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ANNUAL REPORT | 2013
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ROCKY MOUNTAIN DEALERSHIPS
ANNUAL REPORT 2013
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ROCKY MOUNTAIN DEALERSHIPS | ANNUAL REPORT | 2013 Being successful in the equipment business takes more than moving huge
pieces of iron. It takes a dedication to the partnerships and relationships you
foster with your customers – and your people. It requires a steady, balanced
approach to growth. Being successful in the long-term takes prudence and the
foresight to see where the markets are going, not just where they are at one
given moment in time. Ultimately, being successful in the equipment business
requires you to read between the lines and understand the impact of decisions
not just for today, but for tomorrow, and for the life of the business.
Beyond the lines is the theme of this years’ annual report – we invite you
to read beyond our lines, too.
TABLE OF CONTENTS
MESSAGE TO SHAREHOLDERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
MANAGEMENT’S DISCUSSION AND ANALYSIS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
MANAGEMENT’S REPORT TO SHAREHOLDERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
CONSOLIDATED FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
CORPORATE INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 113
3
ROCKY MOUNTAIN DEALERSHIPS | ANNUAL REPORT | 2013 We continue to be
an organization that
offers shareholders
tremendous upside
growth potential
while still rewarding
them with a
healthy dividend.
4
We continue to be
an organization that
offers shareholders
tremendous upside
growth potential
while still rewarding
them with a
healthy dividend.
5
ROCKY MOUNTAIN DEALERSHIPS | ANNUAL REPORT | 2013 CAUTIONARY STATEMENTS REGARDING
FORWARD-LOOKING INFORMATION
This Annual Report contains certain statements
or disclosures relating to Rocky Mountain
Dealerships Inc., including its various subsidiaries
(hereinafter collectively “Rocky”), that are based on
the estimates or expectations of its management
as well as assumptions made by and information
currently available to Rocky, which may constitute
forward-looking statements or information under
applicable securities laws. All such statements and
disclosures, other than those of historical fact, which
address activities, events, outcomes, results or
developments that Rocky anticipates or expects may, or
will occur in the future (in whole or in part) should be
considered forward-looking statements. In most cases,
forward-looking statements can be identified by terms
such as “forecast”, “future”, “may”, “will”, “expect”,
“anticipate”, “believe”, “hope”, “potential”, “enable”,
“plan”, “continue”, “contemplate”, “pro-forma”,
“should”, “intend”, or other comparable terminology
suggesting future outcomes or events. Forward-looking
statements may, among other things, relate to:
Discussion contained in the Message to Shareholders,
including discussion on the business outlook for our
segments and strategy going forward, discussion
about profitability and opportunity in the parts and
service side of Rocky’s business, discussion around cost
structure affecting profitability, statements that our
recent measures and initiatives may improve revenues
and margins across the entire construction segment,
discussion that the agriculture industry remains stable
or may remain stable, discussion that Rocky offers
investors tremendous upside growth and discussion
about Rocky’s dividend or continued ability to pay the
same; the continued and/or future success of Rocky’s
growth strategy; plans and objectives of management
for future operations; forecast business results; and
anticipated overall financial performance. Rocky cannot
assure investors that actual performance or results will
be consistent with these forward-looking statements.
Rocky’s actual results could differ materially from
those anticipated in the forward-looking statements
contained in this Annual Report as a result of the
risk factors set forth in Rocky’s annual information
form dated March 11, 2014, available on SEDAR at
www.sedar.com. All forward-looking statements in
this Annual Report are qualified in their entirety by
the cautionary statements herein, in addition to the
cautionary statements on forward-looking information
set forth in the Management’s Discussion and Analysis
included in this Annual Report.
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ROCKY MOUNTAIN DEALERSHIPS | ANNUAL REPORT | 2013 7
MESSAGE TO
SHAREHOLDERS
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MESSAGE TO SHAREHOLDERS
2013 saw Rocky Mountain Dealerships continue a tradition of prudent, responsible management of our business.
We paid attention to our balance sheet and managed our inventory closely. We focussed on driving initiatives to
spread best practices across the network, with the long-term goal of sustainable performance across the organization.
Our acquisition was small, but done in a way that was consistent with our strategy and should be a credit to the
organization. While our fiscal results did not meet our own expectations, we remain confident in the outlook for our
segments and our strategy going forward.
Following our re-branding campaign in 2012, the business is now conducted through 38 Rocky Mountain
Equipment stores across the western Canadian prairies, as shown in the chart below.
LOCATIONS
Case IH
Case CE
New Holland
Metso Crushing
Kubota
Total
CO-LOCATED BRANDS
Dual Case IH / CE Stores
Dual Case IH / New Holland Stores
Kubota Licensees (co-located with Case IH stores)
AB
18
3
3
1
–
25
AB
4
2
4
SK
4
–
–
–
–
4
SK
–
–
1
MB
8
–
–
–
1
9
MB
–
–
3
TOTAL
30
3
3
1
1
38
TOTAL
4
2
8
The vast majority of these stores represent CNH Industrial N.V. equipment brands (Case IH Agriculture, New Holland
Agriculture and Case Construction), with 2 specialty stores representing certain specialized lines of business. The Metso
Crushing and Screening store in Edmonton, Alberta, serves an important niche market for our construction customers,
without requiring a large network of supporting stores. The Shoal Lake store, which we acquired as part of the Murray’s
Farm Equipment acquisition in 2013, offers a selection of important specialty brands, such as Kubota tractors, as well as
Bourgault seeding and planting equipment. All of our stores offer sales and service of other complementary brands and
categories of equipment, ensuring that Rocky is a complete solution for our customers, rather than just a dealer of a
single brand of equipment.
Within their respective brand lines and territories, each store offers the customer a full service location, with sales and
rentals of whole goods, field and in-shop service, as well as parts sales. Our network provides us with exceptional access
to inventory, as well as practical “know-how” and real-world experience in all facets of the business. We are proud to be
Canada’s largest agriculture and construction dealership network and the 2nd largest CNH dealer in the world.
On balance, our agriculture segment continued to perform solidly in 2013. Overall sales increased 7.9% from 2012,
to $943.9 million. We made a conscious decision to focus on moving used equipment inventory (used equipment sales
up $62.2 million), which in return put some downward pressure on our new equipment sales. This ultimately resulted
in us taking in significantly less incentive dollars from our Original Equipment Manufacturers (down $6.0 million).
Nevertheless, we feel strongly that this decision was a wise and prudent one, given the escalating levels of used
7
ROCKY MOUNTAIN DEALERSHIPS | ANNUAL REPORT | 2013 inventory in the industry. We will continue to monitor the industry as a whole, and will base our decisions not just on
short-term opportunities, but on the long-term health of the business.
Parts revenues in our Agriculture segment grew from $68.9 million to $79.2 million, with a solid mix between
acquired and same-store growth. Service revenues in our Agriculture segment increased slightly as a result of
acquisition and modest same-store growth, but continue to be constrained by the shortage of qualified equipment
technicians and the cyclical nature of the business that drives capacity constraints in many of our locations. Our
Temporary Foreign Worker program has provided us with some success in finding techs and we will continue to
aggressively seek out new pools of skilled technicians. Moving forward, we see opportunity in our parts and service
business being a significant driver of our profitability. With the introduction of new practices, promotions and pricing
actions, we are aiming to deliver results both to our customers and to our shareholders.
Our construction segment was challenged in 2013 with increased inventory levels across equipment distributors
in Alberta, price premiums resulting from the adoption of Tier 4 emissions compliant equipment and slower overall
infrastructure spending. Revenues declined across the board, as did margins. As we finished the year, we took steps to
properly scale our inventory, to purchase Tier 3 while it is still available and to bolster our sales force. The cost structure
of equipment dealerships is heavily skewed towards fixed costs and does not scale easily with reduced activity levels.
The result of this model is that when times are lean, they can be especially hard on net profitability.
Adding to the difficulties we experienced was the announcement that Terex had reached an agreement to sell its
rigid- and articulated-frame truck business to a competitor. While Rocky remains committed to our current customer
base of Terex operators, we know that the uncertainty created by the sale of this line to a competitive brand has
an impact on the real-world retail value of the trucks we already had in our inventory. As a result, we recorded an
impairment charge of $5.0 million against the affected inventory during the fourth quarter of 2013.
Despite these factors, we are driving towards better performance from our construction equipment business, and
have undertaken a number of measures to improve our revenues and margins across the entire construction segment.
Rocky has been an industry leader in the construction equipment realm before, and we are committed to doing
whatever it takes to return to that position.
The agriculture industry remains stable and consistent within our territories, as rising food demand continues to
put a spotlight on farm efficiency and output. The construction industry in Alberta, despite our recent and short-term
struggles, remains one of the premier locations worldwide to operate in as an equipment dealer. Our brand, Rocky
Mountain Equipment, is strong and growing. Our nearly 1,000 people who work in the field, in the branches, and in our
head office are committed, experienced and knowledgeable.
We believe strongly that we continue to be an organization that offers shareholders tremendous upside growth
potential while still rewarding them with a healthy dividend.
We are Rocky Mountain Equipment. Dependable is what we do.
Matthew C. Campbell
Chief Executive Officer
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ROCKY MOUNTAIN DEALERSHIPS | ANNUAL REPORT | 2013 9
MANAGEMENT’S
DISCUSSION AND ANALYSIS
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ROCKY MOUNTAIN DEALERSHIPS INC.
MANAGEMENT’S DISCUSSION & ANALYSIS
FOR THE YEAR ENDED DECEMBER 31, 2013
This Management Discussion and Analysis
(“MD&A”) was prepared as of March 11, 2014 and
is provided to assist readers in understanding Rocky
Mountain Dealerships Inc.’s financial performance for
the year ended December 31, 2013. It should be read
in conjunction with the audited consolidated financial
statements for the years ended December 31, 2013 and
2012 together with the notes thereto and the auditor’s
report thereon. The results reported herein have been
derived from consolidated financial statements prepared
in accordance with International Financial Reporting
Standards (“IFRS”) as issued by the International
Accounting Standards Board and are presented in
Canadian dollars.
Unless the context otherwise requires, use in this
MD&A of “Rocky”, “the Company”, “we”, “us”, or “our”
means Rocky Mountain Dealerships Inc. and its wholly
owned subsidiaries including Hammer Equipment Ltd.,
Hi-Way Service Ltd., Miller Equipment Ltd., Rocky
Mountain Equipment Canada Ltd. (“RMEC”), and Rocky
Mountain Dealer Group Partnership (the “Partnership”),
collectively operating as Rocky Mountain Equipment.
Rocky’s common shares trade on the Toronto Stock
Exchange under the symbol ‘RME’ and on the OTCQX
under the symbol ‘RCKXF’. Additional information
relating to Rocky, including the Company’s Annual
Information Form, dated March 11, 2014 (“AIF”), is
available on the System for Electronic Document Analysis
and Retrieval (“SEDAR”) website at www.sedar.com.
This MD&A contains forward-looking statements
(“FLS”). Please see the section “Caution Regarding
Forward-Looking Information and Statements” for a
discussion of the risks, uncertainties and assumptions
relating to those statements.
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ROCKY MOUNTAIN DEALERSHIPS | ANNUAL REPORT | 2013 COMPANY OVERVIEW
Rocky is one of Western Canada’s largest equipment
dealers with a network of 38 full-service agriculture
and/or construction equipment stores across the
Canadian Prairie Provinces. Our network currently
includes 25 branches in Alberta, 9 in Manitoba and
4 in Saskatchewan, all operating under the name
Rocky Mountain Equipment.
We are Canada’s largest retail dealer of CNH
Industrial N.V. (“CNH”) equipment. We are also a major
independent dealer of equipment from a number of
other manufacturers, including, but not limited to,
Bourgault, Seed Hawk, Dynapac, Leeboy and Metso.
We offer our customers a one-stop solution for their
equipment needs through new and used equipment
sales, parts sales, repairs and maintenance services,
and third-party equipment financing and insurance
services. In addition, we provide other ancillary services
such as equipment transportation and global positioning
satellite (GPS) signal subscriptions.
Headquartered in Calgary, Alberta, our business
during 2013 was carried on through the Partnership doing
business as Rocky Mountain Equipment. Effective January
2, 2014, the Company affected a restructuring whereby
the business assets, liabilities, and all other operations
of the Partnership were rolled over to RMEC pursuant
to an asset transfer agreement. All the Company’s
operations in Alberta, Saskatchewan and Manitoba are
conducted through RMEC as of January 2, 2014. On
February 27, 2014, the Partnership was dissolved. All our
dealership locations continue to operate under the name
“Rocky Mountain Equipment”.
SUMMARY OF FINANCIAL RESULTS
FOR THE YEAR ENDED
DECEMBER 31, 2013
SUMMARY OF FINANCIAL RESULTS
FOR THE QUARTER ENDED
DECEMBER 31, 2013
Total revenues increased by 4.3% to $1,007.8 million.
Total revenues declined by 3.4% to $290.6 million.
Equipment inventory decreased by $14.8 million.
Gross profit of $140.4 million (13.9% of sales).
Used equipment revenues increased by 6.5%
to $84.9 million.
Diluted Earnings per Share of $0.80.
EBITDA(1) of $29.7 million.
Paid dividends of $0.3675 per share.
Recorded one time impairment charge of $5.0 million
($0.19 per fully diluted share).
Gross profit declined to $33.3 million (11.4% of sales).
Diluted Earnings per Share of $0.11.
EBITDA(1) of $4.9 million.
(1) See further discussion in “Non-IFRS Measures” and “Reconciliation
of Non-IFRS Measures to IFRS” sections below.
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ROCKY MOUNTAIN DEALERSHIPS | ANNUAL REPORT | 2013
MARKET FUNDAMENTALS AND OUTLOOK
AGRICULTURE MARKET
Our agriculture equipment sales are made primarily
to grain and oilseed crop farmers in Western Canada.
Commodity prices, input costs and weather are the key
demand drivers for equipment among these customers.
A late spring thaw postponed seeding activity,
getting the 2013 growing season off to a late start. Warm
temperatures throughout the third quarter, however,
provided excellent growing conditions across the
Canadian Prairies. Despite the late start and a difficult
harvest, 2013 yields exceeded typical levels and the
overall quality of the crop was good.
With this increase in supply of harvested crops,
commodity prices have decreased as of late from recent
historical highs. We continue to see commodity prices
affected by strong supply and other external market
factors that may continue to soften prices.
Over the next 25 years, global food demand is
expected to increase 50% in response to a growing world
population and a decrease in arable land per capita.
The United Nations’ Food and Agriculture Organization
predicts that rising demand for agriculture commodities
and insufficient investment in productive capacity and
infrastructure, especially in developing countries, will
keep prices above historical levels for years to come,
encouraging farmers to continue improving productivity.
As part of the need to improve productivity,
farmers are continually investing in new equipment
to drive better results on both the input cost and output
efficiency sides of their business. New equipment
technology enables lower input costs by reducing the
number of field passes, per hour fuel consumption and
overlapping seed and spray patterns. New equipment
technology on the harvest side of the business also
reduces fuel consumption, increases the speed per acre
harvested and reduces process waste on the field. The
emergence of GPS enabled precision farming techniques
acts as a multiplier for all of these advantages as well as
a driver of demand and total spend. Within the Canadian
agriculture sector, the trend towards larger farms is
further benefiting farm equipment sales. According to
its most recent census data, Statistics Canada reported
a 31.2% increase in the number of Canadian farms
managing operations with crop receipts in excess of
$1.0 million. These operators require larger, more
productive equipment and they tend to replace their
equipment more frequently to capitalize on the latest
technological advances and equipment efficiencies.
Demand from China and India, crop land dedicated
to bio-fuel production, and general GDP growth are
all putting pressure on worldwide production. Parts
and service demand is also expected to remain strong
due to the increased number of units that we have
installed within the regions that we operate. Overall,
the fundamentals underpinning agriculture equipment
demand continue to be strong.
12
ROCKY MOUNTAIN DEALERSHIPS | ANNUAL REPORT | 2013 CONSTRUCTION MARKET
Our construction equipment sales are balanced
through residential construction, roadwork (including
paving and aggregate production), and commercial,
industrial, and municipal construction in the Alberta
market. Housing starts, oil rig count, vehicle sales, and
GDP growth are all factors that influence construction
equipment purchases in Alberta.
The stimulus spending throughout the past several
years in response to the economic recession has given
way in recent quarters to deficit reduction measures
which have reduced, and are expected to continue to
reduce the number of civil, institutional and government
projects. Although not directly exposed to fluctuations
in capital spending in the mining sector, expected
decreases may also have a correlative impact on demand
for certain of our product lines.
Price increases in certain natural resources, like
those recently experienced in natural gas, may provide
the impetus for increased spending in the construction
sector provided those increases are sustained. Typically,
when the Alberta treasury outlook strengthens,
infrastructure and development projects become more
likely to go forward.
Lower than anticipated sales activity across Alberta
in recent quarters has left construction equipment
dealers with elevated levels of inventory. This
excess supply has created a highly competitive sales
environment which has, and is expected to continue
to, put pressure on margins. In anticipation of these
developments, we have spent the past several quarters
adjusting our inventory profile and levels which we
continue to monitor.
In December 2013, Terex Corporation announced
that it had reached an agreement to sell its truck
business to a Volvo Construction Equipment. The truck
business includes off-highway rigid and articulated haul
trucks. The sale is subject to government regulatory
approvals and is targeted to close in the first half of
2014. At this point, our continued representation
of and ability to support the Terex brand remains
unchanged as no formal announcement has yet been
made. The position of the Terex equipment line within
Volvo’s product offering remains unclear, as does its
future support. Part of the valuation of any piece
of equipment is based on the support the dealer
representative can give and, without certainty of that
support, the value suffers.
In recent quarters, we have experienced challenges
in our ability to deliver new construction units into the
marketplace. These challenges notwithstanding, we are
committed to succeeding in the construction market
and management has committed additional resources to
restore our construction results.
Alberta remains one of the strongest construction
markets in North America. The province is expected to
see average growth in real GDP of approximately 3.7%
in 2014 and 2015 compared to the national forecast of
2.7% for the same period.
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ROCKY MOUNTAIN DEALERSHIPS | ANNUAL REPORT | 2013 OVERALL
In response to new air emission standards recently
enacted by Environment Canada, as well as other
international counterparts, equipment manufacturers
have been required to incorporate Tier 4 engines
into their equipment in order to comply with the
new regulations. The adoption of Tier 4 engines has
significantly increased the manufacturing costs and
related selling prices of these units. The disparity
in pricing between tiers can result in a competitive
advantage or disadvantage in the marketplace, depending
on the overall inventory profiles in the area as compared
to individual dealers’ profiles. To date, this disparity
has been more prevalent on construction equipment
which has constrained our construction sales over the
past twelve months. Orders placed that are expected
to land in the second quarter of 2014 include certain
Tier 3 products that should help to address the pricing
differential. Legislative compliance with Tier 4 regulations
will ultimately remove these disparities as we progress
through the transition period.
The valuation of equipment in the North American
market is dictated in US dollars. The recent weakening
of the Canadian dollar relative to the US dollar is
expected to contribute to pricing pressure on new
equipment inventory purchased in US dollars. This
increase in pricing should be somewhat offset by price
advantages on inventory acquired when the currencies
approximated parity.
The outlook for our end-markets, healthy
commodity prices, the impact of previously acquired
dealerships and trade areas and our strong original
equipment manufacturer (“OEM”) relationships, position
us well to pursue our longer-term revenue and earnings
growth initiatives.
Rocky’s success and growth, while predicated on the
larger economic conditions and factors discussed above,
is also affected by our ability to be a partner of choice
for equipment purchasers.
Our underlying business fundamentals remain
strong. We have exclusive distribution rights, with
significant barriers to entry, for some of the world’s
leading equipment brands. Our installed base and
customer relationships create an annuity of equipment
sales and product support revenue, which help drive
dependable earnings and cash flow. It is these strong
fundamentals that continue to provide stability in our
results and value to our shareholders.
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ROCKY MOUNTAIN DEALERSHIPS | ANNUAL REPORT | 2013 SELECTED ANNUAL FINANCIAL INFORMATION
$ THOUSANDS,
EXCEPT PER
SHARE AMOUNTS
Sales
New equipment
Used equipment
Parts
Service
Other
Cost of sales
Gross profit
Selling, general and administrative
Loss on repurchase of convertible
debentures
Interest on short-term debt
Interest on long-term debt
Earnings before income taxes
Provision for income taxes
Net earnings
Earnings per share
Basic
Diluted
Dividends per share
Non-IFRS Measures(1)
EBITDA
Normalized EBITDA
Operating SG&A
Floor Plan Neutral Operating
Cash Flow
Normalized Diluted Earnings
per Share
2013
2012
2011
56.8%
30.8%
8.8%
3.2%
0.4%
100.0%
84.7%
15.3%
10.1%
0.4%
0.9%
0.4%
3.5%
1.0%
2.5%
51.9%
35.6%
9.2%
2.9%
0.4%
100.0%
86.1%
13.9%
10.5%
0.0%
1.2%
0.1%
2.1%
0.6%
1.5%
523,522
358,861
92,599
29,421
3,359
1,007,762
867,356
140,406
105,450
–
11,696
2,233
21,027
5,714
15,313
0.80
0.80
0.3675
549,036
297,476
84,653
30,459
4,482
966,106
818,595
147,511
97,711
4,232
9,071
2,843
33,654
9,679
23,975
1.28
1.28
0.2475
52.8%
33.6%
9.4%
3.5%
0.7%
100.0%
84.4%
15.6%
10.2%
0.0%
1.0%
0.5%
3.9%
1.0%
2.9%
423,933
269,809
75,531
28,028
5,462
802,763
677,571
125,192
82,001
–
8,306
3,587
31,298
8,089
23,209
1.24
1.12
0.1800
29,731
29,542
99,168
3.0%
2.9%
9.8%
42,008
46,510
92,391
4.3%
4.8%
9.6%
41,225
44,437
73,872
5.1%
5.5%
9.2%
42,342
4.2%
(82,824)
(8.6%)
28,280
3.5%
0.79
1.46
1.22
(1) – See further discussion in “Non-IFRS Measures” and “Reconciliation of Non-IFRS Measures to IFRS” sections below
15
ROCKY MOUNTAIN DEALERSHIPS | ANNUAL REPORT | 2013 SEGMENTED FINANCIAL REPORTING
During the fourth quarter of 2013, the Company realigned its organizational structure which resulted in changes
to the information reported to the Chief Operating Decision Maker (“CODM”) for the purposes of making resource
allocation decisions. As a result of this realignment, the Company has identified two reportable operating segments,
each being comprised of an aggregation of branches.
The Company’s branches have been aggregated on the basis of the primary industry which they serve, being
agriculture or construction. Certain branches serve both industries. In cases where branches distribute both agriculture
and construction equipment, the primary industry served is agriculture and therefore, these facilities have been
categorized as such. As a result, certain construction related results are included in the agriculture segment for the
purposes of segmented financial reporting.
Comparative information presented for 2012 has been derived using allocations and estimates made
by management.
$ THOUSANDS
Sales
New equipment
Used equipment
Parts
Service
Other
Gross profit
Gross margin
Net income (loss)
2013
2012
AGRICULTURE CONSTRUCTION
TOTAL
AGRICULTURE CONSTRUCTION
TOTAL
484,046
354,043
79,210
24,050
2,574
943,923
135,078
14.3%
23,979
39,476
4,818
13,389
5,371
785
63,839
5,328
8.3%
(8,666)
523,522
358,861
92,599
29,421
3,359
1,007,762
140,406
13.9%
15,313
488,902
291,798
68,869
22,430
2,757
874,756
131,463
15.0%
27,282
60,134
5,678
15,784
8,029
1,725
91,350
16,048
17.6%
(3,307)
549,036
297,476
84,653
30,459
4,482
966,106
147,511
15.3%
23,975
16
ROCKY MOUNTAIN DEALERSHIPS | ANNUAL REPORT | 2013 REVENUE AND GROSS PROFIT
The Company uses the terms “acquired” versus
“same store” in assessing its sales results. Each acquired
store has an average historical level of sales generated
prior to being acquired by Rocky. When the Company
discusses “acquired” sales, it is referring to the average
historical sales level realized by each acquired store prior
to acquisition. This base level of sales continues to be
AGRICULTURE SEGMENT
classified as acquired until such time as the acquired
store has been included in our dealership for a complete
calendar year after which point, all sales are classified as
same store. For the year ended December 31, 2013, all
acquired sales growth pertains to the Agriculture segment
of the Company.
