Exhibit
99.1
FINANCIAL STATEMENTS
Report of Independent Auditors
To Trevor Keys and Jolene Keys
We have audited the accompanying carve-out combined
financial statements of Equipment & Plant Services Limited, Equipment & Plant Services Holdings Limited and Equipment & Plant
Services No.1 Limited (collectively referred to as Equipment & Plant Services Pillar), which comprise the carve-out combined balance
sheet as of December 31, 2020, and the related carve-out combined income statement, and statements of comprehensive income, of changes
in net parent investment and of cashflows for the year then ended.
Management's Responsibility for the Carve-out Combined
Financial Statements
Management is responsible for the preparation and
fair presentation of the carve-out combined financial statements in accordance with accounting principles generally accepted in the United
Statesof America; this includes the design, implementation, and maintenance of internal control relevant tothe preparation and fair presentation
of carve-out combined financial statements that are free from material misstatement, whether due to fraud or error.
Auditors’ Responsibility
Our responsibility is to express an opinion on the
carve-out combined financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted
in theUnited States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether
the carve-out combined financial statements are free from material misstatement.
An audit involves performing procedures to obtain
audit evidence about the amounts and disclosures in the carve-out combined financial statements. The procedures selected depend on our
judgment, including the assessment of the risks of material misstatement of the carve-out combined financial statements, whether due to
fraud or error. In making those risk assessments, we consider internal control relevant to the Equipment & Plant Services Pillar's
preparation and fair presentation of the carve-out combined financial statements in order to design audit procedures that are appropriate
in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Equipment & Plant Services Pillar's
internal control.
Accordingly, we express no such opinion. An audit also
includes evaluating the appropriateness of accounting policies used and the reasonablenessof significant accounting estimates made by
management, as well as evaluating the overall presentation of the carve-out combined financial statements. We believe that the audit evidence
we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the carve-out combined financial statements
referred to above present fairly, in all material respects, the financial position of Equipment & Plant Services Pillar as of December
31, 2020,and the results of their operations and their cash flows for the years then ended in accordance with accounting principles generally
accepted in the United States of America.
| Equipment & Plant Services Pillar | 1 |
Report of Independent Auditors
(continued)
Restriction of Use
This report, including the opinion, has been prepared
for and only for Trevor Keys and Jolene Keys in accordance with our engagement letter dated November 5, 2021 and for no other purpose.
We do not, in giving this opinion, accept or assume responsibility for any other purpose or to any other person towhom this report is
shown or into whose hands it may come, including without limitation under any contractual obligations of the company, save where expressly
agreed by our prior consent in writing.
/s/ PricewaterhouseCoopers LLP
Belfast
United Kingdom
November 9, 2021
| Equipment & Plant Services Pillar | 2 |
Carve-out Combined Income Statement
(Expressed in thousands of United States dollars)
| Year ended December 31, | |
2020 | |
| Revenue: | |
| |
| Inventory sales revenue | |
$ | 32,790 | |
| Total revenue | |
| 32,790 | |
| Operating expenses: | |
| | |
| Cost of inventory sold | |
| 28,249 | |
| Selling, general and administrative expenses | |
| 927 | |
| Foreign exchange gain | |
| (161 | ) |
| Total operating expenses | |
| 29,015 | |
| Operating income | |
| 3,775 | |
| | |
| | |
| Other income, net | |
| 176 | |
| Income before income taxes | |
| 3,951 | |
| | |
| | |
| Income tax expense: | |
| | |
| Current income tax | |
| 751 | |
| Net income | |
$ | 3,200 | |
See accompanying notes to the carve-out combined financial
statements.
| Equipment & Plant Services Pillar | 3 |
Carve-out Combined Statement of Comprehensive Income
(Expressed in thousands of United States dollars)
| Year ended December 31, | |
2020 | |
| Net income | |
$ | 3,200 | |
| Other comprehensive income, net of income tax: | |
| | |
| Foreign currency translation adjustment | |
| 703 | |
| Total comprehensive income | |
$ | 3,903 | |
See accompanying notes to the carve-out combined financial
statements.
| Equipment & Plant Services Pillar | 4 |
Carve-out Combined Balance Sheet
(Expressed in thousands of United States dollars)
| As at December 31, | |
2020 | |
| Assets | |
| | |
| | |
| | |
| Cash and cash equivalents | |
$ | 8,679 | |
| Trade and other receivables | |
| 709 | |
| Less: allowance for credit losses | |
| - | |
| Trade and other receivables, net | |
| 709 | |
| Amounts owed by related parties | |
| 9,803 | |
| Inventory | |
| 3,599 | |
| Total current assets | |
| 22,790 | |
| | |
| | |
| Total assets | |
$ | 22,790 | |
| | |
| | |
| Liabilities and Net Parent Investment | |
| | |
| | |
| | |
| Trade and other payables | |
$ | 441 | |
| Short term debt | |
| 772 | |
| Income taxes payable | |
| 170 | |
| Total current liabilities | |
| 1,383 | |
| | |
| | |
| Commitments and Contingencies (Note 14 and 15 respectively) | |
| - | |
| | |
| | |
| Net parent investment | |
| 20,704 | |
| Accumulated other comprehensive income | |
| 703 | |
| Total net parent investment | |
| 21,407 | |
| Total liabilities and net parent investment | |
$ | 22,790 | |
See accompanying notes to the carve-out combined financial
statements.
| Equipment & Plant Services Pillar | 5 |
Carve-out Combined Statement of Changes in Net Parent Investment
(Expressed in thousands of United States dollars)
| | |
Net Parent
Investment | | |
Accumulated other
comprehensive
income | | |
Total Net
Parent
Investment | |
| Balance, January 1, 2020 | |
$ | 17,504 | | |
$ | - | | |
$ | 17,504 | |
| Net income | |
| 3,200 | | |
| - | | |
| 3,200 | |
| Other comprehensive income | |
| - | | |
| 703 | | |
| 703 | |
| | |
| | | |
| | | |
| | |
| Balance, December 31, 2020 | |
$ | 20,704 | | |
$ | 703 | | |
$ | 21,407 | |
See accompanying notes to the carve-out combined financial
statements.
| Equipment & Plant Services Pillar | 6 |
Carve-out Combined Statement of Cash Flows
(Expressed in thousands of United States dollars)
| Year ended December 31, | |
2020 | |
| Cash provided by/(used in): | |
| | |
| Operating activities: | |
| | |
| Net income | |
$ | 3,200 | |
| Adjustments for items not affecting cash: | |
| | |
| Net changes in operating assets and liabilities | |
| 3,835 | |
| Net cash provided by operating activities | |
| 7,035 | |
| Investing activities: | |
| | |
| Advances made to related parties | |
| (648 | ) |
| Net cash used in investing activities | |
| (648 | ) |
| Financing activities: | |
| | |
| Repayment of short term debt | |
| (99 | ) |
| Net cash used in financing activities | |
| (99 | ) |
| Effect of changes in foreign currency rates on cash and cash equivalents | |
| 427 | |
| Increase | |
| 6,715 | |
| Beginning of year | |
| 1,964 | |
| Cash and cash equivalents, end of year | |
$ | 8,679 | |
See accompanying notes to the carve-out combined financial
statements.
| Equipment & Plant Services Pillar | 7 |
Notes to the Carve-out Combined financial statements
(Tabular amounts expressed in thousands of United States dollars,
except where noted)
| 1. | Nature
of Operations and Basis of Presentation |
The Equipment & Plant Services Pillar (hereinafter
collectively referred to as the “Pillar”, “we”, “our”) operates principally in the sale of plant and
machinery and is wholly owned by individuals, Trevor Keys and Jolene Keys. A discussion of the relationship with the owner is included
in (Note 16 - “Related Party Transactions”).
The accompanying carve-out combined financial statements
present the historical carve-out combined balance sheet as of December 31, 2020, carve-out combined income statement, carve-out combined
statement of comprehensive income, carve-out combined statement of changes in net parent investment, and carve-out combined statement
of cash flows of the Pillar for the period then ended which reflect the combined activities of the companies detailed below:
| — | Equipment & Plant Services No.1 Limited (for the period from 1 January 2020 to 30 June 2020) (NI046558); |
| — | Equipment & Plant Services Holdings Limited (for the period from 1 July 2020 to 9 September 2020) (NI666356); and |
| — | Equipment & Plant Services Limited (for the period from 9 September 2020 to 31 December 2020) (NI666354) |
In the year the Pillar activities were carried out
in the entities included above. Non-Pillar activities (Property related) in Equipment & Plant Services No.1 Limited are excluded.
The pillar’s cost base includes all relevant
costs pertaining to its operations, as they were historically managed, and therefore in compiling these carve-out combined financial statements,
no additional costs have been allocated to the Pillar.
The pillar has not historically prepared stand-alone
financial statements. These carve-out combined financial statements as of December 31, 2020 have been prepared on a stand-alone basis
derived from the financial statements and related accounting records of each of the companies listed above. The accompanying carve-out
combined financial statements were prepared in order to comply with a condition in the Share Purchase Agreement (“SPA”), executed
on August 9, 2021, to dispose of the Equipment & Plant Services Pillar to Ritchie Bros. Auctioneers Incorporated. As stipulated by
the SPA the accompanying carve-out combined financial statements were prepared for the purpose of providing Ritchie Bros. Auctioneers
Incorporated with historical financial information of the Pillar. They reflect the results of operations, financial position, and cash
flows of the Pillar as they were historically managed and are presented in conformity with accounting principles generally accepted in
the United States (“U.S. GAAP”). Accordingly, these financial statements have been prepared on a combined basis and Parent’s
net investment in these operations is shown in lieu of stockholder’s equity. All intracompany and transactions within the Pillar
have been eliminated in the carve-out combined financial statements.
These carve-out combined financial statements have
been prepared based on the U.S. GAAP applied standards effective for 2020. The Pillar has voluntarily early adopted ASC 842 Leases
and ASC 326 Measurement of Credit Losses on Financial Instruments in these carve-out combined financial statements.
Net parent investment represents
the owner’s historical investment in the Pillar and includes accumulated net earnings attributable to the owners (Trevor Keys and
Jolene Keys), intercompany transactions and direct capital contributions, as adjusted for direct cash investments in the Pillar.
| Equipment & Plant Services Pillar | 8 |
Notes to the Carve-out Combined financial statements
(Tabular amounts expressed in thousands of United States dollars,
except where noted)
| 2. | Significant
accounting policies |
Revenues are comprised of:
Inventory sales revenue
The Pillar recognizes revenue
when control of the promised goods is transferred to our customers when the sales invoice is raised, or upon completion of the performance
obligation, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods. A performance obligation
is a promise in a contract to transfer a distinct good, or a series of distinct goods, to the customer. A contract’s transaction
price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied.
Revenue is measured at the fair value of the consideration
received or receivable and is shown net of value-added tax and duties.
| (b) | Cost
of inventory sold |
Cost of inventory sold includes the purchase price of assets
sold including any related transport and repair costs.
| (c) | Fair
value measurement |
Fair value is the exit price that would be received
to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The Pillar
measures financial instruments or discloses select non-financial assets at fair value at each balance sheet date. Also, fair values of
financial instruments measured at amortized cost are disclosed in note 9.
The Pillar uses valuation techniques that are appropriate
in the circumstances and for which sufficient data is available to measure fair value, maximizing the use of relevant observable inputs
and minimizing the use of unobservable inputs.
All assets and liabilities for which fair value is
measured or disclosed in the financial statements at fair value are categorized within a fair value hierarchy, as disclosed in note 9,
based on the lowest level input that is significant to the fair value measurement or disclosure. This fair value hierarchy gives the highest
priority to quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs
(Level 3).
For assets and liabilities that are recognized in
the financial statements at fair value on a recurring basis, the Pillar determines whether transfers have occurred between levels in the
hierarchy by re-assessing categorization at the end of each reporting period.
For the purposes of fair value disclosures, the Pillar
has determined classes of assets and liabilities on the basis of the nature, characteristics and risks of the assets or liability and
the level of the fair value hierarchy as explained above.
| (d) | Foreign
currency translation |
The presentation currency of the carve-out combined
financial statements is the United States dollar. The functional currency of the pillar is pound sterling.
Accordingly, the financial
statements of the components of these carve-out combined financial statements that are not denominated in United States dollars have been
translated into United States dollars using the exchange rate at the end of each reporting period for asset and liability amounts and
the annual average exchange rate for amounts included in the determination of earnings. Any gains or losses from the translation of asset
and liability amounts are included in foreign currency translation adjustment in accumulated other comprehensive income. In preparing
the financial statements of the individual components, transactions in currencies other than the entity’s functional currency are
recognized at the rates of exchange prevailing at the dates of the transaction. At the end of each reporting period, monetary assets and
liabilities denominated in foreign currencies are retranslated at the rates prevailing at that date. Foreign currency differences arising
on retranslation of monetary items are recognized in earnings.
| Equipment & Plant Services Pillar | 9 |
Notes to the Carve-out Combined financial statements
(Tabular amounts expressed in thousands of United States dollars,
except where noted)
| 2. | Significant
accounting policies (continued) |
| (e) | Cash and cash equivalents |
Cash and cash equivalents are comprised of cash on
hand, deposits with financial institutions, and other short-term, highly liquid investments with original maturity of three months or
less when acquired, that are readily convertible to known amounts of cash.
| (f) | Trade
and other receivables |
Trade receivables principally
include amounts due from customers. The allowance for credit losses is the Pillar’s best estimate of the amount of probable credit
losses in existing accounts receivable. The Pillar determines the allowance based on historical write-off experience, customer economic
data and reasonable and supportable forecasts of future economic conditions. The Pillar reviews the allowance for credit losses regularly
and past due balances are reviewed for collectability. Account balances are charged against the allowance when the Pillar believes that
the receivable will not be recovered.
Inventory consists of equipment and other assets purchased
for resale. Inventory is valued at the lower of cost and net realizable value where net realizable value represents the expected sale
price upon disposition less make-ready costs and the costs of disposal and transportation. The significant elements of cost include the
acquisition price, in-bound transportation costs of the inventory, and make- ready costs to prepare the inventory for sale that are not
selling expenses. Write-downs to the carrying value of inventory are recorded in cost of inventory sold on the combined income statement.
Income tax expense represents the sum of current tax expense
and deferred tax expense.
Current tax
The current tax expense is
based on taxable profit for the period and includes any adjustments to tax payable in respect of previous periods. Taxable profit differs
from income before income taxes as reported in the combined income statement because it excludes (i) items of income or expense that are
taxable or deductible in other periods and (ii) items that are never taxable or deductible. The Pillar’s liability for current tax
is calculated using tax rates that have been enacted by the balance sheet date.
Deferred tax
Income taxes are accounted for using the asset and
liability method. Deferred income tax assets and liabilities are based on temporary differences, which are differences between the accounting
basis and the tax basis of the assets and liabilities, and non-capital loss, capital loss, and tax credits carryforwards are measured
using the enacted tax rates and laws expected to apply when these differences reverse. Deferred tax benefits, including non-capital loss,
capital loss, and tax credits carryforwards, are recognized to the extent that realization of such benefits is considered more likely
than not. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in earnings in the period that enactment
occurs. When realization of deferred income tax assets does not meet the more- likely-than-not criterion for recognition, a valuation
allowance is provided.
Interest and penalties related to income taxes, including
unrecognized tax benefits, are recorded in income tax expense in the income statement.
Liabilities for uncertain tax positions are recorded
based on a two-step process. The first step is to evaluate the tax position for recognition by determining if the weight of available
evidence indicates that it is more likely than not that the position will be sustained on audit, including resolution of related appeals
or litigation processes, if any. The second step is to measure the tax benefit as the largest amount that is more than 50% likely to be
realized upon settlement. The Pillar regularly assesses the potential outcomes of examinations by tax authorities in determining the adequacy
of its provision for income taxes. The Pillar continually assesses the likelihood and amount of potential adjustments and adjusts the
income tax provision, income taxes payable, and deferred taxes in the period in which the facts that give rise to a revision become known.
| Equipment & Plant Services Pillar | 10 |
Notes to the Carve-out Combined financial statements
(Tabular amounts expressed in thousands of United States dollars,
except where noted)
| 2. | Significant
accounting policies (continued) |
| (i) | Defined contribution plans |
The Pillar operates a defined contribution scheme
for a specific director and employees. A defined contribution plan is a pension plan under which the Pillar pays fixed contributions to
a third party pension provider. Once the contributions have been paid the Pillar has no further payment obligations. The contributions
are recognized as an expense when they are due. Amounts not paid are show in accruals in the balance sheet.
Advertising costs are expensed as incurred. Advertising
expense is included in costs of services and selling, general and administrative (“SG&A”) expenses on the accompanying
combined income statements.
| (k) | Related
party transactions |
These carve-out combined financial statements disclose
transactions with related parties which are not wholly captured within the Equipment & Plant Services Pillar. Where appropriate, transactions
of a similar nature are aggregated unless, in the opinion of the director, separate disclosure is necessary to understand the effect of
the transactions on the carve-out combined financial statements.
Related party transactions are reflected in the carve-out
combined financial statements at the amounts payable to and received from the counterparty with no adjustments made to fair value, if
applicable.
| (l) | New
and amended accounting standards |
| a. | Effective January 1, 2020, the Pillar adopted ASU 2016-13, Financial Instruments – Credit Losses
(Topic 326), Measurement of Credit Losses on Financial Instruments. The new standard replaces the ‘incurred loss methodology’
credit impairment model with a new forward-looking “methodology that reflects expected credit losses and requires consideration
of a broader range of reasonable and supportable information to inform credit loss estimates.” In applying the new standard, the
Pillar has adopted the loss rate methodology to estimate historical losses on trade receivables. The historical data is adjusted to account
for forecasted changes in the macroeconomic environment in order to calculate the current expected credit loss. The Pillar’s adoption
of ASC 326 did not result in a material change in the carrying values of the Pillar’s financial assets on the transition date. |
| b. | In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848), Facilitation of the
Effects of Reference Rate Reform on Financial Reporting. The update provides “optional expedients and exceptions for applying generally
accepted accounting principles to contract modifications and hedging relationships, subject to meeting certain criteria, that reference
LIBOR or another reference rate expected to be discontinued.” The amendments are effective immediately and may be applied prospectively
to contract modifications made and hedging relationships entered into or evaluated on or before December 31, 2022. The Pillar’s
use of LIBOR is applicable on short-term drawings on the committed revolving credit facilities in certain jurisdictions. If applicable,
the Pillar will use the optional expedients available when reference rate changes occur. |
| Equipment & Plant Services Pillar | 11 |
Notes to the Carve-out Combined financial statements
(Tabular amounts expressed in thousands of United States dollars,
except where noted)
| 3. | Significant
judgments, estimates and assumptions |
The preparation of financial statements in conformity
with US GAAP requires management to make judgments, estimates and assumptions that affect the reported amounts of assets and liabilities
and the disclosure of contingent liabilities at the date of the financial statements, and the reported amounts of revenues and expenses
during the reporting period.
Future differences arising between actual results and
the judgments, estimates and assumptions made by the Pillar at the reporting date, or future changes to estimates and assumptions, could
necessitate adjustments to the underlying reported amounts of assets, liabilities, revenues and expenses in future reporting periods.
Judgments, estimates and underlying assumptions are
evaluated on an ongoing basis by management and are based on historical experience and other factors including expectations of future
events that are believed to be reasonable under the circumstances. However, existing circumstances and assumptions about future developments
may change due to market changes or circumstances and such changes are reflected in the assumptions when they occur. Significant items
subject to estimates include the determination of deferred income taxes, and other contingencies.
The Pillar’s revenue is as follows:
| Year ended December 31, | |
2020 | |
| Inventory sales revenue | |
$ | 32,790 | |
| | |
$ | 32,790 | |
The Pillar’s geographic information as determined by
its combined revenues are set out below:
| | |
United | | |
| | |
| | |
| | |
| |
| | |
Kingdom | | |
United States | | |
Europe | | |
Other | | |
Combined | |
| Total revenue for the year ended: | |
| | | |
| | | |
| | | |
| | | |
| | |
| December 31, 2020 | |
$ | 29,280 | | |
$ | 2,193 | | |
$ | 1,202 | | |
$ | 115 | | |
$ | 32,790 | |
SG&A expenses
| Year ended December 31, | |
2020 | |
| Employee compensation expenses | |
$ | 620 | |
| Buildings, facilities and technology expenses | |
| 54 | |
| Travel, advertising and promotion expenses | |
| 65 | |
| Professional fees | |
| 131 | |
| Other SG&A expenses | |
| 57 | |
| | |
$ | 927 | |
Included within employee compensation expenses are
defined contribution plan payments of $9k
Total advertising costs incurred for the year ended December 31, 2020 was Nil.
| Equipment & Plant Services Pillar | 12 |
Notes to the Carve-out Combined financial statements
(Tabular amounts expressed in thousands of United States dollars,
except where noted)
| Year ended December 31, | |
2020 | |
| Interest income | |
$ | 176 | |
| | |
$ | 176 | |
The expense for the period can be reconciled to income before
income taxes as follows:
| Year ended December 31, | |
2020 | |
| Earnings before income tax | |
$ | 3,951 | |
| Expected tax charge based on the standard rate of corporation tax in the UK | |
| 19 | % |
| Expected income tax expense | |
| 751 | |
| | |
| | |
| Non-deductible expenses | |
| - | |
| Unrecognized tax benefits | |
| - | |
| | |
$ | 751 | |
The income tax expense consists of:
| Year ended December 31, | |
2020 | |
| UK: | |
| |
| Current tax expense | |
$ | 751 | |
| Deferred tax expense | |
| - | |
| | |
$ | 751 | |
Income taxes payable as at December 31, 2020 were $170k.
As at December 31, 2020, the Pillar had no capital or non-capital
losses available for carryforward.
No deferred tax assets or liabilities have been recognized
by the Pillar as there are no significant temporary differences.
Uncertain tax positions
At December 31, 2020 the Pillar
had Nil gross unrecognized tax benefits. There was no movement in this position during the period. There were no interest or penalties
incurred by the Pillar relating to unrecognized tax benefits and no amount relating to the same has been accrued by the Pillar as at December
31, 2020.
| Equipment & Plant Services Pillar | 13 |
Notes to the Carve-out Combined financial statements
(Tabular amounts expressed in thousands of United States dollars,
except where noted)
| 8. | Supplemental
cash flow information |
| Year ended December 31, | |
2020 | |
| Trade and other receivables | |
$ | 334 | |
| Inventory | |
| 4,049 | |
| Income taxes receivable | |
| (403 | ) |
| Trade and other payables | |
| (145 | ) |
| Net changes in operating assets and liabilities | |
$ | 3,835 | |
| Year ended December 31, | |
2020 | |
| Interest received | |
$ | 176 | |
| Net income taxes paid | |
| 1,154 | |
All assets and liabilities for which fair value is
measured or disclosed in the carve-out combined financial statements are categorized within the fair value hierarchy, described as follows,
based on the lowest level input that is significant to the fair value measurement or disclosure:
| ● | Level 1: Unadjusted quoted prices in active markets for identical assets or liabilities that the entity
can access at measurement date; |
| ● | Level 2: Inputs other than quoted prices included in Level 1 that are observable for the asset or liability,
either directly or indirectly; and |
| ● | Level 3: Unobservable inputs for the asset or liability. |
| | |
| | |
December 31, 2020 | |
| | |
| | |
Carrying | | |
| |
| | |
Category | | |
amount | | |
Fair value | |
| Fair values disclosed: | |
| | | |
| | | |
| | |
| Cash and cash equivalents | |
| Level 1 | | |
$ | 8,679 | | |
$ | 8,679 | |
The carrying value of the Pillar’s cash and cash
equivalents, trade and other receivables, trade and other payables approximate their fair values due to their short terms to maturity.
| Equipment & Plant Services Pillar | 14 |
Notes to the Carve-out Combined financial statements
(Tabular amounts expressed in thousands of United States dollars,
except where noted)
| 10. | Trade
and other receivables |
| As at December 31, | |
2020 | |
| Trade receivables | |
$ | 173 | |
| Consumption taxes receivable | |
| 534 | |
| Other receivables | |
| 2 | |
| | |
$ | 709 | |
Trade receivables are generally secured by the equipment
that they relate to as it is Pillar policy that equipment is not released until payment has been collected. Trade receivables are due
for settlement within 3 to 21 days of the date of sale. At the period-end $121k of trade receivables were considered to be past due (see
ageing analysis below). Consumption taxes receivable are deemed fully recoverable unless disputed by the relevant tax authority. Other
receivables are unsecured and non-interest bearing. The allowance for expected credit losses at December 31, 2020 was Nil. There was no
movement in this provision during the period.
| Ageing analysis As at December 31, 2020 | |
|
Current | | |
|
0-30 days
overdue | | |
31-60 days
overdue | | |
61-90 days
overdue | | |
|
>90 days
overdue | |
| Trade receivables | |
$ | 52 | | |
| 1 | | |
| 104 | | |
| 16 | | |
| - | |
| | |
| | | |
| | | |
| | | |
| | | |
| | |
| | |
$ | 52 | | |
| 1 | | |
| 104 | | |
| 16 | | |
| - | |
At each period end, inventory is reviewed to ensure that it
is recorded at the lower of cost and net realizable value.
| As at December 31, | |
2020 | |
| Machinery for resale | |
$ | 3,599 | |
| | |
$ | 3,599 | |
No inventory write downs were recorded during the year ended
December 31, 2020.
| 12. | Trade and other payables |
| As at December 31, | |
2020 | |
| Trade payables | |
$ | 267 | |
| Accrued liabilities | |
| 160 | |
| Social security and sales taxes payable | |
| 14 | |
| | |
$ | 441 | |
| | |
December 31, | |
| | |
2020 | |
| Short-term debt-overdraft facilities | |
$ | 772 | |
Short-term debt
Short-term debt is comprised of drawings in different
currencies on the Pillar’s committed revolving credit facilities and has a weighted average interest rate of 2.85%.
| Equipment & Plant Services Pillar | 15 |
Notes to the Carve-out Combined financial statements
(Tabular amounts expressed in thousands of United States dollars,
except where noted)
The Pillar has no outstanding commitments as at the year-end
December 31, 2020.
Legal and other claims
The Pillar is subject to legal and other claims that
arise in the ordinary course of its business. Management does not believe that the results of these claims will have a material effect
on the Pillar’s combined balance sheet or combined income statement.
| 16. | Related
party transactions |
The Equipment & Plant Services Pillar’s related
parties are summarized and defined as follows:
Significant influence
Companies which are deemed to be related parties owing
to them being controlled by brothers of Mr Trevor Keys.
The following are deemed to be entities with significant influence:
| ● | Euro Auctions Pillar: the business controlled by Mr Derek Keys whose principal activity is in conducting
auction sales and valuations throughout the United Kingdom, mainland Europe, Australia, Dubai and the United States of America. |
| ● | Equipment Sales Pillar: the business controlled by Mr Lynden Keys whose principal activity is the sale of plant and machinery. |
| ● | Other: Brian Keys and Jonathan Keys are also deemed to be related parties as they are brothers of Mr Trevor Keys. |
| ● | Included in the Pillar are Director emoluments paid to Mr Trevor Keys in the period amounting to $71k. |
| Equipment & Plant Services Pillar | 16 |
Notes to the Carve-out Combined financial statements
(Tabular amounts expressed in thousands of United States dollars,
except where noted)
| 16. | Related
party transactions (continued) |
Common Control
| ● | Common control: Other companies owned by Trevor Keys outside of the transaction perimeter which do
not form part of the Equipment & Plant Services Pillar; Bayhead Trading Limited, Mattram Property Limited, Dumfries Plant Rentals
Limited and the Directors Current Account (“DCA”). |
The following transactions were conducted with related
entities by virtue of significant influence & common control:
| Year ended December 31, Transactions |
| |
2020 |
| Significant influence |
| | |
| Period-end December 31, transactions with entities with significant influence |
| $ | |
| Sales commission paid to Euro Auctions Pillar in the period* |
| | |
1,014 |
| Period-end December 31, Balance due from/(to) |
| $ | |
| Euro Auctions Pillar** |
| | |
170 |
| Lynden Keys** |
| | |
1,183 |
| Common control |
| | |
| Period-end December 31, Balances due from/(to) |
| $ | |
| Equipment & Plant Services No.1 Limited** |
| | |
388 |
| Bayhead Trading Limited** |
| | |
512 |
| Mattram Property Limited** |
| | |
6,005 |
| Dumfries Plant Rentals Limited** |
| | |
1,505 |
| DCA** |
| | |
40 |
*These balances are recorded in “cost of inventory sold”
in the combined income statement
**These balances are recorded in "Amounts owed by related
parties"" in the carve-out combined financial statements.
On August 9, 2021, Ritchie Bros. Auctioneers Incorporated
executed a sale and purchase agreement (SPA) to acquire the Equipment & Plant Services Pillar (as defined in note 1) from Trevor Keys
and Jolene Keys (the sole shareholders of the combined entities).
Subsequent events have been evaluated from the year ended
December 31, 2020 to November 8, 2021. The financial statements were issued on November 8, 2021.
| Equipment & Plant Services Pillar | 17 |
FINANCIAL STATEMENTS
Report of Independent Auditors
To Lynden Keys and Wendy Keys
We have audited the accompanying carve-out combined
financial statements of Equipment Sales Limited, Equipment Sales No. 2 Limited and Equipment Sales No.3 Limited (collectively referred
to as Equipment Sales Pillar), which comprise the carve-out combined balance sheet as of December 31, 2020, and the related carve-out
combined income statement, and statements of comprehensive income, of changes in net parent investment and of cash flows for the year
then ended.
