liabilities, and any valuation allowance recorded against
our net future tax assets. If actual results differ from these estimates or we adjust these estimates
in future periods, we may need to establish a valuation allowance that could materially impact
the presentation of our financial position and results of operations.
Valuation of Goodwill
We assess the possible impairment of goodwill in accordance with standards issued by the
Canadian Institute of Chartered Accountants in Canada (known as the CICA) and the Financial
Accounting Standards Board in the United States. The standards stipulate that reporting entities
test the carrying value of goodwill for impairment annually at the reporting unit level using a
two-step impairment test; if events or changes in circumstances indicate that the asset might
be impaired, the test is conducted more frequently.
In the first step of the impairment test, the net book value of each reporting unit is compared with
its fair value. We operate as a single reporting unit, which is the consolidated public company.
As a result, we are able to refer to the stock market for a third party indicator of our company’s
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 our common shares may impact our assessment as to whether
goodwill has been impaired. These changes may result from changes in our business plans or
other factors, including those that are outside our control. We perform the goodwill test each
year as at September 30, or more frequently if events or changes in circumstances indicate
that goodwill might be impaired. We performed the test as at September 30, 2008 and again
at December 31, 2008 as a result of the significant adverse changes in the global economy and
capital markets, and determined that no impairment had occurred.
Changes in Accounting Policies
On January 1, 2008, we adopted CICA Handbook Section 1535, “Capital Disclosures”, Section 3862,
“Financial Instruments – Disclosures” and Section 3863, “Financial Instruments – Presentation.”
44
Ritchie Bros. Auctioneers 2008 Annual Report
Section 1535 requires the disclosure of both qualitative and quantitative information that
enables users of financial statements to evaluate the entity’s objectives, policies and processes
for managing capital. Sections 3862 and 3863 replace Section 3861, Financial Instruments –
Disclosure and Presentation, revising and enhancing its disclosure requirements, and carrying
forward its presentation requirements. Additional disclosure requirements pertaining to these
sections have been addressed in the notes to our consolidated financial statements. The adoption
of section 3863 had no impact on our presentation of financial instruments.
Recent Accounting Pronouncements
In February 2008, the CICA issued Section 3064, Goodwill and Intangible Assets, which is effective
for the Company on January 1, 2009. This section establishes new standards for the recognition
and measurement of intangible assets, but does not affect the accounting for goodwill. We are
currently assessing the impact of these new accounting standards on our financial statements
but we do not expect them to have a material impact on the presentation of our financial
condition or results of operations.
International Financial Reporting Standards
In February 2008, the CICA’s Accounting Standards Board confirmed its strategy of replacing
Canadian GAAP with International Financial Reporting Standards (or IFRS) for Canadian publicly
accountable enterprises. IFRS will be effective for our interim and annual financial statements
effective January 1, 2011. We have established a conversion plan and an IFRS project team,
and have commenced our review of the accounting policy differences between Canadian GAAP
and IFRS, as well as policy choices and elections allowed under IFRS, to ensure we adequately
address all the key elements of the conversion. At this time, the impact on our future financial
position or results of operations is not reasonably determinable, as the International Accounting
Standard Board will continue to issue new accounting standards during the period leading up
to the changeover date. We do anticipate a significant increase in disclosure resulting from the
adoption of IFRS and are continuing to assess the level of disclosure required as well as any
systems changes that may be necessary to gather and process the required information.
Disclosure Controls and Procedures
We have established and maintained disclosure controls and procedures in order to provide
reasonable assurance that material information relating to our company is made known to the
appropriate level of management in a timely manner.
Based on current securities legislation in Canada and the United States, our Chief Executive
Officer and Chief Financial Officer are required to certify that they have assessed the effectiveness
of our disclosure controls and procedures as at December 31, 2008.
We performed an evaluation under the supervision and with the participation of our Chief
Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and
procedures as at December 31, 2008. Based on that evaluation, we concluded that our disclosure
controls and procedures were effective as of that date to provide reasonable assurance that
information required to be disclosed by us in the reports that we file or submit is accumulated
and communicated to our management, including our principal executive and principal financial
officers, or persons performing similar functions, as appropriate to allow timely decisions
regarding required disclosure.
Internal Controls over Financial Reporting
Management is responsible for establishing and maintaining adequate internal controls
over financial reporting. Under the supervision and with the participation of management,
including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation
of the effectiveness of our internal controls over financial reporting based on the framework in
Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations
of the Treadway Commission. Based on our evaluation under the framework in Internal Control –
Integrated Framework, management concluded that our internal controls over financial reporting
were effective as of December 31, 2008.
The effectiveness of our internal controls over financial reporting as of December 31, 2008 has
been audited by KPMG LLP, the independent registered public accounting firm that audited our
December 31, 2008 consolidated annual financial statements, as stated in their report which
is included in our consolidated financial statements.
Changes in Internal Controls Over Financial Reporting
There has been no change in our internal control over financial reporting during 2008 that
has materially affected, or is reasonably likely to materially affect, our internal control over
financial reporting.
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 our business, and include, among others,
statements relating to:
our future performance;
growth of our operations;
growth of the world market for used trucks and equipment;
increases in the number of consignors and bidders participating in our auctions;
the impact of the current economic environment on our operations and our customers,
including the number of bidders and buyers attending our auctions and consignment
volumes at those auctions; the demand for equipment at our auctions; our bidders’ ability to
access credit to fund their purchases; the impact of the economic environment on equipment
prices and our business model;
our principal operating strengths, our competitive advantages, and the appeal of our
auctions to buyers and sellers of industrial assets;
our ability to draw consistently significant numbers of local and international end-user
bidders to our auctions;
our long-term mission to be the world’s largest marketplace for commercial and industrial
assets;
our people, including our ability to recruit, train, retain and develop the right people to
help us achieve our goals;
our places, including our ability to add the capacity necessary to accommodate our growth;
our ability to increase our market share in our core markets and regions and our ability to
expand into complimentary market sectors and new geographic markets, including our
ability to take advantage of growth opportunities in emerging markets; the acquisition and
development of auction facilities and the related impact on our capital expenditures;
our processes, including our process improvement initiatives and their effect on our business,
results of operations and capital expenditures, particularly our ability to grow revenues
faster than operating costs;
the relative percentage of gross auction proceeds represented by straight commission,
guarantee and inventory contracts;
our auction revenue rates, the sustainability of those rates, and the impact of our commission
rate and fee changes implemented in 2008, as well as the seasonality of gross auction
proceeds and auction revenues;
the performance of our agricultural division, and the variability on our agricultural sales
from period to period;
our direct expense and income tax rates, depreciation expenses and general and administrative
expenses;
our future capital expenditures;
our internet initiatives and the level of participation in our auctions by internet bidders;
the proportion of our revenues and operating costs denominated in currencies other than
the U.S. dollar or the effect of any currency exchange and interest rate fluctuations on our
results of operations; and
financing available to us and the sufficiency of our working capital to meet our financial
needs.
In some cases, you can identify forward-looking statements by terms such as “anticipate,”
“believe,” “could,” “continue,” “estimate,” “expect,” “intend,” “may,” “might,” “ongoing,”
“plan,” “potential,” “predict,” “project,” “should,” “will,” “would,” or the negative of these
terms, and similar expressions intended to identify forward-looking statements. Our forward-
looking statements are not guarantees of future performance and involve risks, uncertainties
and assumptions that are difficult to predict. While we have not described all potential risks
related to our business and owning our common shares, the important factors listed under
“Risk Factors” are among those that may affect our performance and could cause our actual
financial and operational results to differ significantly from our predictions. Except as required
by applicable securities law and regulations of relevant exchanges, we do not intend to update
publicly any forward-looking statements, even if our predictions have been affected by new
information, future events or other developments. You should consider our forward-looking
statements in light of these and other relevant factors.
Risk Factors
Our business is subject to a number of risks and uncertainties, and our past performance is no
guarantee of our performance in future periods. Some of the more important risks that we face
are outlined below and holders of our common shares should consider these risks. The risks
and uncertainties described below are not the only risks and uncertainties we face. Additional
risks and uncertainties not currently known to us or that we currently deem immaterial also may
impair our business operations. If any of the following risks actually occur, our business, results
of operations and financial condition would suffer.
We may incur losses as a result of our guarantee and outright purchase contracts and
advances to consignors.
Approximately 75% of our business is conducted on a straight commission basis. In certain
other situations we will either offer to:
guarantee a minimum level of sale proceeds to the consignor, regardless of the ultimate
selling price of the consignment at the auction; or
purchase the equipment outright from the consignor for sale in a particular auction.
The level of guaranteed proceeds or inventory purchase price is based on appraisals performed
on equipment by our internal personnel. Inaccurate appraisals could result in guarantees or
inventory values that exceed the realizable auction proceeds. If auction proceeds are less than
the guaranteed amount, our commission will be reduced or, if sufficiently lower, we will incur a
loss. If auction proceeds are less than the purchase price we paid for equipment that we take
into inventory temporarily, we will incur a loss. Because all of our auctions are unreserved,
there is no way for us to protect against these types of losses by bidding on or acquiring any of
the items at the auction. In recent periods, guarantee and inventory contracts have generally
represented approximately 25% of our annual gross auction proceeds.
Occasionally we advance to consignors a portion of the estimated auction proceeds prior to
the auction. We generally make these advances only after taking possession of the assets to
be auctioned and upon receipt of a security interest in the assets to secure the obligation. If
we were unable to auction the assets or if auction proceeds were less than amounts advanced,
we could incur a loss.
We may incur losses if we are required to make payments to buyers and lienholders because
we are unable to deliver clear title on the assets sold at our auctions.
In jurisdictions where title registries are commercially available, we guarantee to our buyers
that each item purchased at our auctions is free of liens and other encumbrances, up to the
purchase price paid at our auction. If we are unable to deliver clear title, we provide the buyer with
a full refund of the purchase price. While we exercise considerable effort to ensure that all liens
have been identified and, if necessary, discharged prior to the auction, we occasionally do not
properly identify or discharge liens and have had to make payments to the relevant lienholders
or purchasers. We will incur a loss if we are unable to recover sufficient funds from the consignors
to offset these payments, and aggregate losses from these payments could be material.
We may have difficulties sustaining and managing our growth.