$ THOUSANDS
2013
2012
CHANGE
Sales
New equipment
Used equipment
Parts
Service
Other
Gross profit
Gross margin
TOTAL
ACQUIRED
SAME STORE
484,046
354,043
79,210
24,050
2,574
943,923
135,078
14.3%
488,902
291,798
68,869
22,430
2,757
874,756
131,463
15.0%
(4,856)
62,245
10,341
1,620
(183)
69,167
3,615
(0.7%)
31,526
16,769
6,916
1,340
46
56,597
(36,382)
45,476
3,425
280
(229)
12,570
17
ROCKY MOUNTAIN DEALERSHIPS | ANNUAL REPORT | 2013 For the year ended December 31, 2013, total
sales for the Agriculture segment were $943.9 million
representing an increase of $69.2 million or 7.9% over
the same period in 2012. Acquired stores contributed
$56.6 million for the year, with the remainder of the
increase attributable to same store sales growth.
Equipment sales for the year ended December 31,
2013 increased by $57.4 million or 7.4% over the same
period in 2012. The majority of this increase was the
result of $48.3 million of acquired equipment sales
growth. Increased pricing on new agriculture equipment
adversely affected our 2013 pre-sale activity. We also
continued to balance our sales profile against our
balance sheet risk, particularly with regards to used
equipment. These factors resulted in the delivery of
fewer new agriculture equipment units during the
fourth quarter of 2013. A heavy harvest, our continued
focus on moving used equipment inventory and the
price advantages relative to new equipment which have
arisen since the implementation of Tier 4 engines all
contributed to used agriculture equipment sales growth
in 2013 resulting in $9.1 million in same store agriculture
equipment sales growth.
Parts sales for the year ended December 31, 2013
increased by $10.3 million or 15.0%. Acquired parts
sales contributed $6.9 million of this increase. Service
sales for the year increased $1.6 million due largely
to $1.3 million of acquired service sales. When used
equipment inventory is taken in on trade, it undergoes
a process of inspection, assessment and repair to
bring it to a saleable condition. This necessary process
consumes service resources, which, depending on
current capacity and seasonality, can constrain our
ability to perform external service work. During 2013,
elevated used equipment sales activity and our need
for additional qualified service technicians caused the
Company to experience this constraint and prevented
service sales from keeping pace with the overall
agriculture sales growth for the period.
Gross profit for the year ended December 31,
2013 increased by $3.6 million or 2.7% over 2012.
The increase in gross profit is primarily attributable to
increased sales activity during the year. As a percentage
of sales, gross profit declined by 0.7% to 14.3%. A shift
in our agriculture equipment sales mix from new to
used equipment contributed to a reduction in incentives
received from manufacturers of approximately
$6.0 million which deteriorated our overall agriculture
margins accounting for approximately 0.6% of the
decrease. The remaining decrease is attributable to
equipment pricing increases which we were unable to
pass on in their entirety to our customers.
18
ROCKY MOUNTAIN DEALERSHIPS | ANNUAL REPORT | 2013 CONSTRUCTION SEGMENT
$ THOUSANDS
2013
2012
CHANGE
Sales
New equipment
Used equipment
Parts
Service
Other
Gross profit
Gross margin
39,476
4,818
13,389
5,371
785
63,839
5,328
8.3%
60,134
5,678
15,784
8,029
1,725
91,350
16,048
17.6%
(20,658)
(860)
(2,395)
(2,658)
(940)
(27,511)
(10,720)
(9.3%)
For the year ended December 31, 2013, total
sales for the Construction segment were $63.8 million
representing a decrease of $27.5 million or 30.1% over
the same period in 2012. Construction sales continued
to fall short of our expectations. In conjunction with
our primary OEM, we have developed a comprehensive
strategy around improving our overall performance in
the construction market. Through investment in our
management and sales functions, we expect to see an
increase in delivered units to correspond with market
opportunity over the coming year.
In early 2013, we closed our Fort McMurray
store. Historically, this location produced solid top line
revenues and margins, however, costs associated with
operating in the Fort McMurray environment rendered
the location unprofitable. Although every effort has
been made to continue to serve our customers in the
area, the closure has contributed to a decrease in overall
construction sales.
Equipment sales for the year ended December 31,
2013 decreased by $21.5 million or 32.7% over the same
period in 2012. Lower than anticipated sales activity
across Alberta in recent quarters has left construction
equipment dealers with elevated levels of inventory and
created a highly competitive sales environment. The
pricing disparity between Tier 3 and Tier 4 equipment
has, in some instances, put us at a disadvantage in
an already difficult sales environment. These factors
combined to reduce our overall construction equipment
sales for the year.
Parts and service sales for the year ended December
31, 2013 decreased by $2.4 million and $2.7 million or
15.2% and 33.1%, respectively, primarily as a result of
the closure of the Fort McMurray facility.
Gross profit for the year ended December 31,
2013 decreased by $10.7 million or 66.8% over 2012.
As a percentage of sales, gross profit declined by 9.3%
to 8.3%. While we remain committed to serving our
customers, uncertainty around the Terex line and
the future availability of OEM support had a negative
impact on the valuation of our Terex articulated and
rigid-framed trucks. Consequently an impairment charge
of $5.0 million was taken which reduced diluted earnings
per share by $0.20. The remainder of the decrease in
gross profit was as a result of decreased sales activity for
the year.
19
ROCKY MOUNTAIN DEALERSHIPS | ANNUAL REPORT | 2013 SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administrative (“SG&A”)
expenses include sales and marketing expenses, sales
commissions, payroll and related benefit costs, insurance
expenses, professional fees, rent and other facility costs
and administration overhead including depreciation of
property and equipment. The majority of these costs are
fixed. As we acquire new stores, these costs will increase
as we incur additional expenditures related to the direct
selling, general and administrative functions. Over time,
as these acquisitions are amalgamated into the business,
the costs will generally decrease as we incorporate their
finance and administrative functions into our corporate
resources. Similarly, costs will increase as we add
direct customer related resources such as equipment
specialists, but will normalize as those positions drive
sales and increase the customer base.
Fixed costs are subject to annual price increases
primarily driven by both real estate and labour demand
in Western Canada.
Variable costs included within SG&A expenses
consist primarily of sales commissions and
enhancements to the organizational structure.
The Company assesses its Operating SG&A relative
to total sales in analyzing its results. See the definition
and reconciliation of Operating SG&A in the “Non-IFRS
Measures” and “Reconciliation of Non-IFRS Measures to
IFRS” sections below.
For the year ended December 31, 2013, Operating
SG&A was $99.2 million compared to $92.4 million
in 2012. The increase in Operating SG&A pertains
to additional commissions and salaries driven by
incremental sales activity and the acquisition of new
branches contributing to increased facility and other
SG&A costs.
The Company targets a sub-10% Operating SG&A
as a percentage of sales on an annual basis. Operating
SG&A as a percentage of sales for 2013 was 9.8%, up
from 9.6% in 2012 and within the Company’s targeted
range.
Depreciation included in SG&A amounted to
$6.5 million for the year ended December 31, 2013,
up from $5.1 million in 2012.
20
ROCKY MOUNTAIN DEALERSHIPS | ANNUAL REPORT | 2013 LOSS ON REPURCHASE OF
CONVERTIBLE DEBENTURES
NET EARNINGS
During 2012, the Company took up all of its
For the year ended December 31, 2013, we
generated net earnings of $15.3 million, down
$8.7 million from 2012. The decrease in net earnings is
primarily attributable to decreased margins as discussed
above, offset by the loss on the repurchase of the
Debentures recognized during the second quarter of
2012, net of tax.
On a per share basis, the Company’s Normalized
Diluted Earnings per share were $0.79, down from
$1.46 in 2012.
convertible debentures (the “Debentures”). Upon
derecognition, the Company allocated $4.2 million of the
loss to net earnings and $4.3 million (net of income taxes
of $0.3 million) to retained earnings. The Debentures
were replaced with a lower interest-bearing facility
resulting in both interest savings for Rocky and reduced
earnings dilution to shareholders.
INTEREST
The majority of the Company’s short-term interest
expense is attributable to the floor plan financing
associated with our new and used equipment inventory.
During 2013, short-term interest expense increased by
$2.6 million. This increase is the result of the increase in
the average balance of floor plan payable outstanding
throughout the respective years which arose in
response to increased equipment inventory levels.
During the year, long-term interest expense decreased
by $0.6 million primarily due to interest savings as a
result of replacing the Debentures with a lower interest
bearing facility.
21
ROCKY MOUNTAIN DEALERSHIPS | ANNUAL REPORT | 2013 SUMMARY OF QUARTERLY RESULTS
$ THOUSANDS,
EXCEPT PER SHARE
AMOUNTS
Q4
2013
Q3
2013
Q2
2013
Q1
2013
Q4
2012
Q3
2012
Q2
2012
Q1
2012
Q4
2011
Sales
New equipment
Used equipment
Parts
Service
Other
Cost of sales
Gross profit
SG&A
Loss on repurchase
of Debentures
Interest and taxes
Net earnings
EPS – basic
EPS – diluted
179,359
84,925 130,826
34,534
18,099
8,497
7,403
1,158
795
97,554 131,534 115,075 195,813 109,636 131,155 112,432 132,712
82,318
16,155
7,459
1,945
58,004
13,840
6,640
1,135
71,305
13,299
6,211
616
63,110
23,067
7,421
988
71,805
26,667
7,310
790
96,653
31,377
8,465
1,403
79,709
16,369
7,933
956
290,581 272,569 238,106 206,506 300,780 247,534 225,741 192,051 240,589
257,329 233,846 202,166 174,015 254,913 207,836 191,515 164,331 203,620
33,252
38,723
35,940
32,491
45,867
39,698
34,226
27,720
36,969
27,249
26,827
25,873
25,501
26,060
25,181
24,386
22,084
21,964
–
3,937
–
5,981
–
5,573
–
4,152
–
8,037
–
6,066
4,232
4,013
2,066
5,915
4,494
2,838
11,770
8,451
1,595
0.11
0.11
0.31
0.31
0.23
0.23
0.15
0.15
0.63
0.62
0.45
0.45
0.09
0.08
–
3,477
2,159
0.12
0.11
–
6,044
8,961
0.48
0.42
Fluctuating seasonal revenue cycles are common in both the agriculture and construction industries as a result
of weather conditions, the timing of crop receipts and farming cycles and the timing of infrastructure expenditures.
As a result, our financial results typically vary between quarters. The first calendar quarter is typically the weakest due
to winter shutdowns, while the fourth quarter is the strongest due to conversions of equipment on rent with purchase
options and the post-harvest purchases that are typical in the agriculture sector.
Over time, we expect second and third quarter sales activity to increase relative to the fourth quarter as our
increased installed base drives more parts and service activity and our customers decide to trade their equipment
earlier in the year to take advantage of advancements in technology before the harvest season.
Weather conditions, such as the late spring experienced in the current year, may positively or negatively impact
sales activity for any given period.
22
ROCKY MOUNTAIN DEALERSHIPS | ANNUAL REPORT | 2013 BALANCE SHEET SUMMARY
$ THOUSANDS
DECEMBER 31,
2013
DECEMBER 31,
2012
DECEMBER 31,
2011
Assets
Inventory
Other current assets
Property and equipment
Goodwill
Total assets
Liabilities and equity
Floor plan payable
Other current liabilities
Long-term debt
Obligations under finance
leases
Deferred tax liability
Derivative financial
instruments
Shareholders’ equity
Total liabilities and equity
482,824
74,520
30,860
14,692
602,896
342,364
56,607
41,681
541
2,576
1,706
445,475
157,421
602,896
495,151
91,571
21,558
13,884
622,164
351,812
69,955
45,977
1,379
7,042
1,438
477,603
144,561
622,164
354,631
79,848
21,369
9,961
465,809
226,863
59,312
40,462
1,589
8,283
1,139
337,648
128,161
465,809
Current assets at December 31, 2013 consist primarily of new and used equipment inventory of approximately
$214.7 million and $230.4 million, respectively (December 31, 2012 – $226.7 million and $233.2 million, respectively).
The Company’s new and used equipment inventory is comprised predominantly of agriculture equipment. Typically,
our agriculture customers trade-in their used equipment when purchasing new equipment. The Company has a diverse
customer base for its agriculture equipment and carries an appropriate mix of both new and used equipment to best
serve its customers. Construction equipment, by contrast, is generally utilized from sale to the end of its useful life by
one owner. Trades of used construction equipment are less common and as such, the Company carries a more modest
inventory of used construction equipment relative to new.
23
ROCKY MOUNTAIN DEALERSHIPS | ANNUAL REPORT | 2013 Throughout 2013, the Company implemented a number of sales initiatives to reduce its equipment inventory from
the all-time high reached in first quarter of the year. Through a combination of rationalizing new equipment purchases
and sales initiatives aimed at moving equipment, we have brought our overall equipment levels back in line with 2012
despite increased sales activity and the addition of two new facilities during the year. As anticipated, the decreases
achieved during the second and third quarters of the year were partially offset by seasonal equipment deliveries and
trades taken on the post-harvest sales activity during the fourth quarter.
Current liabilities consist predominantly of floor plan payable for financed inventory of approximately
$342.4 million as at December 31, 2013 (2012 – $351.8 million). The decrease in floor plan payable corresponds with
the reduction in equipment inventory carried by the Company. As a percentage of equipment inventory, floor plan
payable is relatively consistent year over year, with a slight increase from 76.5% at December 31, 2012 to 76.9% at
December 31, 2013.
24
ROCKY MOUNTAIN DEALERSHIPS | ANNUAL REPORT | 2013 LIQUIDITY AND CAPITAL RESOURCES
We assess liquidity in terms of our ability to generate sufficient cash flow, along with other sources of liquidity
including cash and borrowings, to fund our operations and growth in operations. Net cash flow is affected by the
following items:
Operating activities, including, the levels of accounts receivable, inventory, accounts payable, floor plan payable,
and financing provided to customers;
Financing activities, including bank credit facilities, long-term debt and other capital market activities providing
both short- and long-term financing; and,
Investing activities, including capital expenditures, acquisitions of complementary businesses and divestitures
of non-core businesses.
WORKING CAPITAL REQUIREMENTS
Through credit and financing facilities, the Company is required to maintain minimum working capital
requirements. The definitions and calculations for minimum working capital requirements vary between lenders.
As at December 31, 2013, the Company was in compliance with all working capital requirements and other financial
covenants (including liquidity and financial leverage ratios) as defined by its various lenders.
25
ROCKY MOUNTAIN DEALERSHIPS | ANNUAL REPORT | 2013
SUMMARY OF CASH FLOWS
Cash flow for the years ended December 31, can be summarized as follows:
$ THOUSANDS
2013
2012
2011
Net earnings
Effect of non-cash items in net earnings and
changes in working capital
Cash flows from operating activities
Cash flows from financing activities
Cash flows from investing activities
Net increase in cash and cash equivalents
Cash and cash equivalents,
beginning of period
Cash and cash equivalents, end of period
Floor Plan Neutral Operating Cash Flow(1)
15,313
14,792
30,105
(8,459)
(21,101)
545
34,177
34,722
42,342
23,975
(1,972)
22,003
(4,450)
(14,408)
3,145
31,032
34,177
(82,824)
23,209
9,580
32,789
(4,564)
(14,332)
13,893
17,139
31,032
28,280
(1) – See further discussion in “Non-IFRS Measures” and “Reconciliation of Non-IFRS Measures to IFRS” sections below
26
ROCKY MOUNTAIN DEALERSHIPS | ANNUAL REPORT | 2013 CASH FLOWS FROM OPERATING ACTIVITIES
The Company assesses its Floor Plan Neutral Operating Cash Flow in analyzing its cash flows from operating
activities. See the definition and reconciliation of Floor Plan Neutral Operating Cash Flow in the “Non-IFRS Measures”
and “Reconciliation of Non-IFRS Measures to IFRS” sections below.
Rocky is eligible to finance its equipment inventory using its various floor plan facilities. Floor plan facilities are
asset-backed lending arrangements whereby each draw is associated with a specific piece of equipment. The Company
is under no obligation to finance any of its equipment inventory and, as a general rule, financed units can be paid out
for a period of time and refinanced at a later date. Adjusting cash flows from operating activities for changes in the
balance of floor plan payable allows management to isolate and analyze cash flows from operating activities, prior to
any sources or uses of cash associated with equipment financing decisions.
For the year ended December 31, 2013, we generated Floor Plan Neutral Operating Cash Flow of $42.3 million as
compared to an $82.8 million use in 2012. The change in Floor Plan Neutral Operating Cash Flow is largely the result
of equipment inventory acquired throughout the prior year as well as the loss on the repurchase of the Debentures
recognized during the second quarter of 2012.
For the year ended December 31, 2013, the Company generated $30.1 million in cash flow from operating
activities, an increase of $8.1 million over 2012. The increase is primarily attributable to decreases in equipment
inventory, net of applicable floor plan financing.
CASH FLOWS FROM FINANCING ACTIVITIES
For the year ended December 31, 2013, we utilized $8.5 million for financing activities compared to $4.5 million
in 2012. Cash flows from financing activities during 2013 and 2012 pertained primarily to scheduled debt repayments,
draws against credit facilities, dividend payments and the net cash flows associated with the repurchase and refinancing
of the Debentures in the second quarter of 2012.
CASH FLOWS FROM INVESTING ACTIVITIES
For the year ended December 31, 2013, we utilized $21.1 million for investing activities compared to $14.4 million
in 2012. Cash utilized for investing activities was the result of our normal capital expenditures and the acquisitions of
two parcels of land for the purpose of constructing new facilities, offset by cash generated on the disposal of a portion
of our rental fleet of rock trucks during 2012. Also included in cash utilized for investing activities during 2013 and 2012
is the cash consideration paid on account of business combinations.
27
ROCKY MOUNTAIN DEALERSHIPS | ANNUAL REPORT | 2013 ADEQUACY OF CAPITAL RESOURCES
We use cash flow from operations to finance the purchase of inventory, service our debt requirements, pay dividends,
and fund our operating activities, including working capital, both operating and finance leases and floor plan payable. Our
ability to service our debt and distribute dividends to shareholders will depend upon our ability to generate cash, which
depends on our future operating performance, general economic conditions, as well as other factors, some of which are
beyond our control. Based on our current operational performance, we believe that cash flow from operations, along with
existing credit facilities, will provide for our capital needs.
FINANCE FACILITIES
The Company has a credit facility with a syndicate of lenders (the “Syndicated Facility”). The Syndicated Facility is
a revolving facility secured in favour of the syndicate by a general security agreement. Advances under the Syndicated
Facility may be made based on our lenders’ prime rate or the US base rate plus 1.0% – 2.5% or based on the banker’s
acceptance (“BA”) rate plus 2.0% – 3.5%. The Company pays standby fees of between 0.5% and 0.8% per annum on any
undrawn portion of the Syndicated Facility. The standby fees and premiums on base interest rates within the respective
ranges are determined based on the Company’s covenant compliance. The Syndicated Facility matures on June 1, 2016. It
is however the Company’s intention to renew this facility prior to its maturity date.
The Syndicated Facility consists of:
The “Operating Facility” – which may be utilized to advance up to the lesser of 50% of eligible inventory plus 75% of
eligible accounts receivable or $30.0 million and may be used to finance general corporate operating requirements.
The “Flooring Facility” – which may be used to finance up to 75% of the value of eligible equipment inventory. Draws
against the Flooring Facility are repayable over a term of 24 months however; they become due in full upon the sale
of the associated equipment.
The “Acquisition Facility” – which may be used to finance up to 60% of the cost of future acquisitions with tranches
repayable in monthly installments over an amortization period of 60 months.
The “Fleet Facility” – which may be used to finance the Company’s fleet of vehicles with draws repayable in monthly
installments over an amortization period of 36–60 months.
The “Debenture Repayment Facility” – which was used to finance the repurchase of the Debentures. This facility is
repayable with quarterly installments of $0.9 million plus interest with the remaining principal to be paid out on
September 30, 2017.
28
ROCKY MOUNTAIN DEALERSHIPS | ANNUAL REPORT | 2013
Including the Syndicated Flooring Facility, we have total available floor plan financing of approximately $588.1 million
(inclusive of seasonal increases) from various lending institutions for the purpose of financing inventory. Our equipment
inventory is financed by way of floor plan financing, which is made available to Rocky by the equipment manufacturers’
captive finance companies or divisions (such as CNH Capital), as well as by banks and specialty lenders.
In addition to our available cash balance of $34.7 million as at December 31, 2013, we have approximately
$294.3 million available on our various credit facilities.
$ MILLIONS
FACILITY LIMIT
AMOUNT DRAWN
AVAILABLE
Operating Facility
Acquisition Facility
Fleet Facility
Debenture Repayment Facility
Various floor plan facilities
OEM floor plan facilities
Syndicated Flooring Facility
Other floor plan facilities
INTEREST RATE SWAPS
30.0
30.0
10.0
29.8
250.0
100.0
238.1
687.9
–
17.2
4.2
29.8
72.6
92.9
176.9
393.6
30.0
12.8
5.8
–
177.4
7.1
61.2
294.3
The Company utilizes derivative financial instruments to hedge its exposure to changes in interest rates. We do not
use derivatives to speculate, but rather as a risk management tool. During 2013, the Company entered into a floating-
to-fixed interest rate swap on an incremental $35.0 million of its Flooring Facility. Inclusive of this new swap, the
Company has four separate interest rate swaps (the “Swaps”) related to portions of its Acquisition and Flooring Facilities
as well as the Debenture Repayment Facility (collectively the “Hedged Facilities”).
29
ROCKY MOUNTAIN DEALERSHIPS | ANNUAL REPORT | 2013 The interest rate swap related to the Acquisition Facility amortizes with principal payments on the debt until
May 27, 2016. At December 31, 2013, the notional amount of the swap was $7.9 million (December 31, 2012 –
$11.2 million). The interest rate swaps related to the Flooring Facility are non-amortizing with $25.0 million maturing
on August 31, 2018 and $35.0 million maturing on September 30, 2020. The aggregate notional amount outstanding at
December 31, 2013 was $60.0 million (December 31, 2012 – $25.0 million). The interest rate swap on the Debenture
Repayment Facility amortizes with principal repayments on the debt until April 27, 2017. At December 31, 2013, the
notional amount of the swap was $29.8 million (December 31, 2012 – $33.3 million).
The Hedged Facilities each bear interest at a floating rate based on the prevailing one-month BA rate plus
2.0% – 3.5%. The Swaps hedge our exposure to fluctuations in the BA rate. At December 31, 2013 the effective rates
on the hedged portions of the Acquisition, Flooring and Debenture Repayment Facilities were 3.7%, 5.0% and 4.3%,
respectively (December 31, 2012 – 3.7%, 4.5% and 4.3%, respectively). We have designated these instruments as
hedges and have accounted for them using hedge accounting in our consolidated financial statements.
If we sell or terminate a hedged item, or it matures before the related hedging instrument is terminated, we
recognize in income any realized or unrealized gain or loss on the derivative instrument. In accounting for these cash
flow hedges, changes in fair value of the Swaps are included in the consolidated statement of other comprehensive
income to the extent the hedge continues to be effective. The related other comprehensive amounts are allocated to
net earnings in the same period in which the hedged item affects net earnings. For all cash flow hedges, to the extent
the change in fair value of the derivative is not completely offset by the change in the fair value of the hedged item,
the ineffective portion of the hedging relationship is recorded immediately in net earnings.