Management's Responsibility for the Carve-out Combined
Financial Statements
Management is responsible for the preparation and fair
presentation of the carve-out combined financial statements in accordance with accounting principles generally accepted in the United
States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair
presentation of carve-out combined financial statements that are free from material misstatement, whether due to fraud or error.
Auditors’ Responsibility
Our responsibility is to express an opinion on the
carve-out combined financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether
the carve-out combined financial statements are free from material misstatement.
An audit involves performing procedures to obtain
audit evidence about the amounts and disclosures in the carve-out combined financial statements. The procedures selected depend on our
judgment, including the assessment of the risks of material misstatement of the carve-out combined financial statements, whether due to
fraud or error. In making those risk assessments, we consider internal control relevant to the Equipment Sales Pillar's preparation and
fair presentation of the carve-out combined financial statements in order to design audit procedures that are appropriate in the circumstances,
but not for the purpose of expressing an opinion on the effectiveness of the Equipment Sales Pillar's internal control. Accordingly, we
express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant
accounting estimates made by management, as well as evaluating the overall presentation of the carve-out combined financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the carve-out combined financial statements
referred to above present fairly, in all material respects, the financial position of Equipment Sales Pillar as of December 31, 2020,
and the results of their operations and their cash flows for the years then ended in accordance with accounting principles generally accepted
in the United States of America.
Report of Independent Auditors
(Continued)
Restriction of Use
This report, including the opinion, has been prepared
for and only for Lynden Keys and Wendy Keys in accordance with our engagement letter dated November 5, 2021 and for no other purpose.
We do not, in giving this opinion, accept or assume responsibility for any other purpose or to any other person to whom this report is
shown or into whose hands it may come, including without limitation under any contractual obligations of the company, save where expressly
agreed by our prior consent in writing.
/s/ PricewaterhouseCoopers LLP
Belfast
United Kingdom
November 9, 2021
Carve-out Combined Income Statement
(Expressed in thousands of United States dollars)
| Year ended December 31, | |
2020 | |
| Revenue: | |
| | |
| Inventory sales revenue | |
$ | 60,080 | |
| | |
| | |
| Total revenue | |
| 60,080 | |
| | |
| | |
| Operating expenses: | |
| | |
| Cost of inventory sold | |
| 52,054 | |
| Selling, general and administrative expenses | |
| 1,389 | |
| Depreciation and amortization expenses | |
| 13 | |
| Foreign exchange gain | |
| (141 | ) |
| Total operating expenses | |
| 53,315 | |
| Operating income | |
| 6,765 | |
| | |
| | |
| Interest expense | |
| 175 | |
| Income before income taxes | |
| 6,590 | |
| | |
| | |
| Income tax expense: | |
| | |
| Current income tax | |
| 1,252 | |
| Deferred income tax | |
| - | |
| | |
| 1,252 | |
| | |
| | |
| Net income | |
$ | 5,338 | |
See accompanying notes to the carve-out combined financial
statements.
Carve-out Combined Statement of Comprehensive Income
(Expressed in thousands of United States dollars)
| Year ended December 31, | |
2020 | |
| Net income | |
$ | 5,338 | |
| Other comprehensive income, net of income tax: | |
| | |
| Foreign currency translation adjustment | |
| 778 | |
| Total comprehensive income | |
$ | 6,116 | |
See accompanying notes to the carve-out combined financial
statements.
Carve-out Combined Balance Sheet
(Expressed in thousands of United States dollars)
| As at December 31, | |
2020 | |
| Assets | |
| |
| | |
| |
| Cash and cash equivalents | |
$ | 12,754 | |
| Trade and other receivables | |
| 111 | |
| Less: allowance for credit losses | |
| - | |
| Trade and other receivables, net | |
| 111 | |
| Amounts owed by related parties | |
| 8,581 | |
| Inventory | |
| 2,446 | |
| Other current assets | |
| 171 | |
| Total current assets | |
| 24,063 | |
| | |
| | |
| Property, plant and equipment, net | |
| 209 | |
| Total non-current assets | |
| 209 | |
| Total assets | |
$ | 24,272 | |
| Liabilities and Net Parent Investment | |
| | |
| Trade and other payables | |
$ | 959 | |
| Amounts owed to related parties | |
| 580 | |
| Income taxes payable | |
| 604 | |
| Total current liabilities | |
| 2,143 | |
| | |
| | |
| Deferred tax liabilities | |
| 40 | |
| Total liabilities | |
| 2,183 | |
| | |
| | |
| Commitments and Contingencies (Note 14 and 15 respectively) | |
| - | |
| | |
| | |
| Net parent investment | |
| 21,311 | |
| Accumulated other comprehensive income | |
| 778 | |
| Total net parent investment | |
| 22,089 | |
| Total liabilities and net parent investment | |
$ | 24,272 | |
See accompanying notes to the carve-out combined financial
statements.
Carve-out Combined Statement of Changes in Net Parent Investment
(Expressed in thousands of United States dollars)
| | |
Net Parent
Investment | | |
Accumulated Other
Comprehensive
Income | | |
Total Net
Parent
Investment | |
| Balance, January 1, 2020 | |
$ | 15,973 | | |
$ | - | | |
$ | 15,973 | |
| Net income | |
| 5,338 | | |
| - | | |
| 5,338 | |
| Other comprehensive income | |
| - | | |
| 778 | | |
| 778 | |
| Balance, December 31, 2020 | |
$ | 21,311 | | |
$ | 778 | | |
$ | 22,089 | |
See accompanying notes to the carve-out combined financial
statements.
Carve-out Combined Statement of Cash Flows
(Expressed in thousands of United States dollars)
| Year ended December 31, | |
2020 | |
| Cash provided by/(used in): | |
| | |
| Operating activities: | |
| | |
| Net income | |
$ | 5,338 | |
| Adjustments for items not affecting cash: | |
| | |
| Depreciation and amortization expenses | |
| 13 | |
| Other, net | |
| (81 | ) |
| Net changes in operating assets and liabilities | |
| 6,657 | |
| Net cash provided by operating activities | |
| 11,927 | |
| Investing activities: | |
| | |
| Receipts from related parties | |
| 2,304 | |
| Net cash from investing activities | |
| 2,304 | |
| Financing activities: | |
| | |
| Repayment of short-term debt | |
| (3,154 | ) |
| Net cash used in financing activities | |
| (3,154 | ) |
| Effect of changes in foreign currency rates on cash and cash equivalents | |
| 517 | |
| Increase | |
| 11,594 | |
| Beginning of year | |
| 1,160 | |
| Cash and cash equivalents, end of year | |
$ | 12,754 | |
See accompanying notes to the carve-out combined financial
statements.
Notes to the Carve-out Combined Financial Statements
(Tabular amounts expressed in thousands of United States dollars, except
where noted)
| 1. | Nature of Operations and Basis of Presentation |
The Equipment Sales Pillar (hereinafter collectively
referred to as the “Pillar”, “we”, “our”) operates principally in the sale of plant and machinery
and is wholly controlled by individuals, Lynden Keys and Wendy Keys. A discussion of the relationship with the owner, including a description
of the costs allocated to the Pillar, is included in (Note 16 - “Related Party Transactions”).
The accompanying carve-out combined
financial statements present the historical carve-out combined balance sheet as of December 31, 2020, carve-out combined income statement,
carve-out combined statement of comprehensive income, carve-out combined statements of changes net parent investment, and carve-out combined
statement of cash flows of the Pillar for the year then ended which reflect the combined activities of the companies detailed below:
| — | Equipment Sales Limited (for the period from 1 July 2020 to 31 December 2020) (NI668774) |
| — | Equipment Sales No.2 Limited (for the period from 1 June 2020 to 30 June 2020) (NI666146); and |
| — | Equipment Sales No.3 Limited (for the period from 1 January 2020 to 31 May 2020) (NI042032) |
In the period the Pillar activities were carried out
in the entities included above. Non-Pillar activities (property related) in Equipment Sales No. 3 Limited are excluded.
The pillar’s cost base includes all relevant costs
pertaining to its operations, as they were historically managed, and therefore in compiling these carve out financial statements, no additional
costs have been allocated to the Pillar.
The pillar has not historically prepared stand-alone
financial statements. These carve-out combined financial statements as of December 31, 2020 have been prepared on a stand-alone basis
derived from the financial statements and related accounting records of each of the companies listed above. The accompanying carve-out
combined financial statements were prepared in order to comply with a condition in the Share Purchase Agreement (“SPA”), executed
on August 9, 2021, to dispose of the Equipment Sales Pillar to Ritchie Bros. Auctioneers Incorporated. As stipulated by the SPA the accompanying
carve-out combined financial statements were prepared for the purpose of providing Ritchie Bros. Auctioneers Incorporated with historical
financial information of the Pillar. They reflect the results of operations, financial position, and cash flows of the Pillar as they
were historically managed and are presented in conformity with accounting principles generally accepted in the United States (“U.S.
GAAP”). Accordingly, these financial statements have been prepared on a carve-out combined basis and Parent’s net investment
in these operations is shown in lieu of stockholder’s equity. All intracompany and transactions within the Pillar have been eliminated
in the carve-out combined financial statements.
These carve-out combined financial statements have
been prepared based on the U.S. GAAP applied standards effective for 2020. The Pillar has voluntarily early adopted ASC 842 Leases
and ASC 326 Measurement of Credit Losses on Financial Instruments in these carve-out combined financial statements.
Net parent investment represents the owners’
historical investment in the Pillar and includes accumulated net earnings attributable to the owners (Lynden and Wendy Keys), intercompany
transactions and direct capital contributions, as adjusted for direct cash investments in the Pillar.
Notes to the Carve-out Combined Financial Statements
(Tabular amounts expressed in thousands of United States dollars, except
where noted)
| 2. | Significant accounting policies |
Revenues are comprised of:
The Pillar recognizes revenue
when control of the promised goods is transferred to our customers when the sales invoice is raised, or upon completion of the performance
obligation, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods. A performance obligation
is a promise in a contract to transfer a distinct good, or a series of distinct goods, to the customer. A contract’s transaction
price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied.
Revenue is measured at the fair value of the consideration received or receivable and is shown net of value-added tax and duties.
| (b) | Cost of inventory sold |
Cost of inventory sold includes the purchase price of assets
sold including any related transport and repair costs.
| (c) | Fair value measurement |
Fair value is the exit price that would be received
to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The Pillar
measures financial instruments or discloses select non-financial assets at fair value at each balance sheet date. Also, fair values of
financial instruments measured at amortized cost are disclosed in note 8.
The Pillar uses valuation techniques that are appropriate
in the circumstances and for which sufficient data is available to measure fair value, maximizing the use of relevant observable inputs
and minimizing the use of unobservable inputs.
All assets and liabilities for which fair value is measured
or disclosed in the financial statements at fair value are categorized within a fair value hierarchy, as disclosed in note 8, based on
the lowest level input that is significant to the fair value measurement or disclosure. This fair value hierarchy gives the highest priority
to quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level
3).
For assets and liabilities that are recognized in the
financial statements at fair value on a recurring basis, the Pillar determines whether transfers have occurred between levels in the hierarchy
by re-assessing categorization at the end of each reporting period.
For the purposes of fair value disclosures, the Pillar
has determined classes of assets and liabilities on the basis of the nature, characteristics and risks of the assets or liability and
the level of the fair value hierarchy as explained above.
| (d) | Foreign currency translation |
The presentation currency of the carve-out combined financial
statements is the United States dollar. The functional currency of the pillar is pound sterling. Accordingly, the financial statements
of the components of these carve-out combined financial statements that are not denominated in United States dollars have been translated
into United States dollars using the exchange rate at the end of each reporting period for asset and liability amounts and the annual
average exchange rate for amounts included in the determination of earnings. Any gains or losses from the translation of asset and liability
amounts are included in foreign currency translation adjustment in accumulated other comprehensive income. In preparing the financial
statements of the individual components, transactions in currencies other than the entity’s functional currency are recognized at
the rates of exchange prevailing at the dates of the transaction.
At the end of each reporting period, monetary assets
and liabilities denominated in foreign currencies are retranslated at the rates prevailing at that date. Foreign currency differences
arising on retranslation of monetary items are recognized in earnings.
Notes to the Carve-out Combined Financial Statements
(Tabular amounts expressed in thousands of United States dollars, except
where noted)
| 2. | Significant accounting policies (continued) |
| (e) | Cash and cash equivalents |
Cash and cash equivalents are comprised of cash on
hand, deposits with financial institutions, and other short-term, highly liquid investments with original maturity of three months or
less when acquired, that are readily convertible to known amounts of cash.
| (f) | Trade and other receivables |
Trade receivables principally include amounts due
from customers. The allowance for credit losses is the Pillar’s best estimate of the amount of probable credit losses in existing
accounts receivable. The Pillar determines the allowance based on historical write-off experience, customer economic data and reasonable
and supportable forecasts of future economic conditions. The Pillar reviews the allowance for credit losses regularly and past due balances
are reviewed for collectability. Account balances are charged against the allowance when the Pillar believes that the receivable will
not be recovered.
Inventory consists of equipment and other assets purchased
for resale. Inventory is valued at the lower of cost and net realizable value where net realizable value represents the expected sale
price upon disposition less make-ready costs and the costs of disposal and transportation. The significant elements of cost include the
acquisition price, in-bound transportation costs of the inventory, and make- ready costs to prepare the inventory for sale that are not
selling expenses. Write-downs to the carrying value of inventory are recorded in cost of inventory sold on the combined income statement.
| (h) | Property, plant and equipment |
All property, plant and equipment are stated at cost
less accumulated depreciation. Cost includes all expenditures that are directly attributable to the acquisition or development of the
asset, net of any amounts received in relation to those assets, including scientific research and experimental development tax credits.
All repairs and maintenance costs are charged to earnings
during the financial period in which they are incurred. Gains and losses on disposal of an item of property, plant and equipment are determined
by comparing the proceeds from disposal with the carrying amount of the item and are recognized net within operating income on the income
statement.
Depreciation is provided to charge the cost of the assets
to operations over their estimated useful lives based on their usage as follows:
| Asset | |
Basis | |
Rate / term | |
| Plant and machinery | |
Declining balance | |
| 15 | % |
| Motor vehicles | |
Declining balance | |
| 15 | % |
Depreciation of property, plant and equipment is recorded
in depreciation expense.
| (i) | Impairment of long-lived assets |
Long-lived assets, comprised of property, plant and
equipment, are assessed for impairment whenever events or circumstances indicate that their carrying value may not be recoverable. For
the purpose of impairment testing, long-lived assets are grouped and tested for recoverability at the lowest level that generates independent
cash flows. An impairment loss is recognized when the carrying value of the assets or asset groups is greater than the future projected
undiscounted cash flows. The impairment loss is calculated as the excess of the carrying value over the fair value of the asset or asset
group. Fair value is based on valuation techniques or third party appraisals. Significant estimates and judgments are applied in determining
these cash flows and fair values.
Notes to the Carve-out Combined Financial Statements
(Tabular amounts expressed in thousands of United States dollars, except
where noted)
| 2. | Significant accounting policies (continued) |
Income tax expense represents the sum of current tax expense
and deferred tax expense.
Current tax
The current tax expense is based on taxable profit
for the period and includes any adjustments to tax payable in respect of previous periods. Taxable profit differs from income before income
taxes as reported in the combined income statement because it excludes (i) items of income or expense that are taxable or deductible in
other periods and (ii) items that are never taxable or deductible. The Pillar’s liability for current tax is calculated using tax
rates that have been enacted by the balance sheet date.
Deferred tax
Income taxes are accounted for using the asset and
liability method. Deferred income tax assets and liabilities are based on temporary differences, which are differences between the accounting
basis and the tax basis of the assets and liabilities, and non-capital loss, capital loss, and tax credits carryforwards are measured
using the enacted tax rates and laws expected to apply when these differences reverse. Deferred tax benefits, including non-capital loss,
capital loss, and tax credits carryforwards, are recognized to the extent that realization of such benefits is considered more likely
than not. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in earnings in the period that enactment
occurs. When realization of deferred income tax assets does not meet the more- likely-than-not criterion for recognition, a valuation
allowance is provided.
Interest and penalties related to income taxes, including
unrecognized tax benefits, are recorded in income tax expense in the income statement.
Liabilities for uncertain tax positions are recorded
based on a two-step process. The first step is to evaluate the tax position for recognition by determining if the weight of available
evidence indicates that it is more likely than not that the position will be sustained on audit, including resolution of related appeals
or litigation processes, if any. The second step is to measure the tax benefit as the largest amount that is more than 50% likely of being
realized upon settlement. The Pillar regularly assesses the potential outcomes of examinations by tax authorities in determining the adequacy
of its provision for income taxes. The Pillar continually assesses the likelihood and amount of potential adjustments and adjusts the
income tax provision, income taxes payable, and deferred taxes in the period in which the facts that give rise to a revision become known.
| (k) | Defined contribution plans |
The Pillar operates a defined contribution scheme
for a specific director and employees. A defined contribution plan is a pension plan under which the Pillar pays fixed contributions to
a third party pension provider. Once the contributions have been paid the Pillar has no further payment obligations. The contributions
are recognized as an expense when they are due. Amounts not paid are shown in accruals in the balance sheet.
Advertising costs are expensed as incurred. Advertising
expense is included in costs of services and selling, general and administrative (“SG&A”) expenses on the accompanying
income statements.
| (m) | Related party transactions |
These carve-out combined financial
statements disclose transactions with related parties which are not wholly captured within the Equipment Sales Pillar. Where appropriate,
transactions of a similar nature are aggregated unless, in the opinion of the director, separate disclosure is necessary to understand
the effect of the transactions on the carve-out combined financial statements.
Related party transactions
are reflected in the carve-out financial statements at the amounts payable to and received from the counterparty with no adjustments made
to fair value, if applicable.
Notes to the Carve-out Combined Financial Statements
(Tabular amounts expressed in thousands of United States dollars, except
where noted)
| 2. | Significant accounting policies (continued) |
| (n) | New and amended accounting standards |
Effective January 1, 2020, the Pillar adopted ASU
2016-13, Financial Instruments – Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments. The new standard
replaces the ‘incurred loss methodology’ credit impairment model with a new forward-looking “methodology that reflects
expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates.”
In applying the new standard, the Pillar has adopted the loss rate methodology to estimate historical losses on trade receivables. The
historical data is adjusted to account for forecasted changes in the macroeconomic environment in order to calculate the current expected
credit loss. The Pillar’s adoption of ASC 326 did not result in a material change in the carrying values of the Pillar’s financial
assets on the transition date.
| 3. | Significant judgments, estimates and assumptions |
The preparation of financial statements in conformity
with US GAAP requires management to make judgments, estimates and assumptions that affect the reported amounts of assets and liabilities
and the disclosure of contingent liabilities at the date of the financial statements, and the reported amounts of revenues and expenses
during the reporting period.
Future differences arising between actual results
and the judgments, estimates and assumptions made by the Pillar at the reporting date, or future changes to estimates and assumptions,
could necessitate adjustments to the underlying reported amounts of assets, liabilities, revenues and expenses in future reporting periods.
Judgments, estimates and underlying assumptions are
evaluated on an ongoing basis by management and are based on historical experience and other factors including expectations of future
events that are believed to be reasonable under the circumstances. However, existing circumstances and assumptions about future developments
may change due to market changes or circumstances and such changes are reflected in the assumptions when they occur. Significant items
subject to estimates include the determination of deferred income taxes, and other contingencies.
The Pillar’s revenue is as follows:
| Year ended December 31, | |
2020 | |
| Inventory sales revenue | |
$ | 60,080 | |
| | |
$ | 60,080 | |
The Pillar’s geographic information as determined by
its combined revenues are set out below:
| | |
United | | |
| | |
| | |
| | |
| |
| | |
Kingdom | | |
United States | | |
Europe | | |
Other | | |
Combined | |
| Total revenue for the year ended: | |
| | | |
| | | |
| | | |
| | | |
| | |
| December 31, 2020 | |
$ | 57,617 | | |
$ | 2,334 | | |
$ | 129 | | |
$ | - | | |
$ | 60,080 | |
Notes to the Carve-out Combined Financial Statements
(Tabular amounts expressed in thousands of United States dollars, except
where noted)
SG&A expenses
| Year ended December 31, | |
2020 | |
| Employee compensation expenses | |
$ | 1,131 | |
| Buildings, facilities and technology expenses | |
| 33 | |
| Travel, advertising and promotion expenses | |
| 4 | |
| Professional fees | |
| 73 | |
| Other SG&A expenses | |
| 148 | |
| | |
$ | 1,389 | |
Included within employee compensation expenses are
defined contribution plan payments of $7k.
Total advertising costs incurred for the year ended December 31, 2020 was $4k.
Depreciation and amortization expenses
| Year ended December 31, | |
2020 | |
| Depreciation expense (see note 12) | |
$ | 13 | |
| | |
$ | 13 | |
The expense for the period can be reconciled to income before
income taxes as follows:
| Year ended December 31, | |
2020 | |
| Earnings before income tax | |
$ | 6,590 | |
| Expected tax charge based on the standard rate of corporation tax in the UK | |
| 19 | % |
| Expected income tax expense | |
| 1,252 | |
| | |
| | |
| Non-deductible expenses | |
| - | |
| | |
$ | 1,252 | |
Notes to the Carve-out Combined Financial Statements
(Tabular amounts expressed in thousands of United States dollars, except
where noted)
| 6. | Income taxes (continued) |
The income tax expense (recovery) consists of:
| Year ended December 31, | |
2020 | |
| UK: | |
| | |
| Current tax expense | |
$ | 1,252 | |
| Deferred tax expense | |
| - | |
| | |
$ | 1,252 | |
The tax effects of temporary differences that give rise to
significant deferred tax assets and deferred tax liabilities were as follows:
| As at December 31, | |
2020 | |
| Deferred tax liabilities: | |
| | |
| Property, plant and equipment | |
$ | 40 | |
| | |
| | |
| Net deferred tax liabilities | |
$ | 40 | |
Income taxes payable as at December 31, 2020 were $604k.
As at December 31, 2020, the Pillar had no capital or non-capital
losses available for carryforward.
No deferred tax assets have been recognized by the Pillar
as there are no significant temporary differences.
Uncertain tax positions
At December 31, 2020 the Pillar had Nil gross unrecognized
tax benefits. There was no movement in this position during the period. There were no interest or penalties incurred by the Pillar relating
to unrecognized tax benefits and no amount relating to same has been accrued by the Pillar as at December 31, 2020.
Notes to the Carve-out Combined Financial Statements
(Tabular amounts expressed in thousands of United States dollars, except
where noted)
| 7. | Supplemental cash flow information |
| Year ended December 31, | |
2020 | |
| Trade and other receivables | |
$ | 280 | |
| Inventory | |
| 6,345 | |
| Income taxes receivable | |
| 257 | |
| Trade and other payables | |
| (225 | ) |
| Net changes in operating assets and liabilities | |
$ | 6,657 | |
| Year ended December 31, | |
2020 | |
| Interest paid | |
$ | 175 | |
| Net income taxes paid | |
| 1,509 | |
All assets and liabilities for which fair value is measured
or disclosed in the carve-out combined financial statements are categorized within the fair value hierarchy, described as follows, based
on the lowest level input that is significant to the fair value measurement or disclosure:
| ● | Level 1: Unadjusted quoted prices in active markets for identical assets or liabilities that the entity
can access at measurement date; |
| ● | Level 2: Inputs other than quoted prices included in Level 1 that are observable for the asset or liability,
either directly or indirectly; and |
| ● | Level 3: Unobservable inputs for the asset or liability. |
| | |
| | |
December 31, 2020 | |
| | |
| | |
Carrying | | |
| |
| | |
Category | | |
amount | | |
Fair value | |
| Fair values disclosed: | |
| | | |
| | | |
| | |
| Cash and cash equivalents | |
| Level 1 | | |
$ | 12,754 | | |
$ | 12,754 | |
The carrying value of the Pillar’s cash and cash
equivalents, trade and other receivables, trade and other payables approximate their fair values due to their short terms to maturity.
Notes to the Carve-out Combined Financial Statements
(Tabular amounts expressed in thousands of United States dollars, except
where noted)
| 9. | Trade and other receivables |
| As at December 31, | |
2020 | |
| Trade receivables | |
$ | 111 | |
| | |
$ | 111 | |
Trade receivables are generally secured by the equipment
that they relate to as it is Pillar policy that equipment is not released until payment has been collected. Trade receivables are due
for settlement within twenty-one days of the date of sale. At the period-end $2k of trade receivables were considered to be past due (see
ageing analysis below). The allowance for expected credit losses at December 31, 2020 was $Nil. There was no movement in this provision
during the period.
| Ageing analysis As at December 31, 2020 | |
Current | | |
0-30 days
overdue | | |
31-60 days
overdue | | |
61-90 days
overdue | | |
>90 days
overdue | |
| Trade receivables | |
$ | 107 | | |
| 2 | | |
| - | | |
| - | | |
| 2 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | |
| | |
$ | 107 | | |
| 2 | | |
| - | | |
| - | | |
| 2 | |
At each period end, inventory is reviewed to ensure that it
is recorded at the lower of cost and net realizable value.
| As at December 31, | |
2020 | |
| Machinery for resale | |
$ | 2,446 | |
| | |
| | |
| | |
$ | 2,446 | |
No inventory write downs were recorded during the year ended
December 31, 2020.
| As at December 31, | |
2020 | |
| Other tax and social security | |
$ | 42 | |
| Prepaid expenses | |
| 129 | |
| | |
$ | 171 | |
Notes to the Carve-out Combined Financial Statements
(Tabular amounts expressed in thousands of United States dollars, except
where noted)
| 12. | Property, plant and equipment |
| | |
| | |
Accumulated | | |
| |
| As at December 31, 2020 | |
Cost | | |
depreciation | | |
Net book value | |
| Plant and machinery | |
$ | 214 | | |
| 13 | | |
| 201 | |
| Motor vehicles | |
| 8 | | |
| - | | |
| 8 | |
| | |
$ | 222 | | |
$ | 13 | | |
$ | 209 | |
Depreciation of $13k was recorded in respect of property,
plant and equipment during the period.
| 13. | Trade and other payables |
| As at December 31, | |
2020 | |
| Trade payables | |
$ | 376 | |
| Accrued liabilities | |
| 575 | |
| Other payables | |
| 8 | |
| | |
$ | 959 | |
The Pillar has no outstanding commitments as at the year-end
December 31, 2020.
| 15. | Contingencies Legal and other claims |
The Pillar is subject to legal and other claims that
arise in the ordinary course of its business. Management does not believe that the results of these claims will have a material effect
on the Pillar’s combined balance sheet or combined income statement.
Notes to the Carve-out Combined Financial Statements
(Tabular amounts expressed in thousands of United States dollars, except
where noted)
| 16. | Related party transactions |
The Equipment Sales Pillar’s related parties are
summarized and defined as follows:
Significant influence
Companies which are deemed to be related parties
owing to them being controlled by brothers of Mr Lynden Keys.
The following are deemed to be entities with significant influence:
| ● | Euro Auctions Pillar: the business controlled by Mr Derek Keys whose principal activity is in conducting
auction sales and valuations throughout the United Kingdom, mainland Europe, Australia, Dubai and the United States of America. |
| ● | Equipment & Plant Services Pillar: the business controlled by Mr Trevor Keys whose principal activity
is the sale of equipment and plant to the agricultural and construction industries. |
| ● | Other: Brian Keys and Jonathan Keys are also deemed to be related parties as they are brothers of Mr Lynden Keys. |
| ● | Included in the Pillar are Director emoluments paid to Mr Lynden Keys in the period amounting to $11k. |
Common Control
| ● | Common control: Other companies owned by Lynden Keys outside of the transaction perimeter which do not
form part of the Equipment Sales Pillar: Newpark Developments (NI) Limited. |
The following transactions were conducted with related
entities by virtue of significant influence & common control:
| Year ended December 31, Transactions | |
2020 | |
| Significant influence | |
| | |
| Period-end December 31, transactions with entities with significant influence | |
| | |
| Euro Auctions Pillar commission service cost* | |
| 1,715 | |
| Period-end December 31, Balance due from/(to) | |
| | |
| Euro Auctions Pillar** | |
| 89 | |
| Common control | |
| | |
| Period-end December 31, Balances due from/(to) | |
| | |
| Newpark Developments (NI) Limited** | |
| 8,492 | |
| Equipment Sales No.3 Limited*** | |
| (575 | ) |
| Directors Current Account (“DCA”) *** | |
| (5 | ) |
*These balances are recorded in “cost of inventory sold”
in the carve-out combined income statement
**These balances are recorded in "Amounts owed by related
parties” in the carve-out combined financial statements
***These balances are recorded in "Amounts owed to related
parties” in the carve-out combined financial statements.
On August 9, 2021, Ritchie Bros. Auctioneers Incorporated
executed a sale and purchase agreement (SPA) to acquire the Equipment Sales Pillar (as defined in note 1) from Lynden Keys and Wendy Keys
(the shareholders of the combined entities).
Subsequent events have been evaluated from the year
ended, December 31, 2020 to November 1, 2021. The financial statements were issued on November 1, 2021.