One of the main elements of our strategy is to continue to grow our business, primarily by increasing
our presence in markets in which we already operate and by expanding into new geographic
markets and market segments in which we have not had a significant presence in the past. As
part of this strategy, we may from time to time acquire additional assets or businesses from third
parties. We may not be successful in growing our business or in managing this growth. For us to
grow our business successfully, we need to accomplish a number of objectives, including:
recruiting and retaining suitable sales and managerial personnel;
identifying and developing new geographic markets and market sectors;
identifying and acquiring, on terms favourable to us, suitable land on which to build
new auction facilities and, potentially, businesses that might be appropriate acquisition
targets;
managing expansion successfully;
obtaining necessary financing on terms favourable to us, and securing the availability of
our credit facilities to fund our growth initiatives;
receiving necessary authorizations and approvals from governments for proposed development
or expansion;
integrating successfully new facilities and any acquired businesses into our existing
operations;
achieving acceptance of the auction process in general by potential consignors, bidders
and buyers;
establishing and maintaining favourable relationships with consignors, bidders and buyers
in new markets and market sectors, and maintaining these relationships in our existing
markets;
succeeding against local and regional competitors in new geographic markets;
capitalizing on changes in the supply of and demand for industrial assets, in our existing
and new markets; and
designing, developing and implementing business processes and operating systems that
are able to support profitable growth.
We will likely need to hire additional employees to manage our growth. In addition, growth may
increase the geographic scope of our operations and increase demands on both our operating
and financial systems. These factors will increase our operating complexity and the level of
responsibility of existing and new management personnel. It may be difficult for us to attract
Ritchie Bros. Auctioneers 2008 Annual Report
45
and retain qualified sales personnel, managers and employees, and our existing operating and
financial systems and controls may not be adequate to support our growth. We may not be able
to improve our systems and controls as a result of increased costs, technological challenges,
or lack of qualified employees. Our past results and growth may not be indicative of our future
prospects or our ability to expand into new markets, many of which may have different competitive
conditions and demographic characteristics than our existing markets.
In addition, we continue to pursue our strategy of investing in our people, places and processes to
give us the capacity to handle expected future growth, including investments in frontier markets
that may not generate profitable growth in the near term. Planning for future growth requires
investments to be made now in anticipation of growth that may not materialize, and if we are not
successful growing our gross auction proceeds our earnings may be impacted. A large component
of our G&A is considered fixed costs that we will incur regardless of gross auction proceeds growth.
There can be no assurances that our gross auction proceeds and auction revenues will grow at a
more rapid rate than our fixed costs, especially in the event of a deep and prolonged recession,
which would have a negative impact on our margins and earnings per share.
Disruptions to credit and financial markets, economic uncertainty and a sustained economic
downturn could harm our operations.
The current global economic and financial market crisis has caused, among other things, a general
tightening in credit markets, lower levels of liquidity, and increases in default and bankruptcy
rates, all of which may have a negative impact on our operations, financial condition and liquidity
and ability to grow our business. Our operations and access to our cash balances are dependent
upon the economic viability of our key suppliers and the various financial institutions we utilize.
Our operations may be disrupted if we cannot obtain products and services necessary for our
auction operations from our key suppliers, or if we lose access to our cash balances. In addition,
our auction revenues may decrease if our consignors choose not to sell their assets as a result of
current economic conditions, or if our buyers are unable to obtain financing for assets purchases,
or if our customers are in financial distress. In addition, our lenders may be unable to advance
funds to us under existing credit facilities, which could harm our liquidity and ability to operate or
grow our business. The timing and nature of any recovery in credit and financial markets remain
uncertain, and there can be no assurance that market conditions will improve in the near future
and that our results of operations will not be adversely affected.
Decreases in the supply of, demand for, or market values of industrial assets, primarily used
industrial equipment, could harm our business.
Our auction revenues could be reduced if there was significant erosion in the supply of, demand
for, or market values of used industrial equipment, which would affect our financial condition
and results of operations. We have no control over any of the factors that affect the supply of,
and demand for, used industrial equipment, and the circumstances that cause market values for
industrial equipment to fluctuate including but not limited to economic uncertainty, disruptions
to credit and financial markets, a sustained economic recession, lower commodity prices, and
our customers’ restricted access to capital, are beyond our control. Any increase in the volume
of equipment at our auctions may not be sufficient to offset declines in the market value for
that equipment as a result of the current economic environment. In addition, price competition
and availability of industrial equipment directly affect the supply of, demand for, and market
value of used industrial equipment. Climate change initiatives, including significant changes
to engine emission standards applicable to industrial equipment, may also impact the supply
of, demand for or market values of industrial equipment.
Damage to our reputation for fairness, integrity and conducting only unreserved auctions
could harm our business.
Strict adherence to the unreserved auction process is one of our founding principles and,
we believe, one of our most significant competitive advantages. Closely related to this is our
reputation for fairness and honesty in our dealings with our customers. Our ability to attract
new customers and continue to do business with existing customers could be harmed if our
reputation for fairness, integrity and conducting only unreserved auctions was damaged. If we
are unable to maintain our reputation and police and enforce our policy of conducting unreserved
auctions, we could lose business and our results of operations would suffer.
Competition in our core markets could result in reductions in our revenues and profitability.
The used truck and equipment sectors of the global industrial equipment market, and the
auction segment of those markets, are highly fragmented. We compete directly for potential
purchasers of industrial equipment with other auction companies. Our indirect competitors
include equipment manufacturers, distributors and dealers that sell new or used equipment,
and equipment rental companies. When sourcing equipment to sell at our auctions, we compete
with other auction companies, equipment dealers and brokers, and equipment owners that
have traditionally disposed of equipment in private sales.
Our direct competitors are primarily regional auction companies. Some of our indirect competitors
have significantly greater financial and marketing resources and name recognition than we do.
New competitors with greater financial and other resources 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 our entry into those
markets. They may also compete against us through internet-based services. If existing or future
46
Ritchie Bros. Auctioneers 2008 Annual Report
competitors seek to gain or retain market share by reducing commission rates, we may also be
required to reduce commission rates, which may reduce our revenue and harm our operating
results and financial condition, or we may lose market share.
Our substantial international operations expose us to foreign exchange rate fluctuations and
political and economic instability that could harm our results of operations.
We conduct business in many countries around the world and intend to continue to expand our
presence in international markets, including emerging markets. Fluctuating currency exchange rates,
acts of terrorism or war, and changing social, economic and political conditions and regulations,
including income tax and accounting regulations, and political interference, may negatively affect
our business in international markets and our related results of operations. Currency exchange
rate fluctuations between the different countries in which we conduct our operations impact the
purchasing power of buyers, the motivation of consignors, asset values and asset flows between
various countries, including those in which we do not have operations. These factors and other
global economic conditions may harm our business and our operating results.
Although we report our financial results in United States dollars, a significant portion of our
auction revenues is generated at auctions held outside the United States, mostly in currencies
other than the United States dollar. Currency exchange rate changes against the United States
dollar, particularly for the Canadian dollar and the Euro, could affect the presentation of our
results in our financial statements and cause our earnings to fluctuate.
We may incur losses as a result of legal and other claims.
We are subject to legal and other claims that arise in the ordinary course of our business. While
the results of these claims have not historically had a material effect on our business, financial
condition or results of operations, we may not be able to defend ourselves adequately against
these claims in the future and we may incur losses. Aggregate losses from and the legal fees
associated with these claims could be material.
Our operating results are subject to quarterly variations.
Historically, our revenues and operating results have fluctuated from quarter to quarter. We expect
to continue to experience these fluctuations as a result of the following factors, among others:
the size, timing and frequency of our auctions;
the seasonal nature of the auction business in general, with peak activity typically occurring
in the second and fourth calendar quarters, mainly as a result of the seasonal nature of the
construction and natural resources industries;
the performance of our underwritten business (guarantee and outright purchase
contracts);
general economic conditions in our markets; and
the timing of acquisitions and development of auction facilities and related costs.
In addition, we usually incur substantial costs when entering new markets, and the profitability
of operations at new locations is uncertain as a result of the increased variability in the number
and size of auctions at new sites. These and other factors may cause our future results to fall
short of investor expectations or not to compare favourably to our past results.
We do not currently have a formal business continuity plan, which exposes our business
to risks.
We depend on our information and other systems for the continuity and effective operation
of our business. In the event of a significant interruption to our business, or the loss of key
systems as a result of a natural or other disaster, we do not currently have plans in place to
ensure that our business continues to operate in an effective manner. Although we are in the
process of implementing a formal business continuity plan, our business, results of operations
and financial conditions could be materially affected in the event of a significant interruption
of our business.
We are in the process of implementing a formal disaster recovery plan, including a data center
co-location plan. However, these plans are not yet complete. If we were subject to a disaster,
serious security breach or threat to business continuity, it could materially damage our business,
results of operations and financial condition.
Our internet-related initiatives are subject to technological obsolescence and potential service
interruptions and may not contribute to improved operating results over the long-term; in addition,
we may not be able to compete with technologies implemented by our competitors.
We have invested significant resources in the development of our internet platform, including
our rbauctionBid-Live internet bidding service. We use and rely on intellectual property owned
by third parties, which we license for use in providing our rbauctionBid-Live service. Our internet
technologies may not result in any material long-term improvement in our results of operations
or financial condition and may require further significant investment to avoid obsolescence. We
may also not be able to continue to adapt our business to internet commerce and we may not be
able to compete effectively against internet auction services offered by our competitors.
The success of our rbauctionBid-Live service and other services that we offer over the internet,
including equipment-searching capabilities and historical price information, will continue to
depend largely on the performance and reliability of the hardware and software we utilize, our
ability to use suitable intellectual property licensed from third parties, further development
and maintenance of our infrastructure and the internet in general. Our ability to offer online
services depends on the performance of the internet, as well as some of our internal hardware
and software systems.
International bidders and consignors could be deterred from participating in our auctions if
governmental bodies impose additional export or import regulations or additional duties,
taxes or other charges on exports or imports. Reduced participation by international bidders
and consignors could reduce gross auction proceeds and harm our business, financial condition
and results of operations.
Our insurance may be insufficient to cover losses that may occur as a result of our
operations.
We maintain property and general liability insurance. This insurance may not remain available
to us at commercially reasonable rates, and the amount of our coverage may not be adequate
to cover all liability that we may incur. Our auctions generally involve the operation of large
equipment close to a large number of people, and despite our focus on safe work practices, an
accident could damage our facilities or injure auction attendees. Any major accident could harm
our reputation and our business. In addition, if we were held liable for amounts exceeding the
limits of our insurance coverage or for claims outside the scope of our coverage, the resulting
costs could harm our results of operations and financial condition.
Our business is subject to risks relating to our ability to safeguard the security and privacy
of our customers’ confidential information.
We maintain proprietary databases containing confidential personal information about our
customers and the results of our auctions, and we must safeguard the security and privacy of
this information. Despite our efforts to protect this information, we face the risk of inadvertent
disclosure of this sensitive information or an intentional breach of our security measures.
Security breaches could damage our reputation and expose us to a risk of loss or litigation and
possible liability. We may be required to make significant expenditures to protect against security
breaches or to alleviate problems caused by any breaches. Our insurance policies may not be
adequate to reimburse us for losses caused by security breaches.