DIVIDENDS
On February 3, 2014, Rocky’s Board of Directors declared a quarterly dividend of $0.10 per common share on the
Company’s outstanding common shares. The dividend is payable on March 31, 2014, to shareholders of record at close
of business on February 28, 2014.
30
ROCKY MOUNTAIN DEALERSHIPS | ANNUAL REPORT | 2013 SHARE CAPITAL – OUTSTANDING SHARES
THOUSANDS
2013
2012
Opening balance
Issued pursuant to:
Stock option exercises
Restricted share unit exercises
Closing balance
18,993
320
–
19,313
18,768
105
120
18,993
As at March 11, 2014, there were 19,315,253 shares outstanding.
The options outstanding at December 31, 2013 are as follows (expressed in thousands except per option
and average life amounts):
GRANT DATE
December 29, 2009
March 11, 2011
August 11, 2011
March 28, 2012
March 13, 2013
OPTIONS
OUTSTANDING
(THOUSANDS)
OPTIONS
EXERCISABLE
(THOUSANDS)
WEIGHTED AVERAGE
EXERCISE PRICE
($)
WEIGHTED AVERAGE
CONTRACTUAL LIFE
(YEARS)
61
42
150
277
415
945
61
20
87
89
–
257
9.22
10.39
8.71
11.96
12.89
11.61
1.0
2.2
2.6
3.2
4.2
3.4
As at March 11, 2014, there were 915,500 options outstanding.
31
ROCKY MOUNTAIN DEALERSHIPS | ANNUAL REPORT | 2013 CONTRACTUAL OBLIGATIONS
The Company’s contractual obligations consist primarily of its floor plan payable used to finance the purchase
of new, and to a lesser extent, used equipment. The Company has classified its floor plan payable as current as the
corresponding inventory to which it relates has also been classified as current. Floor plan payable as well as trade
payables, accruals and other form the majority of the Company’s contractual obligations which will be discharged
within the next 12 months.
Other significant contractual obligations outstanding as at December 31, 2013 include long-term debt consisting
predominantly of the Debenture Repayment, Acquisition and Fleet Facilities and operating lease commitments which
relate primarily to the Company’s facilities. Lease terms are between one and eleven years and most building leases
contain five-year renewal options.
The Company assesses its liquidity based on the expected period in which cash flows will occur. The following table
summarizes the Company’s expected undiscounted cash flows as at December 31, 2013 assuming the Syndicated Facility
is renewed prior to maturity on June 1, 2016. The analysis is based on foreign exchange rates and interest rates in effect
at the consolidated balance sheet date, and includes both principal and interest cash flows.
$ THOUSANDS
TOTAL
2014
2015–2016
2017–2018
THEREAFTER
Trade payables, accruals and other
Floor plan payable
Long-term debt
Obligations under finance leases
Operating lease obligations
Derivative financial instruments
41,107
355,853
56,187
1,406
38,354
2,442
41,107
355,853
12,159
850
8,491
1,197
Total contractual obligations
495,349
419,657
–
–
20,339
556
13,240
1,245
35,380
–
–
23,655
–
7,836
–
31,491
–
–
34
–
8,787
–
8,821
In the event that the Syndicated Facility is not renewed prior to its maturity, the cash outflow for the long-term
debt outstanding as at December 31, 2013 would be $42.9 million in 2015–2016 and $Nil thereafter.
32
ROCKY MOUNTAIN DEALERSHIPS | ANNUAL REPORT | 2013 RELATED PARTY TRANSACTIONS
The Company entered into the following transactions with related parties for the respective years ended:
$ THOUSANDS
2013
2012
Management fees
Flight costs
Other expenses
Rental payments on Company facilities
Equipment sales
Equipment purchases
–
183
406
5,280
4,476
4,206
31
403
68
4,138
6,339
4,314
All related parties are either directly or indirectly owned by a member of senior management of the Company and/
or a close family member thereof. These transactions were made on terms equivalent to those that prevail in arm’s
length transactions and are made only if such terms can be substantiated.
The remuneration of the directors and officers of the Company is determined by the Compensation, Governance
and Nominating Committee of the Board of Directors based on performance and is consistent with market trends. The
remuneration of directors and officers of the Company identified as key management is as follows for the respective
years ended:
$ THOUSANDS
2013
2012
Short-term benefits
Post-retirement benefits
Share-based payment
1,984
36
1,054
3,074
2,832
34
1,069
3,935
33
ROCKY MOUNTAIN DEALERSHIPS | ANNUAL REPORT | 2013 Amounts due from (to) related parties are included in the consolidated balance sheets under trade receivables
and other (trade payables, accruals and other) and are as follows:
$ THOUSANDS
Due from related parties
Due to related parties
2013
141
(39)
2012
31
(77)
The amounts due from related parties are not secured and are to be settled in cash. As at December 31, 2013 and
2012, the amounts due from related parties are considered collectible and therefore have not been provided for in
the allowance for doubtful accounts. During the year ended December 31, 2013, $Nil has been recognized in bad debt
expenses with respect to related party transactions (2012 – $Nil).
Key management personnel are comprised of the Company’s officers. As at December 31, 2013, there
is a $2.9 million commitment (December 31, 2012 – $3.0 million) relating to change of control or termination
of employment of the key management personnel.
OFF-BALANCE SHEET ARRANGEMENTS
We use off-balance sheet financing in connection with numerous operating leases. These leases relate to the
Company’s buildings and certain vehicles with lease terms of between one and eleven years. Most building leases
contain five-year renewal options. We have paid monthly amounts under these operating leases ranging from
$0.1 thousand to $64.2 thousand. The current operating leases expire between January 2014 and July 2023.
34
ROCKY MOUNTAIN DEALERSHIPS | ANNUAL REPORT | 2013 SELECTED QUARTERLY FINANCIAL INFORMATION
$ THOUSANDS,
EXCEPT PER
SHARE AMOUNTS
Sales
New equipment
Used equipment
Parts
Service
Other
Cost of sales
Gross profit
Selling, general
and administrative
Interest on short-term debt
Interest on long-term debt
Earnings before income taxes
Provision for income taxes
Net earnings
Earnings per share
Basic
Diluted
Dividends per share
Non-IFRS Measures(1)
EBITDA
Normalized EBITDA
Operating SG&A
Floor Plan Neutral Operating
Cash Flow
Normalized Diluted Earnings per
Share
2013
2012
2011
179,359
84,925
18,099
7,403
795
290,581
257,329
33,252
27,249
2,802
572
2,629
563
2,066
0.11
0.11
0.1000
4,872
4,929
25,521
61.7%
29.2%
6.2%
2.5%
0.4%
100.0%
88.6%
11.4%
9.4%
1.0%
0.1%
0.9%
0.2%
0.7%
1.7%
1.7%
8.8%
195,813
79,709
16,369
7,933
956
300,780
254,913
45,867
26,060
2,622
572
16,613
4,843
11,770
0.63
0.62
0.0675
18,557
18,579
24,671
65.1%
26.5%
5.4%
2.6%
0.4%
100.0%
84.8%
15.2%
8.7%
0.9%
0.1%
5.5%
1.6%
3.9%
6.2%
6.2%
8.2%
132,712
82,318
16,155
7,459
1,945
240,589
203,620
36,969
21,964
2,022
917
12,066
3,105
8,961
0.48
0.42
0.0450
14,587
14,529
20,804
55.2%
34.2%
6.7%
3.1%
0.8%
100.0%
84.6%
15.4%
9.1%
0.8%
0.5%
5.0%
1.3%
3.7%
6.1%
6.0%
8.6%
(19,916)
(6.9%)
(27,449)
(9.1%)
(21,017)
(8.7%)
0.11
0.62
0.42
(1) – See further discussion in “Non-IFRS Measures” and “Reconciliation of Non-IFRS Measures to IFRS” sections below
35
ROCKY MOUNTAIN DEALERSHIPS | ANNUAL REPORT | 2013 SEGMENTED FINANCIAL REPORTING
$ THOUSANDS
Sales
New equipment
Used equipment
Parts
Service
Other
Gross profit
Gross margin
Net income (loss)
2013
2012
AGRICULTURE
CONSTRUCTION
TOTAL
AGRICULTURE
CONSTRUCTION
TOTAL
168,771
83,952
15,166
6,293
610
274,792
37,769
13.7%
8,357
10,588
973
2,933
1,110
185
15,789
(4,517)
(28.6%)
(6,291)
179,359
84,925
18,099
7,403
795
290,581
33,252
11.4%
2,066
183,011
77,829
12,832
6,207
707
280,586
43,487
15.5%
13,674
12,802
1,880
3,537
1,726
249
20,194
2,380
11.8%
(1,904)
195,813
79,709
16,369
7,933
956
300,780
45,867
15.2%
11,770
AGRICULTURE SEGMENT REVENUE AND GROSS PROFIT
$ THOUSANDS
2013
2012
CHANGE
Sales
New equipment
Used equipment
Parts
Service
Other
Gross profit
Gross margin
TOTAL
ACQUIRED
SAME STORE
168,771
83,952
15,166
6,293
610
274,792
37,769
13.7%
183,011
77,829
12,832
6,207
707
280,586
43,487
15.5%
(14,240)
6,123
2,334
86
(97)
(5,794)
(5,718)
(1.8%)
4,046
1,871
919
133
15
6,984
(18,286)
4,252
1,415
(47)
(112)
(12,778)
36
ROCKY MOUNTAIN DEALERSHIPS | ANNUAL REPORT | 2013 For the quarter ended December 31, 2013, total sales for the Agriculture segment were $274.8 million, a decrease
of $5.8 million or 2.1% over the same period in 2012. Acquired stores contributed $7.0 million for the quarter, but were
offset by a contraction in same store sales.
Equipment sales for the quarter ended December 31, 2013 decreased by $8.1 million or 3.1% over the same period
in 2012. The majority of the decrease in equipment sales pertains to a $14.0 million reduction in same store equipment
sales. As stated, increased equipment pricing reduced our pre-sale activity for the quarter. Acquired equipment sales
amounted to $5.9 million for the quarter.
Parts sales for the quarter ended December 31, 2013 increased by $2.3 million or 18.2%. Acquired parts sales
contributed $0.9 million of this increase. Service sales for the quarter were relatively flat.
Gross profit for the quarter ended December 31, 2013 decreased by $5.7 million or 13.1% over the same period
in 2012. As a percentage of sales, gross profit declined by 1.8% to 13.7% during the fourth quarter. These decreases
are primarily attributable to reduced manufacturer incentives, lower sales activity and equipment pricing increases
which we were unable to pass on in their entirety to our customers.
CONSTRUCTION SEGMENT REVENUE AND GROSS PROFIT
$ THOUSANDS
2013
2012
CHANGE
Sales
New equipment
Used equipment
Parts
Service
Other
Gross profit
Gross margin
10,588
973
2,933
1,110
185
15,789
(4,517)
(28.6%)
12,802
1,880
3,537
1,726
249
20,194
2,380
11.8%
(2,214)
(907)
(604)
(616)
(64)
(4,405)
(6,897)
(40.4%)
37
ROCKY MOUNTAIN DEALERSHIPS | ANNUAL REPORT | 2013 For the quarter ended December 31, 2013, total sales for the Construction segment were $15.8 million
representing a decrease of $4.4 million or 21.8% over the same period in 2012.
Equipment sales for the quarter ended December 31, 2013 decreased by $3.1 million or 21.3% over the same
period in 2012. The price disparity on certain types of construction equipment as it pertains to Tier 3 vs. Tier 4
equipment coupled with a highly competitive sales environment to reduce equipment sales during the period.
Parts and service sales for the quarter ended December 31, 2013 decreased by $0.6 million and $0.6 million
or 17.1% and 35.7%, respectively, primarily as a result of the closure of the Fort McMurray facility.
Gross profit for the quarter ended December 31, 2013 decreased by $6.9 million over 2012. Uncertainty
surrounding our ability to continue to support the Terex line of articulated and rigid frame trucks has resulted
in an impairment charge of approximately $5.0 million in the fourth quarter of 2013 accounting for the majority
of the decrease over the same period in 2012.
SELLING, GENERAL AND
ADMINISTRATIVE
NET EARNINGS
For the three months ended December 31, 2013,
we generated net earnings of $2.1 million, down
from $11.8 million in the same period in 2012. Net
earnings have decreased predominantly as a result of
a contraction in equipment sales and decreased margins
during the quarter.
The Company’s Diluted Earnings per share for
the three months ended December 31, 2013 were
$0.11 compared to $0.62 for the fourth quarter of 2012.
The Company assesses its Operating SG&A relative
to total sales in analyzing its results. See the definition
and reconciliation of Operating SG&A in the “Non-IFRS
Measures” and “Reconciliation of Non-IFRS Measures
to IFRS” sections below.
For the three months ended December 31, 2013,
Operating SG&A was $25.5 million, up from $24.7 million
in 2012. The increase in Operating SG&A pertains to the
acquisition of new branches contributing to increased
facility and other SG&A costs. Operating SG&A as a
percentage of sales increased by 0.6% to 8.8% in 2013
due to the aforementioned increase in fixed SG&A costs
in combination with the decline in sales for the quarter.
Depreciation included in SG&A amounted to
$1.7 million in the fourth quarter of 2013 versus
$1.4 million in the same period in 2012.
38
ROCKY MOUNTAIN DEALERSHIPS | ANNUAL REPORT | 2013
CRITICAL ACCOUNTING ESTIMATES
The preparation of the consolidated financial
statements requires that certain estimates and
judgments be made with respect to the reported
amounts of sales and expenses and the carrying
amounts of assets and liabilities. These estimates are
based on historical experience and management’s
judgment. Anticipating future events involves
uncertainty and consequently, the estimates used by
management in the preparation of the consolidated
financial statements may change as future events
unfold, additional information is acquired or
the Company’s operating environment changes.
Management considers the following to be the most
significant of these estimates:
NET REALIZABLE VALUE OF INVENTORY
Equipment is valued at the lower of cost and
net realizable value, with cost being determined on
a specific item, actual cost basis, and net realizable
value being determined by the recent sales of the same
or similar equipment inventory or market values as
established by industry publications, less the costs to
sell. Parts inventory is recorded at the lower of cost
and net realizable value, with cost being determined
on an average cost basis and net realizable value being
determined by recent sales of the same or similar parts
inventory, less the costs to sell. Work-in-progress is
valued on a specific item, actual cost basis.
ALLOWANCE FOR DOUBTFUL ACCOUNTS
The allowance for doubtful accounts is reviewed by
management on a monthly basis. Accounts receivable
are considered for impairment on a case-by-case basis
when they are past due or when objective evidence
is received that a customer will default. The Company
takes into consideration the customer’s payment
history, their creditworthiness and the current economic
environment in which the customer operates to
assess impairment. The Company’s historical bad debt
expenses have not been significant and are usually
limited to specific customer circumstances.
NET RECOVERABLE AMOUNT
OF GOODWILL
For the purposes of impairment testing, goodwill
is allocated to the Company’s CGUs. The recoverable
amount of each CGU is determined using a value in
use calculation. The key assumptions for the value
in use calculations are those regarding discount
and growth rates. These key assumptions are based
on past experience, which has been adjusted for
anticipated changes in future periods.
39
ROCKY MOUNTAIN DEALERSHIPS | ANNUAL REPORT | 2013 MANUFACTURER INCENTIVES
DERIVATIVE FINANCIAL INSTRUMENTS
Certain manufacturers offer annual performance
incentives which are linked to the Company’s market
share achievement and annual sales volumes. The
Company uses estimated annual market share statistics
derived from historical results which have been adjusted
for any anticipated changes in the current year, as well
as sales volume to date to accrue the proportion of
these annual manufacturer incentives earned during
the period.
The Company utilizes derivative financial
instruments to manage its interest rate exposure.
Derivatives are initially recognized on the date a
derivative contract is entered into and are subsequently
re-measured at their fair value. The fair values of
interest rate swaps are calculated as the net present
value of the estimated future cash flows expected to
arise on the variable and fixed legs, determined using
applicable yield curves at each measurement date. Swap
curves, which incorporate credit spreads applicable to
large commercial banks, are typically used to calculate
expected future cash flows and the present values
thereof. Adjustments are also made to reflect the
Company’s own credit risk and the credit risk of the
counter party, if different from the spread implicit in
the swap curve.
40
ROCKY MOUNTAIN DEALERSHIPS | ANNUAL REPORT | 2013 KEY FINANCIAL STATEMENT COMPONENTS
EQUIPMENT SALES
OTHER REVENUE
Equipment revenues are derived from the sale of
Other revenue consists of commission revenue from
new and used construction and agriculture equipment.
Revenue is recognized when the customer has signed
the sales agreement, has paid or is credit-approved, and
title to and risk of loss for the piece of equipment have
transferred. New equipment sales also include certain
rental revenues.
PARTS SALES
Revenue from parts sales is recognized when title
to the product has transferred to the customer and
collection is reasonably assured. This is evidenced by the
goods being shipped or physically taken by the customer,
or in the case of parts drawn to complete service work,
when the service work order is completed.
SERVICE REVENUE
Revenue from service is recognized by reference
to the stage of completion of the contract when the
outcome can be estimated reliably.
finance and insurance, recognized when the finance
contract is signed; revenue from rentals, recognized
on the first day of each month specified in the rental
contract on a straight-line basis over the term of the
contract; and lease revenue, recognized on a straight-
line basis over the term of the lease independent of the
timing of the payments received. Prepayment of any
lease is initially set up as a deposit, and is reduced on a
monthly basis at a rate reflective of the lease contract.
COST OF SALES
Cost of sales is the accumulation of the costs
attributable to the sources of revenue set forth in the
financial statements. Revenues are matched to cost
of sales attributable to specific revenue sources. The
cost of equipment sales is determined based on the
actual cost of the equipment. The cost of parts sales
is determined based on the average actual cost for
those parts. The cost of service revenues is determined
based on actual costs to complete the service job,
which include, without limitation, wages paid to service
technicians and the actual cost of externally sourced
labour, plus applicable overheads.
41
ROCKY MOUNTAIN DEALERSHIPS | ANNUAL REPORT | 2013 SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES
INTEREST EXPENSE
SG&A expenses include sales and marketing
Short-term interest includes the aggregate expense
expenses, sales commissions, payroll, and related benefit
costs, insurance expenses, professional fees, rent,
and other facility costs and administrative overhead
including depreciation of property and equipment.
for interest under the current floor plan financing
programs associated with financing equipment inventory
through numerous creditors, and existing credit facilities.
Short-term interest also includes charges related to
credit and financing. Long-term interest includes the
aggregate expense for interest associated with the
Company’s various long-term credit facilities and
obligations under finance leases.
42
ROCKY MOUNTAIN DEALERSHIPS | ANNUAL REPORT | 2013 RISKS AND UNCERTAINTIES
Risk factors faced by Rocky are listed in the
Company’s AIF, which can be found on SEDAR. These
risk factors include industry risks associated with
construction and agriculture equipment dealerships
and others, including but not limited to: dependence
on equipment manufacturers; nature of dealership
agreements; weather conditions; consolidations
within the equipment manufacturing industry;
non-exclusive nature of key geographic markets;
inventory management risks; floor plan financing
risks; dependence on credit facilities; changing
economic conditions; fluctuations in commodity prices;
seasonality and cyclicality in our customers’ businesses;
competition; fluctuations in interest rates; customer
credit risks; import product restrictions; foreign trade;
foreign exchange exposure; insurance risks; dependence
on leasing branch premises and key personnel; labour
costs and shortages; labour relations; freight costs;
reliance on information systems; government regulation;
industry oversupply; future warranty claims; product
liability risks; manufacturers’ restrictions on dealership
acquisitions; growth risks; integration of acquisitions;
dividend policy risks; future sales of common shares by
existing shareholders; dilution of common shares due
to future distributions; conflicts of interest; income tax
matters; dependence on subsidiaries; potential unknown
liabilities; and unpredictability and volatility of common
share price.
Our success largely depends on the abilities and
experience of our senior management team and other
key personnel. These employees carry a significant
amount of the management responsibility of our
business and are important for setting strategic direction
and dealing with certain significant customers.
Our future performance will also depend on our
ability to attract, develop, and retain highly qualified
employees in all areas of our business. We face
significant competition for individuals with the skills
required to develop, market and support our products
and services. If we fail to recruit and retain sufficient
numbers of these highly skilled employees, we may
not be able to achieve our growth objectives and our
business may be adversely affected.
43
ROCKY MOUNTAIN DEALERSHIPS | ANNUAL REPORT | 2013 RISKS RELATED TO FINANCIAL INSTRUMENTS
The Company, through its financial assets and
liabilities, has exposure to the following risks from its
use of financial instruments: credit risk, market risk
(consisting of foreign currency exchange risk and interest
rate risk), and liquidity risk.
in the carrying amount of the allowance for doubtful
accounts, including write-offs, are recognized in selling,
general and administrative expenses.
CREDIT RISK
Credit risk refers to the risk that a counterparty
will default on its contractual obligations resulting in
a financial loss to the Company. The Company has a
policy of only dealing with creditworthy counterparties
and obtaining sufficient collateral, where appropriate,
as a means of mitigating the risk of financial loss from
defaults. The creditworthiness of counterparties is
determined using information supplied by independent
rating agencies where available and, if not available,
the Company uses other publicly available financial
information and its own trading records to rate its major
customers. The Company’s exposure and the credit
ratings of its counterparties are continuously monitored
and the aggregate value of transactions concluded
is spread amongst approved counterparties. Credit
exposure is controlled by counterparty limits that are
reviewed regularly.
The Company’s exposure to credit risk on its
cash balance is mitigated as these financial assets
are held with major financial institutions with strong
credit ratings.
During the year ended December 31, 2013, the
Company decreased its allowance for doubtful accounts
by $0.3 million (2012 – increased by $0.6 million) and
wrote-off $0.3 million (2012 – $0.2 million). Changes
MARKET RISK
Market risk is the risk from changes in market
prices, such as changes in foreign currency exchange
rates and interest rates which will affect the Company’s
earnings or the value of the financial instruments held.
FOREIGN CURRENCY EXCHANGE RISK
The OEMs we do business with are geographically
diversified, requiring us to conduct business in two
currencies: U.S. dollars and Canadian dollars. As a
result, we have foreign currency exposure with respect
to purchases of U.S. dollar denominated products
(inventory) and we experience foreign currency gains
and losses thereon. The nature of exposure to foreign
exchange fluctuations differs between equipment
manufacturers and the various dealer agreements
with them.
The last several years have seen a weakening of the
U.S. dollar in comparison to the Canadian dollar. This
has generally had a positive effect on our performance
by lowering our cost of goods sold. However, as the
markets in which we operate are highly competitive, a
declining U.S. dollar also has the effect of reducing sales
prices in Canadian dollars and, as a consequence, we
cannot capture the entire potential benefit of a declining
U.S. dollar environment. If the U.S. dollar strengthens in
comparison to the Canadian dollar, and we are unable
to fully offset the increase in cost of goods through
44
ROCKY MOUNTAIN DEALERSHIPS | ANNUAL REPORT | 2013 price increases, our financial results may be negatively
affected. We mitigate some of this risk by occasionally
purchasing forward contracts for U.S. dollars on large
transactions to cover the period from the time the
equipment is ordered from the manufacturer to the
delivery date.
Included in selling, general and administrative
expenses are gains recognized due to foreign currency
translation for transactions and balances aggregating
$0.5 million for the year ended December 31, 2013
(2012 – $0.5 million).
INTEREST RATE RISK
We finance our purchases of new and, to a lesser
extent, used equipment inventory through floor plan
borrowing arrangements, under which we are charged
interest at floating rates. As a result, rising interest rates
have the effect of increasing our overall costs. To the
extent that we cannot pass on such increased costs
to our customers, our net earnings or cash flow may
decrease. In addition, some of our customers finance
the equipment they purchase through us. A customer’s
decision to purchase may be affected by interest rates
available to finance the purchase.
The Company manages its interest rate risk by using
floating-to-fixed interest rate swaps when appropriate.