FINANCIAL STATEMENTS
Report of Independent Auditors
To Derek Keys
We have audited the accompanying carve-out combined
financial statements of Euro Auctions Limited, Euro Auctions (UK) Limited, Euro Auctions GmbH, Yoder & Frey Auctioneers LLC, Euro
Auctions Pty Ltd, Euro Auctions Plant S.L, William Keys & Sons Holdings Limited, William Keys & Sons LLC, William Keys & Sons
Limited, Euro Auctions UK No.2 Limited (Spanish branch), Euro Auctions UK No.2 Limited (Australian branch) and Euro Auctions FZE, (collectively
referred to as Euro Auctions Pillar), which comprise the carve-out combined balance sheet as of December 31, 2020,and the related carve-out
combined income statement, and statements of comprehensive income, of changes in net parent investment and of cash flows for the year
then ended.
Management's Responsibility for the Carve-out Combined
Financial Statements
Management is responsible for the preparation and fair
presentation of the carve-out combined financial statements in accordance with accounting principles generally accepted in the United
States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair
presentation of carve-out combined financial statements that are free from material misstatement, whether due to fraud or error.
Auditors’ Responsibility
Our responsibility is to express an opinion on the
carve-out combined financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether
the carve-out combined financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit
evidence about the amounts and disclosures in the carve-out combined financial statements. The procedures selected depend on our judgment,
including the assessment of the risks of material misstatement of the carve-out combined financial statements, whether due to fraud or
error. In making those risk assessments, we consider internal control relevant to the Euro Auctions Pillar's preparation and fair presentation
of the carve-out combined financial statements in order to design audit procedures that are appropriate in the circumstances, but not
for the purpose of expressing an opinion on the effectiveness of the Euro Auctions Pillar's internal control. Accordingly, we express
no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant
accounting estimates made by management, as well as evaluating the overall presentation of the carve-out combined financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the carve-out combined financial statements
referred to above present fairly, in all material respects, the financial position of Euro Auctions Pillar as of December 31, 2020, and
the results of their operations and their cash flows for the years then ended in accordance with accounting principles generally accepted
in the United States of America.
Report of Independent
Auditors (continued)
Restriction of Use
This report, including the opinion, has been prepared
for and only for Derek Keys in accordance with our engagement letter dated November 5, 2021 and for no other purpose. We do not, in giving
this opinion, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose
hands it may come, including without limitation under any contractual obligations of the company, save where expressly agreed by our prior
consent in writing.
/s/ PricewaterhouseCoopers LLP
Belfast
United Kingdom
November 9, 2021
Carve-out Combined Income Statement
(Expressed in thousands of United States dollars)
| Year ended December 31, | |
2020 | |
| Revenue: | |
| | |
| Inventory sales revenue | |
$ | 136,040 | |
| Service revenue | |
| 54,929 | |
| Total revenue | |
| 190,969 | |
| | |
| | |
| Operating expenses: | |
| | |
| Cost of inventory sold | |
| 125,023 | |
| Costs of services | |
| 9,860 | |
| Selling, general and administrative expenses | |
| 15,139 | |
| Depreciation and amortization expenses | |
| 924 | |
| Gain on disposition of property, plant and equipment | |
| (14 | ) |
| Total operating expenses | |
| 150,932 | |
| Operating income | |
| 40,037 | |
| | |
| | |
| | |
| | |
| Interest expense | |
| 651 | |
| Other expense, net | |
| 5,029 | |
| Income before income taxes | |
| 34,357 | |
| Income tax expense: | |
| | |
| Current income tax | |
| 6,829 | |
| Deferred income tax | |
| 184 | |
| | |
| 7,013 | |
| | |
| | |
| Net income | |
$ | 27,344 | |
See accompanying notes to the carve-out combined financial
statements.
Carve-out Combined Statement of Comprehensive Income
(Expressed in thousands of United States dollars)
| Year ended December 31, | |
2020 | |
| | |
| |
| Net income | |
$ | 27,344 | |
| Other comprehensive income, net of income tax: | |
| | |
| Foreign currency translation adjustment | |
| 2,290 | |
| Total comprehensive income | |
$ | 29,634 | |
See accompanying notes to the carve-out combined financial
statements.
Carve-out Combined Balance Sheet
(Expressed in thousands of United States dollars)
| As at December 31, | |
2020 | |
| Assets | |
| | |
| | |
| | |
| Cash and cash equivalents | |
$ | 82,591 | |
| Restricted cash | |
| 246 | |
| Trade and other receivables | |
| 14,129 | |
| Less: allowance for credit losses | |
| (613 | ) |
| Trade and other receivables, net | |
| 13,516 | |
| Amounts owed by related parties | |
| 3,507 | |
| Inventory | |
| 31,030 | |
| Other current assets | |
| 8,983 | |
| Income taxes receivable | |
| 182 | |
| Total current assets | |
| 140,055 | |
| | |
| | |
| Property, plant and equipment, net | |
| 10,593 | |
| Other non-current assets | |
| 14,070 | |
| Intangible assets | |
| 1,364 | |
| | |
| | |
| Total non-current assets | |
| 26,027 | |
| Total assets | |
$ | 166,082 | |
| | |
| | |
| Liabilities and Net Parent Investment | |
| | |
| Auction proceeds payable | |
$ | 8,717 | |
| Amounts owed to related parties | |
| 259 | |
| Trade and other payables | |
| 12,522 | |
| Income taxes payable | |
| 7,276 | |
| Short-term debt & overdrafts | |
| 54,969 | |
| Total current liabilities | |
| 83,743 | |
| Other non-current liabilities | |
| 16,740 | |
| Deferred tax liabilities | |
| 633 | |
| Total liabilities | |
| 101,116 | |
| | |
| | |
| Commitments and Contingencies (Note 20 and Note 21 respectively) | |
| | |
| | |
| | |
| Net parent investment | |
| 62,676 | |
| Accumulated other comprehensive income | |
| 2,290 | |
| | |
| | |
| Total net parent investment | |
| 64,966 | |
| Total liabilities and net parent investment | |
$ | 166,082 | |
See accompanying notes to the carve-out combined financial
statements.
Carve-out Combined Statement of Changes in Net Parent
Investment
(Expressed in thousands of United States dollars)
| | |
Net Parent
Investment | | |
Accumulated
other
comprehensive income | | |
Total Net Parent
Investment | |
| Balance, January 1, 2020 | |
$ | 35,332 | | |
$ | - | | |
$ | 35,332 | |
| Net income | |
| 27,344 | | |
| - | | |
| 27,344 | |
| Other comprehensive income | |
| - | | |
| 2,290 | | |
| 2,290 | |
| Balance, December 31, 2020 | |
$ | 62,676 | | |
$ | 2,290 | | |
$ | 64,966 | |
See accompanying notes to the carve-out combined financial
statements.
Carve-out Combined Statement of Cash Flows
(Expressed in thousands of United States dollars)
| Year ended December 31, | |
2020 | |
| Cash provided by/(used in): | |
| | |
| Operating activities: | |
| | |
| Net income | |
$ | 27,344 | |
| Adjustments for items not affecting cash: | |
| | |
| Depreciation and amortization expenses | |
| 924 | |
| Profit on disposal of fixed assets | |
| (14 | ) |
| Net changes in operating assets and liabilities | |
| 36,941 | |
| Net cash provided by operating activities | |
| 65,195 | |
| Investing activities: | |
| | |
| Advances made to related parties | |
| (5,410 | ) |
| Proceeds from disposal of fixed assets | |
| 14 | |
| Capital expenditure | |
| (2,048 | ) |
| Net cash used in investing activities | |
| (7,444 | ) |
| Financing activities: | |
| | |
| Repayment of short-term debt | |
| (9,675 | ) |
| Net cash used in financing activities | |
| (9,675 | ) |
| Effect of changes in foreign currency rates on cash, cash equivalents, and restricted cash | |
| 4,043 | |
| Increase | |
| 52,119 | |
| Beginning of period | |
| 30,718 | |
| Cash, cash equivalents, and restricted cash, end of period | |
$ | 82,837 | |
See accompanying notes to the carve-out combined financial
statements.
Notes to the Carve-out Combined financial Statements
(Tabular amounts expressed in thousands of United States dollars, except
where noted)
| 1. | Nature of Operations and Basis of Presentation |
Euro Auctions Pillar (hereinafter collectively referred
to as the “Pillar”, “we”, “our”) is a combination of auction and sourcing businesses controlled by
an individual, Derek Keys, which operates principally in conducting plant and machinery auction sales and valuations throughout the United
Kingdom, mainland Europe, Australia, Dubai and the United States of America. The Pillar is also involved in the sale of plant and machinery
both through auctions and private sales.
The accompanying carve-out combined financial statements
present the historical carve-out combined balance sheet as of December 31, 2020, carve-out combined income statement, carve-out combined
statement of comprehensive income, carve-out combined statements of changes in net parent investment, and carve-out combined statement
of cash flows of the Pillar for the year then ended, which reflect the carved out activities of the companies detailed below:
| ● | Euro Auctions Limited (NI663696) |
| ● | Euro Auctions (UK) Limited (NI663692) |
| ● | Euro Auctions GmbH (HRB13567) |
| ● | Yoder & Frey Auctioneers LLC (12075006) |
| ● | Euro Auctions Pty Ltd (ABN33154193576) |
| ● | Euro Auctions Plant S.L. (M728536) |
| ● | Euro Auctions UK No.2 Limited (Spanish branch) (NI041778) |
| ● | Euro Auctions UK No.2 Limited (Australian branch) (NI041778) |
| ● | William Keys & Sons Holdings Limited (NI663694) |
| ● | William Keys & Sons LLC (13004156) |
| ● | William Keys & Sons Limited (NI663693); and |
| ● | Euro Auctions FZE (252526) |
In preparing these carve-out financial statements certain
assets and liabilities (encompassing property assets and associated bank debt), remaining in related undertakings have been removed from
the Pillar. The Pillar’s cost base includes all relevant costs pertaining to its operations, as they were historically managed,
and therefore in compiling these carve out financial statements, no additional costs have been allocated to the Pillar.
The Pillar has not historically prepared stand-alone
financial statements. These carve-out combined financial statements as of December 31, 2020 have been prepared on a stand-alone basis
derived from the financial statements and related accounting records of each of the companies listed above. The accompanying carve-out
combined financial statements were prepared in order to comply with a condition in the Share Purchase Agreement (“SPA”), executed
on August 9, 2021, to dispose of the Euro Auctions Pillar to Ritchie Bros. Auctioneers Incorporated. As stipulated by the SPA the accompanying
carve-out combined financial statements were prepared for the purpose of providing Ritchie Bros. Auctioneers Incorporated with historical
financial information of the Pillar. They reflect the results of operations, financial position, and cash flows of the Pillar as they
were historically managed and are presented in conformity with accounting principles generally accepted in the United States (“U.S.
GAAP”). Accordingly, these financial statements have been prepared on a combined basis and Parent’s net investment in these
operations is shown in lieu of stockholder’s equity. All intercompany balances and transactions within the Pillar have been eliminated
in the carve-out combined financial statements.
These carve-out combined financial statements have
been prepared based on the U.S. GAAP applied standards effective for 2020. The Pillar has voluntarily early adopted ASC 842 Leases
and ASC 326 Measurement of Credit Losses on Financial Instruments in these carve-out combined financial statements.
Notes to the Carve-out Combined financial Statements
(Tabular amounts expressed in thousands of United States dollars, except
where noted)
| 1. | Nature of Operations and Basis of Presentation (continued) |
Net parent investment represents the beneficial owner’s
historical investment in the Pillar and includes accumulated net earnings attributable to the beneficial owner (Derek Keys), intercompany
transactions, dividend income arising from internal group restructurings, and direct capital contributions, as adjusted for direct cash
investments in the Pillar. A discussion of the relationship with the beneficial owner, including a description of the costs allocated
to the Pillar, is included in (Note 22 - “Related Party Transactions”).
| 2. | Significant accounting policies |
Revenues are comprised of:
| ● | Service revenue, including the following: |
| i. | Revenue from auction and marketplace (“A&M”) activities, including commissions earned
at our live and online bidding auctions, online marketplaces; and |
| ii. | Other services revenue, comprises revenue from logistical services; |
| ● | Inventory sales revenue; and |
The Pillar recognizes revenue when control of the promised
goods or services is transferred to our customers, or upon completion of the performance obligation, in an amount that reflects the consideration
we expect to be entitled to in exchange for those goods or services. A performance obligation is a promise in a contract to transfer a
distinct good or service, or a series of distinct goods or services, to the customer. A contract’s transaction price is allocated
to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. For event-based
auctions, revenue is recognized when the auction sale is complete, and the Pillar has determined that the sale proceeds are collectible.
Revenue is measured at the fair value of the consideration received or receivable and is shown net of value-added tax and duties.
Service revenues
Commissions from sales at the Pillar’s auctions
represent the percentage earned by the Pillar on the gross proceeds from equipment and other assets sold at auction. The majority of the
Pillar’s commissions are earned as a pre-negotiated fixed rate of the gross selling price. Other commissions from sales at the Pillar’s
auctions are earned from underwritten commission contracts, when the Pillar guarantees a certain level of proceeds to a consignor.
The Pillar accepts equipment and other assets on
consignment stimulating buyer interest through professional marketing techniques and matches sellers (also known as consignors) to buyers
through the auction or private sale process.
Following the sale of the item, the Pillar invoices
the buyer for the purchase price of the asset, taxes, and, if applicable, the buyer commission, collects payment from the buyer, and remits
the proceeds to the seller, net of the seller commissions, applicable taxes, and applicable fees. Commissions are calculated as a percentage
of the hammer price of the asset sold at auction. Fees are also charged to sellers for listing and inspecting equipment.
Notes to the Carve-out Combined financial Statements
(Tabular amounts expressed in thousands of United States dollars, except
where noted)
| 2. | Significant accounting policies (continued) |
| (a) | Revenue recognition (continued) |
On the fall of the auctioneer’s hammer, the
highest bidder becomes legally obligated to pay the full purchase price, which is the hammer price of the asset purchased and the seller
is legally obligated to relinquish the property in exchange for the hammer price less any seller’s commissions. Commission and fee
revenue are recognized on the date of the auction sale upon the fall of the auctioneer’s hammer.
Under the standard terms and conditions of its auction
sales, the Pillar is not obligated to pay a consignor for property that has not been paid for by the buyer, provided the property has
not been released to the buyer. If the buyer defaults on its payment obligation, also referred to as a collapsed sale, the sale is cancelled
in the period in which the determination is made, and the property is returned to the consignor or placed in a later event-based or online
auction. Historically, service revenues on cancelled sales have not been material.
Commission revenue is recorded net of commissions owed
to third parties, which are principally the result of situations when the commission is shared with a consignor in an auction guarantee
risk and reward sharing arrangement.
Underwritten commission contracts can take the form of
guarantee contracts. Guarantee contracts typically include a pre- negotiated percentage of the guaranteed gross proceeds plus a percentage
of proceeds in excess of the guaranteed amount. If actual
auction proceeds are less than the guaranteed amount,
commission is reduced; if proceeds are sufficiently lower, the Pillar can incur a loss on the sale. Losses, if any, resulting from guarantee
contracts are recorded in the period in which the relevant auction is completed. If a loss relating to a guarantee contract held at the
period end to be sold after the period end is known or is probable and estimable at the financial statement reporting date, the loss is
accrued in the financial statements for that period. The Pillar’s exposure from these guarantee contracts fluctuates over time.
Other services revenue also includes fees for logistical
services. Fees are recognized in the period in which the service is provided, or the product is delivered to the customer.
Inventory sales revenue
The Pillar recognizes revenue when control of the
promised goods is transferred to our customers, or upon completion of the performance obligation, in an amount that reflects the consideration
we expect to be entitled to in exchange for those goods. A performance obligation is a promise in a contract to transfer a distinct good,
or a series of distinct goods, to the customer. A contract’s transaction price is allocated to each distinct performance obligation
and recognized as revenue when, or as, the performance obligation is satisfied. Revenue is measured at the fair value of the consideration
received or receivable and is shown net of value- added tax and duties.
Rental income
The Pillar recognizes rental income from operating leases
on a straight-line basis over the lease term.
Costs of services incurred in earning A&M revenues
are comprised of expenses incurred in direct relation to conducting auctions (“direct expenses”), earning online marketplace
revenue. Direct expenses include direct labor, buildings and facilities charges, travel, advertising and promotion costs and fees paid
to unrelated third parties who introduce the Pillar to equipment sellers who sell property at the Pillar's auctions and marketplaces.
Costs of services to operate our online marketplace revenue excludes hosting costs where we leverage a shared infrastructure that supports
both our internal technology requirements and external sales to our customers.
Notes to the Carve-out Combined financial Statements
(Tabular amounts expressed in thousands of United States dollars, except
where noted)
| (b) | Costs of services (continued) |
Costs of services incurred in earning other fee revenue
include ancillary and logistical service expenses, direct labor (including commissions on sales), cloud infrastructure and hosting costs,
software maintenance fees, and materials. Costs of services exclude depreciation and amortization expenses.
| (c) | Cost of inventory sold |
Cost of inventory sold includes the purchase price of assets
sold including any related transport and repair costs.
The Pillar determines if an arrangement is a lease at inception.
The Pillar may have lease agreements with lease and non-lease components, which are generally accounted for separately.
Operating leases
Operating leases are included in other non-current
assets, trade and other payables, and other non-current liabilities in our combined balance sheets if the initial lease term is greater
than 12 months. For leases with an initial term of 12 months or less the Pillar recognizes those lease payments on a straight-line basis
over the lease term.
ROU assets represent the right to use an underlying
asset for the lease term and lease liabilities represent the obligation to make lease payments arising from the lease. Operating lease
ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As most
of the Pillar's leases do not provide an implicit rate, management uses the incremental borrowing rate based on the information available
at commencement date in determining the present value of lease payments. Management uses the implicit rate when readily determinable.
The Pillar includes lease payments for renewal or termination options in its determination of lease term, ROU asset, and lease liability
when it is reasonably certain that the Pillar will exercise these options. Lease expense for lease payments is recognized on a straight-line
basis over the lease term and are included in costs of services and selling, general and administrative ("SG&A") expenses.
| (e) | Fair value measurement |
Fair value is the exit price that would be received
to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The Pillar
measures financial instruments or discloses select non-financial assets at fair value at each balance sheet date. Also, fair values of
financial instruments measured at amortized cost are disclosed in note 9.
The Pillar uses valuation techniques that are appropriate
in the circumstances and for which sufficient data is available to measure fair value, maximizing the use of relevant observable inputs
and minimizing the use of unobservable inputs.
All assets and liabilities for which fair value is
measured or disclosed in the financial statements at fair value are categorized within a fair value hierarchy, as disclosed in note 9,
based on the lowest level input that is significant to the fair value measurement or disclosure. This fair value hierarchy gives the highest
priority to quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs
(Level 3).
For assets and liabilities that are recognized in
the financial statements at fair value on a recurring basis, the Pillar determines whether transfers have occurred between levels in the
hierarchy by re-assessing categorization at the end of each reporting period.
For the purposes of fair value disclosures, the Pillar
has determined classes of assets and liabilities on the basis of the nature, characteristics and risks of the assets or liability and
the level of the fair value hierarchy as explained above.
Notes to the Carve-out Combined financial Statements
(Tabular amounts expressed in thousands of United States dollars, except
where noted)
| (f) | Foreign currency translation |
The presentation currency of the carve-out combined
financial statements is the United States dollar. The functional currency for each of the components of these carve-out combined financial
statements is the currency of the primary economic environment in which the entity operates, which is usually the currency of the country
of residency.
Accordingly, the financial statements of the components
of these carve-out combined financial statements that are not denominated in United States dollars have been translated into United States
dollars using the exchange rate at the end of each reporting period for asset and liability amounts and the annual average exchange rate
for amounts included in the determination of earnings. Any gains or losses from the translation of asset and liability amounts are included
in foreign currency translation adjustment in accumulated other comprehensive income. In preparing the financial statements of the individual
components, transactions in currencies other than the entity’s functional currency are recognized at the rates of exchange prevailing
at the dates of the transaction. At the end of each reporting period, monetary assets and liabilities denominated in foreign currencies
are retranslated at the rates prevailing at that date. Foreign currency differences arising on retranslation of monetary items are recognized
in earnings.
| (g) | Cash and cash equivalents |
Cash and cash equivalents are comprised
of cash on hand, deposits with financial institutions, and other short-term, highly liquid investments with original maturity of three
months or less when acquired, that are readily convertible to known amounts of cash. Bank overdrafts are presented as short-term debt
on the balance sheet.
In certain jurisdictions, local laws require the Pillar
to hold cash in segregated bank accounts, which are used to settle auction proceeds payable resulting from live on site auctions and online
marketplace sales conducted in those regions.
| (i) | Trade and other receivables |
Trade receivables principally include amounts due
from customers as a result of event-based auctions. The recorded amount reflects the purchase price of the item sold, including the Pillar’s
commission. The allowance for credit losses is the Pillar’s best estimate of the amount of probable credit losses in existing accounts
receivable. The Pillar determines the allowance based on historical write-off experience, customer economic data and reasonable and supportable
forecasts of future economic conditions.
The Pillar reviews the allowance for credit losses
regularly and past due balances are reviewed for collectability. Account balances are charged against the allowance when the Pillar believes
that the receivable will not be recovered.
| (j) | Derivative financial instruments |
Derivatives are initially recognized at fair value
on the date a derivative contract is entered into and are subsequently re-measured at their fair value. Changes in the fair value of derivatives
are recognized in profit or loss as other gains and losses as appropriate.
Hedge accounting is not applied.
Notes to the Carve-out Combined financial Statements
(Tabular amounts expressed in thousands of United States dollars, except
where noted)
| 2. | Significant accounting policies (continued) |
Inventory consists of equipment and other assets purchased
for resale. Inventory is valued at the lower of cost and net realizable value where net realizable value represents the expected sale
price upon disposition less make-ready costs and the costs of disposal and transportation. The significant elements of cost include the
acquisition price, in-bound transportation costs of the inventory, and make- ready costs to prepare the inventory for sale that are not
selling expenses. Write-downs to the carrying value of inventory are recorded in cost of inventory sold on the combined income statement.
| (l) | Property, plant and equipment |
All property, plant and equipment are stated at cost
less accumulated depreciation. Cost includes all expenditures that are directly attributable to the acquisition or development of the
asset, net of any amounts received in relation to those assets, including scientific research and experimental development tax credits.
The cost of self-constructed assets includes the cost
of materials and direct labor, any other costs directly attributable to bringing the assets to working condition for their intended use,
the costs of dismantling and removing items and restoring the site on which they are located (if applicable), and capitalized interest
on qualifying assets. Subsequent costs are included in the asset’s carrying amount or recognized as a separate asset, as appropriate,
only when it is probable that future economic benefits associated with the item will flow to the Pillar and the cost of the item can be
measured reliably.
All repairs and maintenance costs are charged to earnings
during the financial period in which they are incurred. Gains and losses on disposal of an item of property, plant and equipment are determined
by comparing the proceeds from disposal with the carrying amount of the item and are recognized net within operating income on the income
statement.
Depreciation is provided to charge the cost of the assets
to operations over their estimated useful lives based on their usage as follows:
| Asset | |
Basis | |
Rate / term | |
| Buildings | |
Straight-line | |
| 2 | % |
| Plant and machinery | |
Declining balance | |
| 15 | % |
| Motor vehicles | |
Declining balance | |
| 25 | % |
| Office equipment | |
Declining balance | |
| 15 | % |
| Leasehold improvements | |
Declining balance | |
| 15%/period of lease | |
| Software | |
Straight line | |
| 5 | % |
No depreciation is provided on freehold land or on assets
in the course of construction or development. Depreciation of property, plant and equipment under finance leases is recorded in depreciation
expense.
Legal obligations to retire and to restore property,
plant and equipment and assets under operating leases are recorded at management’s best estimate in the period in which they are
incurred, if a reasonable estimate can be made, with a corresponding increase in asset carrying value. The liability is accreted to face
value over the remaining estimated useful life of the asset. The Pillar does not have any significant asset retirement obligations.
Intangible assets are measured at cost less accumulated
amortization and accumulated impairment losses. Cost includes all expenditures that are directly attributable to the acquisition or development
of the asset, net of any amounts received in relation to those assets, including scientific research and experimental development tax
credits. The Pillar has not capitalized any internally developed intangible assets.
Notes to the Carve-out Combined financial Statements
(Tabular amounts expressed in thousands of United States dollars, except
where noted)
| 2. | Significant accounting policies (continued) |
| (m) | Intangible assets (continued) |
Amortization is recognized in net earnings on a straight-line
basis over the estimated useful lives of intangible assets from the date that they are available for use. The estimated useful lives are:
| Asset | |
Basis | |
Rate / term |
| Acquired brands | |
Straight-line | |
10 years |
| Customer relationships | |
Straight-line | |
10 years |
Customer relationships includes relationships with buyers
and sellers.
| (n) | Impairment of long-lived assets |
Long-lived assets, comprised of property, plant and
equipment, ROU assets, and intangible assets subject to amortization, are assessed for impairment whenever events or circumstances indicate
that their carrying value may not be recoverable. For the purpose of impairment testing, long-lived assets are grouped and tested for
recoverability at the lowest level that generates independent cash flows. An impairment loss is recognized when the carrying value of
the assets or asset groups is greater than the future projected undiscounted cash flows. The impairment loss is calculated as the excess
of the carrying value over the fair value of the asset or asset group. Fair value is based on valuation techniques or third party appraisals.
Significant estimates and judgments are applied in determining these cash flows and fair values.
Income tax expense represents the sum of current tax expense
and deferred tax expense.
Current tax
The current tax expense is based on taxable profit
for the period and includes any adjustments to tax payable in respect of previous years. Taxable profit differs from income before income
taxes as reported in the combined income statement because it excludes (i) items of income or expense that are taxable or deductible in
other years and (ii) items that are never taxable or deductible. The Pillar’s liability for current tax is calculated using tax
rates that have been enacted by the balance sheet date.
Deferred tax
Income taxes are accounted for using the asset and
liability method. Deferred income tax assets and liabilities are based on temporary differences, which are differences between the accounting
basis and the tax basis of the assets and liabilities, and non-capital loss, capital loss, and tax credits carryforwards are measured
using the enacted tax rates and laws expected to apply when these differences reverse. Deferred tax benefits, including non-capital loss,
capital loss, and tax credits carryforwards, are recognized to the extent that realization of such benefits is considered more likely
than not. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in earnings in the period that enactment
occurs. When realization of deferred income tax assets does not meet the more- likely-than-not criterion for recognition, a valuation
allowance is provided.
Interest and penalties related to income taxes, including
unrecognized tax benefits, are recorded in income tax expense in the income statement.
Liabilities for uncertain tax positions are recorded
based on a two-step process. The first step is to evaluate the tax position for recognition by determining if the weight of available
evidence indicates that it is more likely than not that the position will be sustained on audit, including resolution of related appeals
or litigation processes, if any. The second step is to measure the tax benefit as the largest amount that is more than 50% likely to be
realized upon settlement. The Pillar regularly assesses the potential outcomes of examinations by tax authorities in determining the adequacy
of its provision for income taxes. The Pillar continually assesses the likelihood and amount of potential adjustments and adjusts the
income tax provision, income taxes payable, and deferred taxes in the period in which the facts that give rise to a revision become known.
Notes to the Carve-out Combined financial Statements
(Tabular amounts expressed in thousands of United States dollars, except
where noted)
| 2. | Significant accounting policies (continued) |
| (p) | Defined contribution plans |
The Pillar operates a defined
contribution scheme for specific directors and employees. A defined contribution plan is a pension plan under which the Pillar pays fixed
contributions to a third party provider. Once the contributions have been paid the Pillar has no further payment obligations. The contributions
are recognized as an expense when they are due. Amounts not paid are shown in accruals in the balance sheet.
Advertising costs are expensed as incurred. Advertising
expense is included in costs of services and selling, general and administrative (“SG&A”) expenses on the accompanying
combined income statements.
| (r) | Related party transactions |
The Euro Auctions Pillar is not a statutory group,
but rather is a collection of connected entities (operationally connected and with connected family ownership). These carve-out combined
financial statements disclose transactions with related parties which are not wholly captured within the Euro Auctions Pillar. Where appropriate,
transactions of a similar nature are aggregated unless, in the opinion of the director, separate disclosure is necessary to understand
the effect of the transactions on the carve-out combined financial statements.
Related party transactions are reflected in the carve-out
combined financial statements at the amounts payable to and received from the counterparty with no adjustments made to fair value, if
applicable.
| (s) | New and amended accounting standards |
| a. | Effective January 1, 2020, the Pillar adopted ASU 2016-13, Financial
Instruments – Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments. The new standard replaces
the ‘incurred loss methodology’ credit impairment model with a new forward-looking “methodology that reflects expected
credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates.”