We may not continue to pay regular cash dividends.
We declared and paid total quarterly cash dividends of $0.34 per outstanding common share in
2008. Any decision to declare and pay dividends in the future will be made at the discretion of
our Board of Directors, after taking into account our operating results, financial condition, cash
requirements, financing agreement restrictions and other factors our Board may deem relevant.
We may be unable or may elect not to continue to declare and pay dividends, even if necessary
financial conditions are met and sufficient cash is available for distribution.
Certain global conditions may affect our ability to conduct successful auctions.
Like most businesses with global operations, we are subject to the risk of certain global conditions,
such as pandemics or other disease outbreaks, that could restrict our customers’ travel patterns.
If this situation were to occur, we may not be able to generate sufficient equipment consignments
to sustain our business or to attract enough bidders to our auctions to achieve world fair market
values for the items we sell. This could harm our results of operations and financial condition.
The impact of the adoption of International Financial Reporting Standards IFRS in 2011
is uncertain.
We, as a publicly accountable Canadian enterprise, are required by the Canadian Accounting
Standards Board to adopt IFRS beginning January 2011. We have not yet completely determined
the impact of the adoption of IFRS on our consolidated financial statements, or how our reported
financial results will differ from those reported under current Canadian GAAP.
“Viruses”, “worms” and other similar programs, which have in the past caused periodic
outages and other internet access delays, may in the future interfere with the performance of
the internet and some of our internal systems. These outages and delays could reduce the level
of service we are able to offer over the internet. We could lose customers and our reputation
could be harmed if we were unable to provide services over the internet at an acceptable level
of performance or reliability.
The availability and performance of our internal technology infrastructure are critical to
our business.
The satisfactory performance, reliability and availability of our web site, enterprise resource
planning system, processing systems and network infrastructure are important to our reputation
and our business. We will need to continue to expand and upgrade our technology, transaction
processing systems and network infrastructure both to meet increased usage of our rbauctionBid-
Live service and other services offered on our website and to implement new features and
functions. Our business and results of operations could be harmed if we were unable to expand
and upgrade in a timely manner our systems and infrastructure to accommodate any increases
in the use of our internet services, or if we were to lose access to or the functionality of our
internet systems for any reason.
We use both internally developed and licensed systems for transaction processing and accounting,
including billings and collections processing. We have recently improved these systems to
accommodate growth in our business. If we are unsuccessful in continuing to upgrade our
technology, transaction processing systems or network infrastructure to accommodate increased
transaction volumes, it could harm our operations and interfere with our ability to expand our
business.
Our business could be harmed if we lost the services of one or more key personnel.
The growth and performance of our business depends to a significant extent on the efforts and
abilities of our executive officers and senior managers. Our business could be harmed if we lost the
services of some of these individuals. We do not maintain key man insurance on the lives of any
of our executive officers. Our future success largely depends on our ability to attract, develop and
retain skilled employees in all areas of our business, and to plan effectively for succession.
Our expenses may increase significantly or our operations and ability to expand may be
limited as a result of environmental and other regulations.
A variety of federal, provincial, state and local laws, rules and regulations, including local tax
and accounting rules, apply to our business. These relate to, among other things, the auction
business, imports and exports of equipment, worker safety, privacy of customer information, and
the use, storage, discharge and disposal of environmentally sensitive materials. Complying with
revisions to laws, rules and regulations could result in an increase in expenses and a deterioration
of our financial performance. Failure to comply with applicable laws, rules and regulations could
result in substantial liability to us, suspension or cessation of some or all of our operations,
restrictions on our ability to expand at present locations or into new locations, requirements for
the acquisition of additional equipment or other significant expenses or restrictions.
The development or expansion of auction sites depends upon receipt of required licenses, permits
and other governmental authorizations. Our inability to obtain these required items could harm
our business. Additionally, changes or concessions required by regulatory authorities could result
in significant delays in, or prevent completion of, such development or expansion.
Under some environmental laws, an owner or lessee of, or other person involved in, real estate
may be liable for the costs of removal or remediation of hazardous or toxic substances located
on or in, or emanating from, the real estate, and related costs of investigation and property
damage. These laws often impose liability without regard to whether the owner, lessee or other
person knew of, or was responsible for, the presence of the hazardous or toxic substances.
Environmental contamination may exist at our owned or leased auction sites, or at other sites
on which we may conduct auctions, or properties that we may be selling by auction, from prior
activities at these locations or from neighbouring properties. In addition, auction sites that we
acquire or lease in the future may be contaminated, and future use of or conditions on any of
our properties or sites could result in contamination. The costs related to claims arising from
environmental contamination of any of these properties could harm our financial condition
and results of operations.
There are restrictions in the United States and Europe that may affect the ability of equipment
owners to transport certain equipment between specified jurisdictions. One example of these
restrictions is environmental certification requirements in the United States, which prevent non-
certified equipment from entering into commerce in the United States. If these restrictions, or
changes to environmental laws, were to inhibit materially the ability of customers to ship equipment
to or from our auction sites, they could reduce gross auction proceeds and harm our business.
Ritchie Bros. Auctioneers 2008 Annual Report
47
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, 2008 and 2007 and the consolidated statements of operations,
shareholders’ equity, comprehensive income and cash flows for each of the years in the three-
year period ended December 31, 2008. 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 also have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the Company’s internal control over financial reporting as of
December 31, 2008, based on the criteria established in Internal Control—Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and
our report dated February 23, 2009 expressed an unqualified opinion on the effectiveness of
the Company’s internal control over financial reporting.
We conducted our audits in accordance with Canadian generally accepted auditing standards.
With respect to the consolidated financial statements for the years ended December 31, 2008
and 2007, we also conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). 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, 2008 and 2007 and the results of its
operations and its cash flows for each of the years in the three-year period ended December 31,
2008 in accordance with Canadian generally accepted accounting principles.
Chartered Accountants
Vancouver, Canada
February 23, 2009
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors of Ritchie Bros. Auctioneers Incorporated
We have audited Ritchie Bros. Auctioneers Incorporated (the “Company”)’s internal control
over financial reporting as of December 31, 2008, based on the criteria established in Internal
Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO). The Company’s management is responsible for maintaining effective
internal control over financial reporting and for its assessment of the effectiveness of internal
control over financial reporting included in the section entitled Internal Controls over Financial
Reporting included in Management’s Discussion and Analysis. Our responsibility is to express
an opinion the Company’s internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether effective internal control over financial reporting was
maintained in all material respects. Our audit included obtaining an understanding of internal
control over financial reporting, assessing the risk that a material weakness exists, and testing
and evaluating the design and operating effectiveness of internal control based on the assessed
risk. Our audit also included performing such other procedures as we considered necessary in
the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial statements
for external purposes in accordance with generally accepted accounting principles. A company’s
internal control over financial reporting includes those policies and procedures that (1) pertain to
the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions
and dispositions of the assets of the company; (2) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial statements in accordance with
generally accepted accounting principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of management and directors of the
company; and (3) provide reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the company’s assets that could have a material
effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or
detect misstatements. Also, projections of any evaluation of effectiveness to future periods are
subject to the risk that controls may become inadequate because of changes in conditions, or
that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, the Company maintained, in all material respects, effective internal control
over financial reporting as of December 31, 2008, based on the criteria established in Internal
Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO).
We also have conducted our audits on the consolidated financial statements in accordance with
Canadian generally accepted auditing standards. With respect to the years ended December
31, 2008 and 2007, we also have conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Our report dated February 23, 2009
expressed an unqualified opinion on those consolidated financial statements.
Chartered Accountants
Vancouver, Canada
February 23, 2009
48
Ritchie Bros. Auctioneers 2008 Annual Report
Consolidated Statements of Operations
(Expressed in thousands of United States dollars, except share and per share amounts)
Years ended December 31,
Auction revenues
Direct expenses
Expenses:
Depreciation and amortization
General and administrative
Earnings from operations
Other income (expense):
Interest expense
Interest income
Foreign exchange gain (loss)
Gain on disposition of capital assets
Other
Earnings before income taxes
Income tax expense (recovery) (note 8):
Current
Future
Net earnings
Net earnings per share (note 6(e)):
Basic
Diluted
2008
354,818
49,750
305,068
24,764
164,556
189,320
115,748
(859)
4,994
11,656
6,370
1,375
23,536
$
2007
311,906
46,481
265,425
19,417
144,816
164,233
101,192
(1,206)
7,393
2,802
243
1,471
10,703
139,284
111,895
39,101
(1,217)
37,884
101,400
0.97
0.96
33,797
2,115
35,912
75,983
0.73
0.72
$
$
$
$
$
2006
257,857
40,457
217,400
15,017
117,714
132,731
84,669
(1,172)
6,664
(451)
1,277
1,079
7,397
92,066
33,757
1,091
34,848
57,218
0.55
0.55
$
$
$
Weighted average number of shares outstanding
104,713,375
104,266,113
103,639,380
See accompanying notes to consolidated financial statements.
Approved on behalf of the Board:
Beverley A. Briscoe
Director
Peter J. Blake
Director and Chief Executive Officer
Ritchie Bros. Auctioneers 2008 Annual Report
49
Consolidated Balance Sheets
(Expressed in thousands of United States dollars)
December 31,
Assets
Current assets:
Cash and cash equivalents
Accounts receivable
Inventory
Advances against auction contracts
Prepaid expenses and deposits
Other assets
Income taxes receivable
Future income tax asset (note 8)
Capital assets (note 4)
Other assets
Goodwill
Future income tax asset (note 8)
Liabilities and Shareholders’ Equity
Current liabilities:
Auction proceeds payable
Accounts payable and accrued liabilities
Current portion of long-term debt (note 5)
Long-term debt (note 5)
Other liabilities
Future income tax liability (note 8)
Shareholders’ equity:
Share capital (note 6)
Additional paid-in capital
Retained earnings
Accumulated other comprehensive income (loss)
Commitments and contingencies (note 9)
See accompanying notes to consolidated financial statements.
Consolidated Statements of Shareholders’ Equity
(Expressed in thousands of United States dollars)
$
Share
capital
79,844
6,066
–
–
–
–
–
85,910
4,313
–
–
–
–
–
90,223
4,143
–
–
–
–
–
$
Additional
paid-in
capital
8,929
(881)
391
2,020
–
–
–
10,459
(688)
722
1,978
–
–
–
12,471
(625)
198
2,311
–
–
–
–
94,366
$
–
14,355
$
Balance, December 31, 2005
Exercise of stock options
Stock compensation tax adjustment
Stock compensation expense
Net earnings
Cash dividends paid
Foreign currency translation adjustment
Balance, December 31, 2006
Exercise of stock options
Stock compensation tax adjustment
Stock compensation expense
Net earnings
Cash dividends paid
Foreign currency translation adjustment
Balance, December 31, 2007
Exercise of stock options
Stock compensation tax adjustment
Stock compensation expense
Net earnings
Cash dividends paid
Foreign currency translation adjustment
Reclassification to net earnings of
foreign currency translation gains
Balance, December 31, 2008
See accompanying notes to consolidated financial statements.