Generally, the Company will raise floor plan financing
and/or long-term debt at floating rates. When the
Company enters into a floating-to-fixed interest rate
swap, it agrees with a third party to exchange the
difference between the fixed and floating contract rates
based on agreed notional amounts.
The ineffective portion of the mark to market
revaluation amounted to a gain of $0.2 million for
the year ended December 31, 2013 (2012 – loss of
$0.2 million), and was recognized in net earnings. Losses
recognized in accumulated other comprehensive loss
within equity for the year ended December 31, 2013
were $0.4 million net of income tax of $0.1 million (2012
– $0.1 million, net of income tax of $30 thousand). These
accumulated losses will be continuously released to the
consolidated statement of net earnings within interest
on short- and long-term debt until full repayment of the
underlying debt.
LIQUIDITY RISK
The Company’s objective is to have sufficient
liquidity to meet its liabilities when due. The Company
monitors its cash balance and cash flows generated from
operations as well as available credit facilities to meet its
requirements.
Refer to the Finance Facilities section of this MD&A
for details on the Company’s various credit facilities.
45
ROCKY MOUNTAIN DEALERSHIPS | ANNUAL REPORT | 2013 RISKS RELATED TO FINANCIAL INSTRUMENTS
SIGNIFICANT NEW ACCOUNTING
POLICIES
Effective January 1, 2013, the Company adopted
the amendments to IAS 1, ‘Presentation of financial
statements’, which require the Company to group items
within other comprehensive income by those that will
be subsequently reclassified to net earnings and those
that will not; and the amendment to IAS 36, ‘Impairment
of assets’, which removes the requirement to disclose
the recoverable amount when a CGU contains goodwill
or indefinite lived intangible assets, but there has been
no impairment.
46
ROCKY MOUNTAIN DEALERSHIPS | ANNUAL REPORT | 2013 NON-IFRS MEASURES
Throughout this MD&A, we use terms which do
not have standardized meanings under IFRS. As these
non-IFRS financial measures do not have standardized
meanings prescribed by IFRS, they are unlikely to be
comparable to similar measures presented by other
issuers. Our definition for each term is as follows:
“EBITDA” is a commonly used metric in the dealership
industry. EBITDA is calculated by adding interest on
long-term debt, income taxes and depreciation to
ne earnings. Adding back non-operating expenses allows
management to consistently compare periods by
removing changes in tax rates, long-term assets
and financing costs related to the Company’s
capital structure.
“Normalized EBITDA” is calculated by adding back
non-recurring charges to EBITDA. Management deems
non-recurring charges to be unusual and/or infrequent
charges that the Company incurs outside of its common
day-to-day operations. For the years ended December
31, 2013, 2012 and 2011, the loss on the repurchase of
the Debentures, syndication charges, severance changes,
the ineffective portion of derivative financial
instruments and acquisition transaction charges are
considered by management to be non-recurring charges.
Adding back these non-recurring charges allows
management to assess EBITDA from ongoing operations.
“Floor Plan Neutral Operating Cash Flow” is calculated
by eliminating the impact of the change in floor plan
payable (excluding floor plan assumed pursuant to
business combinations) from cash flow from operating
activities. Adjusting cash flow from operating activities
for changes in the balance of floor plan payable allows
management to isolate and analyze operating cash
generated during a period, prior to any sources or uses
of cash associated with equipment financing decisions.
“Operating SG&A” is calculated by adding back
depreciation of property and equipment and any
non-recurring charges recognized in SG&A during the
period to SG&A. Management deems non-recurring
charges to be unusual and/or infrequent charges that the
Company incurs outside of its common day-to-day
operations. For the years ended December 31, 2013, 2012
and 2011, syndication charges, severance changes, the
ineffective portion of derivative financial instruments and
acquisition transaction charges are considered by
management to be non-recurring charges. Adding back
these items allows management to assess discretionary
expenses from ongoing operations. We target a sub-10%
Operating SG&A as a percentage of total sales on
an annual basis.
“Normalized Diluted Earnings per Share” is calculated
by adding back the after-tax impact of non-recurring
charges to net earnings when calculating diluted
earnings per share. Adding back these non-recurring
charges to net earnings allows management to
assess the fully diluted earnings per share from
ongoing operations.
47
ROCKY MOUNTAIN DEALERSHIPS | ANNUAL REPORT | 2013 RECONCILIATION OF NON-IFRS
MEASURES TO IFRS
EBITDA AND NORMALIZED EBITDA
$ THOUSANDS
Net earnings
Interest on long-term debt
Depreciation expense
Income taxes
EBITDA
Non-recurring charges
Loss on repurchase of Debentures
Syndication charges
Severance charges
Ineffective portion of derivative
financial instruments
Acquisition transaction charges
FOR THE QUARTER ENDED
DECEMBER 31
FOR THE YEAR ENDED
DECEMBER 31
2013
2012
2011
2013
2012
2011
2,066
572
1,671
563
4,872
–
–
–
57
–
11,770
572
1,372
4,843
18,557
8,961
917
1,604
3,105
14,587
–
–
–
(44)
66
–
–
–
(58)
–
15,313
2,233
6,471
5,714
29,731
–
–
–
(225)
36
23,975
2,843
5,511
9,679
42,008
4,232
–
–
174
96
23,209
3,587
6,340
8,089
41,225
–
1,083
1,634
465
30
Normalized EBITDA
4,929
18,579
14,529
29,542
46,510
44,437
48
ROCKY MOUNTAIN DEALERSHIPS | ANNUAL REPORT | 2013 OPERATING SG&A
$ THOUSANDS
SG&A
Depreciation expense
Non-recurring charges
Syndication charges
Severance charges
Ineffective portion of derivative
financial instruments
Acquisition transaction charges
FOR THE QUARTER ENDED
DECEMBER 31
FOR THE YEAR ENDED
DECEMBER 31
2013
2012
2011
2013
2012
2011
27,249
(1,671)
26,060
(1,367)
21,964
(1,218)
105,450
(6,471)
97,711
(5,050)
82,001
(4,917)
–
–
(57)
–
–
–
44
(66)
–
–
58
–
–
–
225
(36)
–
–
(174)
(96)
(1,083)
(1,634)
(465)
(30)
Operating SG&A
25,521
24,671
20,804
99,168
92,391
73,872
FLOOR PLAN NEUTRAL OPERATING CASH FLOW
$ THOUSANDS
FOR THE QUARTER ENDED
DECEMBER 31
FOR THE YEAR ENDED
DECEMBER 31
2013
2012
2011
2013
2012
2011
Cash flow from operating activities
Net decrease (increase) in floor
plan payable
Floor plan assumed pursuant to
business combinations
(221)
19,487
3,013
30,105
22,003
32,789
(19,695)
(50,565)
(24,030)
9,448
(124,949)
(16,438)
–
3,629
–
2,789
20,122
11,929
Floor Plan Neutral Operating Cash Flow
(19,916)
(27,449)
(21,017)
42,342
(82,824)
28,280
49
ROCKY MOUNTAIN DEALERSHIPS | ANNUAL REPORT | 2013 NORMALIZED DILUTED EARNINGS PER SHARE
$ THOUSANDS,
EXCEPT PER
SHARE AMOUNTS
Earnings used in the calculation of
diluted earnings per share
After tax impact of non-recurring
charges in SG&A and loss on
repurchase of Debentures(1)
Earnings used in the calculation of
FOR THE QUARTER ENDED
DECEMBER 31
FOR THE YEAR ENDED
DECEMBER 31
2013
2012
2011
2013
2012
2011
2,066
11,770
9,459
15,313
23,975
25,179
43
17
(43)
(142)
3,399
2,361
Normalized Diluted Earnings per Share
2,109
11,787
9,416
15,171
27,374
27,540
Weighted average diluted shares
used in the calculation of diluted
earnings per share
19,269
18,996
22,626
19,224
18,778
22,565
Normalized Diluted Earnings per Share
0.11
0.62
0.42
0.79
1.46
1.22
(1) – After applying statutory rate of 25% (2012 & 2011 – 25%).
50
ROCKY MOUNTAIN DEALERSHIPS | ANNUAL REPORT | 2013 INTERNAL CONTROLS OVER
FINANCIAL REPORTING AND
DISCLOSURE CONTROLS AND PROCEDURES
The Chief Executive Officer (“CEO”) and the Chief
Financial Officer (“CFO”) are responsible for establishing
and maintaining the Company’s disclosure controls and
procedures, (“DC&P”), to provide reasonable assurance
that material information related to the Company is
made known. In addition, internal controls over financial
reporting (“ICFR”) have been designed by or have been
caused to be designed under the supervision of the CEO
and CFO to provide reasonable assurance regarding
the reliability of financial reporting and preparation of
financial statements for external purposes in accordance
with IFRS.
The CEO and CFO have evaluated the effectiveness
of our DC&P and assessed the design of our ICFR, as of
December 31, 2013, pursuant to the requirements of
National Instrument 52-109, and have concluded that:
(i)
The DC&P are effective to provide reasonable
assurance that all material or potentially
material information about activities of the
Company are made known to them; and
(ii)
Information required to be disclosed by the
Company in its annual filings, interim filings
or other reports filed or submitted by it under
securities legislation is recorded, processed,
summarized and reported within the time
periods specified in securities legislation.
Management has concluded that, as of December
31, 2013, the Company has sufficiently documented and
tested the effectiveness of the ICFR for the Company
and can conclude that these controls are working
effectively. It should be noted that while the Company’s
management believes that the Company’s ICFR and
DC&P provide a reasonable level of assurance that they
are effective, they do not expect these controls will
prevent all errors or fraud. A control system, no matter
how well conceived or operated, can provide only
reasonable, not absolute, assurance that the objectives
of the control system are met.
51
ROCKY MOUNTAIN DEALERSHIPS | ANNUAL REPORT | 2013 CAUTION REGARDING FORWARD-LOOKING
INFORMATION AND STATEMENTS
This MD&A contains FLS within the meaning of
applicable securities legislation which involve known
and unknown risks, uncertainties and other factors
which may cause the actual results, performance
or achievements of Rocky or industry results, to be
materially different from any future results, events,
expectations, performance or achievements expressed
or implied by such FLS. FLS typically contain words or
phrases such as “may”, “outlook”, “objective”, “intend”,
“estimate”, “anticipate”, “should”, “could”, “would”,
“will”, “expect”, “believe”, “plan”, “predict” and other
similar terminology suggesting future outcomes or
events. FLS involve numerous assumptions and should
not be read as guarantees of future performance or
results. Such statements will not necessarily be accurate
indications of whether or not such future performance
or results will be achieved. Readers of this MD&A should
not unduly rely on FLS as a number of factors, many
of which are beyond the control of Rocky, could cause
actual performance or results to differ materially from
the performance or results discussed in the FLS.
In particular, FLS in this MD&A include, but are not
limited to: (i) disclosure under the heading “Market
Fundamentals and Outlook”, (ii) continuing demand for
Rocky’s products and services, (iii) growth of Rocky’s
business and operations, (iv) business strategies and
implementation plans, (v) weaker short-term outlook
for commodity prices due to strong supply and other
external market factors, (vi) the effect on customer
buying patterns due to the Environment Canada new
air emissions standards relating to Tier 4 engines
and equipment, (vii) discussion on the fundamentals
of Rocky’s business, including discussion that GDP
growth, population growth, increases in global food
demand, bio-fuel production, and a decrease in crop
land will require farmers to increase productivity,
thereby maintaining or improving equipment demand,
(viii) continued demand for parts and service due
to the number of units Rocky has in the areas it
services, creating dependable earnings and cash flow,
(ix) discussion that market conditions, particularly in the
construction sector, may result in decreases in demand
and downward pressure on margins, (x) discussion
regarding initiatives to restore our construction results,
including statements that our construction results will
begin to recover over the coming year, (xi) discussion
regarding our initiatives for longer-term revenue
and earnings growth, (xii) we believe cash flow from
operations, along with existing credit facilities, will
provide for our capital needs, (xiii) discussion around
SG&A expenses including the seasonal variances and
expectations in operating SG&A, (xiv) discussion that
our fourth quarter is generally our strongest quarter
financially, and discussion that we expect our second
and third quarter sales activity to increase as our
installed base increases, and (xv) discussions respecting
inventory reduction initiatives.
With respect to the FLS listed above and contained
in this MD&A, Rocky has made assumptions regarding,
among other things: (i) grain and oilseed prices and
52
ROCKY MOUNTAIN DEALERSHIPS | ANNUAL REPORT | 2013 management’s characterization of the growing supply
and demand imbalance therein, (ii) increasing global
food demand over the next 25 years in response to a
growing world population and a decrease in arable land
per capita, (iii) rising demand for agriculture commodities
and insufficient investment in productive capacity and
infrastructure, especially in developing countries, (iv)
increasing food demand will cause producers to seek
improved production techniques, (v) increasing demand
from China and India for grain and oilseed products,
(vi) increasing crop land dedicated to bio-fuel production,
(vii) general GDP growth and/or relative economic
stability in the markets we operate in, (viii) customers
will meet their equipment needs by purchasing used
equipment as opposed to new equipment as a result of
recent price increases, (ix) the Company’s cash flow will
remain sufficient to, in connection with its credit facilities,
adequately finance its capital needs, (x) past experience
regarding the seasonal nature of Rocky’s earnings and
SG&A costs, (xi) the anticipated improvement in ongoing
revenue and cash-flow, including parts and service
revenue, as our installed base increases, and (xii) that we
expect our construction results to begin to recover over
the coming year.
Rocky’s actual results could differ materially from
those anticipated in the FLS in this MD&A as a result
of the risk factors set forth herein under the heading
“Risks and Uncertainties” and the risk factors set
forth in Rocky’s AIF. Although the forward-looking
statements contained in this MD&A are based upon
what management of Rocky believes are reasonable
assumptions, Rocky cannot assure investors that actual
performance or results will be consistent with these
forward-looking statements. These statements reflect
current expectations regarding future events and
operating performance and are based on information
currently available to Rocky’s management. There can be
no assurance that the plans, intentions or expectations
upon which these forward-looking statements are
based will occur. All forward-looking statements in this
MD&A are qualified in their entirety by the cautionary
statements herein and those set forth in Rocky’s
AIF available on SEDAR at www.sedar.com. These
forward-looking statements and outlook are made as
of the date of this document and, except as required by
applicable law, Rocky assumes no obligation to update or
revise them to reflect new events or circumstances.
53
ROCKY MOUNTAIN DEALERSHIPS | ANNUAL REPORT | 2013 2013 saw Rocky Mountain Dealerships continue a tradition
of prudent, responsible management of our business. We paid
attention to our balance sheet and managed our inventory closely.
55
ROCKY MOUNTAIN DEALERSHIPS | ANNUAL REPORT | 2013 We focussed on driving initiatives to spread best practices
across the network, with the long-term goal of sustainable
performance across the organization.
56
ROCKY MOUNTAIN DEALERSHIPS | ANNUAL REPORT | 2013 57
MANAGEMENT’S
REPORT TO SHAREHOLDERS
57
M
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P
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H
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H
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57
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D
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O
P
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R
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N
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M
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M
MANAGEMENT’S REPORT TO SHAREHOLDERS
The accompanying Consolidated Financial Statements
The Board of Directors of the Company (the
of Rocky Mountain Dealerships Inc. (the “Company”)
are the responsibility of management. The financial
statements have been prepared by management in
Canadian dollars in accordance with International
Financial Reporting Standards (IFRS) and include certain
estimates that reflect management’s best judgments.
Management has overall responsibility for internal
controls and has developed and maintains a system of
internal controls that provides reasonable assurance
that all transactions are accurately recorded, that the
financial statements realistically report the Company’s
operating and financial results and that the Company’s
assets are safeguarded. The policy of the Company is to
maintain the highest standard of ethics in all its activities
and it has a written business conduct and ethics policy.
“Board”) has approved the information contained in the
financial statements. The Board fulfills its responsibility
regarding the financial statements mainly through its
Audit Committee which has a written mandate that
complies with the current requirements of Canadian
securities legislation. The Audit Committee meets at
least on a quarterly basis.
PricewaterhouseCoopers LLP, an independent
firm of chartered accountants, was appointed by
the shareholders to audit the Consolidated Financial
Statements and provide an independent opinion.
57
ROCKY MOUNTAIN DEALERSHIPS | ANNUAL REPORT | 2013 58
ROCKY MOUNTAIN DEALERSHIPS | ANNUAL REPORT | 2013 59
CONSOLIDATED
FINANCIAL STATEMENTS
59
C
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S
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D
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D
F
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T
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M
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N
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59
S
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M
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S
L
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N
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T
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D
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O
S
N
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March 11, 2014
March 11, 2014
Independent Auditor’s Report
Independent Auditor’s Report
To the Shareholders of
To the Shareholders of
Rocky Mountain Dealerships Inc.
Rocky Mountain Dealerships Inc.
We have audited the accompanying consolidated financial statements of Rocky Mountain Dealerships Inc.
We have audited the accompanying consolidated financial statements of Rocky Mountain Dealerships Inc.
and its subsidiaries, which comprise the consolidated balance sheets as at December 31, 2013 and
and its subsidiaries, which comprise the consolidated balance sheets as at December 31, 2013 and
December 31, 2012 and the consolidated statements of net earnings, comprehensive income, changes in
December 31, 2012 and the consolidated statements of net earnings, comprehensive income, changes in
equity and cash flows for the years then ended, and the related notes, which comprise a summary of
equity and cash flows for the years then ended, and the related notes, which comprise a summary of
significant accounting policies and other explanatory information.
significant accounting policies and other explanatory information.
Management’s responsibility for the consolidated financial statements
Management’s responsibility for the consolidated financial statements
Management is responsible for the preparation and fair presentation of these consolidated financial
Management is responsible for the preparation and fair presentation of these consolidated financial
statements in accordance with International Financial Reporting Standards, and for such internal control
statements in accordance with International Financial Reporting Standards, and for such internal control
as management determines is necessary to enable the preparation of consolidated financial statements
as management determines is necessary to enable the preparation of consolidated financial statements
that are free from material misstatement, whether due to fraud or error.
that are free from material misstatement, whether due to fraud or error.
Auditor’s responsibility
Auditor’s responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our audit.
Our responsibility is to express an opinion on these consolidated financial statements based on our audit.
We conducted our audit in accordance with Canadian generally accepted auditing standards. Those
We conducted our audit in accordance with Canadian generally accepted auditing standards. Those
standards require that we comply with ethical requirements and plan and perform the audit to obtain
standards require that we comply with ethical requirements and plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are free from material
reasonable assurance about whether the consolidated financial statements are free from material
misstatement.
misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in
the consolidated financial statements. The procedures selected depend on the auditor’s judgment,
the consolidated financial statements. The procedures selected depend on the auditor’s judgment,
including the assessment of the risks of material misstatement of the consolidated financial statements,
including the assessment of the risks of material misstatement of the consolidated financial statements,
whether due to fraud or error. In making those risk assessments, the auditor considers internal control
whether due to fraud or error. In making those risk assessments, the auditor considers internal control
relevant to the entity’s preparation and fair presentation of the consolidated financial statements in order
relevant to the entity’s preparation and fair presentation of the consolidated financial statements in order
to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing
to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing
an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the
an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the
appropriateness of accounting policies used and the reasonableness of accounting estimates made by
appropriateness of accounting policies used and the reasonableness of accounting estimates made by
management, as well as evaluating the overall presentation of the consolidated financial statements.
management, as well as evaluating the overall presentation of the consolidated financial statements.
We believe that the audit evidence we have obtained in our audit is sufficient and appropriate to provide a
We believe that the audit evidence we have obtained in our audit is sufficient and appropriate to provide a
basis for our audit opinion.
basis for our audit opinion.
PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
111 – 5th Avenue SW, Suite 3100, Calgary, AB, Canada T2P 5L3
111 – 5th Avenue SW, Suite 3100, Calgary, AB, Canada T2P 5L3
T: +1 403 509 7500, F: +1 403 781 1825
T: +1 403 509 7500, F: +1 403 781 1825
“PwC” refers to PricewaterhouseCoopers LLP, an Ontario limited liability partnership.
“PwC” refers to PricewaterhouseCoopers LLP, an Ontario limited liability partnership.
59
ROCKY MOUNTAIN DEALERSHIPS | ANNUAL REPORT | 2013 Opinion
In our opinion, the consolidated financial statements present fairly, in all material respects, the financial
position of Rocky Mountain Dealerships Inc. and its subsidiaries as at December 31, 2013 and
December 31, 2012 and their financial performance and their cash flows for the year then ended in
accordance with International Financial Reporting Standards.