In applying the new standard, the Pillar has adopted the loss rate methodology to estimate historical losses on trade receivables. The
historical data is adjusted to account for forecasted changes in the macroeconomic environment in order to calculate the current expected
credit loss. The Pillar’s adoption of ASC 326 did not result in a material change in the carrying values of the Pillar’s
financial assets on the transition date. |
| | | |
| b. | In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform
(Topic 848), Facilitation of the Effects of Reference Rate Reform on Financial Reporting. The update provides “optional expedients
and exceptions for applying generally accepted accounting principles to contract modifications and hedging relationships, subject to
meeting certain criteria, that reference LIBOR or another reference rate expected to be discontinued.” The amendments are effective
immediately and may be applied prospectively to contract modifications made and hedging relationships entered into or evaluated on or
before December 31, 2022. The Pillar’s use of LIBOR is applicable on short-term drawings on the committed revolving credit facilities
in certain jurisdictions. The Pillar is transitioning from LIBOR to SONIA. If applicable, the Pillar will use the optional expedients
available when reference rate changes occur. |
| | | |
| c. | Effective January 1, 2020, the Pillar adopted ASU 2018-15, Intangibles
– Goodwill and Other Internal-Use Software (Subtopic 350-40), Customer’s Accounting for Implementation Costs Incurred
in a Cloud Computing Arrangement That Is a Service Contract on a prospective basis. The update aligns the accounting for costs incurred
to implement a cloud computing arrangement that is a service agreement with the guidance on capitalizing costs associated with developing
or obtaining internal-use software. The adoption of ASU 2018-15 on January 1, 2020 using the prospective transition approach has not
resulted in a material impact to the carve-out combined financial statements. |
Notes to the Carve-out Combined financial Statements
(Tabular amounts expressed in thousands of United States dollars, except
where noted)
| 3. | Significant judgments, estimates and assumptions |
The preparation of financial statements in conformity
with US GAAP requires management to make judgments, estimates and assumptions that affect the reported amounts of assets and liabilities
and the disclosure of contingent liabilities at the date of the financial statements, and the reported amounts of revenues and expenses
during the reporting period.
Future differences arising between actual results and
the judgments, estimates and assumptions made by the Pillar at the reporting date, or future changes to estimates and assumptions, could
necessitate adjustments to the underlying reported amounts of assets, liabilities, revenues and expenses in future reporting periods.
Judgments, estimates and underlying assumptions are
evaluated on an ongoing basis by management and are based on historical experience and other factors including expectations of future
events that are believed to be reasonable under the circumstances. However, existing circumstances and assumptions about future developments
may change due to market changes or circumstances and such changes are reflected in the assumptions when they occur. Significant items
subject to estimates include the determination of lease term and lease liabilities, fair value of intangible assets, deferred income taxes,
and other contingencies.
The Pillar’s revenue is as follows:
| Year ended December 31, | |
2020 | |
| Inventory sales revenue | |
$ | 136,040 | |
| Service revenue: | |
| | |
| Auction Commissions | |
| 54,929 | |
| | |
$ | 190,969 | |
The Pillar’s geographic information as determined by
its combined revenues are set out below:
| | |
United | | |
| | |
| | |
| | |
| |
| | |
Kingdom | | |
United States | | |
Europe | | |
Other | | |
Combined | |
| Total revenue for the year ended: | |
| | | |
| | | |
| | | |
| | | |
| | |
| December 31, 2020 | |
$ | 102,976 | | |
$ | 36,083 | | |
$ | 34,157 | | |
$ | 17,753 | | |
$ | 190,969 | |
Notes to the Carve-out Combined financial Statements
(Tabular amounts expressed in thousands of United States dollars, except
where noted)
| 5. | Operating expenses Costs of services |
| Year ended December 31, | |
2020 | |
| Ancillary and logistical service expenses | |
$ | 981 | |
| Employee compensation expenses | |
| 3,836 | |
| Travel, advertising and promotion expenses | |
| 4,030 | |
| Other | |
| 1,013 | |
| | |
$ | 9,860 | |
SG&A expenses
| Year ended December 31, | |
2020 | |
| Employee compensation expenses | |
$ | 9,300 | |
| Buildings, facilities and technology expenses | |
| 4,477 | |
| Professional fees | |
| 721 | |
| Other SG&A expenses | |
| 641 | |
| | |
$ | 15,139 | |
Included within employee compensation expenses are
defined contribution plan payments of $105k.
Total advertising costs incurred for the year ended December 31, 2020 was $2,349k.
Depreciation and amortization expenses
| Year ended December 31, | |
2020 | |
| Depreciation expense | |
$ | 784 | |
| Amortization expense | |
| 140 | |
| | |
$ | 924 | |
During the year ended December 31, 2020, depreciation expense
of Nil was recorded relating to software.
Other income primarily includes movements on the fair value
of derivative financial instruments.
| Year ended December 31, | |
2020 | |
| Loss on the movement in fair value of derivative financial instruments | |
$ | (6,074 | ) |
| Interest income | |
| 85 | |
| Other income | |
| 960 | |
| | |
$ | (5,029 | ) |
Notes to the Carve-out Combined financial Statements
(Tabular amounts expressed in thousands of United States dollars, except
where noted)
The expense for the year can be reconciled to income before
income taxes as follows:
| Year ended December 31, | |
2020 | |
| Earnings before income tax | |
$ | 34,357 | |
| Expected tax charge based on the standard rate of corporation tax in the UK | |
| 19 | % |
| Expected income tax expense | |
| 6,528 | |
| Non-deductible expenses | |
| | |
| Different tax rates of subsidiaries operating in foreign jurisdictions | |
| 301 | |
| | |
$ | 6,829 | |
| Year ended December 31, | |
2020 | |
| UK: |
| Current tax expense | |
$ | 6,829 | |
| Deferred tax expense | |
| 184 | |
| | |
$ | 7,013 | |
The effective tax rate in the period is 20%.
The tax effects of temporary differences that give rise to
significant deferred tax assets and deferred tax liabilities were as follows:
| As at December 31, | |
2020 | |
| Deferred tax liabilities: | |
| | |
| Property, plant and equipment | |
$ | 633 | |
| Net deferred tax liabilities | |
| 633 | |
| | |
| | |
| Valuation allowance | |
| - | |
| | |
$ | 633 | |
Income taxes payable at December 31, 2020 were $7,276k.
As at December 31, 2020 the Pillar had no capital or non-capital
losses available for carry forward.
Uncertain tax positions
At December 31, 2020 the Pillar had Nil gross unrecognized
tax benefits. There was no movement in this position during the year. There were no interest or penalties incurred by the Pillar relating
to unrecognized tax benefits and no position has been accrued by the Pillar as at December 31, 2020.
Notes to the Carve-out Combined financial Statements
(Tabular amounts expressed in thousands of United States dollars, except
where noted)
| 8. | Supplemental cash flow information |
| Year ended December 31, | |
2020 | |
| Trade and other receivables | |
$ | 6,287 | |
| Inventory | |
| 29,318 | |
| Auction proceeds payable | |
| (3,775 | ) |
| Other current assets | |
| 217 | |
| Income taxes receivable | |
| 1,167 | |
| Trade and other payables | |
| 3,204 | |
| Other non current assets | |
| 523 | |
| Net changes in operating assets and liabilities | |
$ | 36,941 | |
Net capital spending, which
consists of property, plant and equipment and intangible asset additions excluding those acquired through business combinations, net of
proceeds on disposition of property, plant and equipment, was $2,034k for the year ended December 31, 2020.
| Year ended December 31, | |
2020 | |
| Interest paid | |
$ | 85 | |
| Interest received | |
| 646 | |
| Net income taxes paid | |
| 8,167 | |
| | |
| | |
| Operating lease payments | |
| 2,430 | |
| | |
2020 | |
| Cash and cash equivalents | |
$ | 82,591 | |
| Restricted cash | |
| 246 | |
| Cash, cash equivalents, and restricted cash | |
$ | 82,837 | |
Notes to the Carve-out Combined financial Statements
(Tabular amounts expressed in thousands of United States dollars, except
where noted)
All assets and liabilities for which fair value is
measured or disclosed in the carve-out combined financial statements are categorized within the fair value hierarchy, described as follows,
based on the lowest level input that is significant to the fair value measurement or disclosure:
| ● | Level 1: Unadjusted quoted prices in active markets for identical
assets or liabilities that the entity can access at measurement date; |
| ● | Level 2: Inputs other than quoted prices included in Level 1
that are observable for the asset or liability, either directly or indirectly; and |
| ● | Level 3: Unobservable inputs for the asset or liability. |
| | |
December 31, 2020 |
| | |
Category | |
Fair value | |
| Measured at fair value: | |
| |
| | |
| Derivative financial instruments | |
| |
| | |
| Foreign exchange contracts assets | |
Level 3 | |
$ | 4,295 | |
| Foreign exchange contracts liabilities | |
Level 3 | |
| 3,393 | |
| | |
| |
December 31, 2020 | |
| | |
| |
Carrying | | |
| |
| | |
Category | |
amount | | |
Fair value | |
| Fair values disclosed: | |
| |
| | | |
| | |
| Cash and cash equivalents | |
Level 1 | |
$ | 82,591 | | |
$ | 82,591 | |
| Restricted cash | |
Level 1 | |
| 246 | | |
| 246 | |
| Short-term debt | |
Level 2 | |
| 54,969 | | |
| 54,969 | |
The carrying value of the Pillar’s cash and cash
equivalents, restricted cash, trade and other receivables, advances against auction contracts, auction proceeds payable, trade and other
payables, and short-term debt approximate their fair values due to their short terms to maturity. The carrying value of the secured loans,
before deduction of deferred debt issue costs, approximates their fair value as the interest rates on the loans is short-term in nature.
Derivative financial instruments-forward contracts and
options
The Pillar enters into derivative financial instruments
to manage risks relating to our ongoing business operations. The primary risk managed with derivative instruments is foreign exchange
risk. The Pillar uses foreign currency contracts to reduce the risk that their cash flows and earnings will be adversely affected by foreign
currency exchange rate fluctuations. The Pillar also enters into derivative instruments to partially offset their exposure to other risks
and enhance investment returns.
Notes to the Carve-out Combined financial Statements
(Tabular amounts expressed in thousands of United States dollars, except
where noted)
| 9. | Fair value measurement (continued) |
Derivative financial instruments-forward contracts and
options (continued)
The Pillar recognizes derivative instruments as either
assets or liabilities in the combined balance sheet at fair value and classify the derivatives primarily within the Level 3 hierarchy.
The Pillar presents derivative financial instruments at gross fair values.
Derivative financial instruments assets are disclosed
at fair value within “other current assets (note 12) in the combined statement of financial position. Derivative financial instruments
liabilities are disclosed at fair value in either “Trade and other payables” (note 16) or “Other non-current liabilities”
(note 18) depending on the settlement date of the contract.
The Pillar does not designate their derivative instruments
as hedging instruments. These derivative instruments consist primarily of foreign currency forward contracts that we use to hedge monetary
assets or liabilities denominated in currencies other than the functional currency. Gains and losses on these contracts, as well as the
related costs, are recognized in other income (expense), net, along with the foreign currency gains and losses on monetary assets and
liabilities.
The fair value measurement of these derivatives resulted in
a loss of $6,074k being recorded in other income (see note 6).
The group has entered into a number of foreign currency
derivative contracts during the year. As at 31 December 2020 the group has the following derivative contracts in place:
| Buys |
BRL |
Sells |
EUR |
£0.8m |
| Buys |
MXN |
Sells |
EUR |
£1.0m |
| Buys |
RUB |
Sells |
EUR |
£2.8m |
| Buys |
TRY |
Sells |
EUR |
£7.8m |
| Buys |
GBP |
Sells |
EUR |
£109.2m |
| Buys |
GBP |
Sells |
USD |
£4.8m |
| Buys |
ZAR |
Sells |
JPY |
£6.4m |
| Buys |
TRY |
Sells |
JPY |
£0.8m |
| Buys |
RUB |
Sells |
JPY |
£0.7m |
| Buys |
ZAR |
Sells |
USD |
£0.8m |
| Buys |
ZAR |
Sells |
EUR |
£0.5m |
| 10. | Trade and other receivables |
| As at December 31, | |
2020 | |
| Trade receivables | |
$ | 12,947 | |
| Other receivables | |
| 1,182 | |
| | |
$ | 14,129 | |
Trade receivables are generally secured by the equipment
that they relate to as it is Pillar policy that equipment is not released until payment has been collected. Other receivables are unsecured
and non-interest bearing.
Notes to the Carve-out Combined financial Statements
(Tabular amounts expressed in thousands of United States dollars, except
where noted)
| 10. | Trade and other receivables (continued) |
The following table presents the activity in the allowance
for expected credit losses on trade receivables for the period ended December 31, 2020:
| Opening balance at January 1, 2020 | |
| 109 | |
| Current period provision | |
| 504 | |
| Recoveries collected | |
| - | |
| Write-offs charged against the allowance | |
| - | |
| Balance, December 31, 2020 | |
$ | 613 | |
| Ageing
analysis As at December 31, 2020 | |
Current | | |
0-30 days
overdue | | |
31-60 days
overdue | | |
61-90 days
overdue | | |
>90 days
overdue | | |
Combined | |
| Trade receivables | |
| 7,114 | | |
| 1,103 | | |
| 1,833 | | |
| 1,317 | | |
| 1,580 | | |
| 12,947 | |
| | |
| 7,114 | | |
| 1,103 | | |
| 1,833 | | |
| 1,317 | | |
| 1,580 | | |
| 12,947 | |
At each period end, inventory is reviewed to ensure that it
is recorded at the lower of cost and net realizable value.
| As at December 31, | |
2020 | |
| Machinery for resale | |
$ | 31,030 | |
| | |
$ | 31,030 | |
During the year ended December 31, 2020, the Pillar recorded
an inventory write-down of Nil.
| As at December 31, | |
2020 | |
| Derivative financial instruments (see note 9)* | |
$ | 4,295 | |
| Other tax and social security | |
| 4,688 | |
| | |
$ | 8,983 | |
*The non-current portion of this balance amounts to $1,847k.
Notes to the Carve-out Combined financial Statements
(Tabular amounts expressed in thousands of United States dollars, except
where noted)
| 13. | Property, plant and equipment |
| | |
| | |
Accumulated | | |
| |
| As at December 31, 2020 | |
Cost | | |
depreciation | | |
Net book value | |
| Land | |
$ | 3,000 | | |
| - | | |
| 3,000 | |
| Motor Vehicles | |
| 1,385 | | |
| 676 | | |
| 709 | |
| Plant and machinery | |
| 4,807 | | |
| 1,119 | | |
| 3,688 | |
| Office equipment | |
| 1,358 | | |
| 680 | | |
| 678 | |
| Software | |
| 696 | | |
| - | | |
| 696 | |
| Leasehold improvements | |
| 2,197 | | |
| 375 | | |
| 1,822 | |
| | |
$ | 13,443 | | |
$ | 2,850 | | |
$ | 10,593 | |
During the year ended December 31, 2020, no interest was capitalized.
Depreciation of $784k was recorded in respect of property,
plant and equipment during the year.
| 14. | Other non-current assets |
| As at December 31, 2020 | |
2020 | |
| Right-of-use assets-operating leases | |
$ | 14,070 | |
| | |
$ | 14,070 | |
| | |
| | |
Accumulated | | |
| |
| As at December 31, 2020 | |
Cost | | |
amortization | | |
Net book value | |
| Trade names and trademarks | |
$ | 1,710 | | |
$ | 477 | | |
$ | 1,233 | |
| Customer relationships | |
| 218 | | |
| 87 | | |
| 131 | |
| | |
$ | 1,928 | | |
$ | 564 | | |
$ | 1,364 | |
During the year the Pillar incurred amortization charge
of $118k for Trade names and trademarks, and $22k for customer relationships, see note 5.
During the year ended December 31, 2020, the weighted
average amortization period for all classes of intangible assets was 10 years. As at December 31, 2020, estimated annual amortization
expense for the next five years ended December 31 are as follows:
| 2021 | |
$ | 140 | |
| 2022 | |
| 140 | |
| 2023 | |
| 140 | |
| 2024 | |
| 140 | |
| 2025 | |
| 140 | |
| | |
$ | 700 | |
Notes to the Carve-out Combined financial Statements
(Tabular amounts expressed in thousands of United States dollars, except
where noted)
| 16. | Trade and other payables |
| As at December 31, | |
2020 | |
| Trade payables | |
$ | 5,097 | |
| Accrued liabilities and other payables | |
| 4,033 | |
| Social security and sales taxes payable | |
| 124 | |
| Derivative financial instruments (see note 9) | |
| 2,494 | |
| Operating lease liabilities | |
| 774 | |
| | |
$ | 12,522 | |
| |
|
December 31, |
| | |
2020 | |
| Short-term debt-overdraft facilities | |
$ | 54,969 | |
Short-term debt
Short-term debt is comprised of drawings in different
currencies on the Pillar’s committed revolving credit facilities and has a weighted average interest rate of 2.75%.
| 18. | Other non-current liabilities |
| As at December 31, | |
2020 | |
| Operating lease liability | |
$ | 14,070 | |
| Derivative financial instruments (see note 9) | |
| 899 | |
| Other | |
| 1,771 | |
| | |
$ | 16,740 | |
The Pillar's breakdown of lease expense is as follows:
| Year ended December 31, | |
2020 | |
| Operating lease cost | |
$ | 1,635 | |
| | |
| | |
| Short-term lease cost | |
| 1,404 | |
| | |
$ | 3,039 | |
The lease expenditure charged to earnings during the year
ended December 31, 2020 was $3,039k.
Notes to the Carve-out Combined financial Statements
(Tabular amounts expressed in thousands of United States dollars, except
where noted)
Short-term lease costs
The Pillar uses in its business a number of properties
owned by related parties where no formal lease agreement is in place. The Pillar pays for the use of these properties. No adjustments
have been made in these carve-out combined financial statements to reflect the fair value of these expenses. These informal arrangements
relate to six properties, and the total amount payable for the year ended December 31, 2020 was $1,404k. In these specific arrangements
there is no explicit or implied enforceable period. The arrangements can be terminated by either party (lessor or lessee) at any time,
and in terminating the lease arrangement there are no significant penalties incurred by either party to the arrangement, either contractually
or economically. In these instances the enforceable term is considered to be less than 12 months, and the costs associated with these
arrangements are accounted for as “short-term” lease costs.
Operating leases
The Pillar has three operating commercial leases
in force for auction sites and offices located in North America, the Middle East and Australia.
The North American property
lease term terminates on 1 December 2023. The annual base rent is $80k which is payable in advance on 30 November each year. The Pillar
is required to pay an additional rental cost of $1k for every million dollars of total auction sales in excess of certain agreed thresholds.
The additional rent payments are excluded from the measurement of the “Right of Use” (“ROU”)” asset and
lease liability, instead these payments are recorded in profit or loss as they occur. The thresholds were not exceeded in the period and
a Nil balance has been included in the financial statements with respect to the additional rental costs. In computing the roll asset and
lease liability a discount rate of 0.79% was applied.
The Australian property lease term terminates on
1 January 2023. Monthly rental payments on the property are AUD$22,500 with 3.5% annual increases in advance. In computing the ROU asset
and lease liability a discount rate of 0.76% was applied.
The Pillar has entered into a lease agreement with
JAFZA (Dubai) for the lease of land for a period of 20 years. The lease term does not contain restrictions on the Pillar’s activities.
The interest rate for discounting the lease liability is 4% which is based on the estimate of international borrowing costs.
There are no residual value guarantees provided by
the Pillar in any of its leasing arrangements. There are no restrictions or covenants imposed by the Pillar’s leasing arrangements.
The future aggregate minimum lease payments under non-cancellable
operating leases are as follows:
| 2021 | |
$ | 1,300 | |
| 2022 | |
| 1,308 | |
| 2023 | |
| 1,068 | |
| 2024 | |
| 990 | |
| 2025 | |
| 990 | |
| Thereafter | |
| 14,439 | |
| Total future minimum lease payments | |
| 20,095 | |
| less: imputed interest | |
| (5,251 | ) |
| Total operating lease liability | |
| 14,844 | |
| less: operating lease liability - current | |
| (774 | ) |
| Total operating lease liability - non-current | |
$ | 14,070 | |
At December 31, 2020, the weighted average remaining
lease term for operating leases is 6 years and the weighted average discount rate is 3.97%.
Notes to the Carve-out Combined financial Statements
(Tabular amounts expressed in thousands of United States dollars, except
where noted)
| 20. | Commitments Commitments for expenditures |
As at December 31, 2020, the Pillar had committed to
Nil in capital expenditures for property, plant and equipment and intangible assets.
| 21. | Contingencies Legal and other claims |
The Pillar is subject to legal and other claims that
arise in the ordinary course of its business. Management does not believe that the results of these claims will have a material effect
on the Pillar’s combined balance sheet or combined income statement.
Guarantee contracts
In the normal course of business, the Pillar will in
certain situations guarantee to a consignor a minimum level of proceeds in connection with the sale at auction of that consignor’s
equipment. The impact of these contracts are not material as at the balance sheet date and therefore no liability has been included in
the financial statements.
| 22. | Related party transactions |
The Euro Auctions Pillar is not a
statutory group, but rather is a collection of connected entities (operationally connected and with connected family ownership). The combined
balance sheet reflects those assets and liabilities that represent the historical financial position of the Pillar.
The Euro Auctions Pillar’s related
parties are summarized and defined as follows:
Significant influence
Companies which are deemed to be related parties owing
to them being controlled by brothers of Mr Derek Keys.
These following are deemed to be entities with significant influence:
| ● | Equipment Sales Pillar: the collection of connected entities
controlled by Mr Lynden Keys whose principal activity is the sale of plant and machinery. |
| ● | Equipment & Plant Services Pillar: the collection of connected
entities controlled by Mr Trevor Keys whose principal activity is the sale of equipment and plant to the agricultural and construction
industries. |
| ● | Other: Brian Keys and Jonathan Keys are also deemed to be related
parties as they are brothers of Mr Derek Keys. |
| ● | Included in the Pillar are Director emoluments paid to Mr Derek
Keys in the period amounting to $67k. |
Notes to the Carve-out Combined financial Statements
(Tabular amounts expressed in thousands of United States dollars, except
where noted)
| 22. | Related party transactions (continued) |
The following transactions were conducted with related entities
by virtue of significant influence:
| Auction Services Revenue | |
| |
| - Equipment & Plant Services Pillar* | |
$ | 1,014 | |
| - Equipment Sales Pillar* | |
$ | 1,715 | |
| | |
| | |
| Amounts (owed to)/from | |
| | |
| - Equipment & Plant Services Pillar** | |
$ | (170 | ) |
| - Equipment Sales Pillar** | |
$ | (89 | ) |
*These balances are recorded in “service revenue”
in the combined income statement
**These balances are recorded in “Amounts owed to related
parties” in the combined balance sheet
Common control
Balances owed by companies outside of the Euro Auctions
Pillar under common control of Derek Keys.
| Year ended December 31, | |
2020 | |
| Tamar Selby (UK) Limited*** | |
$ | 135 | |
| Barford Equipment Ltd*** | |
| 778 | |
| Old Coach House Properties Limited*** | |
| 449 | |
| Grant Equipment LLC*** | |
| 8 | |
| Euro Auctions LLC*** | |
| 991 | |
| Turvey Manor Limited*** | |
| 1,003 | |
| Gardrum Holdings Ltd*** | |
| 133 | |
| Euroauctions – Immobilien*** | |
| 10 | |
| | |
| 3,507 | |
***These balances are recorded in "Amounts owed by related
parties" in the carve-out combined financial statements.
Notes to the Carve-out Combined financial Statements
(Tabular amounts expressed in thousands of United States dollars, except
where noted)
On August 9, 2021, Ritchie Bros. Auctioneers Incorporated
executed a sale and purchase agreement (SPA) to acquire the Euro Auctions Pillar (as defined in note 1) from Mr Derek Keys (the beneficial
shareholder of the combined entities). These carve-out combined financial statements as of December 31, 2020 have been prepared on a stand-alone
basis derived from the financial statements and related accounting records of each of the components of that pillar, which are listed
in note 1.
Subsequent events have been evaluated from the year
end, December 31, 2020 to November 8, 2021. The financial statements were issued on November 8, 2021.
Interim
Carve-out Combined Income Statement
(Expressed
in thousands of United States dollars)
| | |
Nine
months ended
September 30 | |
| | |
2021 | | |
2020 | |
| Revenue: | |
| | |
| |
| Inventory
sales revenue | |
$ | 23,156 | | |
$ | 25,955 | |
| | |
| | | |
| | |
| Total
revenue | |
| 23,156 | | |
| 25,955 | |
| | |
| | | |
| | |
| Operating expenses: | |
| | | |
| | |
| Cost of
inventory sold | |
| 19,936 | | |
| 22,319 | |
| Selling,
general and administrative expenses | |
| 623 | | |
| 647 | |
| Foreign
exchange gain | |
| (157 | ) | |
| (146 | ) |
| Total
operating expenses | |
| 20,402 | | |
| 22,820 | |
| Operating
income | |
| 2,754 | | |
| 3,135 | |
| | |
| | | |
| | |
| Other
income, net | |
| 162 | | |
| 114 | |
| Income before income taxes | |
| 2,916 | | |
| 3,249 | |
| | |
| | | |
| | |
| Income tax expense: | |
| | | |
| | |
| Current
income tax | |
| 554 | | |
| 617 | |
| Net income | |
$ | 2,362 | | |
$ | 2,632 | |
See
accompanying notes to the interim carve-out combined financial statements.
| Equipment & Plant Services Pillar | 1 |
Interim
Carve-out Combined Statement of Comprehensive Income
(Expressed
in thousands of United States dollars)
| | |
Nine
months ended
September 30 | |
| | |
2021 | | |
2020 | |
| Net income | |
$ | 2,362 | | |
$ | 2,632 | |
| Other comprehensive loss,
net of income tax: | |
| | | |
| | |
| Foreign
currency translation adjustment | |
| (367 | ) | |
| (439 | ) |
| Total
comprehensive income | |
$ | 1,995 | | |
$ | 2,193 | |
See
accompanying notes to the interim carve-out combined financial statements.
| Equipment & Plant Services Pillar | 2 |
Interim
Carve-out Combined Balance Sheet
(Expressed
in thousands of United States dollars)
| | |
September
30, 2021 | | |
December
31, 2020 | |
| Assets | |
| | | |
| | |
| | |
| | | |
| | |
| Cash and cash
equivalents | |
$ | 4,840 | | |
$ | 8,679 | |
| Trade and other receivables | |
| 58 | | |
| 709 | |
| Less:
allowance for credit losses | |
| - | | |
| - | |
| Trade and other receivables;
net | |
| 58 | | |
| 709 | |
| Amounts owed by related parties | |
| 16,043 | | |
| 9,803 | |
| Inventory | |
| 3,412 | | |
| 3,599 | |
| Total current assets | |
| 24,353 | | |
| 22,790 | |
| | |
| | | |
| | |
| Total
assets | |
$ | 24,353 | | |
$ | 22,790 | |
| | |
| | | |
| | |
| Liabilities
and Net Parent Investment | |
| | | |
| | |
| | |
| | | |
| | |
| Trade and other payables | |
$ | 226 | | |
$ | 441 | |
| Short-term debt | |
| 184 | | |
| 772 | |
| Income
taxes payable | |
| 541 | | |
| 170 | |
| Total current liabilities | |
| 951 | | |
| 1,383 | |
| Total
liabilities | |
| 951 | | |
| 1,383 | |
| | |
| | | |
| | |
| Commitments and Contingencies
(Note 14 and 15 respectively) | |
| - | | |
| - | |
| | |
| | | |
| | |
| Net parent investment | |
| 23,066 | | |
| 20,704 | |
| Accumulated other comprehensive
income | |
| 336 | | |
| 703 | |
| | |
| | | |
| | |
| Total
net parent investment | |
| 23,402 | | |
| 21,407 | |
| Total liabilities and net
parent investment | |
$ | 24,353 | | |
$ | 22,790 | |
See
accompanying notes to the interim carve-out combined financial statements.
| Equipment & Plant Services Pillar | 3 |
Interim
Carve-out Combined Statement of Changes in Net Parent Investment
(Expressed
in thousands of United States dollars)
| | |
Net
Parent
Investment | | |
Accumulated
other
comprehensive
income | | |
Total
Net
Parent
Investment | |
| Balance, January 1, 2021 | |
$ | 20,704 | | |
$ | 703 | | |
$ | 21,407 | |
| Net income | |
| 2,362 | | |
| - | | |
| 2,362 | |
| Other comprehensive (loss) | |
| - | | |
| (367 | ) | |
| (367 | ) |
| | |
| | | |
| | | |
| | |
| Changes in net parent investment | |
| - | | |
| - | | |
| - | |
| | |
| | | |
| | | |
| | |
| Balance, September 30, 2021 | |
$ | 23,066 | | |
$ | 336 | | |
$ | 23,402 | |
| | |
Net
Parent
Investment | | |
Accumulated
other
comprehensive
income | | |
Total
Net
Parent
Investment | |
| Balance, January
1, 2020 | |
$ | 17,504 | | |
$ | - | | |
$ | 17,504 | |
| Net income | |
| 2,632 | | |
| - | | |
| 2,632 | |
| Other
comprehensive (loss) | |
| - | | |
| (439 | ) | |
| (439 | ) |
| | |
| | | |
| | | |
| | |
| Changes in net parent investment | |
| - | | |
| - | | |
| - | |
| | |
| | | |
| | | |
| | |
| Balance, September 30,
2020 | |
$ | 20,136 | | |
$ | (439 | ) | |
$ | 19,697 | |
See
accompanying notes to the interim carve-out combined financial statements.
| Equipment & Plant Services Pillar | 4 |
Interim
Carve-out Combined Statement of Cash Flows
(Expressed
in thousands of United States dollars)
| Nine
months ended September 30, | |
2021 | | |
2020 | |
| Cash provided by / (used in): | |
| | | |
| | |
| Operating activities: | |
| | | |
| | |
| Net
income | |
$ | 2,362 | | |
$ | 2,632 | |
| Adjustments for items
not affecting cash: | |
| | | |
| | |
| Other,
net | |
| - | | |
| - | |
| Net
changes in operating assets and liabilities | |
| 1,138 | | |
| 3,798 | |
| Net cash
provided by operating activities | |
| 3,500 | | |
| 6,430 | |
| Investing activities: | |
| | | |
| | |
| Advances
made to related parties | |
| (6,547 | ) | |
| - | |
| Receipts
from related parties | |
| - | | |
| 230 | |
| Net cash
(used in) / provided by investing activities | |
| (6,547 | ) | |
| 230 | |
| Financing activities: | |
| | | |
| | |
| Repayment
of short-term debt | |
| (546 | ) | |
| (674 | ) |
| Net
cash used in financing activities | |
| (546 | ) | |
| (674 | ) |
| Effect
of changes in foreign currency rates on cash, cash equivalents | |
| (246 | ) | |
| (36 | ) |
| (Decrease)
/ increase | |
| (3,839 | ) | |
| 5,950 | |
| Beginning
of period | |
| 8,679 | | |
| 1,964 | |
| Cash,
cash equivalents, end of period | |
$ | 4,840 | | |
$ | 7,914 | |
See
accompanying notes to the interim carve-out combined financial statements.
| Equipment & Plant Services Pillar | 5 |
Notes
to the Interim Carve-out Combined Financial Statements
(Tabular
amounts expressed in thousands of United States dollars, except where noted)
| 1. | Nature of Operations and Basis of Presentation |
The
Equipment & Plant Services Pillar (hereinafter collectively referred to as the “Pillar”, “we”, “our”)
operates principally in the sale of plant and machinery and is wholly owned by individuals, Trevor Keys and Jolene Keys. A discussion
of the relationship with the owner is included in (Note 16 - “Related Party Transactions”).