50
Ritchie Bros. Auctioneers 2008 Annual Report
2008
2007
$ 107,275
60,375
9,711
285
12,088
752
2,674
780
193,940
453,642
1,164
40,233
509
$ 150,315
67,716
6,031
658
5,766
–
5,921
778
237,185
390,044
2,031
42,612
1,015
$ 689,488
$ 672,887
$
62,717
84,114
–
146,831
67,411
60
10,024
224,326
94,366
14,355
357,845
(1,404)
465,162
$
80,698
98,039
241
178,978
44,844
385
13,564
237,771
90,223
12,471
292,046
40,376
435,116
$ 689,488
$ 672,887
Retained
earnings
$ 217,080
–
–
–
57,218
(26,949)
–
247,349
–
–
–
75,983
(31,286)
–
292,046
–
–
–
101,400
(35,601)
–
–
$ 357,845
Accumulated
other
comprehensive
income (loss)
$
19,330
–
–
–
–
–
5,589
24,919
–
–
–
–
–
15,457
40,376
–
–
–
–
–
(26,896)
(14,884)
(1,404)
$
Total
shareholders’
equity
$ 325,183
5,185
391
2,020
57,218
(26,949)
5,589
368,637
3,625
722
1,978
75,983
(31,286)
15,457
435,116
3,518
198
2,311
101,400
(35,601)
(26,896)
(14,884)
$ 465,162
Consolidated Statements of Comprehensive Income
(Expressed in thousands of United States dollars)
Years ended December 31,
2008
2007
2006
Net earnings
Other comprehensive income (loss):
Foreign currency translation adjustment
Reclassification to net earnings of
foreign currency translation gains
Comprehensive income
See accompanying notes to consolidated financial statements.
Consolidated Statements of Cash Flows
(Expressed in thousands of United States dollars)
Years ended December 31,
Cash provided by (used in):
Operating activities:
Net earnings
Items not involving cash:
Depreciation and amortization
Stock compensation expense
Future income taxes
Foreign exchange loss (gain)
Net gain on disposition of capital assets
Changes in non-cash working capital:
Accounts receivable
Inventory
Advances against auction contracts
Prepaid expenses and deposits
Income taxes receivable
Income taxes payable
Auction proceeds payable
Accounts payable and accrued liabilities
Other
Investing activities:
Acquisition of business
Capital asset additions
Proceeds on disposition of capital assets
Decrease (increase) in other assets
Financing activities:
Issuance of share capital
Dividends on common shares
Issuance of short-term debt
Repayment of short-term debt
Issuance of long-term debt
Repayment of long-term debt
Other
Effect of changes in foreign currency rates on cash and cash equivalents
Increase (decrease) in cash and cash equivalents
Cash and cash equivalents, beginning of year
Cash and cash equivalents, end of year
Supplemental information:
Interest paid
Income taxes paid
See accompanying notes to consolidated financial statements.
$ 101,400
$
75,983
$
57,218
(26,896)
(14,884)
$
59,620
15,457
–
5,589
–
$
91,440
$
62,807
2008
2007
2006
$ 101,400
$
75,983
$
57,218
24,764
2,311
(1,217)
(11,656)
(6,370)
(6,770)
(4,758)
100
(6,987)
3,420
–
8,355
(9,704)
(2,200)
90,688
–
(145,024)
33,813
1,000
(110,211)
3,518
(35,601)
37,077
(36,459)
25,566
(238)
(57)
(6,194)
(17,323)
(43,040)
150,315
$ 107,275
$
3,476
34,629
19,417
1,978
2,115
(2,802)
(243)
(22,198)
244
847
153
1,717
(3,880)
3,138
26,922
(2,122)
101,269
(597)
(113,219)
8,455
(364)
(105,725)
3,625
(31,286)
33,415
(33,908)
–
(251)
640
(27,765)
10,515
(21,706)
172,021
$ 150,315
$
3,078
36,089
15,017
2,020
1,091
451
(1,277)
(14,097)
4,663
(1,207)
(2,353)
(3,601)
(10,632)
660
19,766
(2,080)
65,639
(2,300)
(51,239)
5,160
1,832
(46,547)
5,185
(26,949)
–
–
–
(227)
335
(21,656)
5,336
2,772
169,249
$ 172,021
$
2,186
47,924
Ritchie Bros. Auctioneers 2008 Annual Report
51
Notes to Consolidated Financial Statements
(Tabular dollar amounts expressed in thousands of United States dollars, except share and per share amounts)
Years ended December 31, 2008, 2007 and 2006
1. Significant accounting policies:
(a) Basis of presentation:
These consolidated financial statements present the financial position, results of operations and cash flows of Ritchie Bros. Auctioneers Incorporated (the “Company”), a company
amalgamated in December 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
13, 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 as follows:
Asset
Basis
Improvements
Buildings
Computer software
Yard equipment
Automotive equipment
Computer equipment
Office equipment
Leasehold improvements
declining balance
straight-line
straight-line
declining balance
declining balance
straight-line
declining balance
straight-line
Rate/term
10%
30 years
3—5 years
20—30%
30%
3 years
20%
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.
Legal obligations to retire tangible long-lived assets and assets under operating leases are recorded at the fair value in the period in which they are incurred, if a reasonable estimate
of fair value can be made, with a corresponding increase in asset value. The liability is accreted to face value over the life of the asset. The Company does not have any significant
asset retirement obligations.
(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 are comprised mostly of auction commissions, which are earned by the Company acting as an agent for consignors of equipment and other assets, but also include
net profits on the sale of inventory, internet and proxy purchase fees, administrative and documentation fees on the sale of certain lots, and auction advertising fees. 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 and other assets sold at auction. The majority of auction commissions
is earned as a pre-negotiated 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 typically includes a pre-negotiated percentage of the guaranteed gross proceeds plus a percentage of proceeds in excess of the guaranteed amount. If actual auction
proceeds are less than the guaranteed amount, commission is reduced; if proceeds are sufficiently lower, the Company can incur a loss on the sale. Losses, if any, resulting from
guarantee contracts are recorded in the period in which the relevant auction is completed. If a loss relating to a guarantee contract to be sold after a period end is known at the
financial statement reporting date, the loss is accrued in the financial statements for that period. The Company’s exposure from these guarantee contracts fluctuates over time (see
note 9(b)).
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 new tax rate is substantively enacted. Future tax benefits, such as non-capital
loss carry forwards, 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 usually the currency of the country of residency; in some
cases it is the United States dollar. Each of the Company’s foreign operations is considered to be self-sustaining. Accordingly, the financial statements of the Company’s operations
that are not denominated in United States dollars have been translated into United States dollars using the exchange rate at the end of each reporting period for asset and liability
amounts and the average exchange rate for each reporting period for amounts included in the determination of earnings. Any gains or losses from the translation of asset and liability
amounts have been included in accumulated other comprehensive income, 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.
52
Ritchie Bros. Auctioneers 2008 Annual Report
Notes to Consolidated Financial Statements
(Tabular dollar amounts expressed in thousands of United States dollars, except share and per share amounts)
Years ended December 31, 2008, 2007 and 2006
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, the valuation of consignors’ equipment and other assets subject to guarantee contracts, and the estimation of the utilization of future income tax asset balances.
Actual results could differ from such estimates and assumptions.
(j)
Financial instruments:
The Company classifies its cash and cash equivalents as held-for-trading, which is measured at fair value with changes in fair value being recognized in net earnings. Accounts
receivable are classified as loans and receivables, which are measured at amortized cost. Accounts payable and accrued liabilities, auction proceeds payable, and long-term debt are
classified as other financial liabilities, which are measured at amortized cost.
Transaction costs are offset against the outstanding principal of the related debts and are amortized using the effective interest rate method.
All derivative instruments, including embedded derivatives, are recorded in the financial statements at fair value unless exempted from derivative treatment as a normal purchase
and sale. All changes in their fair value are recorded in income unless cash flow hedge accounting is applied, in which case changes in fair value are recorded in other comprehensive
income.
(k) 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 6(e)).
(l)
Stock-based compensation:
The Company has a stock-based compensation plan, which is described in note 6(c) and (d). The Company uses the fair value based method to account for employee stock-based
compensation. Under the fair value based method, compensation cost attributable to options granted to employees is measured at the fair value of the underlying option at the grant
date using the Black-Scholes option pricing model. Compensation expense is recognized on a straight-line basis over the vesting period of the underlying option. Any consideration
paid by employees on exercise of stock options or purchase of stock is credited to share capital.
(m) Comparative figures:
Certain comparative figures have been reclassified to conform with the presentation adopted in the current year.
2. Changes in accounting policies:
On January 1, 2008, the Company adopted The Canadian Institute of Chartered Accountants (“CICA”) Handbook Section 1535, Capital Disclosures, Section 3862, Financial Instruments –
Disclosures and Section 3863, Financial Instruments – Presentation. Section 1535 requires the disclosure of both qualitative and quantitative information that enables users of financial
statements to evaluate the entity’s objectives, policies and processes for managing capital. Sections 3862 and 3863 replace Section 3861, Financial Instruments – Disclosure and Presentation,
revising and enhancing its disclosure requirements, and carrying forward its presentation requirements. Disclosure requirements pertaining to sections 1535 and 3862 are contained in
notes 11 and 12, respectively. The adoption of section 3863 had no impact on the Company’s presentation of financial instruments.
3.
Future changes in accounting policies:
(a) Goodwill and intangible assets:
The CICA issued Section 3064, Goodwill and Intangible Assets, which is effective for the Company on January 1, 2009. This section establishes new standards for the recognition and
measurement of intangible assets, but does not affect the accounting for goodwill. The Company is currently evaluating the impact of the adoption of this new standard on its financial
statements and does not expect the effects to be material.
(b)
International Financial Reporting Standards:
In February 2008, the Canadian Accounting Standards Board confirmed that International Financial Reporting Standards (“IFRS”) will replace Canadian generally accepted accounting
principles in 2011 for all publicly accountable Canadian enterprises. The Company will be required to report its financial results in accordance with IFRS effective January 1, 2011. The
Company is currently assessing the potential impacts of this changeover and developing its plan accordingly.