Chartered Accountants
60
ROCKY MOUNTAIN DEALERSHIPS | ANNUAL REPORT | 2013 CONSOLIDATED BALANCE SHEETS
EXPRESSED IN THOUSANDS OF CANADIAN DOLLARS
NOTE
DECEMBER 31,
2013
$
DECEMBER 31,
2012
$
Assets
Current
Cash
Trade receivables and other
Income taxes receivable
Inventory
Prepaid expenses
Non-current
Property and equipment
Goodwill
Liabilities
Current
Trade payables, accruals and other
Income taxes payable
Floor plan payable
Deferred revenue and advances
Current portion of long-term debt
Current portion of obligations under finance leases
Non-current
Long-term debt
Obligations under finance leases
Deferred tax liability
Derivative financial instruments
6
7
8
9
10
11
12
13
12
13
19.2
24.6
Commitments, contingencies and guarantees
15, 24.3
Shareholders’ Equity
Common shares
Contributed surplus
Accumulated other comprehensive loss
Retained earnings
24.6
34,722
29,368
4,887
482,824
5,543
557,344
30,860
14,692
45,552
602,896
41,107
–
342,364
4,021
10,656
823
398,971
41,681
541
2,576
1,706
46,504
445,475
86,695
4,662
(962)
67,026
157,421
602,896
34,177
52,660
264
495,151
4,470
586,722
21,558
13,884
35,442
622,164
50,058
3,518
351,812
5,236
10,159
984
421,767
45,977
1,379
7,042
1,438
55,836
477,603
81,947
4,435
(597)
58,776
144,561
622,164
APPROVED BY THE BOARD
“Signed” Dennis Hoffman
Dennis Hoffman, Director
“Signed” M.C. (Matt) Campbell
M.C. (Matt) Campbell, Director
The accompanying notes are an integral part of these consolidated financial statements
61
ROCKY MOUNTAIN DEALERSHIPS | ANNUAL REPORT | 2013 CONSOLIDATED STATEMENTS OF NET EARNINGS
YEARS ENDED
EXPRESSED IN THOUSANDS OF CANADIAN DOLLARS EXCEPT PER SHARE AMOUNTS
Sales
New equipment
Used equipment
Parts
Service
Other
Cost of sales
Gross profit
Selling, general and administrative
Loss on repurchase of convertible debentures
Interest on short-term debt
Interest on long-term debt
Earnings before income taxes
Income taxes
Current
Deferred
Net earnings
Earnings per share
Basic
Diluted
NOTE
DECEMBER 31,
2013
$
DECEMBER 31,
2012
$
523,522
358,861
92,599
29,421
3,359
1,007,762
867,356
140,406
105,450
–
11,696
2,233
21,027
10,060
(4,346)
5,714
15,313
0.80
0.80
17
7
18
14
19.2
19.1
20
20
549,036
297,476
84,653
30,459
4,482
966,106
818,595
147,511
97,711
4,232
9,071
2,843
33,654
10,759
(1,080)
9,679
23,975
1.28
1.28
The accompanying notes are an integral part of these consolidated financial statements
62
ROCKY MOUNTAIN DEALERSHIPS | ANNUAL REPORT | 2013 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
YEARS ENDED
EXPRESSED IN THOUSANDS OF CANADIAN DOLLARS
Net earnings
Other comprehensive loss
Items which will subsequently be reclassified to
net earnings:
Unrealized loss on derivative financial instruments,
net of tax
Total other comprehensive loss for the year, net of tax
Comprehensive income
NOTE
DECEMBER 31,
2013
$
DECEMBER 31,
2012
$
15,313
23,975
24.6
(365)
(365)
14,948
(95)
(95)
23,880
The accompanying notes are an integral part of these consolidated financial statements
63
ROCKY MOUNTAIN DEALERSHIPS | ANNUAL REPORT | 2013 CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
EXPRESSED IN THOUSANDS OF CANADIAN DOLLARS AND THOUSANDS OF COMMON SHARES
Balance, December 31, 2012
Shares issued upon exercise of stock options
Share-based payment expense
Net earnings
Other comprehensive loss
Dividends paid
Balance, December 31, 2013
Balance, December 31, 2011
Shares issued:
Upon exercise of stock options
Upon exercise of restricted share units
Share-based payment expense
Net earnings
Other comprehensive loss
Dividends paid
Repurchase of convertible debentures
Balance, December 31, 2012
NOTE
16.3
24.6
16.2
16.1
NOTE
16.3
16.4
24.6
16.2
14
16.1
COMMON SHARES
NUMBER
OF SHARES
18,993
320
–
–
–
–
19,313
AMOUNT
$
81,947
4,748
–
–
–
–
86,695
COMMON SHARES
NUMBER
OF SHARES
18,768
105
120
–
–
–
–
–
18,993
AMOUNT
$
79,668
1,075
1,204
–
–
–
–
–
81,947
The accompanying notes are an integral part of these consolidated financial statements
64
CONVERTIBLE
DEBENTURES
CONTRIBUTED
SURPLUS
$
ACCUMULATED OTHER
COMPREHENSIVE LOSS
RETAINED
EARNINGS
$
$
–
–
–
–
–
–
–
$
990
–
–
–
–
–
–
(990)
–
4,435
(1,321)
1,548
–
–
–
4,662
4,304
(278)
(1,204)
1,613
–
–
–
–
4,435
$
(597)
–
–
–
–
(365)
(962)
$
(502)
–
–
–
–
–
–
(95)
(597)
58,776
–
–
–
15,313
(7,063)
67,026
43,701
–
–
–
–
23,975
(4,650)
(4,250)
58,776
TOTAL
EQUITY
$
144,561
3,427
1,548
15,313
(365)
(7,063)
157,421
TOTAL
EQUITY
$
128,161
797
–
1,613
23,975
(95)
(4,650)
(5,240)
144,561
CONVERTIBLE
DEBENTURES
CONTRIBUTED
SURPLUS
$
ACCUMULATED OTHER
COMPREHENSIVE LOSS
RETAINED
EARNINGS
$
ROCKY MOUNTAIN DEALERSHIPS | ANNUAL REPORT | 2013 Balance, December 31, 2012
Shares issued upon exercise of stock options
Share-based payment expense
Net earnings
Other comprehensive loss
Dividends paid
Balance, December 31, 2013
Balance, December 31, 2011
Shares issued:
Upon exercise of stock options
Upon exercise of restricted share units
Share-based payment expense
Net earnings
Other comprehensive loss
Dividends paid
Repurchase of convertible debentures
Balance, December 31, 2012
COMMON SHARES
19,313
86,695
COMMON SHARES
AMOUNT
$
81,947
4,748
AMOUNT
$
79,668
1,075
1,204
–
–
–
–
–
–
–
–
–
NOTE
16.3
24.6
16.2
16.1
NOTE
16.3
16.4
24.6
16.2
14
16.1
NUMBER
OF SHARES
18,993
320
–
–
–
–
NUMBER
OF SHARES
18,768
105
120
–
–
–
–
–
18,993
81,947
CONVERTIBLE
DEBENTURES
$
CONTRIBUTED
SURPLUS
$
ACCUMULATED OTHER
COMPREHENSIVE LOSS
$
RETAINED
EARNINGS
$
–
–
–
–
–
–
–
4,435
(1,321)
1,548
–
–
–
4,662
(597)
–
–
–
(365)
–
(962)
58,776
–
–
15,313
–
(7,063)
67,026
CONVERTIBLE
DEBENTURES
$
CONTRIBUTED
SURPLUS
$
ACCUMULATED OTHER
COMPREHENSIVE LOSS
$
RETAINED
EARNINGS
$
990
–
–
–
–
–
–
(990)
–
4,304
(278)
(1,204)
1,613
–
–
–
–
4,435
(502)
–
–
–
–
(95)
–
–
(597)
43,701
–
–
–
23,975
–
(4,650)
(4,250)
58,776
TOTAL
EQUITY
$
144,561
3,427
1,548
15,313
(365)
(7,063)
157,421
TOTAL
EQUITY
$
128,161
797
–
1,613
23,975
(95)
(4,650)
(5,240)
144,561
65
ROCKY MOUNTAIN DEALERSHIPS | ANNUAL REPORT | 2013 CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED
EXPRESSED IN THOUSANDS OF CANADIAN DOLLARS
NOTE
DECEMBER 31,
2013
$
DECEMBER 31,
2012
$
Operating activities
Net earnings
Adjustments for:
Depreciation expense
Accretion expense
Deferred tax recovery
Share-based payment expense
Non-cash impact of credit promissory note
Loss on disposal of property and equipment
Loss (gain) on derivative financial instruments
Loss on repurchase on convertible debenture
Changes in non–cash working capital
Financing activities
Repayment of long–term debt
Repurchase of convertible debentures
Transaction costs incurred on repurchase of
convertible debentures
Proceeds from long-term debt
Net change in obligations under finance leases
Dividends paid
Proceeds from issuance of common shares
Investing activities
Purchase of property and equipment
Disposal of property and equipment
Purchase of equipment dealerships, net of cash acquired
Net increase in cash and cash equivalents
Cash and cash equivalents, beginning of year
Cash and cash equivalents, end of year
Taxes paid
Interest received
Interest paid
8
14
19.2
8
24.6
14
21
14
16.2
8
8
5
15,313
6,471
–
(4,346)
1,548
1
150
(225)
–
18,912
11,193
30,105
(9,940)
–
–
6,140
(1,023)
(7,063)
3,427
(8,459)
(16,263)
541
(5,379)
(21,101)
545
34,177
34,722
18,201
–
13,928
23,975
5,511
123
(1,080)
1,613
18
554
174
4,232
35,120
(13,117)
22,003
(7,302)
(37,800)
(840)
45,478
(133)
(4,650)
797
(4,450)
(9,263)
4,709
(9,854)
(14,408)
3,145
31,032
34,177
11,790
8
12,324
The accompanying notes are an integral part of these consolidated financial statements
66
ROCKY MOUNTAIN DEALERSHIPS | ANNUAL REPORT | 2013 1. GENERAL INFORMATION
Rocky Mountain Dealerships Inc. (the “Company”)
was incorporated under the Business Corporations
Act (Alberta). Through its wholly-owned subsidiaries
including Hammer Equipment Ltd., Hi-Way Service
Ltd., Miller Equipment Ltd., Rocky Mountain
Equipment Canada Ltd., and Rocky Mountain Dealer
Group Partnership, the Company sells, leases and
provides support for a wide variety of agriculture and
construction equipment in Western Canada. All of the
Company’s subsidiaries are incorporated in Canada.
During the years ended December 31, 2013 and
2012, the Company completed three acquisitions of
equipment dealerships as discussed further in Note 5.
The head office, principal address and registered
and records office of the Company are located at
Suite 301, 3345 8th Street S.E., Calgary, Alberta, T2G 3A4.
2. BASIS OF PREPARATION
2.1.
Statement of compliance
The Company prepares its consolidated financial
statements in accordance with International Financial
Reporting Standards. These consolidated financial
statements were authorized for issue by the Board
of Directors on March 11, 2014.
2.2.
Adoption of new and revised standards
and interpretations
The IASB issued a number of new and revised
International Accounting Standards, International
Financial Reporting Standards, amendments and related
interpretations which are effective for the Company’s
financial year beginning on January 1, 2013. For the
purpose of preparing and presenting the consolidated
financial statements for the relevant periods, the
Company has consistently adopted all of these new
standards for the relevant reporting periods.
Amendment to IAS 1, ‘Financial statement presentation’
regarding other comprehensive income
This amendment requires the Company to
group items within other comprehensive income
by those that will be subsequently reclassified to
net earnings and those that will not. Accordingly,
the Company has updated the presentation of other
comprehensive income in the consolidated statements
of comprehensive income.
Amendment to IAS 36, ‘Impairments of assets’
This amendment removes the requirement to
disclose the recoverable amount when a CGU contains
goodwill or indefinite lived intangible assets, but there
has been no impairment.
Other standards and interpretations issued or
amended which are effective for the first time for fiscal
year ends beginning on or after January 1, 2013 but
which did not have a material impact on the Company’s
consolidated financial statements or note disclosures as
currently presented include:
New standards and interpretations
IFRS 10, ‘Consolidated financial statements’
IFRS 11, ‘Joint arrangements’
IFRS 12, ‘Disclosure of interests in other entities’
IFRS 13, ‘Fair value measurement’
IFRIC 20, ‘Stripping costs in the production phase of
a surface mine’
67
ROCKY MOUNTAIN DEALERSHIPS | ANNUAL REPORT | 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSYEARS ENDED DECEMBER 31, 2013 AND 2012EXPRESSED IN THOUSANDS OF CANADIAN DOLLARS EXCEPT PER SHARE AND PER OPTION AMOUNTS Amendments to existing standards and interpretations
IFRS 9, ‘Financial instruments’
IFRS 7, ‘Financial instruments: Disclosures’
IAS 19, ‘Employee benefits’
IAS 27, ‘Separate financial statements’
IAS 28, ‘Investments in associates and
joint ventures’
At the date of authorization of these consolidated
financial statements, the IASB and the IFRS
Interpretations Committee (IFRIC) have issued the
following new and revised standards and interpretations
which are not yet effective for the relevant reporting
periods. The Company has not early adopted these
standards, amendments or interpretations, however
the Company is currently assessing what impact the
application of these standards or amendments will have
on the consolidated financial statements.
Amendment to IFRS 7, ‘Financial instruments:
Disclosures’ on derecognition
In conjunction with the transition from IAS 39 to
IFRS 9 for fiscal years beginning on or after January 1,
2015, IFRS 7 will also be amended to require additional
disclosure in the year of transition.
Amendment to IAS 32, ‘Financial instruments:
Presentation’
The amendment clarifies the requirements for
offsetting financial assets and liabilities. Specifically, the
amendment clarifies that the right to offset must be
available on the current date and cannot be contingent
on a future event. This amendment is effective for fiscal
periods beginning on or after January 1, 2014.
IFRS 9 retains but simplifies the mixed measurement
model and establishes two primary measurement
categories for financial assets: amortized cost and
fair value. The basis of classification depends on the
entity’s business model and the contractual cash flow
characteristics of the financial asset. The guidance in
IAS 39 on impairment of financial assets and hedge
accounting continues to apply. This standard is effective
for fiscal periods beginning on or after January 1, 2015.
3.
SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
3.1.
Basis of measurement
The fundamental valuation method applied in
the consolidated financial statements is historical cost
except for certain financial instruments and cash-settled
share-based payments which are measured at fair value
as explained below. Historical cost is generally based on
the fair value of the consideration given in exchange for
assets.
These consolidated financial statements are
presented in Canadian dollars, which is the Company’s
functional and presentation currency. All financial
information presented in Canadian dollars has been
rounded to the nearest thousand, except per share and
per option amounts or unless otherwise stated.
3.2.
Basis of consolidation
The consolidated financial statements include
the financial statements of the Company and its
wholly-owned subsidiaries. Subsidiaries are entities
controlled by the Company. Control exists when the
68
ROCKY MOUNTAIN DEALERSHIPS | ANNUAL REPORT | 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSYEARS ENDED DECEMBER 31, 2013 AND 2012EXPRESSED IN THOUSANDS OF CANADIAN DOLLARS EXCEPT PER SHARE AND PER OPTION AMOUNTS Company has the power over the investee; is exposed,
or has rights, to variable returns from its involvement
with the investee; and has the ability to use its power to
affect its returns, to an extent generally accompanying
a shareholding that confers more than half of the voting
rights. Subsidiaries are included in the consolidated
financial statements of the Company from the date
control of the subsidiary commences until the date that
control ceases. Intercompany transactions and balances
are eliminated on consolidation.
3.3.
Business combinations
Acquisitions of subsidiaries and businesses are
accounted for using the acquisition method. The
consideration for each acquisition is measured at the
aggregate of the fair values (at the acquisition date)
of assets given, liabilities incurred or assumed, and
equity instruments issued by the Company in exchange
for control of the acquiree. Acquisition-related costs
incurred have been included in selling, general and
administrative expenses in the period in which they are
incurred.
Where applicable, the consideration for the
acquisition may include any asset or liability resulting
from a contingent consideration arrangement, measured
at its acquisition-date fair value. Subsequent changes
in fair values of contingent consideration are adjusted
against the cost of the acquisition where they qualify as
measurement period adjustments. All other subsequent
changes in the fair value of contingent consideration
classified as an asset or liability are accounted for in
accordance with relevant IFRS.
Goodwill is measured as the excess of the
consideration transferred over the net of the acquisition-
date fair value of the identifiable assets acquired and
the liabilities assumed. If the net of the acquisition-
date amounts of the identifiable assets acquired and
liabilities assumed exceeds the sum of the consideration
transferred, the excess is recognized immediately in net
earnings as a bargain purchase gain.
The measurement period is the period from the
date of acquisition to the date the Company obtains
complete information about facts and circumstances
that existed as of the acquisition date and is subject to a
maximum of one year.
3.4.
Segment reporting
Operating segments are reported in a manner
consistent with the internal reporting provided to the
chief operating decision-maker. The chief operating
decision-maker is responsible for allocating resources
and assessing performance of the operating segments.
The Company has identified two operating segments
being agriculture and construction.
3.5.
Cash and cash equivalents
Cash and cash equivalents consist of cash on hand,
highly liquid investments with original maturities of
three months or less and bank indebtedness.
3.6.
Property and equipment
All items in property and equipment are recorded at
cost less accumulated depreciation and any accumulated
impairment losses.
Each part of an item of property and equipment
with a useful life that is significantly different from the
useful lives of other parts is depreciated separately.
69
ROCKY MOUNTAIN DEALERSHIPS | ANNUAL REPORT | 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSYEARS ENDED DECEMBER 31, 2013 AND 2012EXPRESSED IN THOUSANDS OF CANADIAN DOLLARS EXCEPT PER SHARE AND PER OPTION AMOUNTS Items of property and equipment are depreciated
commencing on the date they are ready for use using
the following methods and rates:
Land
Not depreciated
Rental assets
Straight-line over 3–5 years or unit
of usage
Buildings
Straight-line over 20 years
Computer
equipment
Furniture and
fixtures
Straight-line over 3–6 years
Straight-line over 5–10 years
Leasehold
improvements
Straight-line over the lesser of the
lease term and useful life
Shop tools and
equipment
Straight-line over 5–10 years
Vehicles
Straight-line over 3–5 years
An item of property and equipment is derecognized
upon disposal or when no future economic benefits are
expected to arise from the continued use of the asset.
Any gain or loss arising on the disposal or retirement
of an item of property and equipment is determined
as the difference between the sale proceeds and the
carrying amount of the asset and is recognised in net
earnings. Items of property and equipment are tested for
impairment as discussed in Note 3.9.
3.7. Goodwill
Goodwill represents the excess of the cost of an
acquisition over the fair value of the Company’s share
of the net identifiable assets of the acquiree at the date
of acquisition. Goodwill arising on an acquisition of a
business is carried at cost as established at the date of
acquisition of the business less accumulated impairment
losses, if any. Goodwill generated on initial recognition
is not deductible for tax purposes and has an indefinite
useful life.
For the purposes of impairment testing, goodwill
is allocated to each of the Company’s cash-generating
units (“CGUs”) (or groups of CGUs) which are expected
to benefit from the synergies of the combination.
A CGU to which goodwill has been allocated is
tested for impairment annually, or more frequently
when there is indication that the unit may be impaired.
If the recoverable amount of the CGU is less than its
carrying amount, the impairment loss is allocated first to
reduce the carrying amount of any goodwill allocated to
the unit and then to the other assets of the unit pro-rata
based on the carrying amount of each asset in the unit.
Any impairment loss for goodwill is recognized in net
earnings. Such impairment losses are not reversed in
subsequent periods.
3.8.
Key estimates and judgements
The preparation of financial statements in accordance
with IFRS requires management to make estimates and
assumptions that affect the reported amounts of assets
and liabilities and the disclosure of contingent assets
and liabilities as at the date of the consolidated financial
statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could
differ from those estimates.
70
ROCKY MOUNTAIN DEALERSHIPS | ANNUAL REPORT | 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSYEARS ENDED DECEMBER 31, 2013 AND 2012EXPRESSED IN THOUSANDS OF CANADIAN DOLLARS EXCEPT PER SHARE AND PER OPTION AMOUNTS By nature, asset valuations are subjective and
do not necessarily result in precise determinations.
Should underlying assumptions change, estimated net
recoverable values could change by a material amount.
Balances in these consolidated financial statements
that are subject to estimation include the allowance
for doubtful accounts (Note 6), the net realizable value
of inventory (Note 3.12), the depreciation periods and
methods applied to items of property and equipment
(Note 3.6), the net recoverable value of goodwill
(Note 9), and the fair value of derivative financial
instruments (Note 3.19.11).
Management also makes certain estimates
with respect to manufacturer incentives. Certain
manufacturers offer annual performance incentives
which are linked to the Company’s market share
achievement and annual sales volumes. The Company
uses estimated annual market share statistics derived
from current and historical results which have been
adjusted for any anticipated changes in the current year,
as well as annual sales volume to accrue manufacturer
incentives earned during the year.
3.9.
Impairment of assets other than goodwill
At the end of each reporting period, the Company
reviews the carrying amounts of its tangible assets to
determine whether there is any indication that those
assets have suffered an impairment loss. If any such
indication exists, the recoverable amount of the assets
is estimated in order to determine the extent of the
impairment loss (if any). Where it is not possible to
estimate the recoverable amount of an individual asset,
the Company estimates the recoverable amount of the
CGU to which the asset belongs. Corporate assets are
also allocated to individual CGUs.
The recoverable amount is the higher of fair value
less cost to sell and value in use. In assessing value in use,
the estimated future cash flows are discounted to their
present value using a pre-tax discount rate that reflects
current market assessments of the time value of money
and the risks specific to the asset for which the estimates
of future cash flows have not been adjusted.
If the recoverable amount of an asset (or CGU)
is estimated to be less than its carrying amount, the
carrying amount of the asset (or CGU) is reduced to its
recoverable amount. An impairment loss is recognized
immediately in net earnings.
Where an impairment loss subsequently reverses,
the carrying amount of the assets (or CGU) is increased
to the revised estimate of its recoverable amount, but so
that the increased carrying amount does not exceed the
original carrying amount. A reversal of impairment loss is
recognized immediately in net earnings.
3.10. Earnings per share
Basic earnings per share is computed by dividing net
earnings by the weighted average number of common
shares outstanding during the period. Diluted earnings
per share amounts reflect the potential dilution that
could occur if options to purchase common shares
were exercised and debentures converted. The treasury
stock method is used to determine the dilutive effect
of options, whereby any proceeds received by the
Company from their exercise are assumed to be used
to purchase common shares at the average market
price during the period. The convertible debentures are
assumed to have been converted into common shares,
and net earnings is adjusted to eliminate the interest
expense and accretion expense, net of any tax effects.
71
ROCKY MOUNTAIN DEALERSHIPS | ANNUAL REPORT | 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSYEARS ENDED DECEMBER 31, 2013 AND 2012EXPRESSED IN THOUSANDS OF CANADIAN DOLLARS EXCEPT PER SHARE AND PER OPTION AMOUNTS realizable value, with cost being determined on an
average cost basis. Net realizable value is estimated
using recent sales of the same or similar parts inventory
less the costs to sell. Work-in-progress is valued on a
specific item, actual cost basis.
3.13. Revenue recognition
Sales are measured at the fair value of the
consideration received or receivable.
3.13.1. Sale of goods
Revenue from the sale of goods including new and
used equipment and parts is recognized when all the
following conditions are satisfied:
the Company has transferred to the buyer the
significant risks and rewards of ownership of the
goods;
the Company retains neither continuing managerial
involvement to the degree usually associated with
ownership nor effective control over the goods sold;
the amount of revenue can be measured reliably;
it is probable that the economic benefits associated
with the transaction will flow to the Company; and
the costs incurred or to be incurred in respect of the
transaction can be measured reliably.
The average market price of the Company’s shares
for the purposes of calculating the dilutive effect of
options is based upon quoted market prices for the
periods during which the options are outstanding.
3.11. Leases
Assets held under finance leases are initially
recognized as assets of the Company at their fair
value at the inception of the lease or, if lower, at the
present value of the minimum lease payments. The
corresponding liability to the lessor is included in the
consolidated balance sheet as an obligation under
finance lease.
Lease payments are apportioned between interest
expense and reductions of the lease obligation so as
to achieve a constant rate of interest on the remaining
balance of the liability. Interest expense is recognized
immediately in net earnings.
Operating lease payments are recognised as
an expense on a straight-line basis over the lease
term, except where another systematic basis is more
representative of the time pattern in which economic
benefits from the leased asset are consumed.
3.12.
Inventory
Equipment inventory is valued at the lower of cost
and net realizable value, with cost being determined on
a specific item, actual cost basis. Net realizable value
is estimated using recent sales of the same or similar
equipment inventory or market values as established
by industry publications less the costs to sell. Parts
inventory is recorded at the lower of cost and net
72
ROCKY MOUNTAIN DEALERSHIPS | ANNUAL REPORT | 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSYEARS ENDED DECEMBER 31, 2013 AND 2012EXPRESSED IN THOUSANDS OF CANADIAN DOLLARS EXCEPT PER SHARE AND PER OPTION AMOUNTS
3.13.2. Rendering of services
3.15. Share-based transactions
Revenue derived from the rendering of services is
Equity-settled share-based payments to employees
recognized when:
the amount of revenue can be measured reliably;
it is probable that the economic benefits associated
with the transaction will flow to the Company;
the stage of completion of the transaction at the end
of the reporting period can be measured reliably; and
the costs incurred for the transaction and
the costs to complete the transaction can be
measured reliably.
3.13.3. Other revenue
Other revenue consists of commission revenue from
finance and insurance, recognized when the finance
contract is signed; revenue from rentals, recognized
on the first day of each month specified in the rental
contract on a straight-line basis over the term of the
contract; and lease revenue, recognized on a straight-
line basis over the term of the lease independent of the
timing of the payments received. Prepayment of any
lease is initially set up as a deposit, and is reduced on a
monthly basis at a rate reflective of the lease contract.
3.14. Deferred revenue and advances
Deferred revenue and advances comprises
equipment sales in which cash has been received but
not all terms and conditions have been fulfilled to meet
the requirements of revenue recognition, maintenance
plans sold to customers in which all services have not yet
been provided and manufacturer advances received but
not yet earned by the Company.
and others providing similar services are measured
at the fair value of the equity instruments at the
grant date. The Company follows the fair value based
method of accounting, using the Black-Scholes option
pricing model, whereby compensation expense is
recognized over the vesting period and is based on the
Company’s estimate of awards that will ultimately vest,
with a corresponding increase to contributed surplus.
Details regarding the determination of the fair value of
equity-settled share-based transactions are set out in
Note 16.3.
Cash-settled share-based payments are recorded as
liabilities and are measured initially at their fair values.
At the end of each reporting period and at the date of
settlement, the fair value of the liability is remeasured,
with any changes in fair value recognized in net earnings
for the period. Details regarding the determination of
the fair value of cash-settled share-based payments are
set out in Note 16.5.
3.16. Employee Share Ownership Plan
The Company has an Employee Share Ownership
Plan (“ESOP”). Under the ESOP, employees who meet
the eligibility criteria can contribute up to 5% of their
annual gross salary by way of payroll deductions. The
Company matches the employee contribution amount
to a maximum of $5 per annum or an amount modified
and approved by the Company’s Compensation,
Governance and Nominating Committee. The Company’s
contributions vest to the employee on December 31 of
the contribution year and are expensed as incurred.