The
accompanying interim carve-out combined financial statements present the historical interim carve-out combined balance sheet as of September
30, 2021 and December 31, 2020, interim carve-out combined statement of comprehensive income, interim carve-out combined statements of
changes in net parent investment and interim carve-out combined statement of cash flows of the Pillar for the nine month periods ended
September 30, 2021 & 2020 which reflect the combined activities of the companies detailed below:
| — | Equipment
& Plant Services Limited (NI666354); |
| — | Equipment
& Plant Services Holdings Limited (NI666356); and |
| — | Equipment
& Plant Services No.1 Limited (NI046558) |
During
2020 a corporate reorganization was undertaken and pillar activities for the nine months ending September 30, 2020 were carried out in
these companies.
In
the year the Pillar activities were carried out in the entities included above. Non-Pillar activities (Property related) in Equipment
& Plant Services No.1 Limited are excluded.
The
pillar’s cost base includes all relevant costs pertaining to its operations, as they were historically managed, and therefore in
compiling these interim carve-out combined financial statements, no additional costs have been allocated to the Pillar.
The
pillar has not historically prepared stand-alone financial statements. These interim carve-out combined financial statements as of September
30, 2021, December 31, 2020, and September 30, 2020 have been prepared on a stand-alone basis derived from the financial statements and
related accounting records of each of the companies listed above. The accompanying interim carve-out combined financial statements were
prepared in order to comply with a condition in the Share Purchase Agreement (“SPA”), executed on August 9, 2021, to dispose
of the Equipment & Plant Services Pillar to Ritchie Bros. Auctioneers Incorporated. As stipulated by the SPA the accompanying interim
carve-out combined financial statements were prepared for the purpose of providing Ritchie Bros. Auctioneers Incorporated with historical
financial information of the Pillar. They reflect the results of operations, financial position, and cash flows of the Pillar as they
were historically managed and are presented in conformity with accounting principles generally accepted in the United States (“U.S.
GAAP”). Accordingly, these financial statements have been prepared on a combined basis and Parent’s net investment in these
operations is shown in lieu of stockholder’s equity. All intercompany and transactions within the Pillar have been eliminated in
the interim carve-out combined financial statements.
These
interim carve-out combined financial statements have been prepared based on the U.S. GAAP applied standards effective for 2020. The Pillar
has voluntarily early adopted ASC 842 Leases and ASC 326 Measurement of Credit Losses on Financial Instruments in these
interim carve-out combined financial statements.
Net
parent investment represents the owner’s historical investment in the Pillar and includes accumulated net earnings attributable
to the owners (Trevor Keys and Jolene Keys), intercompany transactions and direct capital contributions, as adjusted for direct cash
investments in the Pillar.
| Equipment & Plant Services Pillar | 6 |
Notes
to the Interim Carve-out Combined Financial Statements
(Tabular
amounts expressed in thousands of United States dollars, except where noted)
| 2. | Significant accounting policies |
Revenues
are comprised of:
Inventory
sales revenue
The
Pillar recognizes revenue when control of the promised goods is transferred to our customers, or upon completion of the performance obligation,
in an amount that reflects the consideration we expect to be entitled to in exchange for those goods. A performance obligation is a promise
in a contract to transfer a distinct good, or a series of distinct goods, to the customer. A contract’s transaction price is allocated
to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied.
Revenue
is measured at the fair value of the consideration received or receivable and is shown net of value-added tax and duties.
| (b) | Cost of inventory sold |
Cost
of inventory sold includes the purchase price of assets sold including any related transport and repair costs.
| (c) | Fair value measurement |
Fair
value is the exit price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market
participants at the measurement date. The Pillar measures financial instruments or discloses select non-financial assets at fair value
at each balance sheet date. Also, fair values of financial instruments measured at amortized cost are disclosed in note 9.
The
Pillar uses valuation techniques that are appropriate in the circumstances and for which sufficient data is available to measure fair
value, maximizing the use of relevant observable inputs and minimizing the use of unobservable inputs.
All
assets and liabilities for which fair value is measured or disclosed in the financial statements at fair value are categorized within
a fair value hierarchy, as disclosed in note 9, based on the lowest level input that is significant to the fair value measurement or
disclosure. This fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities
(Level 1) and the lowest priority to unobservable inputs (Level 3).
For
assets and liabilities that are recognized in the financial statements at fair value on a recurring basis, the Pillar determines whether
transfers have occurred between levels in the hierarchy by re-assessing categorization at the end of each reporting period.
For
the purposes of fair value disclosures, the Pillar has determined classes of assets and liabilities on the basis of the nature, characteristics
and risks of the assets or liability and the level of the fair value hierarchy as explained above.
| (d) | Foreign currency translation |
The
presentation currency of the interim carve-out combined financial statements is the United States dollar. The functional currency of
the pillar is pound sterling.
Accordingly,
the financial statements of the components of these interim carve-out combined financial statements that are not denominated in United
States dollars have been translated into United States dollars using the exchange rate at the end of each reporting period for asset
and liability amounts and the annual average exchange rate for amounts included in the determination of earnings. Any gains or losses
from the translation of asset and liability amounts are included in foreign currency translation adjustment in accumulated other comprehensive
income. In preparing the financial statements of the individual components, transactions in currencies other than the entity’s
functional currency are recognized at the rates of exchange prevailing at the dates of the transaction. At the end of each reporting
period, monetary assets and liabilities denominated in foreign currencies are retranslated at the rates prevailing at that date. Foreign
currency differences arising on retranslation of monetary items are recognized in earnings.
| Equipment & Plant Services Pillar | 7 |
Notes
to the Interim Carve-out Combined Financial Statements
(Tabular
amounts expressed in thousands of United States dollars, except where noted)
| 2. | Significant
accounting policies (continued) |
| (e) | Cash and cash equivalents |
Cash
and cash equivalents are comprised of cash on hand, deposits with financial institutions, and other short-term, highly liquid investments
with original maturity of three months or less when acquired, that are readily convertible to known amounts of cash.
| (f) | Trade and other receivables |
Trade
receivables principally include amounts due from customers. The allowance for credit losses is the Pillar’s best estimate of the
amount of probable credit losses in existing accounts receivable. The Pillar determines the allowance based on historical write-off experience,
customer economic data and reasonable and supportable forecasts of future economic conditions.
The
Pillar reviews the allowance for credit losses regularly and past due balances are reviewed for collectability. Account balances are
charged against the allowance when the Pillar believes that the receivable will not be recovered.
Inventory
consists of equipment and other assets purchased for resale. Inventory is valued at the lower of cost and net realizable value where
net realizable value represents the expected sale price upon disposition less make-ready costs and the costs of disposal and transportation.
The significant elements of cost include the acquisition price, in-bound transportation costs of the inventory, and make- ready costs
to prepare the inventory for sale that are not selling expenses. Write-downs to the carrying value of inventory are recorded in cost
of inventory sold on the combined income statement.
Income
tax expense represents the sum of current tax expense and deferred tax expense.
Current
tax
The
current tax expense is based on taxable profit for the period and includes any adjustments to tax payable in respect of previous years.
Taxable profit differs from income before income taxes as reported in the combined income statement because it excludes (i) items of
income or expense that are taxable or deductible in other years and (ii) items that are never taxable or deductible. The Pillar’s
liability for current tax is calculated using tax rates that have been enacted by the balance sheet date.
| Equipment & Plant Services Pillar | 8 |
Notes
to the Interim Carve-out Combined Financial Statements
(Tabular
amounts expressed in thousands of United States dollars, except where noted)
| 2. | Significant
accounting policies (continued) |
Deferred
tax
Income
taxes are accounted for using the asset and liability method. Deferred income tax assets and liabilities are based on temporary differences,
which are differences between the accounting basis and the tax basis of the assets and liabilities, and non-capital loss, capital loss,
and tax credits carryforwards are measured using the enacted tax rates and laws expected to apply when these differences reverse. Deferred
tax benefits, including non-capital loss, capital loss, and tax credits carryforwards, are recognized to the extent that realization
of such benefits is considered more likely than not. The effect on deferred tax assets and liabilities of a change in tax rates is recognized
in earnings in the period that enactment occurs. When realization of deferred income tax assets does not meet the more- likely-than-not
criterion for recognition, a valuation allowance is provided.
Interest
and penalties related to income taxes, including unrecognized tax benefits, are recorded in income tax expense in the income statement.
Liabilities
for uncertain tax positions are recorded based on a two-step process. The first step is to evaluate the tax position for recognition
by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained on audit,
including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest
amount that is more than 50% likely of being realized upon settlement. The Pillar regularly assesses the potential outcomes of examinations
by tax authorities in determining the adequacy of its provision for income taxes. The Pillar continually assesses the likelihood and
amount of potential adjustments and adjusts the income tax provision, income taxes payable, and deferred taxes in the period in which
the facts that give rise to a revision become known.
| (i) | Defined
contribution plans |
The
Pillar operates a defined contribution scheme for a specific director and employees. A defined contribution plan is a pension plan under
which the Pillar pays fixed contributions to a third party pension provider. Once the contributions have been paid the Pillar has no
further payment obligations. The contributions are recognized as an expense when they are due. Amounts not paid are show in accruals
in the balance sheet.
| Equipment & Plant Services Pillar | 9 |
Notes
to the Interim Carve-out Combined Financial Statements
(Tabular
amounts expressed in thousands of United States dollars, except where noted)
| 2. | Significant
accounting policies (continued) |
Advertising
costs are expensed as incurred. Advertising expense is included in costs of services and selling, general and administrative (“SG&A”)
expenses on the accompanying combined income statements.
| (k) | Related
party transactions |
These
interim carve-out combined financial statements disclose transactions with related parties which are not wholly captured within the Equipment
& Plant Services Pillar. Where appropriate, transactions of a similar nature are aggregated unless, in the opinion of the director,
separate disclosure is necessary to understand the effect of the transactions on the interim carve-out combined financial statements.
Related
party transactions are reflected in the interim carve-out combined financial statements at the amounts payable to and received from the
counterparty with no adjustments made to fair value, if applicable.
| (l) | New and amended accounting standards |
| a. | Effective
January 1, 2020, the Pillar adopted ASU 2016-13, Financial Instruments – Credit Losses (Topic 326),
Measurement of Credit Losses on Financial Instruments. The new standard replaces the ‘incurred loss
methodology’ credit impairment model with a new forward-looking “methodology that reflects
expected credit losses and requires consideration of a broader range of reasonable and supportable information
to inform credit loss estimates.” In applying the new standard, the Pillar has adopted the loss
rate methodology to estimate historical losses on trade receivables. The historical data is adjusted to
account for forecasted changes in the macroeconomic environment in order to calculate the current expected
credit loss. The Pillar’s adoption of ASC 326 did not result in a material change in the carrying
values of the Pillar’s financial assets on the transition date. |
| b. | In March 2020,
the FASB issued an update to ASU 2020-04, Reference Rate Reform (Topic 848), Facilitation of the Effects
of Reference Rate Reform on Financial Reporting which addresses the effects of reference rate reform on
financial reporting. ASU 2020-04 is effective for all entities as of March 12, 2020 through to December
31, 2022. If elected, and if certain criteria are met, this ASU requires less accounting analysis and
recognition for modifications related to reference rate reform. The update issued provides optional expedients
and exceptions for applying generally accepted accounting principles to contract modifications, hedging
relationships, derivatives and other transactions affected by the reference rate reform that reference
LIBOR or another reference rate expected to be discontinued. |
| c. | It was announced
in March 2021 that LIBOR rates are expected to cease to be published as early as December 31, 2021 and
as late as June 30, 2023 depending on the jurisdiction and the term of the rate. As a result, we have
assessed the impact of the expected reference rate reform on our interim carve-out combined financial
statements. The adoption of the ASU and the recent updates have not and are not expected to have a material
impact on our interim carve-out combined financial statements. However, if applicable, the Pillar will
use the optional expedients available when reference rate changes occur. |
| Equipment & Plant Services Pillar | 10 |
Notes
to the Interim Carve-out Combined Financial Statements
(Tabular
amounts expressed in thousands of United States dollars, except where noted)
| 3. | Significant judgments, estimates and assumptions |
The
preparation of financial statements in conformity with US GAAP requires management to make judgments, estimates and assumptions that
affect the reported amounts of assets and liabilities and the disclosure of contingent liabilities at the date of the financial statements,
and the reported amounts of revenues and expenses during the reporting period.
Future
differences arising between actual results and the judgments, estimates and assumptions made by the Pillar at the reporting date, or
future changes to estimates and assumptions, could necessitate adjustments to the underlying reported amounts of assets, liabilities,
revenues and expenses in future reporting periods.
Judgments,
estimates and underlying assumptions are evaluated on an ongoing basis by management and are based on historical experience and other
factors including expectations of future events that are believed to be reasonable under the circumstances. However, existing circumstances
and assumptions about future developments may change due to market changes or circumstances and such changes are reflected in the assumptions
when they occur. Significant items subject to estimates include the determination of deferred income taxes, and other contingencies.
The
Pillar’s revenue is as follows:
| | |
Nine
months ended September
30 | |
| | |
2021 | | |
2020 | |
| Inventory
sales revenue | |
$ | 23,156 | | |
$ | 25,955 | |
| | |
$ | 23,156 | | |
$ | 25,955 | |
The
Pillar’s geographic information as determined by its combined revenues are set out below:
| | |
United | | |
| | |
| | |
| | |
| |
| | |
Kingdom | | |
United
States | | |
Europe | | |
Other | | |
Combined | |
| Total
revenue for the year ended: | |
| | | |
| | | |
| | | |
| | | |
| | |
| September 30,
2021 | |
$ | 21,542 | | |
$ | 829 | | |
$ | 79 | | |
$ | 706 | | |
$ | 23,156 | |
| September 30, 2020 | |
$ | 23,358 | | |
$ | 1,393 | | |
$ | 1,169 | | |
$ | 35 | | |
$ | 25,955 | |
| 5. | Operating
expenses SG&A expenses |
| | |
Nine
months ended September
30 | |
| | |
2021 | | |
2020 | |
| Employee compensation
expenses | |
$ | 489 | | |
$ | 444 | |
| Buildings, facilities and
technology expenses | |
| 6 | | |
| 28 | |
| Travel, advertising and promotion
expenses | |
| 53 | | |
| 50 | |
| Professional fees | |
| 44 | | |
| 62 | |
| Other
SG&A expenses | |
| 31 | | |
| 63 | |
| | |
$ | 623 | | |
$ | 647 | |
Included
within employee compensation expenses are defined contribution plan payments of $3k (2020: $4k)
Total advertising costs incurred for
the period ended September 30, 2021 was Nil (2020: Nil).
| Equipment & Plant Services Pillar | 11 |
Notes
to the Interim Carve-out Combined Financial Statements
(Tabular
amounts expressed in thousands of United States dollars, except where noted)
| | |
Nine
months ended September
30 | |
| | |
2021 | | |
2020 | |
| Interest
income | |
$ | 162 | | |
$ | 114 | |
| | |
$ | 162 | | |
$ | 114 | |
At
the end of each interim period, the Pillar estimates the effective tax rate expected to be applicable for the full fiscal year. The estimate
reflects, among other items, management’s best estimate of operating results. It does not include the estimated impact of foreign
exchange rates or unusual and/or infrequent items, which may cause significant variations in the customary relationship between income
tax expense and income before income taxes.
For
the nine months ended September 30, 2021, income tax expense was $554k, compared to an income tax expense of $617k for the same period
in 2020. The effective tax rate was 19% for the nine months ended September 30, 2021, compared to 19% for the six months ended September
30, 2020.
The
effective tax rate remained materially in line with the prior period.
| 8. | Supplemental
cash flow information |
| Nine
months ended September 30 | |
2021 | | |
2020 | |
| Trade and other
receivables | |
$ | 828 | | |
$ | (1,918 | ) |
| Inventory | |
| 141 | | |
| 4,843 | |
| Income taxes receivable | |
| 382 | | |
| 59 | |
| Trade
and other payables | |
| (213 | ) | |
| 814 | |
| Net changes
in operating assets and liabilities | |
$ | 1,138 | | |
$ | 3,798 | |
| Nine
months ended September 30 | |
2021 | | |
2020 | |
| Interest
received | |
$ | 162 | | |
$ | 150 | |
| Net income taxes paid | |
| 185 | | |
| 529 | |
| | |
September
30,
2021 | | |
December
31,
2020 | |
| Cash
and cash equivalents | |
$ | 4,840 | | |
$ | 8,679 | |
| Equipment & Plant Services Pillar | 12 |
Notes
to the Interim Carve-out Combined Financial Statements
(Tabular
amounts expressed in thousands of United States dollars, except where noted)
All
assets and liabilities for which fair value is measured or disclosed in the interim carve-out combined financial statements are categorized
within the fair value hierarchy, described as follows, based on the lowest level input that is significant to the fair value measurement
or disclosure:
| ● | Level
1: Unadjusted quoted prices in active markets for identical assets or liabilities that the
entity can access at measurement date; |
| ● | Level
2: Inputs other than quoted prices included in Level 1 that are observable for the asset
or liability, either directly or indirectly; and |
| ● | Level
3: Unobservable inputs for the asset or liability. |
| | |
| | |
September
30, 2021 | | |
December
31, 2020 | |
| | |
| | |
| | |
| | |
Carrying | | |
| |
| | |
| | |
Carrying | | |
Fair
value | | |
| | |
| |
| | |
Category | | |
amount | | |
| | |
amount | | |
Fair
value | |
| Fair
values disclosed: | |
| | | |
| | | |
| | | |
| | | |
| | |
| Cash
and cash equivalents | |
| Level
1 | | |
$ | 4,840 | | |
$ | 4,840 | | |
$ | 8,679 | | |
$ | 8,679 | |
The
carrying value of the Pillar’s cash and cash equivalents, trade and other receivables, trade and other payables approximate their
fair values due to their short terms to maturity.
| 10. | Trade
and other receivables |
| | |
September
30,
2021 | | |
December
31,
2020 | |
| Trade receivables | |
$ | 48 | | |
| 173 | |
| Consumption taxes receivable | |
| 2 | | |
| 534 | |
| Other
receivables | |
| 8 | | |
| 2 | |
| | |
$ | 58 | | |
| 709 | |
Trade
receivables are generally secured by the equipment that they relate to as it is Pillar policy that equipment is not released until payment
has been collected. Trade receivables are due for settlement within 3 to 21 days of the date of sale. Consumption taxes receivable are
deemed fully recoverable unless disputed by the relevant tax authority. Other receivables are unsecured and non-interest bearing. The
allowance for expected credit losses at September 30, 2021 was Nil (2020: Nil). There was no movement in this provision during the period.
| Equipment & Plant Services Pillar | 13 |
Notes
to the Interim Carve-out Combined Financial Statements
(Tabular
amounts expressed in thousands of United States dollars, except where noted)
At
each period end, inventory is reviewed to ensure that it is recorded at the lower of cost and net realizable value.
| | |
September
30, 2021 | | |
December
31, 2020 | |
| Machinery
for resale | |
$ | 3,412 | | |
| 3,599 | |
| | |
$ | 3,412 | | |
| 3,599 | |
No
inventory write downs were recorded during the period ended September 30, 2021 (period ended September 30, 2020: Nil).
| 12. Trade and other payables |
|
| | |
September
30, 2021 | | |
December
31, 2020 | |
| Trade payables | |
$ | 28 | | |
| 267 | |
| Accrued liabilities | |
| 117 | | |
| 160 | |
| Social security and sales
taxes payable | |
| - | | |
| 14 | |
| Other payables | |
| 81 | | |
| - | |
| | |
$ | 226 | | |
| 441 | |
| | |
September
30, 2021 | | |
December
31, | |
| | |
| | |
2020 | |
| Short-term
debt-overdraft facilities | |
$ | 184 | | |
| 772 | |
Short-term
debt
Short-term
debt is comprised of drawings in different currencies on the Pillar’s committed revolving credit facilities and has a weighted
average interest rate of 2.85% over the period ended September 30, 2021 (2020: 2.85%).
| Equipment & Plant Services Pillar | 14 |
Notes
to the Interim Carve-out Combined Financial Statements
(Tabular
amounts expressed in thousands of United States dollars, except where noted)
| 14. | Commitments
Commitments for expenditures |
As
at September 30, 2021, the Pillar had committed to Nil in capital expenditures for property, plant and equipment and intangible assets
(2020: Nil).
| 15. | Contingencies
Legal and other claims |
The
Pillar is subject to legal and other claims that arise in the ordinary course of its business. Management does not believe that the results
of these claims will have a material effect on the Pillar’s combined balance sheet or combined income statement.
| 16. | Related
party transactions |
The
Equipment & Plant Services Pillar’s related parties are summarized and defined as follows:
Significant
influence
Companies
which are deemed to be related parties owing to them being controlled by brothers of Mr Trevor Keys. These following are deemed to be
entities with significant influence:
| ● | Euro
Auctions Pillar: the business controlled by Mr Derek Keys whose principal activity is in
conducting auction sales and valuations throughout the United Kingdom, mainland Europe, Australia,
Dubai and the United States of America. |
| ● | Equipment
Sales Pillar: the business controlled by Mr Lynden Keys whose principal activity is the sale
of plant and machinery. |
| ● | Other:
Brian Keys and Jonathan Keys are also deemed to be related parties as they are brothers of
Mr Trevor Keys. |
| ● | Included
in the Pillar are Director emoluments paid to Mr Trevor Keys in the period amounting to $53k. |
| Equipment & Plant Services Pillar | 15 |
Notes
to the Interim Carve-out Combined Financial Statements
(Tabular
amounts expressed in thousands of United States dollars, except where noted)
| 16. | Related
party transactions (continued) |
Common
Control
| ● | Common
control: Other companies owned by Trevor Keys outside of the transaction perimeter which
do not form part of the Equipment & Plant Services Pillar; Bayhead Trading Limited, Mattram
Property Limited, Dumfries Plant Rentals Limited and DCA (Director’s Current Account). |
The
following transactions were conducted with related entities by virtue of significant influence & common control:
| | |
Nine
month period ended
September 30 | |
| | |
2021 | | |
2020 | |
| Significant
influence | |
| | | |
| | |
| Transactions
with entities with significant influence | |
| $ | | |
| $ | |
| Sales commission
paid to Euro Auctions Pillar in the period* | |
| 791 | | |
| 658 | |
*These
balances are recorded in “cost of inventory sold” in the combined income statement
| Transactions | |
September
30, 2021 | | |
December
31, 2020 | |
| Significant
influence | |
| | | |
| | |
| Balance
due from/(to) | |
$ | | | |
$ | | |
| Euro Auctions
Pillar** | |
| 3,257 | | |
| 170 | |
| Lynden Keys** | |
| 1,026 | | |
| 1,183 | |
| Common
control | |
| | | |
| | |
| Balances
due from/(to) | |
$ | | | |
$ | | |
| Equipment & Plant Services
No.1 Limited** | |
| 391 | | |
| 388 | |
| Bayhead Trading Limited** | |
| 843 | | |
| 512 | |
| Mattram Property Limited** | |
| 9,663 | | |
| 6,005 | |
| Dumfries Plant Rentals Limited** | |
| 741 | | |
| 1,505 | |
| DCA (Director’s Current
Account)** | |
| 122 | | |
| 40 | |
**These
balances are recorded in “Amounts owed by related parties " in the interim carve-out combined financial statements.
There
are no events subsequent which require disclosure or adjustment in these financial statements.
Subsequent
events have been evaluated from the period ended, September 30, 2021 to November 8, 2021. The financial statements were issued on November
8, 2021.
| Equipment & Plant Services Pillar | 16 |
Interim
Carve-out Combined Income Statement
(Expressed
in thousands of United States dollars)
| | |
Nine
months ended, 30 September | |
| | |
2021 | | |
2020 | |
| Revenue: | |
| | |
| |
| Inventory
sales revenue | |
$ | 27,845 | | |
$ | 51,567 | |
| | |
| | | |
| | |
| Total
revenue | |
| 27,845 | | |
| 51,567 | |
| | |
| | | |
| | |
| Operating expenses: | |
| | | |
| | |
| Cost of
inventory sold | |
| 25,239 | | |
| 44,633 | |
| Selling,
general and administrative expenses | |
| 675 | | |
| 1,119 | |
| Depreciation
and amortization expenses | |
| 11 | | |
| 5 | |
| Gain on
disposition of property, plant and equipment | |
| (35 | ) | |
| - | |
| Foreign
exchange gain | |
| (515 | ) | |
| (194 | ) |
| Total
operating expenses | |
| 25,375 | | |
| 45,563 | |
| Operating
income | |
| 2,470 | | |
| 6,004 | |
| | |
| | | |
| | |
| Interest expense | |
| (10 | ) | |
| (173 | ) |
| Other
income, net | |
| 130 | | |
| 135 | |
| Income before income taxes | |
| 2,590 | | |
| 5,966 | |
| | |
| | | |
| | |
| Income tax expense: | |
| | | |
| | |
| Current
income tax | |
| 492 | | |
| 1,134 | |
| Net income | |
$ | 2,098 | | |
$ | 4,832 | |
See
accompanying notes to the interim carve-out combined financial statements.
Interim
Carve-out Combined Statement of Comprehensive Income
(Expressed
in thousands of United States dollars)
| | |
Nine
months ended, September 30 | |
| | |
2021 | | |
2020 | |
| Net income | |
$ | 2,098 | | |
$ | 4,832 | |
| Other comprehensive income,
net of income tax: | |
| | | |
| | |
| Foreign
currency translation adjustment | |
| (370 | ) | |
| (377 | ) |
| Total
comprehensive income | |
$ | 1,728 | | |
$ | 4,455 | |
See
accompanying notes to the interim carve-out combined financial statements.
Interim
Carve-out Combined Balance Sheet
(Expressed
in thousands of United States dollars)
| | |
September
30, 2021 | | |
December
31, 2020 | |
| Assets | |
| | | |
| | |
| Cash and cash
equivalents | |
$ | 5,494 | | |
$ | 12,754 | |
| Trade and other receivables | |
| 501 | | |
| 111 | |
| Less:
allowance for credit losses | |
| - | | |
| - | |
| Trade and other receivables;
net | |
| 501 | | |
| 111 | |
| Amounts owed by related parties | |
| 16,502 | | |
| 8,581 | |
| Other current assets | |
| 205 | | |
| 171 | |
| Inventory | |
| 3,139 | | |
| 2,446 | |
| Total current assets | |
| 25,841 | | |
| 24,063 | |
| | |
| | | |
| | |
| Property,
plant and equipment | |
| 96 | | |
| 209 | |
| Total
non-current assets | |
| 96 | | |
| 209 | |
| Total
assets | |
| 25,937 | | |
| 24,272 | |
| | |
| | | |
| | |
| Liabilities
and Net Parent Investment | |
| | | |
| | |
| Amounts owed to related parties | |
| 13 | | |
| 580 | |
| Trade and other payables | |
| 993 | | |
| 959 | |
| Income
taxes payable | |
| 1,114 | | |
| 604 | |
| Total current liabilities | |
| 2,120 | | |
| 2,143 | |
| | |
| | | |
| | |
| Deferred
tax liabilities | |
| - | | |
| 40 | |
| Total
liabilities | |
| 2,120 | | |
| 2,183 | |
| | |
| | | |
| | |
| Commitments and Contingencies
(Note 15 and 16 respectively) | |
| - | | |
| - | |
| | |
| | | |
| | |
| Net parent investment | |
| 23,409 | | |
| 21,311 | |
| Accumulated other comprehensive
income | |
| 408 | | |
| 778 | |
| | |
| | | |
| | |
| Total
net parent investment | |
| 23,817 | | |
| 22,089 | |
| Total
liabilities and net parent investment | |
$ | 25,937 | | |
$ | 24,272 | |
See
accompanying notes to the interim carve-out combined financial statements.