Ritchie Bros. Auctioneers 2008 Annual Report
53
Notes to Consolidated Financial Statements
(Tabular dollar amounts expressed in thousands of United States dollars, except share and per share amounts)
Years ended December 31, 2008, 2007 and 2006
4. Capital assets:
2008
Land and improvements
Buildings
Land and buildings under development
Computer software
Yard equipment
Automotive equipment
Computer equipment
Office equipment
Leasehold improvements
2007
Land and improvements
Buildings
Land and buildings under development
Computer software
Yard equipment
Automotive equipment
Computer equipment
Office equipment
Leasehold improvements
Cost
$ 173,901
163,044
112,807
25,214
21,831
17,811
11,629
11,138
3,436
$ 540,811
Cost
$ 161,107
160,795
65,072
19,549
19,270
17,727
8,820
11,549
3,111
$ 467,000
Accumulated
depreciation
$
$
13,649
35,153
–
8,000
10,424
6,868
5,418
5,519
2,138
87,169
Accumulated
depreciation
$
$
9,865
33,247
–
5,137
9,387
6,591
5,024
5,922
1,783
76,956
Net book
value
$ 160,252
127,891
112,807
17,214
11,407
10,943
6,211
5,619
1,298
$ 453,642
Net book
value
$ 151,242
127,548
65,072
14,412
9,883
11,136
3,796
5,627
1,328
$ 390,044
During the year, interest of $2,431,000 (2007 – $1,651,000; 2006 – $1,480,000) was capitalized to the cost of land and buildings under development.
5.
Long-term debt:
Term loan, unsecured, bearing interest at 5.61%, due in quarterly installments of interest only,
with the full amount of the principal due in 2011.
Revolving loan, denominated in Canadian dollars, unsecured, bearing interest at bankers’ acceptance rate
plus a margin between 0.65% and 1.00%, due in monthly installments of interest only.
The revolving credit facility is available until January 2014.
Term loan, denominated in Canadian dollars, secured by a general security agreement, bearing interest at 4.429%,
due in monthly installments of interest only, with the full amount of the principal due in 2010.
Term loan, denominated in Australian dollars, secured by deeds of trust on specific property,
bearing interest between the prime rate and 6.5%, due in quarterly installments of AUD75, plus interest,
with final payments of AUD275 occurring in 2008. The loan was repaid in full in 2008.
Current portion
Non-current portion
As at December 31, 2008, principal repayments for the remaining period to the contractual maturity dates are as follows:
2009
2010
2011
2012
2013
2014
2008
2007
$
29,933
$
29,904
25,220
12,258
–
67,411
–
67,411
$
–
14,940
241
45,085
(241)
44,844
$
–
12,327
30,000
–
–
25,476
$
67,803
As at December 31, 2008, the Company had available committed revolving credit facilities aggregating $189,524,000, of which $169,524,000 is available until January 2014. The Company
also had uncommitted credit facilities aggregating $322,792,000, of which $250,000,000 expires November 2011.
54
Ritchie Bros. Auctioneers 2008 Annual Report
Notes to Consolidated Financial Statements
(Tabular dollar amounts expressed in thousands of United States dollars, except share and per share amounts)
Years ended December 31, 2008, 2007 and 2006
6. Share capital:
(a) Authorized:
Unlimited number of common shares, without par value.
Unlimited number of senior preferred shares, without par value, issuable in series.
Unlimited number of junior preferred shares, without par value, issuable in series.
(b)
Issued:
No preferred shares have been issued.
Common shares issued and outstanding are as follows:
Issued and outstanding, December 31, 2005
Issued for cash, pursuant to stock options exercised
Issued and outstanding, December 31, 2006
Issued for cash, pursuant to stock options exercised
Issued and outstanding, December 31, 2007
Issued for cash, pursuant to stock options exercised
Issued and outstanding, December 31, 2008
103,271,700
747,600
104,019,300
419,250
104,438,550
449,170
104,887,720
The Company’s common shares were subdivided on a three-for-one basis effective April 24, 2008. Shareholders of record at the close of business on April 24, 2008 received two
additional common shares for each common share held at that date. The stock split effectively tripled the number of common shares and stock options outstanding on that date. All
share, stock option and per share information in these consolidated financial statements have been restated to reflect the stock split on a retroactive basis.
(c) Stock option plan:
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. Stock options are granted at the fair market value of the Company’s common shares at the grant date, with various vesting periods and a term not exceeding 10
years. In 2007, the Company’s stock option plan was amended and restated, and an additional 5,059,404 common shares were authorized for stock option grants. At December 31,
2008, there were 6,890,046 (2007 – 7,338,456) shares authorized and available for grants of options under the stock option plan.
Stock option activity for 2008, 2007 and 2006 is presented below:
Common shares
under option
Weighted average
exercise price
Outstanding, December 31, 2005
Granted
Exercised
Outstanding, December 31, 2006
Granted
Exercised
Cancelled
Outstanding, December 31, 2007
Granted
Exercised
Cancelled
Outstanding, December 31, 2008
Exercisable, December 31, 2008
The options outstanding at December 31, 2008 expire on dates ranging to September 3, 2018.
2,542,794
617,850
(747,600)
2,413,044
489,300
(419,250)
(8,700)
2,474,394
460,710
(449,170)
(12,300)
2,473,634
2,021,324
$
7.30
14.70
6.93
9.31
18.67
8.65
18.67
11.24
24.35
7.83
24.39
$ 14.23
$ 12.00
Ritchie Bros. Auctioneers 2008 Annual Report
55
Notes to Consolidated Financial Statements
(Tabular dollar amounts expressed in thousands of United States dollars, except share and per share amounts)
Years ended December 31, 2008, 2007 and 2006
6. Share capital (continued):
(c) Stock option plan (continued):
The following is a summary of stock options outstanding and exercisable at December 31, 2008:
Range of
exercise prices
Number outstanding
Options Outstanding
Weighted average
exercise price
Weighted average
remaining life (years)
Options Exercisable
Weighted average
exercise price
Number
exercisable
$ 3.89 —
$ 4.44 —
$ 8.82 —
$ 14.23 —
$ 18.67
$ 24.39 —
$ 4.35
$ 5.18
$ 10.80
$ 14.70
$ 25.76
200,100
228,324
615,000
532,100
454,800
443,310
2,473,634
2.6
3.8
5.6
7.0
8.2
9.2
$
4.13
5.11
9.92
14.67
18.67
24.41
200,100
228,324
615,000
523,100
454,800
–
2,021,324
$
4.13
5.11
9.92
14.67
18.67
–
(d) Stock-based compensation:
During 2008, the Company recognized compensation cost of $2,311,000 (2007 – $1,978,000; 2006 – $2,020,000) in respect of options granted under its stock option plan. This
amount was calculated in accordance with the fair value method of accounting.
The fair value of the stock 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
Expected dividend yield
Expected lives of options
Expected volatility
2008
2.7%
1.31%
5 years
23.0%
2007
4.5%
1.50%
5 years
21.8%
2006
4.3%
1.63%
5 years
21.0%
The weighted average grant date fair value of options granted during the year ended December 31, 2008 was $5.29 per option (2007 – $4.43; 2006 – $3.28). 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, 2008
Basic net earnings per share
Effect of dilutive securities:
Stock options
Diluted net earnings per share
Net earnings
Shares
Per share amount
$ 101,400
104,713,375
–
$ 101,400
1,060,569
105,773,944
$
$
0.97
(0.01)
0.96
Year ended December 31, 2007
Net earnings
Shares
Per share amount
Basic net earnings per share
Effect of dilutive securities:
Stock options
Diluted net earnings per share
Year ended December 31, 2006
Basic net earnings per share
Effect of dilutive securities:
Stock options
Diluted net earnings per share
$
75,983
104,266,113
–
75,983
$
996,183
105,262,296
$
$
0.73
(0.01)
0.72
Net earnings
Shares
Per share amount
$
57,218
103,639,380
–
57,218
$
916,620
104,556,000
$
$
0.55
–
0.55
For the year ended December 31, 2008, stock options to purchase 443,310 common shares were outstanding but were excluded from the calculation of diluted earnings per share as
they were anti-dilutive.
56
Ritchie Bros. Auctioneers 2008 Annual Report
Notes to Consolidated Financial Statements
(Tabular dollar amounts expressed in thousands of United States dollars, except share and per share amounts)
Years ended December 31, 2008, 2007 and 2006
7. Segmented information:
The Company’s principal business activity is the sale of consignment and self-owned equipment and other assets at auctions. This business represents a single reportable segment.
The Company determines its activities by geographic segment based on the location of its auctions. Summarized information by geographic segment is as follows:
Year ended December 31, 2008:
Auction revenues
Capital assets and goodwill
Year ended December 31, 2007:
Auction revenues
Capital assets and goodwill
Year ended December 31, 2006:
Auction revenues
Capital assets and goodwill
United States
Canada
Europe
Other
Combined
$ 191,459
280,417
$ 173,983
244,528
$ 155,558
199,659
$
$
$
75,683
112,799
71,271
118,493
54,306
86,852
$
$
$
54,635
58,167
38,771
53,405
28,505
25,989
$
$
$
33,041
42,492
27,881
16,230
19,488
12,128
$ 354,818
493,875
$ 311,906
432,656
$ 257,857
324,628
8.
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:
Statutory federal and state tax rate in the United States
Expected income tax expense
Differences:
Earnings taxed in foreign jurisdictions
Settlement of intercompany loan
Non-deductible expenses
Foreign exchange gains and losses
Change in valuation allowance
Other
Actual income tax expense
Temporary differences that give rise to future income taxes are as follows:
2008
38.5%
$ 53,624
(12,846)
(3,612)
1,793
–
756
(1,831)
$ 37,884
Future income tax asset:
Working capital
Capital assets
Stock-based compensation
Unused tax losses
Other
Valuation allowance
Total future income tax asset
Current future income tax asset
Non-current future income tax asset
Future income tax liability:
Capital assets
Goodwill
Other
Total future income tax liability
Current future income tax liability
Non-current future income tax liability
Net future income taxes
Presented on balance sheet as:
Future income tax asset – current
Future income tax asset – non-current
Future income tax liability – non-current
2007
40%
$ 44,758
(10,199)
–
1,368
(657)
1,009
(367)
$ 35,912
$
2008
793
360
1,061
3,991
1,749
7,954
(1,933)
6,021
793
5,228
(2,933)
(7,089)
(4,734)
(14,756)
–
(14,756)
2006
40%
$ 36,826
(3,912)
–
1,898
–
–
36
$ 34,848
$
2007
778
173
775
2,380
298
4,404
(1,177)
3,227
778
2,449
(4,422)
(6,354)
(4,222)
(14,998)
–
(14,998)
$
(8,735)
$
(11,771)
$
$
780
509
(10,024)
(8,735)
$
$
778
1,015
(13,564)
(11,771)
As at December 31, 2008, the Company has net operating and capital loss carryforwards of approximately $19,927,000 available to reduce future taxable income, of which $3,918,000 expire through
2028, and $16,009,000 remain indefinitely. The Company has recorded a valuation allowance of $8,764,000 against these losses.