73
ROCKY MOUNTAIN DEALERSHIPS | ANNUAL REPORT | 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSYEARS ENDED DECEMBER 31, 2013 AND 2012EXPRESSED IN THOUSANDS OF CANADIAN DOLLARS EXCEPT PER SHARE AND PER OPTION AMOUNTS
ESOP shares are purchased on the open market.
The weighted average unvested shares held in the ESOP
during the period are excluded from the earnings per
share calculations as they are not considered to be
outstanding. Dividends paid on the Company’s common
shares held for the ESOP are used to purchase additional
common shares on the open market.
3.17.
Income taxes
Current tax is the expected tax payable or
recoverable on the taxable income or loss for the period,
using tax rates enacted or substantively enacted at the
reporting date.
Deferred tax is recognized using the asset and
liability method on temporary differences between the
carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for taxation
purposes. Deferred tax is not recognized if it arises from
goodwill generated on a business combination or an
asset or liability in a transaction other than a business
combination that, at the time of the transaction, affects
neither accounting net earnings nor taxable income.
Deferred tax is determined using tax rates and laws
that have been enacted or substantively enacted at
the reporting date and are expected to apply when the
related deferred tax asset is realized or deferred tax
liability is settled.
A deferred tax asset is recognized to the extent that
it is probable that future taxable income will be available
against which the temporary difference can be utilized.
Deferred tax assets are reviewed at each reporting
date and are reduced to the extent that it is no longer
probable that the related tax benefit will be realized.
Current tax and deferred tax are recognized in net
earnings except when they relate to items that are
recognized in other comprehensive income or directly
in equity, in which case, the current and deferred tax
are also recognized in other comprehensive income
or directly in equity, respectively. Where current tax
or deferred tax arises from the initial accounting for a
business combination, the tax effect is included in the
accounting for the business combination.
3.18. Foreign currency translation
Transactions in currencies other than the Company’s
functional currency are recorded at the rates of
exchange prevailing on the dates of the transactions. At
each balance sheet date, monetary assets and liabilities
denominated in foreign currencies are retranslated at
prevailing rates.
3.19. Financial instruments
Financial assets and liabilities are recognized
when the Company becomes party to the contractual
provisions of the instrument.
On initial recognition, financial instruments are
measured at fair value. Transaction costs that are directly
attributable to the acquisition or issue of financial
instruments, other than financial instruments at fair
value through profit or loss (“FVTPL”), are added to or
deducted from the fair value of the financial instrument,
as appropriate. Transaction costs directly attributable
to the acquisition of financial instruments at FVTPL are
recognized immediately in net earnings.
74
ROCKY MOUNTAIN DEALERSHIPS | ANNUAL REPORT | 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSYEARS ENDED DECEMBER 31, 2013 AND 2012EXPRESSED IN THOUSANDS OF CANADIAN DOLLARS EXCEPT PER SHARE AND PER OPTION AMOUNTS 3.19.1.
Classification of financial instruments
A financial asset (liability) is classified as held for
Financial instruments are classified into the
following specified categories: financial assets at
FVTPL, held-to-maturity investments, available-for-sale
(“AFS”) financial assets, loans and receivables, financial
liabilities at FVTPL and other financial liabilities. The
classification depends on the nature and purpose of the
financial instrument and is determined at the time of
initial recognition. The Company has no financial assets
classified as held-to-maturity or AFS.
3.19.2.
Effective interest method
The effective interest method is a method of
calculating the amortized cost of a debt instrument
and of allocating interest over the relevant period.
The effective interest rate is the rate that discounts
estimated future cash receipts (including all fees and
points paid or received that form an integral part of
the effective interest rate, transaction costs and other
premiums or discounts) through the expected life of
the debt instrument, or, where appropriate, a shorter
period, to the net carrying amount on initial recognition.
3.19.3.
Financial instruments at FVTPL
Financial instruments are classified as at FVTPL
when the instrument is either held for trading or it is
designated as at FVTPL.
trading if:
it has been acquired principally for the purpose of
selling (repurchasing) it in the near term;
on initial recognition, it is part of a portfolio of
identified financial instruments that the Company
manages together and has a recent actual pattern
of short-term profit-taking; or
it is a derivative that is not designated and effective
as a hedging instrument.
A financial instrument other than one held for
trading may be designated as at FVTPL upon initial
recognition if:
such designation eliminates or significantly reduces a
measurement or recognition inconsistency that would
otherwise arise;
the financial instrument forms part of a group of
financial assets or financial liabilities or both, which
is managed and its performance is evaluated on a
fair value basis, in accordance with the Company’s
documented risk management or investment
strategy, and information about the grouping is
provided internally on that basis; or
it forms part of a contract containing one or more
embedded derivatives, and IAS 39, ‘Financial
instruments: Recognition and measurement’ permits
the entire combined contract (asset or liability) to be
designated as at FVTPL.
75
ROCKY MOUNTAIN DEALERSHIPS | ANNUAL REPORT | 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSYEARS ENDED DECEMBER 31, 2013 AND 2012EXPRESSED IN THOUSANDS OF CANADIAN DOLLARS EXCEPT PER SHARE AND PER OPTION AMOUNTS
Financial assets classified as at FVTPL are stated
at fair value, with any gains or losses arising on
remeasurement recognized in net earnings. The net
gain or loss recognised in net earnings incorporates any
dividends or interest earned on the financial asset and is
included in selling, general and administrative expenses.
The Company has designated its derivative financial
instruments as at FVTPL. Fair value is determined in the
manner described in Notes 3.19.11 and 24.5.
3.19.4.
Loans and receivables
Loans and receivables are non-derivative financial
assets with fixed or determinable payments that are not
quoted in an active market. Loans and receivables are
measured at amortized cost using the effective interest
method, less any impairment.
The Company has classified its cash and cash
equivalents and trade receivables and other as loans
and receivables.
3.19.5. Other financial liabilities
Other financial liabilities are measured at amortized
cost using the effective interest method.
The Company has classified its trade payables,
accruals and other (with the exception of DSUs), floor
plan payable, long-term debt, obligations under finance
leases and convertible debentures as other financial
liabilities.
3.19.6.
Impairment of financial assets
Financial assets, other than those at FVTPL, are
assessed for indicators of impairment at the end of
each reporting period. For financial assets carried at
amortized cost, the amount of the impairment loss,
if any, is the difference between the asset’s carrying
amount and the present value of estimated future cash
flows, discounted at the financial asset’s original effective
interest rate. As indicated above, the Company’s financial
assets carried at amortized cost consist only of cash and
cash equivalents and trade receivables and other. Any
impairment determined on trade receivables and other
reduces their carrying amount through the use of an
allowance account and is recorded when an account
is considered uncollectible. Subsequent recoveries of
amounts previously provided for are credited against
the allowance. Changes in the carrying amount of
the allowance are recognized in selling, general and
administrative expenses.
3.19.7. Derecognition of financial instruments
The Company derecognizes a financial asset when
the contractual rights to the cash flows from the asset
expire, or when it transfers the financial asset and
substantially all the risks and rewards of ownership of
the asset to another entity.
On derecognition of a financial asset, the difference
between the asset’s carrying amount and the sum
of the consideration received and receivable and the
cumulative gain or loss that had been recognized in
other comprehensive income (loss) and accumulated
equity is recognized in net earnings.
The Company derecognizes a financial liability when
the Company’s obligations are discharged, cancelled
or they expire. The difference between the carrying
amount of the financial liability derecognized and the
consideration paid and payable is recognized in net
earnings.
3.19.8.
Classification as debt or equity
Debt and equity instruments issued by the Company
are classified as either financial liabilities or as equity
76
ROCKY MOUNTAIN DEALERSHIPS | ANNUAL REPORT | 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSYEARS ENDED DECEMBER 31, 2013 AND 2012EXPRESSED IN THOUSANDS OF CANADIAN DOLLARS EXCEPT PER SHARE AND PER OPTION AMOUNTS in accordance with the substance of the contractual
arrangement and the definitions of a financial liability
and equity instrument.
The deferred tax liability associated with the liability
component of the Debentures was charged to the equity
component upon initial recognition.
3.19.9.
Equity instruments
An equity instrument is any contract that evidences
a residual interest in the assets of the Company after
deducting all of its liabilities. Equity instruments
issued by the Company are recognized at the proceeds
received, net of direct issue costs. Repurchases of the
Company’s own equity instruments are recognized and
deducted directly in equity. No gain or loss is recognized
in net earnings on the purchase, sale, issuance or
cancellation of the Company’s own equity instruments.
3.19.10. Compound financial instruments
The Company had issued convertible debentures
(the “Debentures”) that were compound financial
instruments. The Debentures could be converted to
common shares at the option of the holder. The number
of shares to be issued did not vary with changes in their
fair value.
The liability component of this compound financial
instrument was recognized initially at the fair value of
a similar liability that did not have an equity conversion
option. The equity component was recognized
initially at the difference between the fair value of
the compound financial instrument as a whole and
the fair value of the liability component. Any directly
attributable transaction costs were allocated to the
liability and equity components in proportion to their
initial carrying amounts.
Subsequent to initial recognition, the liability
component of a compound financial instrument is
measured at amortized cost using the effective interest
method. The equity component of a compound financial
instrument is not remeasured subsequent to initial
recognition.
Interest, losses and gains relating to the financial
liability were recognized in net earnings.
3.19.11.
Derivative financial instruments and
hedging activities
Derivatives are initially recognized on the date a
derivative contract is entered into and are subsequently
re-measured at their fair values. The fair values of
interest rate swaps are calculated as the net present
value of the estimated future cash flows expected to
arise on the variable and fixed legs, determined using
applicable yield curves at each measurement date. Swap
curves, which incorporate credit spreads applicable to
large commercial banks, are typically used to calculate
expected future cash flows and the present values
thereof. Adjustments are also made to reflect the
Company’s own credit risk and the credit risk of the
counter party, if different from the spread implicit in the
swap curve.
The method of recognizing the resulting gain or loss
depends on whether the derivative is designated as a
hedging instrument, and if so, the nature of the item
being hedged. The Company may designate derivatives
of a particular risk associated with a recognized asset or
liability or highly probable forecast transaction as cash
flow hedges.
77
ROCKY MOUNTAIN DEALERSHIPS | ANNUAL REPORT | 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSYEARS ENDED DECEMBER 31, 2013 AND 2012EXPRESSED IN THOUSANDS OF CANADIAN DOLLARS EXCEPT PER SHARE AND PER OPTION AMOUNTS The Company documents at the inception of
the transaction, the relationship between hedging
instruments and hedged items, as well as its risk
management objectives and strategy for undertaking
various hedging transactions.
The Company uses the regression method to
determine whether the derivatives that are used in
hedging transactions are highly effective in offsetting
changes in fair values or cash flows of hedged items and
uses the cumulative dollar offset method to measure
the ineffective portion. The documentation identifies
the anticipated cash flows being hedged, the risk that
is being hedged, the type of hedging instrument used
and how effectiveness will be assessed. The hedging
instrument must be highly effective in accomplishing the
objective of offsetting changes in anticipated cash flows
attributable to the risk being hedged both at inception
and throughout the life of the hedge. Hedge accounting
is discontinued prospectively when it is determined that
the hedging instrument is no longer effective as a hedge,
the hedging instrument is terminated, or upon early
settlement of the hedged item.
Where hedge accounting can be applied, a hedge
relationship is designated and documented at inception
to detail the particular risk management objective and the
strategy for undertaking the hedge transaction.
In a cash flow hedging relationship, the effective
portion of the change in the fair value of the hedging
derivative, net of taxes, is recognized in other
comprehensive income (loss) while the ineffective
portion is recognized in the consolidated statement
of net earnings. Amounts in accumulated other
comprehensive income (loss) are reclassified to profit or
loss in the periods when the hedged item affects profit
or loss.
Gains or losses on derivatives not designated as
hedges are recognized in the consolidated statement of
net earnings.
When a hedging instrument expires or no longer
meets the criteria for hedge accounting, any cumulative
gain or loss existing in equity remains in equity and is
recognized when the forecast transaction is ultimately
recognized in the consolidated statement of net
earnings.
The Company uses interest rate swaps to hedge the
variability in cash flows related to variable rate debt.
The Company does not have any fair value hedges or net
investment hedges.
4.
PRIOR YEAR COMPARATIVE
DISCLOSURES
Certain prior period comparative information has
been revised to conform to current period presentation.
78
ROCKY MOUNTAIN DEALERSHIPS | ANNUAL REPORT | 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSYEARS ENDED DECEMBER 31, 2013 AND 2012EXPRESSED IN THOUSANDS OF CANADIAN DOLLARS EXCEPT PER SHARE AND PER OPTION AMOUNTS 5. ACQUISITIONS
During the years ended December 31, 2013
and 2012, the Company completed three business
acquisitions. Over time, these acquisitions offer synergies
in the forms of cost reduction, greater access to used
inventory and expanded territory for sales and product
support. Acquisitions completed during these periods are
as follows:
2013 Acquisitions
Murray’s Farm Supplies
On February 1, 2013, the Company acquired 100%
of the outstanding common shares of Murray’s Farm
Supplies (“MFS”). The operating results of the business
acquired are consolidated from February 1, 2013, the
acquisition’s closing date.
2012 Acquisitions
Houlder Automotive Ltd.
On November 1, 2012, the Company purchased
the Case IH Agriculture dealership assets of Houlder
Automotive Ltd. (“HAL”). The operating results of the
business acquired are consolidated from November 1,
2012, the acquisition’s closing date.
Camrose Farm Equipment Ltd.
On July 3, 2012, the Company acquired 100% of the
outstanding common shares of Camrose Farm Equipment
Ltd. (“CFE”), a Case IH and New Holland Agriculture
dealer. The operating results of the business acquired
are consolidated from July 3, 2012, the acquisition’s
closing date.
79
ROCKY MOUNTAIN DEALERSHIPS | ANNUAL REPORT | 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSYEARS ENDED DECEMBER 31, 2013 AND 2012EXPRESSED IN THOUSANDS OF CANADIAN DOLLARS EXCEPT PER SHARE AND PER OPTION AMOUNTS The business combinations completed during the years ended December 31, 2013 and 2012 are summarized
as follows:
Purchase price allocation
Purchase consideration
Net working capital
Cash
Trade receivables and other
Inventory
Prepaid expenses
Trade payables, accruals and other
Floor plan payable
Current portion of obligations under
finance leases
Property and equipment
Deferred taxes
Long-term debt
Obligations under finance leases
Goodwill
Net assets acquired
Cash consideration paid, net of cash acquired
– During 2013
– During 2012
2013
MFS
HAL
2012
CFE
TOTAL
3,272
5,165
7,352
12,517
405
474
4,803
–
(598)
(2,789)
(13)
2,282
201
(8)
–
(11)
808
3,272
2,867
–
–
131
7,328
–
–
(3,629)
–
3,830
471
–
–
–
864
5,165
290
4,875
151
2,086
20,086
15
(2,314)
(16,493)
–
3,531
1,229
(153)
(314)
–
3,059
7,352
2,222
4,979
151
2,217
27,414
15
(2,314)
(20,122)
–
7,361
1,700
(153)
(314)
–
3,923
12,517
5,379
9,854
80
ROCKY MOUNTAIN DEALERSHIPS | ANNUAL REPORT | 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSYEARS ENDED DECEMBER 31, 2013 AND 2012EXPRESSED IN THOUSANDS OF CANADIAN DOLLARS EXCEPT PER SHARE AND PER OPTION AMOUNTS The Company incurred $36 of acquisition related
costs during the year ended December 31, 2013 (2012
– $96). These costs are recognized as administrative
expenses within selling, general and administrative
expenses in the period in which they are incurred.
In determining these amounts, management has
assumed that the fair value adjustments, determined
provisionally, that arose on the date of acquisition would
have been the same had these acquisitions occurred on
January 1 of the acquisition year.
Goodwill arose on these acquisitions due to the
potential future revenue growth and synergies expected
to occur. This amount is not recognized separately as it
does not meet the recognition criteria for identifiable
intangible assets. Goodwill generated on acquisition is
not deductible for tax purposes.
The acquisition effected during the year ended
December 31, 2013, generated revenue of $11,080 during
the year of acquisition (2012 – $21,888) and net earnings
of $280 (2012 – $428). Had this business combination
been effected at January 1 of the acquisition year, the
Company estimates that consolidated revenue and net
earnings for the year ended December 31, 2013 would
have been $1,008,553 and $15,333, respectively (2012
– $1,007,261 and $25,268, respectively). The pro forma
revenues and earnings are not necessarily indicative of
the results that actually would have occurred had these
acquisitions taken place on January 1, or of the results
which may be obtained in the future.
81
ROCKY MOUNTAIN DEALERSHIPS | ANNUAL REPORT | 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSYEARS ENDED DECEMBER 31, 2013 AND 2012EXPRESSED IN THOUSANDS OF CANADIAN DOLLARS EXCEPT PER SHARE AND PER OPTION AMOUNTS 6. TRADE RECEIVABLES AND OTHER
Trade receivables
Current
Aged between 61 – 120 days
Aged greater than 120 days
Allowance for doubtful accounts
Net trade receivables
Contracts in transit
Warranty receivables
DECEMBER 31,
2013
$
DECEMBER 31,
2012
$
11,209
1,775
2,095
15,079
(1,272)
13,807
14,576
985
29,368
18,299
3,144
2,042
23,485
(1,573)
21,912
28,039
2,709
52,660
The Company considers its trade receivable and other which are neither past due nor impaired to be of good credit
quality. Contracts in transit and warranty receivables are due from retail finance institutions and original equipment
manufacturers, respectively.
The allowance for doubtful accounts can be reconciled as follows:
DECEMBER 31,
2013
$
DECEMBER 31,
2012
$
1,573
(17)
(284)
1,272
1,001
795
(223)
1,573
As at January 1,
Provided for during the year
Written-off during the year
As at December 31,
82
ROCKY MOUNTAIN DEALERSHIPS | ANNUAL REPORT | 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSYEARS ENDED DECEMBER 31, 2013 AND 2012EXPRESSED IN THOUSANDS OF CANADIAN DOLLARS EXCEPT PER SHARE AND PER OPTION AMOUNTS The allowance for doubtful accounts is reviewed by management on a monthly basis. Accounts receivable are
considered for impairment on a case-by-case basis when they are past due or when objective evidence is received that
a customer will default. The Company takes into consideration the customer’s payment history, their creditworthiness
and the current economic environment in which the customer operates to assess impairment. The Company’s historical
bad debt expenses have not been significant and are generally limited to specific customer circumstances.
7.
INVENTORY
New equipment
Used equipment
Parts
Work-in-progress
DECEMBER 31,
2013
$
DECEMBER 31,
2012
$
214,677
230,412
35,095
2,640
482,824
226,688
233,202
33,573
1,688
495,151
For the year ended December 31, 2013, inventory recognized as an expense amounted to $846,652 (2012
– $802,404), which is included in cost of sales in the consolidated statement of net earnings. For the year ended
December 31, 2013, there were write downs of inventory to net realizable value of $5,957 (2012 – $1,071) and there
have been $Nil reversals of previously recorded inventory write downs (2012 – $Nil) in the consolidated statements of
net earnings. The Company’s inventory has been pledged as security for liabilities as disclosed in Notes 11 and 12.
83
ROCKY MOUNTAIN DEALERSHIPS | ANNUAL REPORT | 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSYEARS ENDED DECEMBER 31, 2013 AND 2012EXPRESSED IN THOUSANDS OF CANADIAN DOLLARS EXCEPT PER SHARE AND PER OPTION AMOUNTS 8. PROPERTY AND EQUIPMENT
LAND
$
RENTAL ASSETS
$
BUILDINGS
$
COMPUTER
EQUIPMENT
$
FURNITURE
AND FIXTURES
$
LEASEHOLD
IMPROVEMENTS
$
SHOP TOOLS AND
EQUIPMENT
$
VEHICLES
$
TOTAL
$
Cost
January 1, 2012
Additions
Business combinations (Note 5)
Disposals
December 31, 2012
Additions
Business combinations (Note 5)
Disposals
December 31, 2013
Accumulated depreciation
January 1, 2012
Depreciation charge
Disposals
December 31, 2012
Depreciation charge
Disposals
December 31, 2013
Net book value
January 1, 2012
December 31, 2012
December 31, 2013
2,252
–
–
–
2,252
8,272
–
–
10,524
–
–
–
–
–
–
–
2,252
2,252
10,524
8,916
144
–
(9,060)
–
–
–
–
–
3,619
461
(4,080)
–
–
–
–
5,297
–
–
373
102
–
–
475
7
–
–
482
179
47
–
226
90
–
316
194
249
166
3,580
2,902
58
(3)
6,537
1,351
20
(78)
7,830
1,934
870
(1)
2,803
1,335
(78)
4,060
1,646
3,734
3,770
Included in selling, general and administrative expenses for the year ended December 31, 2013 is depreciation
expense of $6,471 (2012 – $5,050) and a loss on the disposal of property and equipment of $150 (2012 – $554). Included
in cost of sales for the year ended December 31, 2013 is depreciation expense of $Nil (2012 – $461) for rental assets.
84
2,288
631
79
(1)
186
27
(78)
2,997
3,132
1,080
452
(1)
1,531
515
(61)
1,985
1,208
1,466
1,147
2,319
839
–
–
–
3,158
2,091
(564)
4,685
643
381
–
1,024
441
(276)
1,189
1,676
2,134
3,496
6,430
782
721
(48)
7,885
640
44
(156)
8,413
3,141
1,308
(24)
4,425
1,404
(104)
5,725
3,289
3,460
2,688
12,500
3,863
842
(1,332)
15,873
3,716
110
(919)
18,780
6,693
1,992
(1,075)
7,610
2,686
(585)
9,711
5,807
8,263
9,069
38,658
9,263
1,700
(10,444)
39,177
16,263
201
(1,795)
53,846
17,289
5,511
(5,181)
17,619
6,471
(1,104)
22,986
21,369
21,558
30,860
ROCKY MOUNTAIN DEALERSHIPS | ANNUAL REPORT | 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSYEARS ENDED DECEMBER 31, 2013 AND 2012EXPRESSED IN THOUSANDS OF CANADIAN DOLLARS EXCEPT PER SHARE AND PER OPTION AMOUNTS 8. PROPERTY AND EQUIPMENT
Business combinations (Note 5)
Cost
January 1, 2012
Additions
December 31, 2012
Disposals
Additions
Disposals
Business combinations (Note 5)
December 31, 2013
Accumulated depreciation
January 1, 2012
Depreciation charge
Disposals
December 31, 2012
Depreciation charge
Disposals
December 31, 2013
Net book value
January 1, 2012
December 31, 2012
December 31, 2013
LAND
$
2,252
2,252
8,272
10,524
–
–
–
–
–
–
–
–
–
–
–
–
2,252
2,252
10,524
8,916
144
(9,060)
3,619
461
(4,080)
–
–
–
–
–
–
–
–
–
–
5,297
–
–
$
373
102
475
–
–
7
–
–
482
179
47
–
226
90
–
316
194
249
166
3,580
2,902
58
(3)
6,537
1,351
20
(78)
7,830
1,934
870
(1)
2,803
1,335
(78)
4,060
1,646
3,734
3,770
RENTAL ASSETS
BUILDINGS
$
COMPUTER
EQUIPMENT
$
FURNITURE
AND FIXTURES
$
LEASEHOLD
IMPROVEMENTS
$
SHOP TOOLS AND
EQUIPMENT
$
VEHICLES
$
TOTAL
$
2,288
631
79
(1)
2,997
186
27
(78)
3,132
1,080
452
(1)
1,531
515
(61)
1,985
1,208
1,466
1,147
2,319
839
–
–
3,158
2,091
–
(564)
4,685
643
381
–
1,024
441
(276)
1,189
1,676
2,134
3,496
6,430
782
721
(48)
7,885
640
44
(156)
8,413
3,141
1,308
(24)
4,425
1,404
(104)
5,725
3,289
3,460
2,688
12,500
3,863
842
(1,332)
15,873
3,716
110
(919)
18,780
6,693
1,992
(1,075)
7,610
2,686
(585)
9,711
5,807
8,263
9,069
38,658
9,263
1,700
(10,444)
39,177
16,263
201
(1,795)
53,846
17,289
5,511
(5,181)
17,619
6,471
(1,104)
22,986
21,369
21,558
30,860
As at December 31, 2013, assets under finance leases included in computer equipment and vehicles have net
carrying amounts of $609 and $852 (2012 – $731 and $1,560), respectively. Certain items of property and equipment
have been pledged as security for liabilities as disclosed in Notes 12 and 13.