Interim
Carve-out Combined Statement of Changes in Net Parent Investment
(Expressed
in thousands of United States dollars)
| | |
Net
Parent
Investment | | |
Accumulated
other
comprehensive
income | | |
Total
Net
Parent
Investment | |
| Balance, January
1, 2021 | |
$ | 21,311 | | |
$ | 778 | | |
$ | 22,089 | |
| Net income | |
| 2,098 | | |
| - | | |
| 2,098 | |
| Other
comprehensive (loss) | |
| - | | |
| (370 | ) | |
| (370 | ) |
| | |
| | | |
| | | |
| | |
| Changes in net parent investment | |
| - | | |
| - | | |
| - | |
| | |
| | | |
| | | |
| | |
| Balance, September 30,
2021 | |
$ | 23,409 | | |
$ | 408 | | |
$ | 23,817 | |
| | |
Net
Parent
Investment | | |
Accumulated
other
comprehensive
income | | |
Total
Net
Parent
Investment | |
| Balance, January
1, 2020 | |
$ | 15,973 | | |
$ | - | | |
$ | 15,973 | |
| Net income | |
| 4,832 | | |
| - | | |
| 4,832 | |
| Other
comprehensive (loss) | |
| - | | |
| (377 | ) | |
| (377 | ) |
| | |
| | | |
| | | |
| | |
| Changes in net parent investment | |
| - | | |
| - | | |
| - | |
| | |
| | | |
| | | |
| | |
| Balance, September 30,
2020 | |
$ | 20,805 | | |
$ | (377 | ) | |
$ | 20,428 | |
See
accompanying notes to the interim carve-out combined financial statements.
Interim
Carve-out Combined Statement of Cash Flows
(Expressed
in thousands of United States dollars)
| Nine
months ended September 30, | |
2021 | | |
2020 | |
| Cash provided by / (used in): | |
| | | |
| | |
| Operating activities: | |
| | | |
| | |
| Net
income | |
$ | 2,098 | | |
$ | 4,832 | |
| Adjustments
for items not affecting cash: | |
| | | |
| | |
| Depreciation
and amortization expenses | |
| 11 | | |
| 5 | |
| Net
changes in operating assets and liabilities | |
| (512 | ) | |
| 5,165 | |
| Net cash
(used in) / provided by operating activities | |
| 1,597 | | |
| 10,002 | |
| Investing activities: | |
| | | |
| | |
| Advances
to related parties | |
| (8,694 | ) | |
| - | |
| Receipts
from related parties | |
| - | | |
| 456 | |
| Net cash
(used in) / from investing activities | |
| (8,694 | ) | |
| 456 | |
| Financing activities: | |
| | | |
| | |
| Repayment
of short-term debt | |
| - | | |
| (3,122 | ) |
| Net cash
used in financing activities | |
| - | | |
| (3,122 | ) |
| Effect
of changes in foreign currency rates on cash, cash equivalents | |
| (163 | ) | |
| 433 | |
| (Decrease)
/ increase | |
| (7,260 | ) | |
| 7,769 | |
| Beginning
of period | |
| 12,754 | | |
| 1,160 | |
| Cash,
cash equivalents, end of period | |
$ | 5,494 | | |
$ | 8,929 | |
See
accompanying notes to the interim carve-out combined financial statements.
Notes
to the Interim Carve-out Combined Financial Statements
(Tabular
amounts expressed in thousands of United States dollars, except where noted)
| 1. | Nature of Operations and Basis of Presentation |
The
Equipment Sales Pillar (hereinafter collectively referred to as the “Pillar”, “we”, “our”) operates
principally in the sale of plant and machinery and is wholly controlled by individuals, Lynden Keys and Wendy Keys. A discussion of the
relationship with the owner, including a description of the costs allocated to the Pillar, is included in (Note 16- “Related Party
Transactions”).
The
accompanying interim carve-out combined financial statements present the historical interim carve-out combined balance sheet as of September
30 2021 and December 31, 2020, interim carve-out combined income statement, interim carve-out combined statement of comprehensive income,
interim carve-out combined statements of changes in net parent investment and interim carve-out combined statement of cash flows of the
Pillar for the nine months ended September 30, 2021 and September 30, 2020 respectively which reflect the combined activities of the
companies detailed below:
| — | Equipment
Sales Limited (NI668774) |
| — | Equipment
Sales No.2 Limited (NI666146); and |
| — | Equipment
Sales No.3 Limited (NI042032) |
During
2020 a corporate reorganization was undertaken and pillar activities for the nine months ending September 30, 2020 were carried out in
these companies.
In
the period the Pillar activities were carried out in the entities included above. Non-Pillar activities (property related) in Equipment
Sales No. 3 Limited are excluded.
The
pillar’s cost base includes all relevant costs pertaining to its operations, as they were historically managed, and therefore in
compiling these carve out financial statements, no additional costs have been allocated to the Pillar.
The
pillar has not historically prepared stand-alone financial statements. These interim carve-out combined financial statements as of September
30, 2021, December 31, 2020, and September 30, 2020 have been prepared on a stand-alone basis derived from the financial statements and
related accounting records of each of the companies listed above. The accompanying combined financial statements were prepared in order
to comply with a condition in the Share Purchase Agreement (“SPA”), executed on August 9, 2021, to dispose of the Equipment
Sales Pillar to Ritchie Bros. Auctioneers Incorporated. As stipulated by the SPA the accompanying combined financial statements were
prepared for the purpose of providing Ritchie Bros. Auctioneers Incorporated with historical financial information of the Pillar. They
reflect the results of operations, financial position, and cash flows of the Pillar as they were historically managed and are presented
in conformity with accounting principles generally accepted in the United States (“U.S. GAAP”). Accordingly, these financial
statements have been prepared on a combined basis and Parent’s net investment in these operations is shown in lieu of stockholder’s
equity. All intracompany and transactions within the Pillar have been eliminated in the combined financial statements.
These
interim carve-out combined financial statements have been prepared based on the U.S. GAAP applied standards effective for 2021. The Pillar
has voluntarily early adopted ASC 842 Leases and ASC 326 Measurement of Credit Losses on Financial Instruments in these
interim carve-out combined financial statements.
Net
parent investment represents the owners’ historical investment in the Pillar and includes accumulated net earnings attributable
to the owners (Lynden and Wendy Keys), intercompany transactions and direct capital contributions, as adjusted for direct cash investments
in the Pillar.
Notes
to the Interim Carve-out Combined Financial Statements
(Tabular
amounts expressed in thousands of United States dollars, except where noted)
| 2. | Significant accounting policies |
Revenues
are comprised of:
The
Pillar recognizes revenue when control of the promised goods is transferred to our customers, or upon completion of the performance obligation,
in an amount that reflects the consideration we expect to be entitled to in exchange for those goods. A performance obligation is a promise
in a contract to transfer a distinct good, or a series of distinct goods, to the customer. A contract’s transaction price is allocated
to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. Revenue is measured
at the fair value of the consideration received or receivable and is shown net of value-added tax and duties.
| (b) | Cost of inventory sold |
Cost
of inventory sold includes the purchase price of assets sold including any related transport and repair costs.
| (c) | Fair value measurement |
Fair
value is the exit price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market
participants at the measurement date. The Pillar measures financial instruments or discloses select non-financial assets at fair value
at each balance sheet date. Also, fair values of financial instruments measured at amortized cost are disclosed in note 8.
The
Pillar uses valuation techniques that are appropriate in the circumstances and for which sufficient data is available to measure fair
value, maximizing the use of relevant observable inputs and minimizing the use of unobservable inputs.
All
assets and liabilities for which fair value is measured or disclosed in the financial statements at fair value are categorized within
a fair value hierarchy, as disclosed in note 8, based on the lowest level input that is significant to the fair value measurement or
disclosure. This fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities
(Level 1) and the lowest priority to unobservable inputs (Level 3).
For
assets and liabilities that are recognized in the financial statements at fair value on a recurring basis, the Pillar determines whether
transfers have occurred between levels in the hierarchy by re-assessing categorization at the end of each reporting period.
For
the purposes of fair value disclosures, the Pillar has determined classes of assets and liabilities on the basis of the nature, characteristics
and risks of the assets or liability and the level of the fair value hierarchy as explained above.
| (d) | Foreign currency translation |
The
presentation currency of the combined financial statements is the United States dollar. The functional currency of the pillar is pound
sterling.
Accordingly,
the financial statements of the components of these combined financial statements that are not denominated in United States dollars have
been translated into United States dollars using the exchange rate at the end of each reporting period for asset and liability amounts
and the annual average exchange rate for amounts included in the determination of earnings. Any gains or losses from the translation
of asset and liability amounts are included in foreign currency translation adjustment in accumulated other comprehensive income. In
preparing the financial statements of the individual components, transactions in currencies other than the entity’s functional
currency are recognized at the rates of exchange prevailing at the dates of the transaction. At the end of each reporting period, monetary
assets and liabilities denominated in foreign currencies are retranslated at the rates prevailing at that date. Foreign currency differences
arising on retranslation of monetary items are recognized in earnings.
Notes
to the Interim Carve-out Combined Financial Statements
(Tabular
amounts expressed in thousands of United States dollars, except where noted)
| 2. | Significant
accounting policies (continued) |
| (e) | Cash
and cash equivalents |
Cash
and cash equivalents are comprised of cash on hand, deposits with financial institutions, and other short-term, highly liquid investments
with original maturity of three months or less when acquired, that are readily convertible to known amounts of cash.
| (f) | Trade
and other receivables |
Trade
receivables principally include amounts due from customers. The allowance for credit losses is the Pillar’s best estimate of the
amount of probable credit losses in existing accounts receivable. The Pillar determines the allowance based on historical write-off experience,
customer economic data and reasonable and supportable forecasts of future economic conditions.
The
Pillar reviews the allowance for credit losses regularly and past due balances are reviewed for collectability. Account balances are
charged against the allowance when the Pillar believes that the receivable will not be recovered.
Inventory
consists of equipment and other assets purchased for resale. Inventory is valued at the lower of cost and net realizable value where
net realizable value represents the expected sale price upon disposition less make-ready costs and the costs of disposal and transportation.
The significant elements of cost include the acquisition price, in-bound transportation costs of the inventory, and make- ready costs
to prepare the inventory for sale that are not selling expenses. Write-downs to the carrying value of inventory are recorded in cost
of inventory sold on the combined income statement.
| (h) | Property,
plant and equipment |
All
property, plant and equipment are stated at cost less accumulated depreciation. Cost includes all expenditures that are directly attributable
to the acquisition or development of the asset, net of any amounts received in relation to those assets, including scientific research
and experimental development tax credits.
All
repairs and maintenance costs are charged to earnings during the financial period in which they are incurred. Gains and losses on disposal
of an item of property, plant and equipment are determined by comparing the proceeds from disposal with the carrying amount of the item
and are recognized net within operating income on the income statement.
Depreciation
is provided to charge the cost of the assets to operations over their estimated useful lives based on their usage as follows:
| Asset | |
Basis | |
Rate
/ term | |
| Plant and machinery | |
Declining balance | |
| 15 | % |
| Motor vehicles | |
Declining balance | |
| 15 | % |
| Office equipment | |
Declining balance | |
| 15 | % |
Notes
to the Interim Carve-out Combined Financial Statements
(Tabular
amounts expressed in thousands of United States dollars, except where noted)
| 2. | Significant
accounting policies (continued) |
| (i) | Impairment
of long-lived assets |
Long-lived
assets, comprised of property, plant and equipment, are assessed for impairment whenever events or circumstances indicate that their
carrying value may not be recoverable. For the purpose of impairment testing, long-lived assets are grouped and tested for recoverability
at the lowest level that generates independent cash flows. An impairment loss is recognized when the carrying value of the assets or
asset groups is greater than the future projected undiscounted cash flows. The impairment loss is calculated as the excess of the carrying
value over the fair value of the asset or asset group. Fair value is based on valuation techniques or third party appraisals. Significant
estimates and judgments are applied in determining these cash flows and fair values.
Income
tax expense represents the sum of current tax expense and deferred tax expense.
Current
tax
The
current tax expense is based on taxable profit for the period and includes any adjustments to tax payable in respect of previous years.
Taxable profit differs from income before income taxes as reported in the combined income statement because it excludes (i) items of
income or expense that are taxable or deductible in other years and (ii) items that are never taxable or deductible. The Pillar’s
liability for current tax is calculated using tax rates that have been enacted by the balance sheet date.
Deferred
tax
Income
taxes are accounted for using the asset and liability method. Deferred income tax assets and liabilities are based on temporary differences,
which are differences between the accounting basis and the tax basis of the assets and liabilities, and non-capital loss, capital loss,
and tax credits carryforwards are measured using the enacted tax rates and laws expected to apply when these differences reverse. Deferred
tax benefits, including non-capital loss, capital loss, and tax credits carryforwards, are recognized to the extent that realization
of such benefits is considered more likely than not. The effect on deferred tax assets and liabilities of a change in tax rates is recognized
in earnings in the period that enactment occurs. When realization of deferred income tax assets does not meet the more- likely-than-not
criterion for recognition, a valuation allowance is provided.
Interest
and penalties related to income taxes, including unrecognized tax benefits, are recorded in income tax expense in the income statement.
Liabilities
for uncertain tax positions are recorded based on a two-step process. The first step is to evaluate the tax position for recognition
by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained on audit,
including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest
amount that is more than 50% likely to be realized upon settlement. The Pillar regularly assesses the potential outcomes of examinations
by tax authorities in determining the adequacy of its provision for income taxes. The Pillar continually assesses the likelihood and
amount of potential adjustments and adjusts the income tax provision, income taxes payable, and deferred taxes in the period in which
the facts that give rise to a revision become known
| (k) | Defined
contribution plans |
The
Pillar operates a defined contribution scheme for a specific director and employees. A defined contribution plan is a pension plan under
which the Pillar pays fixed contributions to a third party pension provider. Once the contributions have been paid the Pillar has no
further payment obligations. The contributions are recognised as an expense when they are due. Amounts not paid are shown in accruals
in the balance sheet.
Advertising
costs are expensed as incurred. Advertising expense is included in costs of services and selling, general and administrative (“SG&A”)
expenses on the accompanying income statements.
Notes
to the Interim Carve-out Combined Financial Statements
(Tabular
amounts expressed in thousands of United States dollars, except where noted)
| 2. | Significant
accounting policies (continued) |
| (m) | Related
party transactions |
These
combined financial statements disclose transactions with related parties which are not wholly captured within the Equipment Sales Pillar.
Where appropriate, transactions of a similar nature are aggregated unless, in the opinion of the director, separate disclosure is necessary
to understand the effect of the transactions on the carve-out combined financial statements.
Related
party transactions are reflected in the carve-out financial statements at the amounts payable to and received from the counterparty with
no adjustments made to fair value, if applicable.
| (n) | New
and amended accounting standards |
Effective
January 1, 2020, the Pillar adopted ASU 2016-13, Financial Instruments – Credit Losses (Topic 326), Measurement of Credit Losses
on Financial Instruments. The new standard replaces the ‘incurred loss methodology’ credit impairment model with a new forward-looking
“methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information
to inform credit loss estimates.” In applying the new standard, the Pillar has adopted the loss rate methodology to estimate historical
losses on trade receivables. The historical data is adjusted to account for forecasted changes in the macroeconomic environment in order
to calculate the current expected credit loss. The Pillar’s adoption of ASC 326 did not result in a material change in the carrying
values of the Pillar’s financial assets on the transition date.
| 3. | Significant
judgments, estimates and assumptions |
The
preparation of financial statements in conformity with US GAAP requires management to make judgments, estimates and assumptions that
affect the reported amounts of assets and liabilities and the disclosure of contingent liabilities at the date of the financial statements,
and the reported amounts of revenues and expenses during the reporting period.
Future
differences arising between actual results and the judgments, estimates and assumptions made by the Pillar at the reporting date, or
future changes to estimates and assumptions, could necessitate adjustments to the underlying reported amounts of assets, liabilities,
revenues and expenses in future reporting periods.
Judgments,
estimates and underlying assumptions are evaluated on an ongoing basis by management and are based on historical experience and other
factors including expectations of future events that are believed to be reasonable under the circumstances. However, existing circumstances
and assumptions about future developments may change due to market changes or circumstances and such changes are reflected in the assumptions
when they occur. Significant items subject to estimates include the determination of deferred income taxes, and other contingencies.
Notes
to the Interim Carve-out Combined Financial Statements
(Tabular
amounts expressed in thousands of United States dollars, except where noted)
The
Pillar’s revenue is as follows:
| | |
Nine
months ended
September 30, | |
| | |
2021 | | |
2020 | |
| Inventory
sales revenue | |
$ | 27,845 | | |
$ | 51,567 | |
| | |
$ | 27,845 | | |
$ | 51,567 | |
The
Pillar’s geographic information as determined by its combined revenues are set out below:
| | |
United | | |
| | |
| | |
| | |
| |
| | |
Kingdom | | |
United
States | | |
Europe | | |
Other | | |
Combined | |
| Total
revenue for the period ended: | |
| | | |
| | | |
| | | |
| | | |
| | |
| September 30,
2021 | |
$ | 27,128 | | |
$ | 525 | | |
$ | 162 | | |
$ | 30 | | |
$ | 27,845 | |
| September 30, 2020 | |
$ | 48,102 | | |
$ | 2,662 | | |
$ | 716 | | |
$ | 87 | | |
$ | 51,567 | |
SG&A
expenses
| | |
Nine
months ended
September 30, | |
| | |
2021 | | |
2020 | |
| Employee compensation
expenses | |
$ | 548 | | |
| 894 | |
| Buildings, facilities and
technology expenses | |
| 29 | | |
| 26 | |
| Travel, advertising and promotion
expenses | |
| 2 | | |
| 3 | |
| Professional fees | |
| 48 | | |
| 70 | |
| Other
SG&A expenses | |
| 48 | | |
| 126 | |
| | |
$ | 675 | | |
| 1,119 | |
Included
within employee compensation expenses are defined contribution plan payments of $6k (2020: $5k)
Total advertising costs incurred for
the period ended September 30, 2021 was Nil (2020: Nil).
Depreciation
and amortization expenses
| | |
Nine
months ended
September, 30 | |
| | |
2021 | | |
2020 | |
| Depreciation
expense | |
$ | 11 | | |
$ | 5 | |
| | |
$ | 11 | | |
$ | 5 | |
Notes
to the Interim Carve-out Combined Financial Statements
(Tabular
amounts expressed in thousands of United States dollars, except where noted)
| | |
Nine
months ended
September, 30 | |
| | |
2021 | | |
2020 | |
| Interest income | |
$ | 130 | | |
$ | - | |
| Other
income | |
| - | | |
| 135 | |
| | |
$ | 130 | | |
| 135 | |
At
the end of each interim period, the Pillar estimates the effective tax rate expected to be applicable for the full fiscal year. The estimate
reflects, among other items, management’s best estimate of operating results. It does not include the estimated impact of foreign
exchange rates or unusual and/or infrequent items, which may cause significant variations in the customary relationship between income
tax expense and income before income taxes.
For
the nine months ended September 30, 2021, income tax expense was $492k, compared to an income tax expense of $1,134k for the same period
in 2020. The effective tax rate was 19% for the nine months ended September 30, 2021, which is in line with the prior period.
| 8. | Supplemental
cash flow information |
| Nine
months ended September 30, | |
2021 | | |
2020 | |
| Trade and other
receivables | |
$ | (349 | ) | |
| (4,809 | ) |
| Inventory | |
| (747 | ) | |
| 6,235 | |
| Income taxes receivable | |
| 532 | | |
| 316 | |
| Trade
and other payables | |
| 52 | | |
| 3,423 | |
| Net changes
in operating assets and liabilities | |
$ | (512 | ) | |
| 5,165 | |
Net
capital spending, which consists of property, plant and equipment additions excluding those acquired through business combinations, net
of proceeds on disposition of property, plant and equipment, was $104k for the period ended September 30, 2021 (2020: Nil).
| Nine
months ended September 30, | |
2021 | | |
2020 | |
| Interest paid | |
$ | 10 | | |
| 173 | |
| Interest received | |
| 130 | | |
| 135 | |
| Net income taxes paid | |
| 651 | | |
| 867 | |
| | |
September
30,
2021 | | |
December
31,
2020 | |
| Cash
and cash equivalents | |
$ | 5,494 | | |
| 12,754 | |
Notes
to the Interim Carve-out Combined Financial Statements
(Tabular
amounts expressed in thousands of United States dollars, except where noted)
All
assets and liabilities for which fair value is measured or disclosed in the carve-out combined financial statements are categorized within
the fair value hierarchy, described as follows, based on the lowest level input that is significant to the fair value measurement or
disclosure:
| ● | Level
1: Unadjusted quoted prices in active markets for identical assets or liabilities that the
entity can access at measurement date; |
| ● | Level
2: Inputs other than quoted prices included in Level 1 that are observable for the asset
or liability, either directly or indirectly; and |
| ● | Level
3: Unobservable inputs for the asset or liability. |
| | |
| | |
September
30, 2021 | | |
December
31, 2020 | |
| | |
| | |
Carrying | | |
| | |
Carrying | | |
| |
| | |
Category | | |
amount | | |
Fair
value | | |
amount | | |
Fair
value | |
| Fair
values disclosed: | |
| | | |
| | | |
| | | |
| | | |
| | |
| Cash
and cash equivalents | |
| Level
1 | | |
$ | 5,494 | | |
$ | 5,494 | | |
$ | 12,754 | | |
$ | 12,754 | |
The
carrying value of the Pillar’s cash and cash equivalents, trade and other receivables, trade and other payables approximate their
fair values due to their short terms to maturity.
| 10. | Trade
and other receivables |
| | |
September
30,
2021 | | |
December
31,
2020 | |
| Trade
receivables | |
$ | 501 | | |
$ | 111 | |
| | |
$ | 501 | | |
$ | 111 | |
Trade
receivables are generally secured by the equipment that they relate to as it is Pillar policy that equipment is not released until payment
has been collected. Trade receivables are due for settlement within twenty-one days of the date of sale. Consumption taxes receivable
are deemed fully recoverable unless disputed by the relevant tax authority. Other receivables are unsecured and non-interest bearing.
The allowance for expected credit losses at September 30, 2021 was Nil (2020: Nil). There was no movement in this provision during the
year.
At
each period end, inventory is reviewed to ensure that it is recorded at the lower of cost and net realizable value.
| | |
September
30,
2021 | | |
December
31,
2020 | |
| Machinery for
resale | |
$ | 3,139 | | |
$ | 2,446 | |
| | |
| | | |
| | |
| | |
$ | 3,139 | | |
$ | 2,446 | |
No
inventory write downs were recorded during the period ended September 30, 2021 (period ended September 30, 2020: Nil).
Notes
to the Interim Carve-out Combined Financial Statements
(Tabular
amounts expressed in thousands of United States dollars, except where noted)
| | |
September
30,
2021 | | |
December
31,
2020 | |
| Other tax and
social security | |
$ | - | | |
| 42 | |
| Prepaid
expenses | |
| 205 | | |
| 129 | |
| | |
$ | 205 | | |
| 171 | |
| 13. | Property,
plant and equipment |
| | |
| | |
Accumulated | | |
| |
| As
at September 30, 2021 | |
Cost | | |
depreciation | | |
Net
book value | |
| Plant and machinery | |
$ | 99 | | |
$ | 17 | | |
$ | 82 | |
| Office equipment | |
| 8 | | |
| 1 | | |
| 7 | |
| Motor
vehicles | |
| 8 | | |
| 1 | | |
| 7 | |
| | |
$ | 115 | | |
$ | 19 | | |
$ | 96 | |
| | |
| | |
Accumulated | | |
| |
| As
at December 31, 2021 | |
Cost | | |
depreciation | | |
Net
book value | |
| Plant and machinery | |
$ | 215 | | |
$ | 14 | | |
$ | 201 | |
| Motor
vehicles | |
| 8 | | |
| - | | |
| 8 | |
| | |
$ | 223 | | |
$ | 14 | | |
$ | 209 | |
During
the period ended September 30, 2021 no interest was capitalized (Year ended December 31, 2020 Nil).
Depreciation
of $11k was recorded in respect of property, plant and equipment during the period ended September 30, 2021 (2020:
$5k).
| 14. | Trade
and other payables |
| | |
September
30,
2021 | | |
December
31,
2020 | |
| Trade payables | |
$ | 578 | | |
| 376 | |
| Accrued liabilities | |
| 264 | | |
| 575 | |
| Other
payables | |
| 151 | | |
| 8 | |
| | |
$ | 993 | | |
| 959 | |
| 15. | Commitments
Commitments for expenditures |
As
at September 30, 2021, the Pillar had committed to Nil in capital expenditures for property, plant and equipment and intangible assets
(December 31, 2020: Nil).
| 16. | Contingencies
Legal and other claims |
The
Pillar is subject to legal and other claims that arise in the ordinary course of its business. Management does not believe that the results
of these claims will have a material effect on the Pillar’s combined balance sheet or combined income statement.
Notes
to the Interim Carve-out Combined Financial Statements
(Tabular
amounts expressed in thousands of United States dollars, except where noted)
| 17. | Related
party transactions |
The
Equipment Sales Pillar’s related parties are summarized and defined as follows:
Significant
influence
Companies
which are deemed to be related parties owing to them being controlled by brothers of Mr Lynden Keys.
These following are deemed to be
entities with significant influence:
| ● | Euro
Auctions Pillar: the business controlled by Mr Derek Keys whose principal activity is in
conducting auction sales and valuations throughout the United Kingdom, mainland Europe, Australia,
Dubai and the United States of America. |
| ● | Equipment
& Plant Services Pillar: the business controlled by Mr Trevor Keys whose principal activity
is the sale of equipment and plant to the agricultural and construction industries. |
| ● | Other:
Brian Keys and Jonathan Keys are also deemed to be related parties as they are brothers of
Mr Lynden Keys. |
| ● | Included
in the Pillar are Director emoluments paid to Mr Lynden Keys in the period amounting to $8k. |
Common
Control
| ● | Common
control: Other companies owned by Lynden Keys outside of the transaction perimeter which
do not form part of the Equipment Sales Pillar: Newpark Developments (NI) Limited |
The
following transactions were conducted with related entities by virtue of significant influence & common control:
| | |
Nine
months ended September 30, | |
| | |
2021 | | |
2020 | |
| Significant
influence | |
| | | |
| | |
| Transactions
with entities with significant influence | |
| | | |
| | |
| Euro Auctions
Pillar commission service cost* | |
$ | 799 | | |
| 1,402 | |
| | |
September
30,
2021 | | |
December
31,
2020 | |
| Significant
influence | |
| | | |
| | |
| Balances
due from/(to) | |
| | | |
| | |
| Euro Auctions
Pillar** | |
$ | 3,145 | | |
$ | 89 | |
| | |
| | | |
| | |
| Common
control | |
| | | |
| | |
| Balances
due from/(to) | |
| | | |
| | |
| Newpark Developments (NI)
Limited** | |
$ | 13,357 | | |
$ | 8,492 | |
| Equipment Sales No.3 Limited*** | |
| (12 | ) | |
| (575 | ) |
| DCA (Director’s Current
Account)*** | |
| (1 | ) | |
| (5 | ) |
*These
balances are recorded in “cost of inventory sold” in the combined income statement
**These
balances are recorded in “Amounts owed by related parties" in the combined financial statements.
***These
balances are recorded in "Amounts owed to related parties” in the combined financial statements.
Notes
to the Interim Carve-out Combined Financial Statements
(Tabular
amounts expressed in thousands of United States dollars, except where noted)
There
are no events subsequent which require disclosure or adjustment in these financial statements.
Subsequent
events have been evaluated from the period ended, September 30, 2021 to November 8, 2021. The financial statements were issued on November
8, 2021.
Interim
Carve-out Combined Income Statement
(Expressed
in thousands of United States dollars)
| | |
Nine
months ended
September, 30 | |
| | |
2021 | | |
2020 | |
| Revenue: | |
| | |
| |
| Service
revenue | |
$ | 37,263 | | |
$ | 38,261 | |
| Inventory
sales revenue | |
| 103,763 | | |
| 108,468 | |
| Total
revenue | |
| 141,026 | | |
| 146,729 | |
| | |
| | | |
| | |
| Operating expenses: | |
| | | |
| | |
| Costs of services | |
| 7,685 | | |
| 8,170 | |
| Cost
of inventory sold | |
| 86,359 | | |
| 96,412 | |
| Selling,
general and administrative expenses | |
| 12,780 | | |
| 11,890 | |
| Depreciation
and amortization expenses | |
| 746 | | |
| 551 | |
| Foreign
exchange loss/(gain) | |
| 173 | | |
| (991 | ) |
| Total
operating expenses | |
| 107,743 | | |
| 116,032 | |
| Operating
income | |
| 33,283 | | |
| 30,697 | |
| | |
| | | |
| | |
| Interest expense | |
| (376 | ) | |
| (521 | ) |
| Other
income/(expense), net | |
| 3,656 | | |
| (11,105 | ) |
| Income before income taxes | |
| 36,563 | | |
| 19,071 | |
| | |
| | | |
| | |
| Income tax expense: | |
| | | |
| | |
| Current
income tax | |
| 7,508 | | |
| 4,688 | |
| Net income | |
$ | 29,055 | | |
$ | 14,383 | |
See
accompanying notes to the interim carve-out combined financial statements.