Ritchie Bros. Auctioneers 2008 Annual Report
57
Notes to Consolidated Financial Statements
(Tabular dollar amounts expressed in thousands of United States dollars, except share and per share amounts)
Years ended December 31, 2008, 2007 and 2006
9. Commitments and contingencies:
(a) Operating leases:
The Company is party to certain operating leases relating to auction sites and offices located in Canada, the United States, Mexico, Italy, Spain, the Netherlands, the United Arab
Emirates, Australia, Singapore, India, Japan and China.
In 2008, the Company entered into a sale-leaseback arrangement for its new headquarters building under construction and committed to a long-term lease of the property with the
purchaser upon construction completion.
The future minimum lease payments as at December 31, 2008 are approximately as follows:
2009
2010
2011
2012
2013
Thereafter
$
4,967
7,110
6,743
5,410
4,716
85,964
Total rent expenses in respect of these leases for the year ended December 31, 2008 was $3,449,000 (2007 – $2,131,000; 2006 – $1,796,000).
(b) Contingencies:
The Company is subject to legal and other claims that arise in the ordinary course of its business. The Company does not believe that the results of these claims will have a material
effect on the Company’s financial position or results of operations.
In the normal course of its business, the Company will in certain situations guarantee to a consignor a minimum level of proceeds in connection with the sale at auction of that
consignor’s equipment. At December 31, 2008, outstanding guarantees under contract for industrial equipment to be sold prior to the end of the first quarter of 2009 totaled
$5,829,000 (December 31, 2007 – $29,134,000 sold prior to the end of the second quarter of 2008). The Company also had guarantees under contract totaling $12,094,000 relating to
agricultural auctions to be held prior to the end of the second quarter of 2009 (December 31, 2007 – $26,559,000 sold prior to the end of the second quarter of 2008). The outstanding
guarantee amounts are undiscounted and before estimated proceeds from sale at auction. No liability has been recorded with respect to these contracts.
10. Transactions with related parties:
The Company did not enter into any related party transactions in 2008 and 2007. During the year ended December 31, 2006, the Company paid $727,000 to a company controlled by the
former Chairman of the Company’s Board of Directors. The costs were incurred pursuant to agreements, approved by the Company’s Board of Directors, by which the related company
agrees to provide meeting rooms, accommodations, meals and recreational activities at its facilities on Stuart Island in British Columbia, Canada, for certain of the Company’s customers
and guests. The agreements set forth the fees and costs per excursion, which are based on market prices for similar types of facilities and excursions. The Company has entered into similar
agreements in the past. With the former Chairman’s retirement effective November 30, 2006, the company controlled by the former Chairman is no longer considered to be a related party.
11. Capital risk management:
The Company’s objectives when managing its capital are to maintain a financial position suitable for providing financial capacity and flexibility to meet its growth strategies, to provide an adequate
return to shareholders, and to return excess cash through the payment of dividends. The Company’s invested capital is defined as the sum of shareholders’ equity and long-term debt.
The Company is not subject to any statutory capital requirements, and has not made any changes with respect to its overall capital management strategy during the year ended December 31, 2008.
12. Financial Instruments:
(a) Fair value:
Carrying amounts of certain of the Company’s financial instruments, including accounts receivable, auction proceeds payable, and accounts payable and accrued liabilities approximate
their fair values due to their short terms to maturity. Based on borrowing rates currently available to the Company for loans with similar terms, the fair value of its long-term loans as
at December 31, 2008 was approximately $69,756,000 (2007 – $45,676,000).
(b) Financial risk management:
The Company is exposed to a variety of financial risks by virtue of its activities, including foreign exchange risk, interest rate risk, credit risk and liquidity risk. The Board of Directors
has overall responsibility for the oversight of the Company’s risk management.
Foreign exchange risk
The Company operates internationally and is exposed to currency risk, primarily relating to the Canadian and U.S. dollars, and the Euro, arising from sales, purchases and loans that
are denominated in currencies other than the respective functional currencies of the Company’s international operations. The Company also has various investments in non-U.S.
dollar self-sustaining operations, whose net assets are exposed to foreign currency translation risk. The Company has elected not to actively manage this exposure at this time. Refer
to further discussion in the section entitled Quantitative and Qualitative Disclosure about Market Risk contained in the Company’s Management Discussion and Analysis.
For the year ended December 31, 2008, with other variables unchanged, a 1% strengthening (weakening) of the U.S. dollar against the Canadian dollar and Euro would impact the
Company’s financial statements as follows:
decrease (increase) net earnings by approximately $600,000 due to the translation of the foreign operations’ statements of operations into the Company’s reporting currency,
the U.S. dollar;
decrease (increase) net earnings by approximately $150,000 due to the revaluation of significant foreign currency denominated monetary items; and
decrease (increase) other comprehensive income by approximately $1,900,000.
58
Ritchie Bros. Auctioneers 2008 Annual Report
Notes to Consolidated Financial Statements
(Tabular dollar amounts expressed in thousands of United States dollars, except share and per share amounts)
Years ended December 31, 2008, 2007 and 2006
12. Financial Instruments (continued):
(b) Financial risk management (continued):
Interest rate risk
Our interest rate risk mainly arises from the interest rate impact on the Company’s cash and cash equivalents and floating rate debt. The Company’s interest rate management policy
is generally to borrow at fixed rates. However, floating rate funding may be used if the terms of borrowings are favorable. The Company will consider utilizing derivative instruments
such as interest rate swaps to minimize its exposure to interest rate risk. Cash and cash equivalents earn interest based on market interest rates. As at December 31, 2008, the
Company is not exposed to significant interest rate risk.
Credit risk
Credit risk is the risk of financial loss to the Company if a customer fails to meet its contractual obligations. The Company is not exposed to significant credit risk because it does not
extend credit to buyers at its auctions, and it has a large diversified customer base. In addition, assets purchased at the Company’s auctions are not normally released to the buyers
until they are paid in full. The Company’s maximum exposure to credit risk at the reporting date is the carrying value of its receivables, less receivables relating to assets that have
not been released to the buyers.
The Company’s credit risk exposure on liquid financial assets is limited since it maintains its cash and cash equivalents in a broad range of large financial institutions around the world.
Liquidity risk
Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they fall due. The Company manages its liquidity risk by maintaining adequate cash and
cash equivalent balances, generally by releasing payments to consignors only after receivables from buyers have been collected. The Company also utilizes its established committed
lines of credit (note 5) for short-term borrowings on an as-needed basis. The Company continuously monitors and reviews both actual and forecast cash flows to ensure there is
sufficient working capital to satisfy its operating requirements.
13. 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.
The amounts in the consolidated statements of operations and comprehensive income that differ from those reported under Canadian GAAP are as follows:
Net earnings under Canadian GAAP
Cumulative translation adjustment on settlement
of intercompany loans(a)
Net earnings under US GAAP
Other comprehensive income (loss) under Canadian GAAP
Cumulative translation adjustment(a)
Other comprehensive income (loss) under US GAAP
2008
2007
2006
$ 101,400
$
75,983
$
57,218
(14,884)
$
86,516
(41,780)
14,884
(26,896)
$
–
–
$
75,983
15,457
–
15,457
$
$
57,218
5,589
–
5,589
$
Comprehensive income under US GAAP
$
59,620
$
91,440
$
62,807
Net earnings per share in accordance with US GAAP:
Basic
Diluted
$
$
0.83
0.82
$
$
0.73
0.72
$
$
0.55
0.55
The amounts in the consolidated balance sheets that differ from those reported under Canadian GAAP are as follows:
Capital assets(b)
Accounts payable and accrued liabilities(b)
Retained earnings(a)
Accumulated other comprehensive income (loss)(a)
2008
US GAAP
Canadian GAAP
2007
US GAAP
Canadian GAAP
$ 453,642
84,114
$ 357,845
(1,404)
$ 474,720
105,192
$ 342,961
13,480
$ 390,044
98,039
$ 292,046
40,376
$ 390,044
98,039
$ 292,046
40,376
(a)
(b)
The Company had a number of outstanding intercompany loan balances where settlement was not planned or anticipated in the foreseeable future, which were considered part of net
investments in foreign operations. As such, foreign exchange gains or losses arising from these intercompany loans were reported in the cumulative translation adjustment account. In
2008, a number of the intercompany loans were settled or planned to be settled, which resulted in the reclassification to net earnings of foreign currency translation gains of $14,884,000,
net of tax of $139,000. Under US GAAP, the reclassification of the pro rata portion of foreign exchange gains or losses in accumulated other comprehensive income to net earnings only
occurs when the reduction in the net investment is the result of a complete sale, or complete or substantially complete liquidation, which has not occurred in this case.
The Company sold its new headquarters building under construction and will lease the property from the purchaser upon construction completion. Under US GAAP, the Company is
required to record an asset under construction as prescribed by the Emerging Issue Task Force (“EITF”) 97-10, The Effect of Lessee Involvement in Asset Construction, as the Company is
deemed the owner of the construction project during the construction period. Reimbursements from the lessor to the Company during the construction period are recorded as accounts
payable and accrued liabilities, as construction is expected to be completed within one year. Upon the completion of construction, a sale-leaseback transaction will occur and the
Company will lease the headquarters facility from the lessor. Amounts recorded under asset under construction and accounts payable and accrued liabilities will be derecognized
upon completion of construction.