85
ROCKY MOUNTAIN DEALERSHIPS | ANNUAL REPORT | 2013 9. GOODWILL
Opening balance
Recognized on business acquisitions (Note 5)
Ending balance
DECEMBER 31,
2013
$
DECEMBER 31,
2012
$
13,884
808
14,692
9,961
3,923
13,884
Goodwill recognized pursuant to a business combination is allocated, at the time of acquisition, to the Company’s
(“CGU”) that is expected to benefit from that business combination. As at December 31, 2013, the Company has
identified two CGU’s, agriculture and construction. All goodwill has been allocated to the agriculture CGU. As at
December 31, 2012, the Company had identified one CGU.
The recoverable amount of the CGUs was determined from value in use calculations. The key assumptions made
for the value in use calculations are those regarding the discount and growth rates. These key assumptions are based
on past experience which has been adjusted for expected changes in future conditions.
As at December 31, 2013 and 2012, the Company prepared cash flow forecasts derived from the most recent
financial plans prepared by management for the next five years and extrapolated these cash flows into perpetuity using
growth assumptions relevant to the business sector. The growth rate used for the purposes of these analyses was 2.0%.
As at December 31, 2013, the rate used to discount the forecasted cash flows was 11.9% (2012 – 11.6%), and
represents the Company’s estimate of the pre-tax discount rate reflecting current market assessments of the time value
of money and the risks specific to the particular CGU. The recoverable amount of each CGU to which goodwill has been
allocated exceeded its carrying value at the impairment test dates.
The Company has conducted a sensitivity analysis based on reasonable possible changes in the key assumptions
used for the impairment tests. Had the estimated cost of capital used in determining the pre-tax discount rates been
1% higher than management’s estimates or the estimated growth rate used in extrapolating forecasted results been
1% lower, the recoverable amount of the CGU would continue to exceed its carrying amount for the respective periods.
86
ROCKY MOUNTAIN DEALERSHIPS | ANNUAL REPORT | 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSYEARS ENDED DECEMBER 31, 2013 AND 2012EXPRESSED IN THOUSANDS OF CANADIAN DOLLARS EXCEPT PER SHARE AND PER OPTION AMOUNTS 10. TRADE PAYABLES, ACCRUALS AND OTHER
Trade payables and accruals
Directors’ share units (Note 16.5)
DECEMBER 31,
2013
$
DECEMBER 31,
2012
$
40,451
656
41,107
49,487
571
50,058
11. FLOOR PLAN PAYABLE
Floor plan payable is due to various creditors who have extended credit on wholesale inventory items, and is due
on various dates, at fixed or variable interest rates ranging from 0.0% to the bank’s prime rate plus 4.3% at December
31, 2013 (2012 – ranging from 0.0% to the bank’s prime rate plus 4.3%). At December 31, 2013, the Company had
unused floor plan of approximately $245,736 available (2012 – $198,188). The amounts due are secured by specific
new and used equipment inventories and are due when the equipment is sold or transferred, up to a maximum
term of 48 months. At December 31, 2013, the Company had $1,348 of floor plan outstanding in US currency (2012
– $3,697). The entire amount of floor plan payable has been classified as current, as the corresponding inventory to
which it relates has also been classified as current.
Pursuant to agreements with lenders, the Company is required to monitor and report certain non-IFRS measures
(Note 25).
87
ROCKY MOUNTAIN DEALERSHIPS | ANNUAL REPORT | 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSYEARS ENDED DECEMBER 31, 2013 AND 2012EXPRESSED IN THOUSANDS OF CANADIAN DOLLARS EXCEPT PER SHARE AND PER OPTION AMOUNTS 12. LONG-TERM DEBT
The following table summarizes the Company’s long-term debt. The Debenture Repayment, Acquisition and
Fleet Facilities are governed by a syndicate credit agreement which, if not renewed, will mature on June 1, 2016. It is
managements intention to review this credit agreement before its maturity date. The table presented below assumes
the agreement is renewed prior to maturity.
Debenture Repayment Facility, amortized with quarterly principal
instalments of $875 plus interest with the remaining principal
paid on September 30, 2017. The effective interest rate at
December 31, 2013 was 3.5% (2012 – 3.5%).
Acquisition Facility, revolving facility payable in monthly principal
instalments over 60 months. The effective interest rate at
December 31, 2013 was 3.5% (December 31, 2012 – 3.5%).
Fleet Facility, revolving facility payable in monthly principal
instalments over 36–60 months. The effective interest rate at
December 31, 2013 was 3.7% (2012 – 3.7%).
Various other facilities
Current portion
Long-term portion
DECEMBER 31,
2013
$
DECEMBER 31,
2012
$
29,750
17,232
4,248
1,107
52,337
10,656
41,681
33,250
17,939
2,761
2,186
56,136
10,159
45,977
88
ROCKY MOUNTAIN DEALERSHIPS | ANNUAL REPORT | 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSYEARS ENDED DECEMBER 31, 2013 AND 2012EXPRESSED IN THOUSANDS OF CANADIAN DOLLARS EXCEPT PER SHARE AND PER OPTION AMOUNTS 13. OBLIGATIONS UNDER FINANCE LEASES
Finance leases relate primarily to vehicles with lease terms ranging from three to five years. The Company has
options to purchase many of these vehicles for a nominal amount at the conclusion of the lease terms. The lessors’
title to the leased assets provides security for the Company’s obligations under finance leases.
Interest rates underlying all obligations under finance leases are fixed at the respective contract dates ranging
from 3.4% to 7.6% at December 31, 2013 (2012 – 3.1%–8.0%).
The fair values of the obligations under finance leases approximate their carrying amounts as interest rates are
consistent with market rates for similar debt.
Future minimum payments under finance leases along with the balance of the obligations under finance leases
are as follows:
Due within one year
Due later than one year and not later than five years
Due later than five years
Total future minimum lease payments
Less future finance charges
Present value of future minimum lease payments
Current portion of obligations under finance leases
Long-term portion of obligations under finance leases
DECEMBER 31,
2013
$
DECEMBER 31,
2012
$
850
556
–
1,406
(42)
1,364
823
541
1,088
1,447
–
2,535
(172)
2,363
984
1,379
89
ROCKY MOUNTAIN DEALERSHIPS | ANNUAL REPORT | 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSYEARS ENDED DECEMBER 31, 2013 AND 2012EXPRESSED IN THOUSANDS OF CANADIAN DOLLARS EXCEPT PER SHARE AND PER OPTION AMOUNTS 14. CONVERTIBLE DEBENTURES
On March 22, 2012, the Company announced an
offer to acquire all of its outstanding Debentures at a
price of $1.2 (the “Offer Price”) for each $1.0 principal
amount for a total of $37,800.
On April 23, 2012, a special meeting of the holders
of the Debentures (the “Debentureholders”) took place
where the Debentureholders approved an amendment
to the debenture indenture. This amendment allowed
the Company to redeem all of its Debentures which
were not tendered pursuant to the Offer, at the Offer
Price. On April 30, 2012, the Company repurchased
all Debentures which were tendered pursuant to the
Offer and redeemed the remainder pursuant to the
amendment. The Debentures repurchased had a face
value of $31,500 and bore interest at a rate of 7%.
The Company allocated $4,232 of the loss on
the repurchase of the Debentures to net earnings
and $4,250 (net of income taxes of $284) to
retained earnings.
Accretion relating to the Debentures totalled $123
for the year ended December 31, 2012, and is included
in interest on long-term debt.
15. CONTINGENCY AND GUARANTEE
The Company is subject to various degrees of
recourse, arising in the ordinary course of business,
by assisting its customers in financing the sale of
equipment. The Company is exposed to potential losses
arising from the difference between the assessed value
of the underlying security and the loan balance, if
certain customers default on their loan. Any resulting
losses are recorded as soon as the amount of the loss
can be reasonably estimated. It is management’s opinion
that there is an insignificant risk of loss from these
guarantees, as the assessed value of the underlying
security generally exceeds the loan balance. Accordingly,
management believes that the exposure on these
guarantees is not significant.
16. SHARE CAPITAL
16.1. Common shares
The Company is authorized to issue an unlimited
amount of common shares with no par value. As at
December 31, 2013, 19,313 thousand shares were
issued and outstanding (December 31, 2012 – 18,993).
All issued and outstanding shares were fully paid as at
December 31, 2013 and 2012.
16.2. Dividends paid
Dividends paid during the year ended December 31,
2013 were $7,063 or $0.3675 per share (2012 – $4,650
or $0.2475 per share).
In respect of the fourth quarter of 2013, the
Board of Directors declared a dividend of $0.10 per
common share on the Company’s outstanding common
shares. The dividend is payable on March 31, 2014,
to shareholders of record at the close of business on
February 28, 2014. The payment of this dividend will not
have any tax consequences for the Company.
90
ROCKY MOUNTAIN DEALERSHIPS | ANNUAL REPORT | 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSYEARS ENDED DECEMBER 31, 2013 AND 2012EXPRESSED IN THOUSANDS OF CANADIAN DOLLARS EXCEPT PER SHARE AND PER OPTION AMOUNTS 16.3. Stock options
The Company has a stock option plan under which the Board of Directors may grant options to directors, officers,
and employees of the Company at an exercise price equal to the market price of the Company’s common shares at
the time of the grant. The plan is limited to 10% of the issued and outstanding common shares. Options granted carry
neither voting rights nor rights to dividends.
The general terms of stock options granted under the plan include a maximum exercise period of five years and
a vesting period of three years with one-third of the grant vesting on each anniversary date.
The fair value of the options granted using the Black-Scholes option pricing model and assumptions used in their
determination during the years ended December 31 are as follows:
Risk-free interest rate
Expected option life (years)
Expected volatility(1)
Expected annual dividend per share
Exercise price
Share price on grant date
Fair value
DECEMBER 31,
2013
DECEMBER 31,
2012
1.2%
4.0
50.6%
$0.27
$12.89
$12.89
$4.46
1.3%
4.5
55.3%
$0.18
$11.96
$11.96
$4.92
(1) Expected volatility has been based on the historical volatility of the Company’s publicly traded shares
91
ROCKY MOUNTAIN DEALERSHIPS | ANNUAL REPORT | 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSYEARS ENDED DECEMBER 31, 2013 AND 2012EXPRESSED IN THOUSANDS OF CANADIAN DOLLARS EXCEPT PER SHARE AND PER OPTION AMOUNTS The reconciliation of options outstanding during the years ended December 31 is as follows:
2013
2012
NUMBER OF OPTIONS
(THOUSANDS)
WEIGHTED AVERAGE
EXERCISE PRICE
$
NUMBER OF OPTIONS
(THOUSANDS)
WEIGHTED AVERAGE
EXERCISE PRICE
$
1,112
452
(320)
(78)
(221)
945
11.04
12.89
10.72
12.35
12.40
11.61
908
356
(105)
(47)
–
1,112
10.33
11.96
7.65
11.89
–
11.04
January 1
Granted
Exercised
Forfeited
Expired
December 31
The weighted average share price at the date of exercise for the options exercised during the year ended
December 31, 2013 was $12.75 (2012 – $11.70).
Options outstanding at December 31, 2013 are summarized as follows:
GRANT DATE
December 29, 2009
March 11, 2011
August 11, 2011
March 28, 2012
March 13, 2013
OPTIONS
OUTSTANDING
(THOUSANDS)
OPTIONS
EXERCISABLE
(THOUSANDS)
WEIGHTED AVERAGE
EXERCISE PRICE
($)
WEIGHTED AVERAGE
CONTRACTUAL LIFE
(YEARS)
61
42
150
277
415
945
61
20
87
89
–
257
9.22
10.39
8.71
11.96
12.89
11.61
1.0
2.2
2.6
3.2
4.2
3.4
92
ROCKY MOUNTAIN DEALERSHIPS | ANNUAL REPORT | 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSYEARS ENDED DECEMBER 31, 2013 AND 2012EXPRESSED IN THOUSANDS OF CANADIAN DOLLARS EXCEPT PER SHARE AND PER OPTION AMOUNTS 16.4. Restricted share unit plan
In 2007, the Company reserved 158 thousand shares
under a restricted share unit plan. Under this plan,
certain key employees would receive treasury shares in
the Company on December 20, 2012 should they remain
with the Company at that time. These shares were
valued upon issuance, using the Black-Scholes option
pricing model, at $10 per share, and the compensation
expense was allocated over the vesting term of five
years.
On December 20, 2012, 120 thousand shares were
issued in respect to the vested restricted share units.
During the year ended December 31, 2012, 2 thousand
of these units were forfeited.
16.5. Directors’ share unit plan
The Company has instituted a Directors’ share unit
plan (“DSU”). Under this plan, the Board of Directors
may grant DSUs to non-officer Directors of the Company
as they determine to be appropriate for their services
rendered. The DSUs are notional grants of shares and
are to be settled in cash within 30 days of a Director’s
termination date. Additional DSUs are credited to the
Directors’ accounts when cash dividends are paid to the
common shareholders of the Company. Such amount of
additional DSUs is determined by dividing the dividends
which would have been paid on the DSUs had they
been common shares of the Company by the volume
weighted average trading price of the Company’s shares
over the 20 day trading period immediately preceding
the date the dividends are paid.
Upon redemption and at each reporting period,
the DSUs are valued on a per DSU basis at an amount
equal to the volume weighted average trading price of
the Company’s shares over the immediately preceding
20 day trading period. At December 31, 2013, $656
was included in trade payables, accruals and other with
respect to the DSUs (December 31, 2012 – $571). During
the year ended December 31, 2013, 14 thousand DSU’s
were redeemed for proceeds of $193 (2012 – Nil).
93
ROCKY MOUNTAIN DEALERSHIPS | ANNUAL REPORT | 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSYEARS ENDED DECEMBER 31, 2013 AND 2012EXPRESSED IN THOUSANDS OF CANADIAN DOLLARS EXCEPT PER SHARE AND PER OPTION AMOUNTS DSUs granted and redeemed and the unrealized losses recognized on the DSUs during the years ended
December 31 are as follows:
2013
2012
DSUS
(THOUSANDS)
50
17
(14)
–
53
$
571
221
(193)
57
656
DSUS
(THOUSANDS)
33
17
–
–
50
$
285
177
–
109
571
January 1,
Granted(1)
Redeemed
Loss on mark to market revaluation(1)
December 31,
(1) – Included in selling general and administrative expenses.
16.6. Employee share ownership plan
During the year ended December 31, 2013, the Company recognized $1,050 in selling, general and administrative
expenses in respect of employee contributions to the ESOP plan which were matched by the Company (2012 – $906).
94
ROCKY MOUNTAIN DEALERSHIPS | ANNUAL REPORT | 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSYEARS ENDED DECEMBER 31, 2013 AND 2012EXPRESSED IN THOUSANDS OF CANADIAN DOLLARS EXCEPT PER SHARE AND PER OPTION AMOUNTS 17. SALES
The Company’s annual sales consist of the following for the respective years ended:
Agriculture equipment sales
Construction equipment sales
Parts sales
Sale of goods
Rendering of services
Total sales
DECEMBER 31,
2013
($)
DECEMBER 31,
2012
($)
806,966
75,417
92,599
974,982
32,780
1,007,762
748,867
97,645
84,653
931,165
34,941
966,106
18. SELLING, GENERAL AND ADMINISTRATIVE
The Company’s selling, general and administration expenses consist of the following for the respective years ended:
Compensation and related expenses
Administrative expenses
Rent and other facility expenses
Depreciation expense
Share-based payment expense
Total selling, general and administrative expenses
DECEMBER 31,
2013
($)
DECEMBER 31,
2012
($)
65,541
17,121
14,769
6,471
1,548
105,450
60,325
16,969
13,754
5,050
1,613
97,711
95
ROCKY MOUNTAIN DEALERSHIPS | ANNUAL REPORT | 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSYEARS ENDED DECEMBER 31, 2013 AND 2012EXPRESSED IN THOUSANDS OF CANADIAN DOLLARS EXCEPT PER SHARE AND PER OPTION AMOUNTS 19. INCOME TAXES
19.1.
Income tax recognized in net earnings
Total taxes recognized in net earnings were different than the amount computed by applying the combined
statutory Canadian and Provincial tax rates to income before taxes. The difference resulted from the following:
Earnings before income taxes
Computed tax at statutory tax rate of 25% (2012 – 25%)
Non-deductible expenses
Debenture repurchase
Adjustment from prior year income tax expenses
Other
DECEMBER 31,
2013
($)
DECEMBER 31,
2012
($)
21,027
5,257
526
–
(116)
47
5,714
33,654
8,414
526
478
91
170
9,679
96
ROCKY MOUNTAIN DEALERSHIPS | ANNUAL REPORT | 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSYEARS ENDED DECEMBER 31, 2013 AND 2012EXPRESSED IN THOUSANDS OF CANADIAN DOLLARS EXCEPT PER SHARE AND PER OPTION AMOUNTS 19.2. Deferred tax liabilities (assets)
SHARE
ISSUE
COSTS
$
CUMULATIVE
ELIGIBLE
CAPITAL
$
PROPERTY
AND
EQUIPMENT
$
PARTNERSHIP
DEFERRAL
$
CONVERTIBLE
DEBENTURES
$
DSUS
$
INTEREST
RATE
SWAPS
$
TOTAL
$
January 1, 2012
Acquired pursuant to
business combinations
Recognized in net earnings
Recognized in equity
December 31, 2012
Acquired pursuant to
business combinations
Recognized in net earnings
Recognized in equity
December 31, 2013
(184)
(92)
–
(103)
(284)
(571)
–
242
–
(329)
–
7
–
(85)
–
(86)
–
(171)
971
153
(862)
–
262
8
(167)
–
103
7,588
–
356
–
7,944
–
(4,372)
–
3,572
361
(71)
(290)
8,283
–
(361)
–
–
–
–
–
–
–
(72)
–
(143)
–
(21)
–
(164)
–
(45)
(30)
(365)
–
58
(128)
(435)
153
(1,080)
(314)
7,042
8
(4,346)
(128)
2,576
The Company also has an unrecognized deferred tax asset of $788 related to the capital loss on the repurchase
of its convertible debentures.
97
ROCKY MOUNTAIN DEALERSHIPS | ANNUAL REPORT | 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSYEARS ENDED DECEMBER 31, 2013 AND 2012EXPRESSED IN THOUSANDS OF CANADIAN DOLLARS EXCEPT PER SHARE AND PER OPTION AMOUNTS 20. EARNINGS PER SHARE
Both basic and diluted earnings per share have been calculated using net earnings for the respective periods.
The weighted average number of ordinary shares used in the calculations of basic and diluted EPS for the respective
years ended, are as follows:
Weighted average number of ordinary shares used in the
calculation of basic EPS
Dilutive impact of stock options
Weighted average number of ordinary shares used in the
calculation of diluted EPS
DECEMBER 31,
2013
DECEMBER 31,
2012
19,167
57
19,224
18,748
30
18,778
For the year ended December 31, 2013, 693 stock options were anti-dilutive (2012 – 752).
21. CHANGES IN NON-CASH WORKING CAPITAL
The net change in non-cash working capital for the years ended December 31 is comprised of the following sources
(uses) of cash:
DECEMBER 31,
2013
($)
DECEMBER 31,
2012
($)
23,834
(4,623)
17,130
(1,073)
(7,105)
(3,518)
(12,237)
(1,215)
11,193
(5,058)
(264)
(113,106)
(1,092)
915
(767)
104,827
1,428
(13,117)
Trade receivables and other
Income taxes receivable
Inventory
Prepaid expenses
Trade payables, accruals and other
Income taxes payable
Floor plan payable
Deferred revenue and advances
98
ROCKY MOUNTAIN DEALERSHIPS | ANNUAL REPORT | 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSYEARS ENDED DECEMBER 31, 2013 AND 2012EXPRESSED IN THOUSANDS OF CANADIAN DOLLARS EXCEPT PER SHARE AND PER OPTION AMOUNTS 22. OPERATING LEASE ARRANGEMENTS
Operating leases relate primarily to the Company’s facilities with lease terms of between one and eleven years.
Most building leases contain five-year renewal options. During the year ended December 31, 2013, the Company
recognized $9,000 of operating lease payments as expenses (2012 – $8,361).
Non-cancellable operating lease commitments at December 31 are due as follows:
Not later than one year
Later than one year and not later than five years
Later than five years
DECEMBER 31,
2013
($)
DECEMBER 31,
2012
($)
8,491
21,076
8,787
38,354
9,173
27,357
11,140
47,670
23. RELATED PARTY TRANSACTIONS
The Company entered into the following transactions with related parties for the respective years ended:
Management fees
Flight costs
Other expenses
Rental payment on Company facilities
Equipment sales
Equipment purchases
DECEMBER 31,
2013
($)
DECEMBER 31,
2012
($)
–
183
406
5,280
4,476
4,206
31
403
68
4,138
6,339
4,314
All related parties are either directly or indirectly owned by a member of senior management of the Company and/
or a close family member thereof. These transactions were made on terms equivalent to those that prevail in arm’s
length transactions and are made only if such terms can be substantiated.
99
ROCKY MOUNTAIN DEALERSHIPS | ANNUAL REPORT | 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSYEARS ENDED DECEMBER 31, 2013 AND 2012EXPRESSED IN THOUSANDS OF CANADIAN DOLLARS EXCEPT PER SHARE AND PER OPTION AMOUNTS
The remuneration of the directors and officers of the Company is determined by the Compensation, Governance
and Nominating Committee of the Board of Directors based on performance and is consistent with market trends.
The remuneration of directors and officers of the Company identified as key management is as follows for the
respective years ended:
Short-term benefits
Post-retirement benefits
Share-based payment
DECEMBER 31,
2013
($)
DECEMBER 31,
2012
($)
1,984
36
1,054
3,074
2,832
34
1,069
3,935
Amounts due from (to) related parties are included in the consolidated balance sheets under trade receivables
and other (trade payables, accruals and other) and are as follows:
Due from related parties
Due to related parties
DECEMBER 31,
2013
($)
DECEMBER 31,
2012
($)
141
(39)
31
(77)
The amounts due from related parties are not secured and are to be settled in cash. As at December 31, 2013
and 2012, the amounts due from related parties are considered collectible and therefore have not been provided for
in the allowance for doubtful accounts. During the year ended December 31, 2013, $Nil has been recognized in bad
debt expenses with respect to related party transactions (2012 – $Nil).
Key management personnel are comprised of the Company’s officers. As at December 31, 2013, there is a
$2,944 commitment (December 31, 2012 – $3,026) relating to change of control or termination of employment
of the key management personnel.
100
ROCKY MOUNTAIN DEALERSHIPS | ANNUAL REPORT | 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSYEARS ENDED DECEMBER 31, 2013 AND 2012EXPRESSED IN THOUSANDS OF CANADIAN DOLLARS EXCEPT PER SHARE AND PER OPTION AMOUNTS The Company’s exposure to credit risk on its
cash balance is mitigated as these financial assets
are held with major financial institutions with strong
credit ratings.
The aging of the Company’s trade receivables is
disclosed in Note 6. Contracts in transit and warranty
receivables are due from counterparties who maintain
strong credit ratings and the Company has a history of
collecting on these accounts. Trade receivables consist of
amounts due from a large number of customers, spread
across diverse industries and geographic areas. On-going
credit evaluation is performed on the financial condition
of trade receivables.