Interim
Carve-out Combined Statement of Comprehensive Income
(Expressed
in thousands of United States dollars)
| | |
Nine
months ended
September, 30 | |
| | |
2021 | | |
2020 | |
| Net income | |
$ | 29,055 | | |
$ | 14,383 | |
| Other comprehensive income
(loss), net of income tax: | |
| | | |
| | |
| Foreign
currency translation adjustment | |
| (1,680 | ) | |
| (909 | ) |
| Total
comprehensive income | |
$ | 27,375 | | |
$ | 13,474 | |
See
accompanying notes to the interim carve-out combined financial statements.
Interim
Carve-out Combined Balance Sheet
(Expressed
in thousands of United States dollars)
| | |
September
30,
2021 | | |
December
31,
2020 | |
| Assets | |
| | | |
| | |
| | |
| | | |
| | |
| Cash and cash
equivalents | |
$ | 102,608 | | |
$ | 82,591 | |
| Restricted cash | |
| 366 | | |
| 246 | |
| Trade and other receivables | |
| 26,064 | | |
| 14,129 | |
| Less:
allowance for credit losses | |
| (607 | ) | |
| (613 | ) |
| Trade and other receivables;
net | |
| 25,457 | | |
| 13,516 | |
| Amounts owed by related parties | |
| - | | |
| 3,507 | |
| Inventory | |
| 38,637 | | |
| 31,030 | |
| Other current assets | |
| 14,609 | | |
| 8,983 | |
| Income
taxes receivable | |
| - | | |
| 182 | |
| Total current assets | |
| 181,677 | | |
| 140,055 | |
| | |
| | | |
| | |
| Property, plant and equipment | |
| 10,276 | | |
| 10,593 | |
| Other non-current assets | |
| 13,235 | | |
| 14,070 | |
| Intangible assets | |
| 1,247 | | |
| 1,364 | |
| | |
| | | |
| | |
| Total
non-current assets | |
| 24,758 | | |
| 26,027 | |
| Total
assets | |
$ | 206,435 | | |
$ | 166,082 | |
| | |
| | | |
| | |
| Liabilities
and Net Parent Investment | |
| | | |
| | |
| Auction proceeds payable | |
$ | 39,735 | | |
$ | 8,717 | |
| Amounts owed to related parties | |
| 14,153 | | |
| 259 | |
| Trade and other payables | |
| 7,454 | | |
| 12,522 | |
| Income taxes payable | |
| 7,917 | | |
| 7,276 | |
| Short-term
debt & overdrafts | |
| 30,183 | | |
| 54,969 | |
| Total current liabilities | |
| 99,442 | | |
| 83,743 | |
| Other non-current liabilities | |
| 16,102 | | |
| 16,740 | |
| Deferred
tax liabilities | |
| 629 | | |
| 633 | |
| Total
liabilities | |
| 116,173 | | |
| 101,116 | |
| | |
| | | |
| | |
| Commitments and Contingencies
(Note 20 and 21 respectively) | |
| | | |
| | |
| | |
| | | |
| | |
| Net parent investment | |
| 89,652 | | |
| 62,676 | |
| Accumulated other comprehensive
income | |
| 610 | | |
| 2,290 | |
| | |
| | | |
| | |
| Total
net parent investment | |
| 90,262 | | |
| 64,966 | |
| Total
liabilities and net parent investment | |
$ | 206,435 | | |
$ | 166,082 | |
See
accompanying notes to the interim carve-out combined financial statements.
Interim
Carve-out Combined Statements of Changes in Net Parent Investment
(Expressed
in thousands of United States dollars)
| | |
Net
Parent
Investment | | |
Accumulated
other
comprehensive
income | | |
Total
Net
Parent
Investment | |
| Balance,
January 1, 2021 | |
$ | 62,676 | | |
$ | 2,290 | | |
$ | 64,966 | |
| Net income | |
| 29,055 | | |
| | | |
| 29,055 | |
| Other
comprehensive (loss) | |
| - | | |
| (1,680 | ) | |
| (1,680 | ) |
| | |
| | | |
| | | |
| | |
| Changes in net parent investment | |
| (2,079 | ) | |
| - | | |
| (2,079 | ) |
| | |
| | | |
| | | |
| | |
| Balance, September 30,
2021 | |
$ | 89,652 | | |
$ | 610 | | |
$ | 90,262 | |
| | |
Net
Parent
Investment | | |
Accumulated
other
comprehensive
income | | |
Total
Net
Parent
Investment | |
| Balance,
January 1, 2020 | |
$ | 35,332 | | |
$ | - | | |
$ | 35,332 | |
| Net income | |
| 14,383 | | |
| | | |
| 14,383 | |
| Other
comprehensive (loss) | |
| - | | |
| (712 | ) | |
| (712 | ) |
| | |
| | | |
| | | |
| | |
| Changes in net parent investment | |
| (197 | ) | |
| - | | |
| (197 | ) |
| | |
| | | |
| | | |
| | |
| Balance, September 30,
2020 | |
$ | 49,518 | | |
$ | (712 | ) | |
$ | 48,806 | |
See
accompanying notes to the interim carve-out combined financial statements.
Interim
Carve-out Combined Statements of Cash Flows
(Expressed
in thousands of United States dollars)
| Nine
months ended September 30, | |
2021 | | |
2020 | |
| Cash provided by / (used in): | |
| | | |
| | |
| Operating activities: | |
| | | |
| | |
| Net
income | |
$ | 29,055 | | |
$ | 14,383 | |
| Adjustments
for items not affecting cash: | |
| | | |
| | |
| Depreciation
and amortization expenses | |
| 746 | | |
| 551 | |
| Net
changes in operating assets and liabilities | |
| 5,273 | | |
| 48,038 | |
| Net cash
provided by operating activities | |
| 35,074 | | |
| 62,972 | |
| | |
| | | |
| | |
| Investing activities: | |
| | | |
| | |
| Advances
received from related parties | |
| 11,158 | | |
| 13,233 | |
| Net cash
from investing activities | |
| 11,158 | | |
| 13,233 | |
| Financing activities: | |
| | | |
| | |
| Repayment
of short-term debt | |
| (24,633 | ) | |
| (40,114 | ) |
| Net cash
used in financing activities | |
| (24,633 | ) | |
| (40,114 | ) |
| Effect
of changes in foreign currency rates on cash, cash equivalents, and restricted cash | |
| (1,462 | ) | |
| 6 | |
| Increase | |
| 20,137 | | |
| 36,097 | |
| Beginning
of period | |
| 82,837 | | |
| 30,718 | |
| Cash,
cash equivalents, and restricted cash, end of period | |
$ | 102,974 | | |
$ | 66,815 | |
See
accompanying notes to the interim carve-out combined financial statements.
Notes
to the Interim Carve-out Combined financial Statements
(Tabular
amounts expressed in thousands of United States dollars, except where noted)
| 1. | Nature of Operations and Basis of Presentation |
Euro
Auctions Pillar (hereinafter collectively referred to as the “Pillar”, “we”, “our”) is a combination
of auction and sourcing businesses controlled by an individual, Derek Keys, which operates principally in conducting plant and machinery
auction sales and valuations throughout the United Kingdom, mainland Europe, Australia, Dubai and the United States of America. The Pillar
is also involved in the sale of plant and machinery both through group auctions and private sales.
The
accompanying interim carve-out combined financial statements present the historical interim carve-out combined balance sheet as of September
30 2021 and December 31, 2020, interim carve-out combined income statement, interim carve-out combined statement of comprehensive income,
interim carve-out combined statements of changes in net parent investment and interim carve-out combined statement of cash flows of the
Pillar for the nine months ended September 30, 2021 and September 30, 2020 respectively which reflect the combined activities of the
companies detailed below:
| ● | Euro
Auctions Limited(NI663696) |
| ● | Euro
Auctions (UK) Limited (NI663692) |
| ● | Euro
Auctions GmbH(HRB13567) |
| ● | Yoder
& Frey Auctioneers LLC (12075006) |
| ● | Euro
Auctions Pty Ltd (ABN33154193576) |
| ● | Euro
Auctions Plant S.L. (M728536) |
| ● | Willia
m Keys & Sons Holdings Limited (NI663694) |
| ● | Willia
m Keys & Sons LLC (13004156) |
| ● | Willia
m Keys & Sons Limited (NI663693); and |
| ● | Euro
Auctions FZE (252526) |
In
the period up to December 31, 2020 the pillars activities in Australia and Spain were performed within the branches of Euro Auctions
UK No.2 Limited in those territories. During the interim period the activities in Australia and Spain were performed in Euro Auctions
Pty Ltd and Euro Auctions Plant S.L. respectively.
In
preparing these interim carve-out combined financial statements certain assets and liabilities (encompassing property assets and associated
bank debt), remaining in rela ted undertakings have been removed from the Pillar. The Pillar’s cost base includes all relevant
costs pertaining to its operations, as they were historically managed, and therefore in compiling these interim carve-out combined financial
statements, no additional costs have been allocated to the Pillar.
The
Pillar has not historically prepared stand-alone financial statements. These interim carve-out combined financial statements as of September
30, 2021, December 31, 2020, and September 30, 2020 have been prepared on a stand-alone basis derived from the financial statements and
related accounting records of each of the companies listed above. The accompanying interim carve-out combined financial statements were
prepared in order to comply with a condition in the Share Purchase Agreement (“SPA”), executed on August 9, 2021, to dispose
of the Euro Auctions Pillar to Ritchie Bros. Auctioneers Incorporated. As stipulated by the SPA the accompanying interim carve-out combined
financial statements were prepared for the purpose of providing Ritchie Bros. Auctioneers Incorporated with historical financial information
of the Pillar. They reflect the results of operations, financial position, and cash flows of the Pillar as they were historically managed
and are presented in conformity with accounting principles generally accepted in the United States (“U.S. GAAP”). Accordingly,
these financial statements have been prepared on a combined basis and Parent’s net investment in these operations is shown in lieu
of stockholder’s equity. All inter company balances and transactions within the Pillar have been eliminated in the interim carve-out
combined financial statements.
These
interim carve-out combined financial statements have been prepared based on the U.S. GAAP applied standards effective for 2021. The Pillar
has voluntarily early adopted ASC 842 Leases and ASC 326 Measurement of Credit Losses on Financial Instruments in these
interim carve-out combined financial statements. Net parent investment represents the beneficial owners’ historical investment
in the Pillar and includes accumulated net earnings attributable to the beneficial owner (Derek Keys), intercompany transactions, dividend
income arising from internal group restructurings, and direct capital contributions, as adjusted for direct cash investments in the Pillar.
A discussion of the relationship with the beneficial owner, including a description of the costs allocated to the Pillar, is included
in (Note 22- “Related Party Transactions”).
Notes
to the Interim Carve-out Combined financial Statements
(Tabular
amounts expressed in thousands of United States dollars, except where noted)
| 2. | Significant
accounting policies |
Revenues are comprised of:
| ● | Service
revenue, including the following: |
| i. | Revenue
from auction and marketplace (“A&M”) activities, including commissions earned
at our live and online bidding auctions, online marketplaces; and |
| ii. | Other services
revenue, comprises revenue from logistical services; and |
| ● | Inventory
sales revenue; and |
The
Pillar recognizes revenue when control of the promised goods or services is transferred to our customers, or upon completion of the
performance obligation, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or
services. A performance obligation is a promise in a contract to transfer a distinct good or service, or a series of distinct goods
or services, to the customer. A contract’s transaction price is allocated to each distinct performance obligation and
recognized as revenue when, or as, the performance obligation is satisfied. For event-based auctions, revenue is recognized when the
auction sale is complete and the Pillar has determined that the sale proceeds are collectible. Revenue is measured at the fair value
of the consideration received or receivable and is shown net of value-added tax and duties.
Service
revenues
Commissions
from sales at the Pillar’s auctions represent the percentage earned by the Pillar on the gross proceeds from equipment and
other assets sold at auction. The majority of the Pillar’s commissions are earned as a pre-negotiated fixed rate of the gross
selling price. Other commissions from sales at the Pillar’s auctions are earned from underwritten commission contracts, when
the Pillar guarantees a certain level of proceeds to a consignor.
The
Pillar accepts equipment and other assets on consignment stimulating buyer interest through professional marketing techniques and matches
sellers (also known as consignors) to buyers through the auction or private sale process.
Following
the sale of the item, the Pillar invoices the buyer for the purchase price of the asset, taxes, and, if applicable, the buyer
commission, collects payment from the buyer, and remits the proceeds to the seller, net of the seller commissions, applicable taxes,
and applicable fees. Commissions are calculated as a percentage of the hammer price of the asset sold at auction. Fees are also
charged to sellers for listing and inspecting equipment.
On
the fall of the auctioneer’s hammer, the highest bidder becomes legally obligated to pay the full purchase price, which is the
hammer price of the asset purchased and the seller is legally obligated to relinquish the property in exchange for the hammer price less
any seller’s commissions. Commission and fee revenue are recognized on the date of the auction sale upon the fall of the auctioneer’s
hammer.
Under
the standard terms and conditions of its auction sales, the Pillar is not obligated to pay a consignor for property that has not
been paid for by the buyer, provided the property has not been released to the buyer. If the buyer defaults on its payment
obligation, also referred to as a collapsed sale, the sale is cancelled in the period in which the determination is made, and the
property is returned to the consignor or placed in a later event-based or online auction. Historically, service revenues on
cancelled sales have not been material.
Notes
to the Interim Carve-out Combined financial Statements
(Tabular
amounts expressed in thousands of United States dollars, except where noted)
| 2. | Significant
accounting policies (continued) |
| (a) | Revenue recognition (continued) |
Commission
revenue is recorded net of commissions owed to third parties, which are principally the result of situations when the commission is shared
with a consignor in an auction guarantee risk and reward sharing arrangement.
Underwritten
commission contracts can take the form of guarantee contracts. Guarantee contracts typically include a pre-negotiated percentage of
the guaranteed gross proceeds plus a percentage of proceeds in excess of the guaranteed amount. If actual auction proceeds are less than
the guaranteed amount, commission is reduced; if proceeds are sufficiently lower, the Pillar can incur a loss on the sale. Losses, if
any, resulting from guarantee contracts are recorded in the period in which the relevant auction is completed. If a loss relating to
a guarantee contract held at the period end to be sold after the period end is known or is probable and estimable at the financial statement
reporting date, the loss is accrued in the financial statements for that period. The Pillar’s exposure from these guarantee contracts
fluctuates over time.
Other
services revenue also includes fees for logistical services. Fees are recognized in the period in which the service is provided or the
product is delivered to the customer.
Inventory
sales revenue
The
Pillar recognizes revenue when control of the promised goods is transferred to our customers, or upon completion of the performance obligation,
in an amount that reflects the consideration we expect to be entitled to in exchange for those goods. A performance obligation is a promise
in a contract to transfer a distinct good, or a series of distinct goods, to the customer. A contract’s transaction price is allocated
to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. Revenue is measured
at the fair value of the consideration received or receivable and is shown net of value-added tax and duties.
Rental
income
The
Pillar recognizes rental income from operating leases on a straight-line basis over the lease term.
Costs
of services incurred in earning A&M revenues are comprised of expenses incurred in direct relation to conducting auctions (“direct
expenses”), earning online marketplace revenue. Direct expenses include direct labor, buildings and facilities charges, travel,
advertising and promotion costs and fees paid to unrelated third parties who introduce the Pillar to equipment sellers who sell property
at the Pillar's auctions and marketplaces. Costs of services to operate our online marketplace revenue excludes hosting costs where we
leverage a shared infrastructure that supports both our internal technology requirements and external sales to our customers.
Costs
of services incurred in earning other fee revenue include ancillary and logistical service expenses, direct la bor (including commissions
on sales), cloud infrastructure and hosting costs, software maintenance fees, and materials. Costs of services exclude depreciation and
amortization expenses.
Notes
to the Interim Carve-out Combined financial Statements
(Tabular
amounts expressed in thousands of United States dollars, except where noted)
| 2. | Significant
accounting policies (continued) |
| (c) | Cost of inventory sold |
Cost
of inventory sold includes the purchase price of assets sold including any related transport and repair costs.
The
Pillar determines if an arrangement is a lease at inception. The Pillar may have lease agreements with lease and non-lease
components, which are generally accounted for separately.
Operating
leases
Operating
leases are included in other non-current assets, trade and other payables, and other non-current liabilities in our combined balance
sheets if the initial leases term is greater than 12 months. For leases with an initial term of 12 months or less the Pillar recognizes
those lease payments on a straight-line basis over the lease term.
ROU
assets represent the right to use an underlying asset for the leases term and lease liabilities represent the obligation to make leases
payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present
value of lease payments over the lease term. As most of the Pillar's leasess do not provide an implicit rate, management uses the incremental
borrowing rate based on the information available at commencement date in determining the present value of lease payments. Management
uses the implicit rate when readily determinable. The Pillar includes lease payments for renewal or termination options in its determination
of lease term, ROU asset, and leases liability when it is reasonably certain that the Pillar will exercise these options. Lease expense
for lease payments is recognized on a straight-line basis over the lease term and are included in costs of services and selling, general
and administrative ("SG&A") expenses.
| (e) | Fair value measurement |
Fair
value is the exit price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market
participants at the measurement date. The Pillar measures financial instruments or discloses select non-financial assets at fair value
at each balance sheet date. Also, fair values of financial instruments measured at amortized cost are disclosed in note 9.
The
Pillar uses valuation techniques that are appropriate in the circumstances and for which sufficient data is available to measure fair
value, maximizing the use of relevant observable inputs and minimizing the use of unobservable inputs.
All
assets and liabilities for which fair value is measured or disclosed in the financial statements at fair value are categorized within
a fair value hierarchy, as disclosed in note 9, based on the lowest level input that is significant to the fair value measurement or
disclosure. This fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities
(Level 1) and the lowest priority to unobservable inputs (Level 3).
For
assets and liabilities that are recognized in the financial statements at fair value on a recurring basis, the Pillar determines whether
transfers have occurred between levels in the hierarchy by re-assessing categorization at the end of each reporting period.
For
the purposes of fair value disclosures, the Pillar has determined classes of assets and liabilities on the basis of the nature, characteristics
and risks of the assets or liability and the level of the fair value hierarchy as explained above.
Notes
to the Interim Carve-out Combined financial Statements
(Tabular
amounts expressed in thousands of United States dollars, except where noted)
| 2. | Significant
accounting policies (continued) |
| (f) | Foreign
currency translation |
The
presentation currency of the interim carve-out combined financial statements is the United States dollar. The functional currency for
each of the components of these interim carve-out combined financial statements is the currency of the primary economic environment in
which the entity operates, which is usually the currency of the country of residency.
Accordingly,
the financial statements of the components of these interim carve-out combined financial statements that are not denominated in United
States dollars have been translated into United States dollars using the exchange rate at the end of each reporting period for asset
and liability amounts and the annual average exchange rate for amounts included in the determination of earnings. Any gains or losses
from the translation of asset and liability amounts are included in foreign currency translation adjustment in accumulated other comprehensive
income. In preparing the financial statements of the individual components, transactions in currencies other than the entity’s
functional currency are recognized at the rates of exchange prevailing at the dates of the transaction. At the end of each reporting
period, monetary assets and liabilities denominated in foreign currencies are retranslated at the rates prevailing at that date. Foreign
currency differences arising on retranslation of monetary items are recognized in earnings.
| (g) | Cash and cash equivalents |
Cash
and cash equivalents are comprised of cash on hand, deposits with financial institutions, and other short-term, highly liquid investments
with original maturity of three months or less when acquired, that are readily convertible to known amounts of cash.
In
certain jurisdictions, local laws require the Pillar to hold cash in segregated bank accounts, which are used to settle auction proceeds
payable resulting from live on site auctions and online marketplace sales conducted in those regions.
| (i) | Trade and other receivables |
Trade
receivables principally include amounts due from customers as a result of event-based auctions. The recorded amount reflects the purchase
price of the item sold, including the Pillar’s commission. The allowance for credit losses is the Pillar’s best estimate
of the amount of probable credit losses in existing accounts receivable. The Pillar determines the allowance based on historical write-off
experience, customer economic data and reasonable and supportable forecasts of future economic conditions.
The
Pillar reviews the allowance for credit losses regularly and past due balances are reviewed for collectability. Account balances are
charged against the allowance when the Pillar believes that the receivable will not be recovered.
| (j) | Derivative financial instruments |
Derivatives
are initially recognized at fair value on the date a derivative contract is entered into and are subsequently re-measured at their fair
value. Changes in the fair value of derivatives are recognized in profit or loss as other gains and losses as appropriate.
Hedge
accounting is not applied.
Notes
to the Interim Carve-out Combined financial Statements
(Tabular
amounts expressed in thousands of United States dollars, except where noted)
| 2. | Significant
accounting policies (continued) |
Inventory
consists of equipment and other assets purchased for resale. Inventory is valued at the lower of cost and net realizable value where
net realizable value represents the expected sale price upon disposition less make-ready costs and the costs of disposal and transportation.
The significant elements of cost include the acquisition price, in-bound transportation costs of the inventory, and make- ready costs
to prepare the inventory for sale that are not selling expenses. Write-downs to the carrying value of inventory are recorded in cost
of inventory sold on the combined income statement.
| (l) | Property, plant and equipment |
All
property, plant and equipment are stated at cost less accumulated depreciation. Cost includes all expenditures that are directly attributable
to the acquisition or development of the asset, net of any amounts received in relation to those assets, including scientific research
and experimental development tax credits.
The
cost of self-constructed assets includes the cost of materials and direct labour, any other costs directly attributable to bringing the
assets to working condition for their intended use, the costs of dismantling and removing items and restoring the site on which they
are located (if applicable), and capitalized interest on qualifying assets. Subsequent costs are included in the asset’s carrying
amount or recognized as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the
item will flow to the Pillar and the cost of the item can be measured reliably.
All
repairs and maintenance costs are charged to earnings during the financial period in which they are incurred. Gains and losses on disposal
of an item of property, plant and equipment are determined by comparing the proceeds from disposal with the carrying amount of the item
and are recognized net within operating income on the income statement.
Depreciation
is provided to charge the cost of the assets to operations over their estimated useful lives based on their usage as follows:
| Asset | |
Basis | |
Rate
/ term | |
| Buildings | |
Straight-line | |
| 2 | % |
| Plant and machinery | |
Declining balance | |
| 15 | % |
| Motor vehicles | |
Declining balance | |
| 25 | % |
| Office equipment | |
Declining balance | |
| 15 | % |
| Leasehold improvements | |
Declining balance | |
| 15%/period
of lease | |
| Software | |
Straight-line | |
| 5 | % |
No
depreciation is provided on freehold land or on assets in the course of construction or development. Depreciation of property, plant
and equipment is recorded in depreciation expense.
Legal
obligations to retire and to restore property, plant and equipment and assets under operating leases are recorded at management’s
best estimate in the period in which they are incurred, if a reasonable estimate can be made, with a corresponding increase in asset
carrying value. The liability is accreted to face value over the remaining estimated useful life of the asset. The Pillar does not have
any significant asset retirement obligations.
Notes
to the Interim Carve-out Combined financial Statements
(Tabular
amounts expressed in thousands of United States dollars, except where noted)
| 2. | Significant
accounting policies (continued) |
Intangible
assets are measured at cost less accumulated amortization and accumulated impairment losses. Cost includes all expenditures that are
directly attributable to the acquisition or development of the asset, net of any amounts received in relation to those assets, including
scientific research and experimental development tax credits. The Pillar has not capitalized any internally developed intangible assets.
Amortization
is recognized in net earnings on a straight-line basis over the estimated useful lives of intangible assets from the date that they are
available for use. The estimated useful lives are:
| Asset | |
Basis | |
Rate
/ term |
| Trade names and trademarks | |
Straight-line | |
10 periods |
| Customer relationships | |
Straight-line | |
10 periods |
Customer
relationships includes relationships with buyers and sellers.
| (n) | Impairment of long-lived assets |
Long-lived
assets, comprised of property, plant and equipment, ROU assets, and intangible assets subject to amortization, are assessed for impairment
whenever events or circumstances indicate that their carrying value may not be recoverable. For the purpose of impairment testing, long-lived
assets are grouped and tested for recoverability at the lowest level that generates independent cash flows. An impairment loss is recognized
when the carrying value of the assets or asset groups is greater than the future projected undiscounted cash flows. The impairment loss
is calculated as the excess of the carrying value over the fair value of the asset or asset group. Fair value is based on valuation techniques
or third party appraisals. Significant estimates and judgments are applied in determining these cash flows and fair values.
Income
tax expense represents the sum of current tax expense and deferred tax expense.
Current
tax
The
current tax expense is based on taxable profit for the period and includes any adjustments to tax payable in respect of previous periods.
Taxable profit differs from income before income taxes as reported in the combined income statement because it excludes (i) items of
income or expense that are taxable or deductible in other periods and (ii) items that are never taxable or deductible. The Pillar’s
liability for current tax is calculated using tax rates that have been enacted by the balance sheet date.
Deferred
tax
Income
taxes are accounted for using the asset and liability method. Deferred income tax assets and liabilities are based on temporary differences,
which are differences between the accounting basis and the tax basis of the assets and liabilities, and non-capital loss, capital loss,
and tax credits carryforwards are measured using the enacted tax rates and laws expected to apply when these differences reverse. Deferred
tax benefits, including non-capital loss, capital loss, and tax credits carryforwards, are recognized to the extent that realization
of such benefits is considered more likely than not. The effect on deferred tax assets and liabilities of a change in tax rates is recognized
in earnings in the period that enactment occurs. When realization of deferred income tax assets does not meet the more-likely-than-not
criterion for recognition, a valuation allowance is provided.
Interest
and penalties related to income taxes, including unrecognized tax benefits, are recorded in income tax expense in the income statement.
Notes
to the Interim Carve-out Combined financial Statements
(Tabular
amounts expressed in thousands of United States dollars, except where noted)
| 2. | Significant
accounting policies (continued) (o) Taxes (continued) |
Liabilities
for uncertain tax positions are recorded based on a two-step process. The first step is to evaluate the tax position for recognition
by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained on audit,
including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest
amount that is more than 50% likely of being realized upon settlement. The Pillar regularly assesses the potential outcomes of examinations
by tax authorities in determining the adequacy of its provision for income taxes. The Pillar continually assesses the likelihood and
amount of potential adjustments and adjusts the income tax provision, income taxes payable, and deferred taxes in the period in which
the facts that give rise to a revision become known.
| (p) | Defined contribution plans |
The
Pillar operates a defined contribution scheme for a specific director and employees. A defined contribution plan is a pension plan under
which the Pillar pays fixed contributions to a third party provider. Once the contributions have been paid the Pillar has no further
payment obligations. The contributions are recognized as an expense when they are due. Amounts not paid are show in accruals in the balance
sheet.
Advertising
costs are expensed as incurred. Advertising expense is included in costs of services and selling, general and administrative (“SG&A”)
expenses on the accompanying combined income statements.
| (r) | Related party transactions |
The
Euro Auctions Pillar is not a statutory group, but rather is a collection of connected entities (operationally connected and with connected
family ownership). These interim carve-out combined financial statements disclose transactions with related parties which are not wholly
captured within the Euro Auctions Pillar. Where appropriate, transactions of a similar nature are aggregated unless, in the opinion of
the director, separate disclosure is necessary to understand the effect of the transactions on the interim carve-out combined financial
statements.
Related
party transactions are reflected in the interim carve-out combined financial statements at the amounts payable to and received from the
counterparty with no adjustments made to fair value, if applicable.
| (s) | New and amended accounting standards |
| a. | Effective
January 1, 2020, the Pillar adopted ASU 2016-13, Financial Instruments – Credit Losses (Topic
326), Measurement of Credit Losses on Financial Instruments. The new standard replaces the ‘incurred
loss methodology’ credit impairment model with a new forward-looking “methodology that reflects
expected credit losses and requires consideration of a broader range of reasonable and supportable information
to inform credit loss estimates.” In applying the new standard, the Pillar has adopted the loss
rate methodology to estimate historical losses on trade receivables. The historical data is adjusted
to account for forecasted changes in the macroeconomic environment in order to calculate the current
expected credit loss. The Pillar’s adoption of ASC 326 did not result in a material change in
the carrying values of the Pillar’s financial assets on the transition date. |
| b. | In March
2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848), Facilitation of the Effects of
Reference Rate Reform on Financial Reporting. The update provides “optional expedients and exceptions
for applying generally accepted accounting principles to contract modifications and hedging relationships,
subject to meeting certain criteria, that reference LIBOR or another reference rate expected to be
discontinued.” The amendments are effective immediately and may be applied prospectively to contract
modifications made and hedging relationships entered into or evaluated on or before December 31, 2022.
The Pillar’s use of LIBOR is applicable on short-term drawings on the committed revolving credit
facilities in certain jurisdictions. The Pillar’s is transitioning from LIBOR to SONIA. If applicable,
the Pillar will use the optional expedients available when reference rate changes occur. |
Notes
to the Interim Carve-out Combined financial Statements
(Tabular
amounts expressed in thousands of United States dollars, except where noted)
| 2. | Significant accounting policies (continued) |
(s)
New and amended accounting standards (continued)
| c. | Effective
January 1, 2020, the Pillar adopted ASU 2018-15, Intangibles – Goodwill and Other Internal-Use
Software (Subtopic 350-40), Customer’s Accounting for Implementation Costs Incurred in a Cloud
Computing Arrangement That Is a Service Contract on a prospective basis. The update aligns the
accounting for costs incurred to implement a cloud computing arrangement that is a service agreement
with the guidance on capitalizing costs associated with developing or obtaining internal-use software.