Ritchie Bros. Auctioneers 2008 Annual Report
59
Supplemental Quarterly Data
(Unaudited; tabular dollar amounts expressed in thousands of United States dollars, except per share data)
2008
1st quarter
2nd quarter
3rd quarter
4th quarter
2007
1st quarter
2nd quarter
3rd quarter
4th quarter
2006
1st quarter
2nd quarter
3rd quarter
4th quarter
2005
1st quarter
2nd quarter
3rd quarter
4th quarter
2004
1st quarter
2nd quarter
3rd quarter
4th quarter
Gross
Auction Proceeds
$
$
781,969
1,163,546
767,718
853,927
3,567,160
Gross
Auction Proceeds
$
$
700,368
945,256
667,553
873,306
3,186,483
Gross
Auction Proceeds
$
$
571,528
830,493
580,271
738,731
2,721,023
Gross
Auction Proceeds
$
$
456,260
682,711
364,005
589,865
2,092,841
Gross
Auction Proceeds
$
$
378,642
553,776
307,188
549,796
1,789,402
Auction
Revenues
81,394
115,822
75,909
81,693
354,818
Auction
Revenues(1)
68,549
94,054
67,174
82,129
311,906
Auction
Revenues(1)
55,920
78,126
54,526
69,285
257,857
Auction
Revenues(1)
48,494
65,738
37,900
59,430
211,562
Auction
Revenues(1)
37,722
56,168
31,628
56,876
182,394
$
$
$
$
$
$
$
$
$
$
Net
Earnings
16,407(2)
45,919(2)
11,934(2)
27,140(2)
101,400(2)
Net
Earnings
17,559(3)
26,555(3)
14,903(3)
16,966(3)
75,983(3)
Net
Earnings
13,198(4)
24,526(4)
9,704(4)
9,790(4)
57,218(4)
Net
Earnings
13,675(5)
21,134(5)
4,568
14,203
53,580(5)
Net
Earnings
6,590
15,164
1,810(6)
11,335(6)
34,899(6)
$
$
$
$
$
$
$
$
$
$
Net Earnings Per Share(7)
Diluted
Basic
Closing
Stock Price(7)
$ 0.16(2)
0.44(2)
0.11(2)
0.26(2)
$ 0.97(2)
$ 0.16(2)
0.43(2)
0.11(2)
0.26(2)
$ 0.96(2)
$
27.37
27.13
23.36
21.42
Net Earnings Per Share(7)
Diluted
Basic
Closing
Stock Price(7)
$ 0.17(3)
0.25(3)
0.14(3)
0.16(3)
$ 0.73(3)
$ 0.17(3)
0.25(3)
0.14(3)
0.16(3)
$ 0.72(3)
$
19.51
20.87
21.70
27.57
Net Earnings Per Share(7)
Diluted
Basic
Closing
Stock Price(7)
$ 0.13(4)
0.24(4)
0.09(4)
0.09(4)
$ 0.55(4)
$ 0.13(4)
0.23(4)
0.09(4)
0.09(4)
$ 0.55(4)
$
16.50
17.73
17.87
17.85
Net Earnings Per Share(7)
Diluted
Basic
Closing
Stock Price(7)
$ 0.13(5)
0.21(5)
0.04
0.14
$ 0.52(5)
$ 0.13(5)
0.20(5)
0.04
0.14
$ 0.51(5)
$
10.53
12.85
14.66
14.08
Net Earnings Per Share(7)
Diluted
Basic
Closing
Stock Price(7)
$ 0.06
0.15
0.02(6)
0.11(6)
$ 0.34(6)
$ 0.06
0.15
0.02(6)
0.11(6)
$ 0.34(6)
$
9.37
9.70
10.22
11.02
(1) Figures have been reclassified to conform with presentation adopted in 2008.
(2) Net earnings in the first, second, third and fourth quarters of 2008 included the foreign exchange
impact of the U.S. dollar denominated bank debt held by a Canadian subsidiary. The foreign
exchange impact of this bank debt in the first, second, third and fourth quarters of 2008 was a
$1.0 million ($0.8 million after tax) loss, $0.2 million ($0.2 million after tax) gain, $1.3 million
($1.1 million after tax) loss, and $3.8 million ($3.2 million after tax) loss, respectively.
In addition, net earnings in the first, second and fourth quarters of 2008 included the reclassification
of foreign currency translation gains relating to the settlement of foreign currency denominated
intercompany loans. The foreign exchange impact of this reclassification in the first, second and
fourth quarters of 2008 was $2.1 million ($2.0 million after tax), $0.7 million ($0.5 million after
tax) and $12.3 million ($11.1 million after tax), respectively.
Finally, net earnings in the second quarter of 2008 included a gain of $8.3 million ($7.3 million
after tax) recorded on the sale of excess property.
Excluding the impact of all items above, net earnings for the first, second, third and fourth quarters
of 2008 would have been $15.3 million ($0.15 per basic share and $0.14 per diluted share), $37.9
million ($0.36 per share, basic and diluted), $13.0 million ($0.12 per share, basic and diluted) and
$19.2 million ($0.18 per share, basic and diluted), respectively. Net earnings for the full year 2008
would have been $85.5 million ($0.82 per basic share and $0.81 per diluted share).
(3) Net earnings in 2007 included the foreign exchange impact of the U.S. dollar denominated bank
debt held by a Canadian subsidiary. The foreign exchange impact of this bank debt in the first,
second, third and fourth quarters of 2007 was a gain of $0.3 million ($0.3 million after tax), $2.4
million ($2.1 million after tax), $2.0 million ($1.7 million after tax) and less than $0.1 million (less
than $0.1 million after tax), respectively. Excluding the impact of these items, net earnings for the
first, second, third and fourth quarters of 2007 would have been $17.3 million ($0.17 per basic
share and $0.16 per diluted share), $24.5 million ($0.23 per share, basic and diluted), $13.2
million ($0.13 per basic share and $0.12 per diluted share) and $16.9 million ($0.16 per share,
basic and diluted), respectively. Net earnings for the full year 2007 would have been $71.9 million
($0.69 per basic share and $0.68 per diluted share).
(4) Net earnings in 2006 included the foreign exchange impact of the U.S. dollar denominated bank
debt held by a Canadian subsidiary. The foreign exchange impact of this bank debt in the first,
second, third and fourth quarters of 2006 was a $0.1 million ($0.1 million after tax) loss, $1.4
million ($1.2 million after tax) gain, less than $0.1 million (less than $0.1 million after tax) loss,
and $1.3 million ($1.1 million after tax) loss, respectively.
In addition, net earnings in the second and fourth quarters of 2006 included a gain of $1.8 million
($1.1 million after tax) recorded on the sale of excess property and a write-down of $0.2 million
($0.1 million after tax) on land held for resale, respectively.
Excluding the impact of all items above, net earnings for the first, second, third and fourth quarters
of 2006 would have been $13.3 million ($0.13 per share, basic and diluted), $22.2 million ($0.21
per share, basic and diluted), $9.7 million ($0.09 per share, basic and diluted) and $11.0 million
($0.11 per share, basic and diluted), respectively. Net earnings for the full year 2006 would have
been $56.3 million ($0.54 per share, basic and diluted).
(5) Net earnings in the first and second quarters of 2005 include gains of $5.5 million ($3.3 million
after tax) and $0.9 million ($0.8 million after tax), respectively, recorded on the sale of excess
properties. Excluding the impact of these gains, net earnings for the first and second quarters of
2005 would have been $10.4 million ($0.10 per share, basic and diluted) and $20.4 million ($0.20
per share, basic and diluted), respectively. Net earnings for the full year in 2005 would have been
$49.5 million ($0.48 per share, basic and diluted).
(6) Excluding the impact of $2.1 million in income taxes in connection with realized foreign exchange
gains at the subsidiary level relating to certain term debt that came due in 2004, net earnings for
the third quarter of 2004 would have been $2.7 million ($0.03 per share, basic and diluted), net
earnings for the fourth quarter of 2004 would have been $12.6 million ($0.12 per share, basic and
diluted) and net earnings for the full year in 2004 would have been $37.0 million ($0.36 per share,
basic and diluted).
(7) The Company’s common shares split on a three-for one basis on April 24, 2008. All per share
amounts in this table have been adjusted on a retroactive basis for the stock split. As well, the
closing stock prices presented in this table have been adjusted for ease of comparison.
60
Ritchie Bros. Auctioneers 2008 Annual Report
SelecteD Financial anD operating Data
(Tabular dollar amounts expressed in thousands of United States dollars, except per share and operating data)
Years ended December 31,
2008
2007
2006
2005
2004
Gross auction proceeds (unaudited)
$ 3,567,160
$ 3,186,483
$ 2,721,023
$ 2,092,841
$ 1,789,402
Statement of operations data:
Auction revenues(1)
Direct expenses(1)
Depreciation and amortization
General and administrative(1)
Earnings from operations
Interest expense
Interest income(1)
Foreign exchange gain (loss)(1)(2)
Gain on disposition of capital assets(3)
Other income (loss)
Earnings before income taxes
Income taxes(4)
Net earnings(2)(3)
Net earnings per share-diluted(5)
Balance sheet data (end of year):
Working capital (including cash)
Total assets
Long-term debt
Total shareholders’ equity
Selected operating data (unaudited):
Auction revenues as percentage of gross auction proceeds
Number of consignors at industrial auctions
Number of bidders at industrial auctions
Number of buyers at industrial auctions
Number of permanent auction sites (end of year)
$
354,818
(49,750)
305,068
(24,764)
(164,556)
$
311,906
(46,481)
265,425
(19,417)
(144,816)
$
257,857
(40,457)
217,400
(15,017)
(117,714)
115,748
101,192
84,669
$
$
$
(859)
4,994
11,656
6,370
1,375
139,284
(37,884)
101,400
0.96
47,109
689,488
67,411
465,162
9.95%
36,595
277,560
84,005
30
$
$
$
(1,206)
7,393
2,802
243
1,471
111,895
(35,912)
75,983
0.72
58,207
672,887
44,844
435,116
9.79%
34,931
254,259
80,340
28
$
$
$
(1,172)
6,664
(451)
1,277
1,079
92,066
(34,848)
57,218
0.55
94,369
554,227
43,081
368,637
9.48%
32,075
241,132
73,967
26
$
$
$
$
211,562
(29,551)
182,011
(13,172)
(93,806)
75,033
(2,224)
3,587
(864)
6,565
417
82,514
(28,934)
53,580
0.51
84,108
496,396
43,322
325,183
10.11%
27,912
213,896
62,832
23
$
$
$
$
182,394
(25,545)
156,849
(12,708)
(85,147)
58,994
(3,217)
1,936
(520)
229
824
58,246
(23,347)
34,899
0.34
36,871
438,522
10,792
289,264
10.19%
24,868
202,571
58,858
22
(1) Figures have been reclassified to conform with presentation adopted in 2008.
(2) Foreign exchange gain for the year ended December 31, 2008 included the reclassification of $15.0 million ($13.6 million after tax, or $0.13 per diluted share) of foreign currency translation gains relating to
the settlement of foreign currency denominated intercompany loans, partially offset by a $5.8 million ($5.0 million after tax, or $0.05 per diluted share) foreign exchange loss relating to U.S. dollar denominated
bank debt held by a Canadian subsidiary. Foreign exchange relating to this bank debt in 2007 was a gain of $4.8 million ($4.1 million after tax, or $0.04 per diluted share), and in 2006 a loss of less than $0.1
million (less than $0.1 million after tax, or less than $0.1 per diluted share). The Company does not expect such foreign exchange gains or losses relating to financing transactions to recur in future periods.