24.2. Market risk
Market risk is the risk from changes in market
prices, such as changes in foreign currency exchange
rates and interest rates which will affect the Company’s
earnings or the value of the financial instruments held.
24. FINANCIAL INSTRUMENTS AND
FINANCIAL RISK MANAGEMENT
The Company, through its financial assets and
liabilities, has exposure to the following risks from its
use of financial instruments: credit risk, market risk
(consisting of foreign currency exchange risk and interest
rate risk), and liquidity risk. The following analysis
provides a measurement of risks as at December 31,
2013 and 2012.
24.1. Credit risk
Credit risk refers to the risk that a counterparty
will default on its contractual obligations resulting in
a financial loss to the Company. The Company has a
policy of only dealing with creditworthy counterparties
and obtaining sufficient collateral, where appropriate,
as a means of mitigating the risk of financial loss from
defaults. The creditworthiness of counterparties is
determined using information supplied by independent
rating agencies where available and, if not available,
the Company uses other publicly available financial
information and its own trading records to rate its major
customers. The Company’s exposure and the credit
ratings of its counterparties are continuously monitored
and the aggregate value of transactions concluded
is spread amongst approved counterparties. Credit
exposure is controlled by counterparty limits that are
reviewed regularly.
101
ROCKY MOUNTAIN DEALERSHIPS | ANNUAL REPORT | 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSYEARS ENDED DECEMBER 31, 2013 AND 2012EXPRESSED IN THOUSANDS OF CANADIAN DOLLARS EXCEPT PER SHARE AND PER OPTION AMOUNTS 24.2.1.
Foreign currency exchange risk and sensitivity analysis
Certain of the Company’s financial instruments are exposed to fluctuations in the U.S. dollar (“USD”). When
considered appropriate, the Company purchases forward contracts for USD as means of mitigating this risk.
The following tables detail the Company’s exposure to currency risk at December 31, 2013 and 2012 and a
sensitivity analysis to changes in currency (a 5.0% change in currency was used for obligations that would be retired in
30 days or less and a 10.0% change in currency for obligations that would be retired within one year). The sensitivity
analysis includes USD denominated monetary items and adjusts their translation at year end for their respective change
in the USD. For the respective weakening of the USD, there would be an equal and opposite impact on the Company’s
net earnings.
CHANGE IN
CURRENCY RATES
%
DENOMINATED
IN USD
$
EFFECT ON NET
EARNINGS YEAR
ENDED
DECEMBER 31,
2013
$
DENOMINATED
IN USD
$
EFFECT ON NET
EARNINGS YEAR
ENDED
DECEMBER 31,
2012
$
Cash
Trade payables, accruals and
other
Floor plan payable
5.0
5.0
10.0
928
(807)
(1,348)
(1,227)
35
(30)
(101)
(96)
1,228
(69)
(3,697)
(2,538)
46
(3)
(277)
(234)
Included in selling, general and administrative expenses are gains recognized due to foreign currency translation for
transactions and balances aggregating $482 for the year ended December 31, 2013 (2012 – $506).
102
ROCKY MOUNTAIN DEALERSHIPS | ANNUAL REPORT | 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSYEARS ENDED DECEMBER 31, 2013 AND 2012EXPRESSED IN THOUSANDS OF CANADIAN DOLLARS EXCEPT PER SHARE AND PER OPTION AMOUNTS 24.2.2.
Interest rate risk and sensitivity analysis
The Company’s financial liabilities are exposed to fluctuations in interest rates with respect to certain of its
long-term liabilities, line of credit and floor plan payable.
The Company manages its cash flow interest rate risk by using floating-to-fixed interest rate swaps when
appropriate. Generally, the Company will raise floor plan financing and/or long-term debt at floating rates. When
the Company enters into a floating-to-fixed interest rate swap, it agrees with a third party to exchange the difference
between the fixed and floating contract rates based on agreed notional amounts.
The following table details the Company’s exposure to interest rate risk as at December 31, 2013 and 2012 and a
sensitivity analysis to an increase of interest rates by 0.5% on net earnings. The sensitivity includes floating rate financial
liabilities and adjusts their effect at period end for a 0.5% increase in interest rates. A decrease of 0.5% would result
in an equal and opposite effect on net earnings. This analysis excludes floating rate financial liabilities for which the
Company has hedged its exposure to interest rate fluctuations though the use of floating-to-fixed interest rate swaps.
CHANGE IN
INTEREST RATES
%
FLOATING RATE
FINANCIAL
LIABILITIES
$
EFFECT ON
NET EARNINGS
YEAR ENDED
DECEMBER 31,
2013
$
FLOATING RATE
FINANCIAL
LIABILITIES
$
EFFECT ON
NET EARNINGS
YEAR ENDED
DECEMBER 31,
2012
$
Floor plan payable
Acquisition Facility
Fleet Facility
Other long-term debt
0.5
0.5
0.5
0.5
212,980
9,313
4,248
422
226,963
799
35
16
2
852
246,268
6,744
2,761
584
256,357
924
25
10
2
961
103
ROCKY MOUNTAIN DEALERSHIPS | ANNUAL REPORT | 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSYEARS ENDED DECEMBER 31, 2013 AND 2012EXPRESSED IN THOUSANDS OF CANADIAN DOLLARS EXCEPT PER SHARE AND PER OPTION AMOUNTS 24.3. Liquidity risk
The Company’s objective is to have sufficient liquidity to meet its liabilities when due. The Company monitors its cash
balance and cash flows generated from operations as well as available credit facilities to meet its requirements.
The Company has credit facilities with a syndicate of lenders to help finance the general day-to-day cash requirements
of its operations (the “Operating Facility”), to finance its inventory (the “Flooring Facility”), to make acquisitions (the
“Acquisition Facility”), to finance the Company’s fleet of vehicles (the “Fleet Facility”) and to finance the repurchase of the
Debentures (the “Debenture Repayment Facility”) (collectively the “Syndicated Facility”).
The Syndicated Facility is a revolving facility secured in favour of the syndicate by a general security agreement.
Advances under the Syndicated Facility may be made based on our lender’s prime rate or the US base rate plus 1.0%
– 2.5% or based on the banker’s acceptance (“BA”) rate plus 2.0% – 3.5%. The Company pays standby fees of between
0.5% and 0.8% per annum on any undrawn portion of the Syndicated Facility. The Syndicated Facility matures on June 1,
2016 however, it is the Company’s intention to renew this facility prior to its maturity date.
The facilities included in the Syndicated Facility have the following limits:
Operating Facility
Flooring Facility
Acquisition Facility
Fleet Facility
Debenture Repayment Facility
DECEMBER 31,
2013
($)
DECEMBER 31,
2012
($)
30,000
100,000
30,000
10,000
29,750
30,000
100,000
30,000
10,000
33,250
In addition to the Flooring Facility, the Company has additional floor plan facilities of approximately $488,100
as at December 31, 2013 (2012 – $450,000).
The Company assesses its liquidity based on the expected period in which cash flows will occur. The following
tables summarize the Company’s undiscounted cash flows expected for its financial liabilities as at December 31.
The analysis is based on foreign exchange rates and interest rates in effect at the consolidated balance sheet date,
and includes both principal and interest cash flows.
104
ROCKY MOUNTAIN DEALERSHIPS | ANNUAL REPORT | 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSYEARS ENDED DECEMBER 31, 2013 AND 2012EXPRESSED IN THOUSANDS OF CANADIAN DOLLARS EXCEPT PER SHARE AND PER OPTION AMOUNTS AS AT DECEMBER 31, 2013
Trade payables, accruals and
other1
Floor plan payable
Long-term debt
Obligations under finance leases
Derivative financial instruments
INTEREST AND
PRINCIPAL
OUTSTANDING
$
2014
$
2015–2016
$
2017–2018
$
THEREAFTER
$
40,451
355,853
56,187
1,406
2,442
456,339
40,451
355,853
12,159
850
1,197
410,510
–
–
20,339
556
1,245
22,140
–
–
23,655
–
–
23,655
–
–
34
–
–
34
AS AT DECEMBER 31, 2012
Trade payables, accruals and
other1
Floor plan payable
Long-term debt
Obligations under finance leases
Derivative financial instruments
INTEREST AND
PRINCIPAL
OUTSTANDING
$
2013
$
2014–2015
$
2016–2017
$
THEREAFTER
$
49,487
364,125
61,028
2,535
1,551
478,726
49,487
364,125
11,323
1,088
550
426,573
–
–
20,698
1,435
751
22,884
–
–
28,969
12
250
29,231
–
–
38
–
–
38
1-Trade payables, accruals and other excludes DSUs which are not financial instruments.
In the event that the Syndicated Facility is not renewed prior to its maturity, the cash outflow for the long-term
debt outstanding as at December 31, 2013 would be $42,895 in 2015–2016 and $Nil in subsequent periods
(December 31, 2012 – $47,955 for 2014–2015 and $Nil in subsequent periods).
105
ROCKY MOUNTAIN DEALERSHIPS | ANNUAL REPORT | 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSYEARS ENDED DECEMBER 31, 2013 AND 2012EXPRESSED IN THOUSANDS OF CANADIAN DOLLARS EXCEPT PER SHARE AND PER OPTION AMOUNTS 24.4.
Fair value of financial instruments carried
at amortized cost
The carrying amounts of cash, trade receivables and
other, bank indebtedness and trade payables, accruals
and other (excluding DSUs) approximate their fair values
because of the short-term maturities of these items.
The carrying amounts of floor plan payable, long-term
debt and obligations under finance lease approximate
their fair values as the interest rates are consistent with
market rates for similar debt. Substantially all short- and
long-term interest expense pertains to financial liabilities
that are not at FVTPL.
24.5.
Fair value measurements recognized in the
consolidated balance sheet
The following table provides the basis of analysis
for financial instruments of the Company, which
are measured subsequent to initial recognition at
fair value. This analysis is based on the degree to
which the fair value is observable and grouped into
categories accordingly:
Level 1 financial instruments are those which can be
derived from quoted market prices (unadjusted) in
active markets for similar financial assets or liabilities.
The Company does not have any Level 1 financial
instruments.
Level 2 financial instruments are those whose fair
value can be derived from inputs that are observable
for the asset or liability, either directly (i.e. as prices)
or indirectly (i.e. derived from prices). The Company’s
Level 2 financial instruments consist of derivatives in
the form of interest rate swaps, which had a fair value
of $1,706 at December 31, 2013 (2012 – $1,438).
Level 3 financial instruments are those derived from
valuation techniques that include inputs for the
financial asset or liability which are not based on
observable market data (unobservable inputs). The
Company has no Level 3 financial instruments.
There were no transfers between Level 1 and 2
during the year.
24.6.
Derivative financial instruments and hedges
The Company has long and short-term debt raised
at floating interest rates and hedges a portion of this
risk by using floating-to-fixed interest rate swaps.
Under the interest rate swaps, the Company hedges
interest rate risk by exchanging, at monthly intervals,
the difference between fixed contract rates and
floating-rate interest amounts calculated by reference
to the agreed notional amounts. The interest rate
swaps hedge the Company’s exposure to interest rate
fluctuations on the Debenture Repayment Facility
as well as portions of the Acquisition and Flooring
Facilities. Interest rate swaps outstanding at December
31, 2013 mature between May 2016 and September
2020 (2012 – between May 2016 and August 2018).
The combined notional principal amounts of interest
rate swaps outstanding at December 31, 2013 was
$97,668 (2012 – $69,718). At December 31, 2013, the
effective fixed interest rate on the underlying debt was
4.7% (2012 – 4.3%) and the effective floating rate using
the Bankers’ Acceptance rate was 3.5% (2012 – 3.5%).
106
ROCKY MOUNTAIN DEALERSHIPS | ANNUAL REPORT | 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSYEARS ENDED DECEMBER 31, 2013 AND 2012EXPRESSED IN THOUSANDS OF CANADIAN DOLLARS EXCEPT PER SHARE AND PER OPTION AMOUNTS
Derivative financial instruments recognized as liabilities are as follows:
Interest rate swaps
1,706
1,438
DECEMBER 31,
2013
($)
DECEMBER 31,
2012
($)
The ineffective portion of the mark to market revaluation amounted to a gain of $225 for the year ended
December 31, 2013 (2012 – loss of $174), and was recognized in net earnings. Losses recognized in accumulated other
comprehensive loss within equity for the year ended December 31, 2013 were $365 net of income tax of $128 (2012 –
$95, net of income tax of $30). These accumulated losses will be continuously released to the consolidated statement
of net earnings within interest on short- and long-term debt until full repayment of the underlying debt.
During the years presented and cumulatively to date, changes in counterparty credit risk have not significantly
contributed to the overall changes in the fair value of these derivative financial instruments.
25. MANAGEMENT OF CAPITAL
The Company’s objectives when managing capital are:
(a) To maintain a flexible capital structure which optimizes the cost of capital at acceptable risk; and
(b) To maintain capital in a manner which balances the interests of equity and debt holders.
In the management of capital, the Company includes shareholders’ equity, long-term debt and obligations under
finance leases (including current portions thereof), Debentures and floor plan payable.
The Company manages its capital structure and makes adjustments due to changes in economic conditions and
the risk characteristics of the underlying assets. In order to maintain or adjust the capital structure, the Company may
adjust the amount of dividends paid to shareholders, purchase shares for cancellation pursuant to normal course issuer
bids, issue new shares, repurchase Debentures, issue new debt, and/or issue new debt to replace existing debt with
different characteristics.
107
ROCKY MOUNTAIN DEALERSHIPS | ANNUAL REPORT | 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSYEARS ENDED DECEMBER 31, 2013 AND 2012EXPRESSED IN THOUSANDS OF CANADIAN DOLLARS EXCEPT PER SHARE AND PER OPTION AMOUNTS The Company monitors debt to equity capitalization. This ratio is a non-IFRS measure which does not have
a standardized meaning prescribed by IFRS and therefore may not be comparable to similar measures presented
by other issuers.
The Company calculates debt to equity capitalization including and excluding floor plan payable. Debt to
equity capitalization (excluding floor plan payable) is calculated as total long-term debt including obligations under
finance leases, (both current and long-term portions), divided by total equity, (common shares, contributed surplus,
accumulated other comprehensive loss and retained earnings). Debt to equity capitalization (including floor plan
payable) includes the balance of floor plan payable in the calculation of the numerator.
The debt to equity ratio target excluding floor plan payable is between 0.3 and 0.5 to 1. The debt to equity ratio
target for the Company including floor plan payable is debt between 2.5 and 3.0 to 1.0. As at December 31, 2013 and
2012, the Company was within its target ranges. The components of debt to equity ratios are as follows:
Current portion of long-term debt
Current portion of obligations under finance leases
Long-term debt
Obligations under finance leases
Total debt excluding floor plan payable
Floor plan payable
Total debt including floor plan payable
Shareholders’ equity
Debt equity ratios
– excluding floor plan payable
– including floor plan payable
DECEMBER 31,
2013
($)
DECEMBER 31,
2012
($)
10,656
823
41,681
541
53,701
342,364
396,065
157,421
0.34
2.52
10,159
984
45,977
1,379
58,499
351,812
410,311
144,561
0.40
2.84
108
ROCKY MOUNTAIN DEALERSHIPS | ANNUAL REPORT | 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSYEARS ENDED DECEMBER 31, 2013 AND 2012EXPRESSED IN THOUSANDS OF CANADIAN DOLLARS EXCEPT PER SHARE AND PER OPTION AMOUNTS Pursuant to agreements with lenders, the Company is also required to monitor and report certain non-IFRS
measures on a quarterly basis. These measures and the applicable compliance ranges are as follows:
Fixed charge coverage of at least
Debt to tangible net worth less than
Current ratio of at least
DECEMBER 31,
2013
$
1.25–1.50:1
4.00–5.00:1
1.15–1.20:1
DECEMBER 31,
2012
$
1.25–1.50:1
4.00–5.00:1
1.15–1.20:1
Each lender has its own definition of which account balances are to be included in these computations. As at
December 31, 2013 and 2012, the Company was in compliance with all externally imposed capital requirements.
26. SEGMENTED REPORTING
The company has two reportable operating segments, the agriculture segment and the construction segment,
which are both supported by the corporate office. The business segments are strategic business units that offer
different products and services and are managed separately. The corporate office provides finance, treasury, human
resource, legal and other administrative support to the business segments. Corporate expenditures are allocated and
absorbed in each individual segment on the basis of distribution of assets deployed in the segment.
The agriculture segment primarily includes sales of agricultural equipment, parts and services and the construction
segment includes sales of construction equipment, parts and services. The Company’s branches have been aggregated
based on the primary industry which they serve. In the case where certain branches serve both industries, the
primary industry served is agriculture and therefore, these facilities have been categorized as such. As a result, certain
construction related results are included in the agriculture segment for the purposes of segmented financial reporting
shown below.
Comparative information presented for 2012 has been derived using allocations and estimated made
by management.
109
ROCKY MOUNTAIN DEALERSHIPS | ANNUAL REPORT | 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSYEARS ENDED DECEMBER 31, 2013 AND 2012EXPRESSED IN THOUSANDS OF CANADIAN DOLLARS EXCEPT PER SHARE AND PER OPTION AMOUNTS The accounting policies of the reportable operating segments are the same as those described in Note 3
– Summary of significant accounting policies.
DECEMBER 31, 2013
AGRICULTURE
$
CONSTRUCTION
$
TOTAL
$
Sales
New equipment
Used equipment
Parts
Service
Other
Cost of sales
Gross profit
Selling, general and administrative
Interest on short-term debt
Interest on long-term debt
Earnings (loss) before income taxes
Income taxes
Net earnings (loss)
484,046
354,043
79,210
24,050
2,574
943,923
808,845
135,078
90,823
9,355
1,973
32,927
8,948
23,979
39,476
4,818
13,389
5,371
785
63,839
58,511
5,328
14,627
2,341
260
(11,900)
(3,234)
(8,666)
523,522
358,861
92,599
29,421
3,359
1,007,762
867,356
140,406
105,450
11,696
2,233
21,027
5,714
15,313
110
ROCKY MOUNTAIN DEALERSHIPS | ANNUAL REPORT | 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSYEARS ENDED DECEMBER 31, 2013 AND 2012EXPRESSED IN THOUSANDS OF CANADIAN DOLLARS EXCEPT PER SHARE AND PER OPTION AMOUNTS DECEMBER 31, 2012
AGRICULTURE
$
CONSTRUCTION
$
TOTAL
$
Sales
New equipment
Used equipment
Parts
Service
Other
Cost of sales
Gross profit
Selling, general and administrative
Loss on repurchase of convertible debentures
Interest on short-term debt
Interest on long-term debt
Earnings (loss) before income taxes
Income taxes
Net earnings (loss)
488,902
291,798
68,869
22,430
2,757
874,756
743,293
131,463
80,183
3,640
6,931
2,413
38,296
11,014
27,282
60,134
5,678
15,784
8,029
1,725
91,350
75,302
16,048
17,528
592
2,140
430
(4,642)
(1,335)
(3,307)
549,036
297,476
84,653
30,459
4,482
966,106
818,595
147,511
97,711
4,232
9,071
2,843
33,654
9,679
23,975
111
ROCKY MOUNTAIN DEALERSHIPS | ANNUAL REPORT | 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSYEARS ENDED DECEMBER 31, 2013 AND 2012EXPRESSED IN THOUSANDS OF CANADIAN DOLLARS EXCEPT PER SHARE AND PER OPTION AMOUNTS Selected Balance Sheet Information:
DECEMBER 31, 2013
AGRICULTURE
$
CONSTRUCTION
$
Inventory
Goodwill
Other assets
Total assets
428,532
14,692
93,679
536,903
54,292
–
11,701
65,993
DECEMBER 31, 2012
AGRICULTURE
$
CONSTRUCTION
$
Inventory
Goodwill
Other assets
Total assets
428,129
13,884
96,909
538,922
67,022
–
16,220
83,242
TOTAL
$
482,824
14,692
105,380
602,896
TOTAL
$
495,151
13,884
113,129
622,164
27. ECONOMIC DEPENDENCE
The Company is the holder of authorized dealerships granted by the CNH group of companies whereby it has the
right to act as an authorized dealer for Case equipment. The dealership authorizations and floor plan facilities can
be cancelled by the CNH group of companies if the Company does not observe certain established guidelines and
covenants, which is common for this industry.
112
ROCKY MOUNTAIN DEALERSHIPS | ANNUAL REPORT | 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSYEARS ENDED DECEMBER 31, 2013 AND 2012EXPRESSED IN THOUSANDS OF CANADIAN DOLLARS EXCEPT PER SHARE AND PER OPTION AMOUNTS 113
CORPORATE
INFORMATION
113
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ROCKY MOUNTAIN DEALERSHIPS | ANNUAL REPORT | 2013
CORPORATE INFORMATION
DIRECTORS
Matthew C. Campbell
Calgary, Alberta
Derek I. Stimson
Coaldale, Alberta
Paul S. Walters (1)(2)(3)
Toronto, Ontario
Robert K. Mackay (2)
Vancouver, British Columbia
Patrick J. Priestner (1) (2)
Edmonton, Alberta
Dennis J. Hoffman (1) (2)
Calgary, Alberta
(1) Audit Committee Member
(2) Compensation, Governance and Nominating Committee Member
(3) Lead Independent Director
HEAD OFFICE
#301, 3345 8th Street S.E.
Calgary, Alberta T2G 3A4
Tel: (403) 265-7364
Fax: (403) 214-5644
www.rockymtn.com
OFFICERS
Matthew C. Campbell
Chief Executive Officer
Derek I. Stimson
President
Garrett A.W. Ganden
Chief Operating Officer
David J. Ascott
Chief Financial Officer
Jerald D. Palmer Jr.
General Counsel & Corporate Secretary
Auditor
PricewaterhouseCoopers LLP
Calgary, Alberta
External Legal Counsel
Dentons Canada LLP
Calgary, Alberta
Banker
HSBC Bank Canada
Stock Exchange Listing
Toronto Stock Exchange
Symbol: RME (RCKXF on the OTCQX)
Transfer Agent
Olympia Trust Company
Calgary, Alberta
113
Annual Report | 2013 Design by: Kristin Knudson, B.Des.; RME Marketing
Annual Report | 2013 Layout by: AdFarm
ALBERTA
BALZAC
BARRHEAD
BOW ISLAND
CALGARY
CAMROSE
DRUMHELLER
EDMONTON
EDMONTON
FALHER
GRANDE PRAIRIE
GRIMSHAW
HIGH RIVER
KILLAM
LETHBRIDGE
MEDICINE HAT
MILK RIVER
OYEN
PICTURE BUTTE
RED DEER
RED DEER
TABER
VEGREVILLE
VERMILION
WESTLOCK
WESTLOCK
CASE IH
NEW HOLLAND
CASE IH
CASE CE
CASE IH | NEW HOLLAND
CASE IH | KUBOTA
CASE CE
METSO
CASE IH
CASE IH | CASE CE
CASE IH | NEW HOLLAND
CASE IH
CASE IH
CASE IH | CASE CE
CASE IH | CASE CE
CASE IH | KUBOTA
CASE IH
CASE IH
CASE CE
NEW HOLLAND
CASE IH | CASE CE
CASE IH
CASE IH | KUBOTA
CASE IH | KUBOTA
NEW HOLLAND
SASKATCHEWAN
KINDERSLEY
MOOSOMIN
PREECEVILLE
YORKTON
CASE IH
CASE IH | KUBOTA
CASE IH
CASE IH
MANITOBA
BOISSEVAIN
BRANDON
DAUPHIN
KILLARNEY
NEEPAWA
RUSSELL
SHOAL LAKE
SHOAL LAKE ALLIED
WINKLER
CASE IH
CASE IH | KUBOTA
CASE IH | KUBOTA
CASE IH
CASE IH
CASE IH | KUBOTA
CASE IH
KUBOTA
CASE IH
Branch locations as of April 1st, 2014