(3) Gain on this disposition of capital assets for 2008, 2006 and 2005 included net gains on sales of excess properties of $8.3 million ($7.3 million after tax, or $0.07 per diluted share), $1.6 million ($1.0 million
after tax, $0.01 per diluted share) and $6.4 million ($4.1 million after tax, or $0.03 per diluted share), respectively.
(4) 2004 income tax expense includes $2.1 million (or $0.02 per diluted share) relating to realized foreign exchange gains at the subsidiary level on certain term debt that came due in 2004, which is not expected
to recur in future periods.
(5) All per share amounts have been adjusted on a retroactive basis to reflect the three-for-one stock split that occurred on April 24, 2008.
Ritchie Bros. Auctioneers 2008 Annual Report
61
62
Ritchie Bros. Auctioneers 2008 Annual Report
BoarD oF DirectorS
Beverley Briscoe – Eric Patel – Robert Murdoch – Christopher Zimmerman – Peter Blake – Edward Pitoniak
Robert Murdoch — Chairman
Bob Murdoch was elected to the Company’s Board in 2006. Mr. Murdoch
spent his career with Lafarge Corporation and affiliates, suppliers of construction
materials, retiring from the position of President and Chief Executive Officer of
Lafarge North America Inc. (NYSE & TSX: “LAF”) in 1992. Mr. Murdoch was a member
of the board of Lafarge, S.A. (NYSE: “LR”; Paris Stock Exchange (Eurolist): “LG”) the
Paris-based parent company of Lafarge Corporation, until 2005 and still sits on
their advisory board. Mr. Murdoch is a director of Lallemand Inc., Weatherhaven
Inc. and Timberwest Forest Corp. (TSX: “TWF.un”). Mr. Murdoch holds an LLB
degree. Mr. Murdoch sits on the Nominating & Corporate Governance Committee.
Peter Blake
Peter Blake joined Ritchie Bros. in 1991, having worked previously with predecessor
firms of PricewaterhouseCoopers and KPMG. Mr. Blake is a Chartered Accountant
and started with the Company as Controller. He was appointed Vice President,
Finance in 1994, and in 1997 he was appointed Chief Financial Officer and was
elected to the Board. In 2002 Mr. Blake was appointed Senior Vice President and
became CEO effective November 2004.
Beverley Briscoe
Bev Briscoe was appointed to the Ritchie Bros. Board in 2004. Ms. Briscoe has
an extensive background working in industries complementary to the auction
business and currently works as a business consultant and is President of
Briscoe Management Ltd. Ms. Briscoe previously owned and was president of
Hiway Refrigeration Limited. Before that she held executive positions with Wajax
Industries Ltd., the Rivtow Group, and the Jim Pattison Group, and was a manager
at a predecessor firm of PricewaterhouseCoopers. Ms. Briscoe is a member of the
boards of BC Rail Group and Goldcorp Inc. (TSX: “G”; NYSE: “GG”), as well as a
director of several non-profit organizations, including the B.C. Forest Safety Council,
the Boys and Girls Club of Greater Vancouver, Forum of Women Entrepreneurs and
Coast Opportunities Funds. Ms. Briscoe holds a Bachelor of Commerce degree
and is a Chartered Accountant (Fellow). Ms. Briscoe is currently Chair of the Audit
Committee and a member of the Nominating & Corporate Governance Committee.
Eric Patel
Eric Patel was first elected to the Ritchie Bros. Board in 2004. Mr. Patel has
extensive business and financial experience, and is currently CFO of Pembrook
Mining Corp. (formerly Paget Resources Corporation), a private mining company.
Prior to that Mr. Patel acted as the CFO of Crystal Decisions, Inc., a privately
held software company. Mr. Patel joined Crystal Decisions in 1999 after holding
executive level positions, including that of CFO, with University Games, Inc.,
a privately held manufacturer of educational toys and games. Before 1997, Mr.
Patel worked for Dreyer’s Grand Ice Cream as Director of Strategy, for Marakon
Associates strategy consultants and for Chemical Bank. Mr. Patel holds an MBA
degree. Mr. Patel is currently a member of the Audit Committee and is Chair of the
Nominating & Corporate Governance Committee.
Edward Pitoniak
Ed Pitoniak was appointed to the Company’s Board in 2006 and is currently Chair of
the Company’s Compensation Committee. Mr. Pitoniak is a businessman and until
2008 was President and CEO of bcIMC Hospitality, a private hotel company. Prior
to joining the predecessor firm of bcIMC Hospitality Group in 2004 (Canadian Hotel
Income Properties Real Estate Investment Trust – TSX: “HOT.un”), Mr. Pitoniak was
a Senior Vice-President at Intrawest Corporation for eight years. Before Intrawest,
Mr. Pitoniak spent nine years with Times Mirror Magazines, where he held both top
editorial and advertising positions with Ski Magazine — specifically, editor-in-chief
and advertising director. Mr. Pitoniak has a Bachelor of Arts degree.
Christopher Zimmerman
Chris Zimmerman was elected to the Company’s Board in 2008. Mr. Zimmerman
is President and Chief Executive Officer of Canucks Sports and Entertainment in
Vancouver, B.C. Before joining them, Mr. Zimmerman held various senior positions
with Nike, most recently as President and Chief Executive Officer of Nike Bauer Inc.
He joined Nike in 1998 after spending 16 years in a variety of senior advertising
positions, including USA Advertising Director for the Nike Brand and Senior Vice
President at Saatchi and Saatchi Advertising in New York, where he directed the
advertising development for brands such as Tide, Wendy’s, Champion Sportswear,
Finesse Shampoo, Kenner Toys, and LifeSavers Candy. Mr. Zimmerman has an MBA
degree. Mr. Zimmerman is a member of the Compensation Committee.
James Micali (missing from photo)
Jim Micali was appointed to the Company’s Board in 2008. Mr. Micali is a senior
advisor and limited partner of Azalea Capital (a private equity fund) and a consultant
to Michelin North America. He is also a counsel of Ogletree Deakins, a labour and
employment law firm and an adjunct professor of Furman University. Mr. Micali
retired in mid-2008 from the position of Chairman and President of Michelin North
America, where he had responsibility for Michelin’s operations in North America.
He started his career with Michelin in 1977 and over the years had responsibility for
many of Michelin’s major business functions. Prior to joining Michelin, Mr. Micali
obtained his legal education from Boston College Law School and was admitted
to the bars of Rhode Island and Massachusetts. Mr. Micali also served on the
board of directors of Lafarge North America, a supplier of construction materials
(NYSE & TSX: “LAF”) from 2003 until May 2006. Mr. Micali sits on the Boards of
Sonoco Products Company (NYSE: “SON”), SCANA Corporation (NYSE: “SCG”) and
American Tire Distributors Holdings, Inc. Mr. Micali is a member of the Company’s
Audit Committee and Compensation Committee.
Ritchie Bros. Auctioneers 2008 Annual Report
63
ShareholDer inFormation
Address
Ritchie Bros. Auctioneers Incorporated
6500 River Road
Richmond, BC
Canada, V6X 4G5
Telephone:
Canada (toll-free):
USA (toll-free):
Facsimile:
Web site:
604.273.7564
1.800.663.1739
1.800.663.8457
604.273.6873
www.rbauction.com
Board of Directors
Robert W. Murdoch
Chairman
Peter J. Blake
Director & Chief Executive Officer
Beverley A. Briscoe
Eric Patel
Edward B. Pitoniak
Director
Director
Director
Christopher Zimmerman
Director
James M. Micali
Director
Investor Relations
Securities analysts, portfolio managers, investors and representatives of financial
institutions seeking financial and operating information may contact:
Investor Relations Department
Ritchie Bros. Auctioneers
6500 River Road
Richmond, BC
Canada, V6X 4G5
Telephone:
Canada (toll-free):
USA (toll-free):
Facsimile:
Email:
604.273.7564
1.800.663.1739
1.800.663.8457
604.273.2405
ir@rbauction.com
Copies of the Company’s filings with the U.S. Securities & Exchange Commission and with
Canadian securities commissions are available to shareholders and other interested parties
on request or can be accessed directly on the internet at www.rbauction.com.
Annual Meeting
The annual meeting of the Company’s shareholders will be held at 11am
on Friday April 17, 2009 at the River Rock Resort, 8811 River Road,
Richmond, BC V6X 3P8.
Shareholders wishing to speak to the Chairman should call 604.233.6153 or send an email to
leaddirector@rbauction.com.
Stock Exchanges
Ritchie Bros. Auctioneers Incorporated is listed on the New York Stock Exchange and the
Toronto Stock Exchange and on both exchanges, 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
510 Burrard Street
2nd Floor
Vancouver, British Columbia
Canada, V6C 3B9
Telephone:
Canada and USA (toll-free):
Facsimile:
Facsimile (toll-free):
Email:
Self-service:
604.661.0226
1.800.564.6253
604.661.9401
1.800.249.7775
jenny.karim@computershare.com
www.computershare.com
Co-agent in the United States:
Computershare Trust Company of New York
New York, NY
Auditors
KPMG LLP
Vancouver, Canada
Dividends
All dividends paid by Ritchie Bros. Auctioneers are eligible dividends, unless indicated
otherwise in the Company’s quarterly reports or by press release.
Management Advisory Committee
Peter J. Blake*
Chief Executive Officer
Robert S. Armstrong*
Chief Operating Officer
Jeremy M.T. Black
VP – Business Development; Corporate Secretary
Joseph P. Boyle
VP – North East USA
Stephen H. Branch
VP – Marketing
William A. Cooksley
VP – Information Technology
Scott L. Forke
VP – Agriculture Division, USA
Curtis C. Hinkelman*
Senior VP – Eastern USA
Robert K. Mackay*
President
Warwick N. Mackrell
VP – Australia & Asia
Robert A. McLeod
Chief Financial Officer
David D. Nicholson*
Senior VP – Central USA, Mexico & South America
Victor E. Pospiech*
Senior VP – Administration & Human Resources
J. Dean Siddle
VP – Senior Valuation Analyst
Steven C. Simpson*
Senior VP – Western USA
Kevin R. Tink*
Senior VP – Canada & Agriculture
Sylvain M. Touchette
VP – Eastern Canada
Guylain Turgeon*
Senior VP – Managing Director Europe, Middle East & Asia
Simon A. Wallan
VP – Agriculture
Karl W. Werner
VP – Auction Operations
Robert K. Whitsit *
Senior VP
* Member of Executive Council
Corporate Governance
Corporate governance information, including the Company’s Report on Corporate
Governance, which is included in the Company’s Information Circular, is available on the
Company’s website at www.rbauction.com.
64
Ritchie Bros. Auctioneers 2008 Annual Report
Ritchie Bros. Auctioneers
6500 River Road, Richmond, BC, Canada V6X 4G5
Tel: 604.273.7564 Fax: 604.273.6873
www.rbauction.com