The adoption of ASU 2018-15 on January 1, 2020 using the prospective transition approach has not resulted
in a material impact to the interim carve-out combined financial statements. |
| 3. | Significant judgments, estimates and assumptions |
The
preparation of financial statements in conformity with US GAAP requires management to make judgments, estimates and assumptions that
affect the reported amounts of assets and liabilities and the disclosure of contingent liabilities at the date of the financial statements,
and the reported amounts of revenues and expenses during the reporting period.
Future
differences arising between actual results and the judgments, estimates and assumptions made by the Pillar at the reporting date, or
future changes to estimates and assumptions, could necessitate adjustments to the underlying reported amounts of assets, liabilities,
revenues and expenses in future reporting periods.
Judgments,
estimates and underlying assumptions are evaluated on an ongoing basis by management and are based on historical experience and other
factors including expectations of future events that are believed to be reasonable under the circumstances. However, existing circumstances
and assumptions about future developments may change due to market changes or circumstances and
such changes are reflected in the assumptions when they occur. Significant items subject to estimates include the determination of leases
term and leases liabilities, fair value of intangible assets, deferred income taxes, and other contingencies.
The
Pillar’s revenue is as follows:
| | |
Nine
months ended
September 30, | |
| | |
2021 | | |
2020 | |
| Service revenue: | |
| | | |
| | |
| Auction
Commissions | |
$ | 37,263 | | |
$ | 38,261 | |
| Inventory
sales revenue | |
| 103,763 | | |
| 108,468 | |
| | |
$ | 141,026 | | |
$ | 146,729 | |
The
Pillar’s geographic information as determined by its combined revenues are set out below:
| | |
United | | |
| | |
| | |
| | |
| |
| | |
Kingdom | | |
United
States | | |
Europe | | |
Other | | |
Combined | |
| Total revenue for the periodended: | |
| | |
| | |
| | |
| | |
| |
| September
30, 2021 | |
$ | 78,944 | | |
$ | 28,854 | | |
$ | 16,888 | | |
$ | 16,340 | | |
$ | 141,026 | |
| September 30, 2020 | |
$ | 76,657 | | |
$ | 32,102 | | |
$ | 24,422 | | |
$ | 13,548 | | |
$ | 146,729 | |
Notes
to the Interim Carve-out Combined financial Statements
(Tabular
amounts expressed in thousands of United States dollars, except where noted)
| 5. | Operating
expenses Costs of services |
| | |
Nine
months ended
September 30, | |
| | |
2021 | | |
2020 | |
| Ancillary and
logistical service expenses | |
$ | 802 | | |
$ | 790 | |
| Employee compensation expenses | |
| 2,795 | | |
| 2,838 | |
| Travel, advertising and promotion
expenses | |
| 2,821 | | |
| 3,015 | |
| Other
costs of services | |
| 1,267 | | |
| 1,527 | |
| | |
$ | 7,685 | | |
$ | 8,170 | |
SG&A
expenses
| | |
Nine
months ended
September 30, | |
| | |
2021 | | |
2020 | |
| Employee compensation
expenses | |
$ | 7,991 | | |
$ | 6,817 | |
| Buildings, facilities and
technology expenses | |
| 3,859 | | |
| 4,030 | |
| Professional fees | |
| 441 | | |
| 589 | |
| Travel, advertising and promotion
expenses | |
| 12 | | |
| 52 | |
| Other
SG&A expenses | |
| 477 | | |
| 402 | |
| | |
$ | 12,780 | | |
$ | 11,890 | |
Included
within employee compensation expenses are defined contribution plan payments of $79k (2020: $79k).
Total advertising costs incurred for
the period ended September 30, 2021 was $1,500k (2020: $1,753k).
Notes
to the Interim Carve-out Combined financial Statements
(Tabular
amounts expressed in thousands of United States dollars, except where noted)
| 5. | Operating expenses (continued) |
Depreciation
and amortization expenses
| | |
Nine
months ended
September 30, | |
| | |
2021 | | |
2020 | |
| Depreciation expense | |
$ | 634 | | |
$ | 446 | |
| Amortization
expense | |
| 112 | | |
| 105 | |
| | |
$ | 746 | | |
$ | 551 | |
| 6. | Other income / (expense), net |
Other
income primarily includes movements on the fair value of derivative financial instruments.
| | |
Nine
months ended,
September 30, | |
| | |
2021 | | |
2020 | |
| Gain/ (Loss)
on the movement in fair value of derivative financial instruments | |
$ | 3,070 | | |
$ | (11,524 | ) |
| Interest income | |
| 5 | | |
| - | |
| Other
income | |
| 581 | | |
| 419 | |
| | |
$ | 3,656 | | |
$ | (11,105 | ) |
At
the end of each interim period, the Pillar estimates the effective tax rate expected to be applicable for the full fiscal period. The
estimate reflects, among other items, management’s best estimate of operating results. It does not include the estimated impact
of foreign exchange rates or unusual and/or infrequent items, which may cause significant variations in the customary relationship between
income tax expense and income before income taxes.
For
the nine months ended September 30, 2021, income tax expense was $7,508k, compared to an income tax expense of $4,688k for the same period
in 2020. The effective tax rate was 21% for the nine months ended September 30, 2021 (September 30, 2020: 25%).
Notes
to the Interim Carve-out Combined financial Statements
(Tabular
amounts expressed in thousands of United States dollars, except where noted)
| 8. | Supplemental cash flow information |
| | |
Nine
months ended
September, 30 | |
| | |
2021 | | |
2020 | |
| Trade and other
receivables | |
$ | (12,450 | ) | |
$ | (15,406 | ) |
| Inventory | |
| (8,263 | ) | |
| 29,789 | |
| Auction proceeds payable | |
| 38,273 | | |
| 39,168 | |
| Trade and other payables | |
| (5,517 | ) | |
| (4,864 | ) |
| Other current liabilities | |
| (7,718 | ) | |
| (15 | ) |
| Income
taxes receivable / (payable) | |
| 948 | | |
| (634 | ) |
| Net changes
in operating assets and liabilities | |
$ | 5,273 | | |
$ | 48,038 | |
Net
capital spending, which consists of property, plant and equipment and intangible asset additions excluding those acquired through business
combinations, net of proceeds on disposition of property, plant and equipment, was Nil for the period ended September 30, 2021.
| |
Nine
months ended
September, 30 |
| | |
2021 | | |
2020 | |
| Interest paid | |
$ | 5 | | |
$ | - | |
| Interest received | |
| 376 | | |
| 521 | |
| Net income taxes paid | |
| 6,879 | | |
| 5,479 | |
| | |
| | | |
| | |
| Operating lease payments | |
| 2,038 | | |
| 1,795 | |
| | |
September
30, 2021 | | |
December
31, 2020 | |
| Cash and cash
equivalents | |
$ | 102,608 | | |
$ | 82,591 | |
| Restricted
cash | |
| 366 | | |
| 246 | |
| Cash,
cash equivalents, and restricted cash | |
$ | 102,974 | | |
$ | 82,837 | |
Notes
to the Interim Carve-out Combined financial Statements
(Tabular
amounts expressed in thousands of United States dollars, except where noted)
All
assets and liabilities for which fair value is measured or disclosed in the interim carve-out combined financial statements are categorized
within the fair value hierarchy, described as follows, based on the lowest level input that is significant to the fair value measurement
or disclosure:
| ● | Level
1: Unadjusted quoted prices in active markets for identical assets or liabilities that the
entity can access at measurement date; |
| ● | Level
2: Inputs other than quoted prices included in Level 1 that are observable for the asset
or liability, either directly or indirectly; and |
| ● | Level
3: Unobservable inputs for the asset or liability. |
| | |
| | |
September
30, 2021 | | |
December
31, 2020 | |
| | |
Category | | |
Fair
value | | |
Fair
value | |
| Measured
at fair value: Derivative financial instruments | |
| | | |
| | | |
| | |
| Foreign
exchange contracts assets | |
| Level
3 | | |
$ | 5,793 | | |
$ | 4,295 | |
| Foreign
exchange contracts liabilities | |
| Level
3 | | |
$ | 1,494 | | |
| 3,393 | |
| | |
| | |
September
30, 2021 | | |
December
31, 2020 | |
| | |
| | |
| | |
| | |
Carrying | | |
| |
| | |
| | |
Carrying | | |
Fair
value | | |
| | |
| |
| | |
Category | | |
amount | | |
| | |
amount | | |
Fair
value | |
| Fair
values disclosed: | |
| | |
| | |
| | |
| | |
| |
| Cash
and cash equivalents | |
| Level
1 | | |
$ | 102,608 | $ | |
| 102,608 | $ | |
| 82,591 | | |
$ | 82,591 | |
| Restricted
cash | |
| Level
1 | | |
| 366 | | |
| 366 | | |
| 246 | | |
| 246 | |
| Short-term
debt | |
| Level
2 | | |
| 30,183 | | |
| 30,183 | | |
| 54,969 | | |
| 54,969 | |
The
carrying value of the Pillar’s cash and cash equivalents, restricted cash, trade and other receivables, advances against auction
contracts, auction proceeds payable, trade and other payables, and short-term debt approximate their fair values due to their short terms
to maturity.
Derivative
financial instruments-forward contracts and options
The
Pillar enters into derivative financial instruments to manage risks relating to our ongoing business operations. The primary risk managed
with derivative instruments is foreign exchange risk. The Pillar uses foreign currency contracts to reduce the risk that our cash flows
and earnings will be adversely affected by foreign currency exchange rate fluctuations. The Pillar also enters into derivative instruments
to partially offset our exposure to other risks and enhance investment returns.
Notes
to the Interim Carve-out Combined financial Statements
(Tabular
amounts expressed in thousands of United States dollars, except where noted)
| 9. | Fair value measurement (continued) |
Derivative
financial instruments-forward contracts and options (continued)
The
Pillar recognizes derivative instruments as either assets or liabilities in the combined balance sheet at fair value and classify the
derivatives primarily within the Level 3 hierarchy. The Pillar presents derivative financial instruments at gross fair values.
Derivative
financial instruments assets are disclosed at fair value within “other current assets (note 12) in the combined statement of financial
position. Derivative financial instruments liabilities are disclosed at fair value in either “Trade and other payables” (note
16) or “Other non-current liabilities” (note 18) depending on the settlement date of the contract.
The
Pillar does not designate their derivative instruments as hedging instruments. These derivative instruments consist primarily of foreign
currency forward contracts that we use to hedge monetary assets or liabilities denominated in currencies other than the functional currency.
Gains and losses on these contracts, as well as the related costs, are recognized in other income (expense), net, along with the foreign
currency gains and losses on monetary assets and liabilities.
The
fair value measurement of these derivatives resulted in a gain of $3,070k being recorded in other income (2020: loss of $11,524k) (see
note 6).
The
group has entered into a number of foreign currency derivative contracts during the period.
As at 30 September 2021 the group has the
following derivative contracts in place:
| Buys |
GBP |
Sells |
EUR |
£91.4m |
| Buys |
GBP |
Sells |
USD |
£11.8m |
| Buys |
RBL |
Sells |
EUR |
£2.2m |
| Buys |
RBL |
Sells |
EUR |
£3.4m |
| Buys |
TRY |
Sells |
EUR |
£3.6m |
| Buys |
YEN |
Sells |
ZAR |
£0.7m |
| Buys |
ZAR |
Sells |
YEN |
£0.7m |
As
at 31 December 2020 the group has the following derivative contracts in place:
| Buys |
BRL |
Sells |
EUR |
£0.8m |
| Buys |
MXN |
Sells |
EUR |
£1.0m |
| Buys |
RUB |
Sells |
EUR |
£2.8m |
| Buys |
TRY |
Sells |
EUR |
£7.8m |
| Buys |
GBP |
Sells |
EUR |
£109.2m |
| Buys |
GBP |
Sells |
USD |
£4.8m |
| Buys |
ZAR |
Sells |
JPY |
£6.4m |
| Buys |
TRY |
Sells |
JPY |
£0.8m |
| Buys |
RUB |
Sells |
JPY |
£0.7m |
| Buys |
ZAR |
Sells |
USD |
£0.8m |
| Buys |
ZAR |
Sells |
EUR |
£0.5m |
Notes
to the Interim Carve-out Combined financial Statements
(Tabular
amounts expressed in thousands of United States dollars, except where noted)
| 10. | Trade and other receivables |
| | |
September
30,
2021 | | |
December
31,
2020 | |
| Trade
receivables | |
$ | 24,380 | | |
$ | 12,947 | |
| | |
| 1,684 | | |
| 1,182 | |
| | |
$ | 26,064 | | |
$ | 14,129 | |
Trade
receivables are generally secured by the equipment that they relate to as it is Pillar policy that equipment is not released until payment
has been collected. Other receivables are unsecured and non-interest bearing. The expected credit loss provision at September 30, 2021
was $607k (December 31, 2020 $613k)
At
each period end, inventory is reviewed to ensure that it is recorded at the lower of cost and net realizable value.
| | |
September
30,
2021 | | |
December
31,
2020 | |
| Machinery
for resale | |
$ | 38,637 | | |
$ | 31,030 | |
| | |
$ | 38,637 | | |
$ | 31,030 | |
During
the period ended September 30, 2020, the Pillar recorded an inventory write-down of Nil.
| | |
September
30,
2021 | | |
December
31,
2020 | |
| Deriva tive financial
instruments (see note 9) | |
$ | 5,793 | | |
$ | 4,295 | |
| Other
tax and social security | |
| 8,816 | | |
| 4,688 | |
| | |
$ | 14,609 | | |
$ | 8,983 | |
Notes
to the Interim Carve-out Combined financial Statements
(Tabular
amounts expressed in thousands of United States dollars, except where noted)
| 13. | Property, plant and equipment |
| | |
| | |
Accumulated | | |
| |
| As
at September 30, 2021 | |
Cost | | |
depreciation | | |
Net
book value | |
| Land | |
$ | 3,000 | | |
| - | | |
| 3,000 | |
| Motor Vehicles | |
| 1,384 | | |
| 646 | | |
| 738 | |
| Plant and machinery | |
| 4,114 | | |
| 792 | | |
| 3,322 | |
| Office equipment | |
| 1,494 | | |
| 837 | | |
| 657 | |
| Software | |
| 696 | | |
| 26 | | |
| 670 | |
| Leasehold
improvements | |
| 2,271 | | |
| 382 | | |
| 1,889 | |
| | |
$ | 12,959 | | |
$ | 2,683 | | |
$ | 10,276 | |
| | |
| | |
Accumulated | | |
| |
| As
at December 31, 2020 | |
Cost | | |
depreciation | | |
Net
book value | |
| Land | |
$ | 3,000 | | |
| - | | |
| 3,000 | |
| Motor Vehicles | |
| 1,385 | | |
| 676 | | |
| 709 | |
| Plant and machinery | |
| 4,807 | | |
| 1,119 | | |
| 3,688 | |
| Office equipment | |
| 1,358 | | |
| 680 | | |
| 678 | |
| Software | |
| 696 | | |
| - | | |
| 696 | |
| Leasehold
improvements | |
| 2,197 | | |
| 375 | | |
| 1,822 | |
| | |
$ | 13,443 | | |
$ | 2,850 | | |
$ | 10,593 | |
During
the period ended September 30, 2021 no interest was capitalized (Period ended December 31, 2020 Nil).
Depreciation of $634k was recorded
in respect of property, plant and equipment during the period (2020: $446k).
| 14. | Other non-current assets |
| | |
September
30, 2021 | | |
December
31, 2020 | |
| Right-of-use
assets-operating leases | |
$ | 13,235 | | |
$ | 14,070 | |
| | |
$ | 13,235 | | |
$ | 14,070 | |
Notes
to the Interim Carve-out Combined financial Statements
(Tabular
amounts expressed in thousands of United States dollars, except where noted)
| | |
| | |
Accumulated | | |
| |
| As
at September 30, 2021 | |
Cost | | |
amortization | | |
Net
book value | |
| Trade names and
trademarks | |
$ | 1,710 | | |
$ | 573 | | |
$ | 1,137 | |
| Customer
relationships | |
| 218 | | |
| 108 | | |
| 110 | |
| | |
$ | 1,928 | | |
$ | 681 | | |
$ | 1,247 | |
| | |
| | |
Accumulated | | |
| |
| As
at December 31, 2020 | |
Cost | | |
amortization | | |
Net
book value | |
| Trade names and
trademarks | |
$ | 1,710 | | |
$ | 477 | | |
$ | 1,233 | |
| Customer
relationships | |
| 218 | | |
| 87 | | |
| 131 | |
| | |
$ | 1,928 | | |
$ | 564 | | |
$ | 1,364 | |
During
the period the Pillar incurred amortization charge of $95k for Trade names and trademarks, and $17k for customer relationships, see note
5.
During
the period ended September 31, 2021, the weighted average amortization period for all classes of intangible assets was 10 periods.
| 16. | Trade and other payables |
| | |
September
30,
2021 | | |
December
31,
2020 | |
| Trade payables | |
$ | 2,812 | | |
$ | 5,097 | |
| Accrued liabilities and other
payables | |
| 2,906 | | |
| 4,033 | |
| Social security and sales
taxes payable | |
| 182 | | |
| 124 | |
| Derivative financial instruments
(see note 9) | |
| 1,022 | | |
| 2,494 | |
| Operating
leases liabilities | |
| 532 | | |
| 774 | |
| | |
$ | 7,454 | | |
$ | 12,522 | |
| | |
| | |
December
31, | |
| | |
September
30,
2021 | | |
2020 | |
| Short-term debt-overdraft
facilities | |
$ | 30,183 | | |
$ | 54,969 | |
Short-term
debt
Short-term
debt is comprised of drawings in different currencies on the Pillar’s committed revolving credit facilities and has a weighted
average interest rate of 2.75%.
Notes
to the Interim Carve-out Combined financial Statements
(Tabular
amounts expressed in thousands of United States dollars, except where noted)
| 18. | Other non-current liabilities |
| | |
September
30,
2021 | | |
December
31,
2020 | |
| Operating leases
liability | |
$ | 13,859 | | |
$ | 14,070 | |
| Derivative financial instruments
(see note 9) | |
| 472 | | |
| 899 | |
| Other | |
| 1,771 | | |
| 1,771 | |
| | |
$ | 16,102 | | |
$ | 16,740 | |
The
Pillar's breakdown of leases expense is as follows:
| | |
Nine
months ended September 30, | |
| | |
2021 | | |
2020 | |
| Operating
lease cost | |
$ | | | |
$ | | |
| Amortization
of leased assets | |
| 831 | | |
| 794 | |
| Interest
on leases liabilities | |
| 407 | | |
| 427 | |
| | |
| | | |
| | |
| Short-term
lease cost | |
| 1,145 | | |
| 1,031 | |
| | |
$ | 2,383 | | |
$ | 2,252 | |
The
lease expenditure charged to earnings during the periodended September 30, 2021 was $2,383k (2020: $2,252k).
Short-term
lease costs
The
Pillar uses in its business a number of properties owned by related parties where no formal lease agreement is in place. The Pillar
pays for the use of this property. No adjustments have been made in these interim carve-out combined financial statements to reflect
the fair value of these expenses. These informal arrangements relate to 6 properties, and the total amount payable for the periodended
September 30, 2021 was $1,145k (2020 $1,031k). In these specific arrangements there is no explicit or implied enforceable period.
The
arrangements can be terminated by either party (lessor or lessee) at any time, and in terminating the lease arrangement there are no
significant penalties incurred by either party to the arrangement, either contractually or economically. In these instances the enforceable
term is considered to be less than 12 months, and the costs associated with these arrangements are accounted for as “short- term”
lease costs.
Operating
leases
The
Pillar has three operating commercial leases in force for auction sites and offices located in North America, the Middle East and Australia .
The
North American property lease term terminates on 1 December 2023. The annual base rent is $80k which is payable in advance on 30 November
each period. The Pillar is required to pay an additional rental cost of $1k for every million dollars of total auction sales in excess
of certain agreed thresholds. The additional rent payments are excluded from the measurement of the “Right of Use” (“ROU”)”
asset and lease liability, instead these payments are recorded in profit or loss as they occur. In computing the roll asset and leases
liability a discount rate of 0.79% was applied.
The
Australian property lease term terminates on 1 January 2023. Monthly rental payments on the property are AUD$22,500 with 3.5% annual
increases in advance. In computing the ROU asset and lease liability a discount rate of 0.76% was applied.
The
Pillar has entered in a lease agreement with JAFZA (Dubai) for the lease of land for a period of 20 periods. The lease term does not
contain restrictions on the Pillar’s activities. The interest rate for discounting the lease liability is 4% which is based on
the estimate of international borrowing costs.
Notes
to the Interim Carve-out Combined financial Statements
(Tabular
amounts expressed in thousands of United States dollars, except where noted)
There
are no residual value guarantees provided by the Pillar in any of its leasing arrangements. There are no restrictions or covenants imposed
by the Pillar’s leasing arrangements.
The
future aggregate minimum lease payments under non-cancellable operating leases are as follows:
| Remainder
of 2021 | |
| 464 | |
| 2022 | |
| 1,308 | |
| 2023 | |
| 1,069 | |
| 2024 | |
| 991 | |
| 2025 | |
| 991 | |
| Thereafter | |
| 14,178 | |
| Total
future minimum leases payments | |
$ | 19,001 | |
| less:
imputed interest | |
| 4,610 | |
| Total
operating leases liability | |
$ | 14,391 | |
| less:
operating leases liability - current | |
| 532 | |
| Total
operating leases liability - non-current | |
$ | 13,859 | |
At
September 30, 2021, the weighted average remaining lease term for operating leases is 6 periods and the weighted average discount rate
is 3.97%.
| 20. | Commitments
Commitments for expenditures |
The
Pillar had no committed expenditure as at September 30, 2021.
| 21. | Contingencies
Legal and other claims |
The
Pillar is subject to legal and other claims that arise in the ordinary course of its business. Management does not believe that the results
of these claims will have a material effect on the Pillar’s Combined balance sheet or Combined income statement.
Guarantee
contracts
In
the normal course of business, the Pillar will in certain situations guarantee to a consignor a minimum level of proceeds in connection
with the sale at auction of that consignor’s equipment.
Notes
to the Interim Carve-out Combined financial Statements
(Tabular
amounts expressed in thousands of United States dollars, except where noted)
| 22. | Related party transactions |
The
Euro Auctions Pillar is not a statutory group, but rather is a collection of connected entities (operationally connected and with connected
family ownership). The combined balance sheet reflects those assets and liabilities that represent the historical financial position
of the Pillar.
The
Euro Auctions Pillar’s related parties are summarized and defined as follows:
Significant
influence
Companies
which are deemed to be related parties owing to them being controlled by brothers of Mr Derek Keys.
These following are deemed to be
entities with significant influence:
| ● | Equipment
Sales Pillar: the business controlled by Mr Lynden Keys whose principal activity is the sale
of plant and machinery and the development and sale of land and property. |
| ● | Equipment
& Plant Services Pillar: the business controlled by Mr Trevor Keys whose principal activity
is the sale of equipment and plant to the agricultural and construction industries. |
| ● | Other:
Brian Keys and Jonathan Keys are also deemed to be related parties as they are brothers of
Mr Derek Keys. |
| ● | Included
in the Pillar are Director emoluments paid to Mr Derek Keys in the period amounting to $50k. |
The
following transactions were conducted with related entities by virtue of significant influence:
| | |
Nine
months ended 30
September | |
| | |
2021 | | |
2020 | |
| Auction
Services Revenue | |
| | | |
| | |
| - Equipment &
Pla nt Services Pillar* | |
$ | 791 | | |
| 658 | |
| - Equipment Sa les Pillar* | |
$ | 799 | | |
| 1,402 | |
| | |
September
30,
2021 | | |
December
31,
2020 | |
| Amounts
(owed to)/from | |
| | | |
| | |
| - Equipment &
Plant Services Pillar** | |
$ | (3,257 | ) | |
| (170 | ) |
| - Equipment Sales Pillar** | |
$ | (3,145 | ) | |
| (89 | ) |
*These
balances are recorded in “service revenue” in the combined income statement
**These
balances are recorded in "Amounts owed to related parties" in the combined balance sheet
Notes
to the Interim Carve-out Combined financial Statements
(Tabular
amounts expressed in thousands of United States dollars, except where noted)
| 22. | Related party transactions (continued) |
Common
control
Balances
owed by companies outside of the Euro Auctions Pillar under common control of Derek Keys.
| |
|
September
30, 2021 |
|
|
December
31, 2020 |
|
| Tamar Selby (UK) Limited*** |
|
$ |
- |
|
|
$ |
135 |
|
| Barford Equipment Ltd*** |
|
|
- |
|
|
|
778 |
|
| Old Coach House Properties Limited*** |
|
|
- |
|
|
|
449 |
|
| Grant Equipment LLC*** |
|
|
- |
|
|
|
8 |
|
| Euro Auctions LLC*** |
|
|
- |
|
|
|
991 |
|
| Turvey Manor Limited*** |
|
|
- |
|
|
|
1,003 |
|
| Gardrum Holdings Ltd** / *** |
|
|
(5,476 |
) |
|
|
133 |
|
| Euroauctions – Immobilien** |
|
|
- |
|
|
|
10 |
|
| EA UK No2 Ltd** / *** |
|
|
(2,275 |
) |
|
|
- |
|
***These
balances are recorded in "Amounts owed by related parties" in the interim carve-out combined financial statements.
There
are no events subsequent which require disclosure or adjustment in these financial statements.
Subsequent
events have been evaluated from the period ended, September 30, 2021 to November 8, 2021. The financial statements were issued on November
8, 2021.
Summary
Unaudited Pro Forma Condensed Combined Financial Information and Other Data
The following summary unaudited pro forma condensed combined financial
information and other data of the Company are presented to illustrate the pro forma effects of the Pro Forma Adjustments (as defined in
“Unaudited Pro Forma Condensed Combined Financial Information”).
The unaudited pro forma condensed combined balance sheet as of September
30, 2021 combines the historical consolidated balance sheet of Ritchie Bros. and the historical carve-out combined balance sheets of the
Acquired Businesses as of September 30, 2021, giving effect to the Acquisition and Financing as if they had occurred on September 30,
2021. The unaudited pro forma condensed combined income statements for the nine months ended September 30, 2021 and 2020, the twelve months
ended September 30, 2021, and the year ended December 31, 2020, combines the historical condensed consolidated income statements of Ritchie
Bros. and the historical carve-out combined income statements of the Acquired Businesses for the respective periods giving effect to the
Acquisition and Financing as if they had occurred on January 1, 2020, the first day of our 2020 fiscal year. The unaudited pro forma condensed
combined income statement for the twelve months ended September 30, 2021 is mathematically derived from the unaudited pro forma condensed
combined income statement for the year ended December 31, 2020, plus the unaudited pro forma condensed combined income statement for the
nine months ended September 30, 2021, and less the unaudited pro forma condensed combined income statement for the nine months ended September
30, 2020, each of which is included elsewhere in this offering circular. The unaudited pro forma financial information assumed the following as it relates to the notes offered hereby: (i) an interest rate of
5.00% per annum and a principal amount of $600 million for the USD notes and (ii) an interest rate of 5.00% per annum and a principal
amount of C$425 million for the Canadian notes. If the pro forma financial information assumed an interest rate on the notes offered hereby
of 5.125% per annum for the USD notes and 5.125% per annum for the Canadian notes, then interest expense, on a pro forma basis for the
twelve months ended September 30, 2021, the nine months ended September 30, 2021, the year ended December 31, 2020 and the nine months
ended September 30, 2020, would have been $53.5 million, $40.3 million, $52.2 million and $39.0 million, respectively, net income would
have been $146.4 million, $100.8 million, $106.5 million and $61.0 million, respectively, and tax expense would have been $49.3 million,
$35.1 million, $45.2 million and $31.0 million, respectively.
The summary unaudited pro forma condensed combined financial information
and other data set forth below give effect to the Pro Forma Adjustments (as defined in “Unaudited Pro Forma Condensed Combined Financial
Information”) as well as, in the case of pro forma non-GAAP adjusted EBITDA, certain other adjustments as described below. The Acquisition
will be treated as a business combination using the acquisition method of accounting under the provisions of Accounting Standards Codification
805, “Business Combinations” (“ASC 805”).
The summary unaudited pro forma condensed combined financial information
and other data should be read in conjunction with the information included under the headings “—Summary Historical Consolidated
Financial and Other Data of Ritchie Bros.,” “The Transactions,” “Unaudited Pro Forma Condensed Combined Financial
Information,” the historical consolidated financial statements of Ritchie Bros. and related notes, which are incorporated by reference
into this offering circular, and the historical carve-out combined financial statements of the Acquired Businesses and related notes,
which are included elsewhere in this offering circular.
The following information, including the pro forma non-GAAP adjusted
EBITDA, does not give effect to any estimated synergies, cost savings and other benefits that may be related to the Transactions. These
synergies, cost savings and other benefits are inherently uncertain and subject to significant business, economic and competitive uncertainties
and contingencies, all of which are difficult to predict and many of which are beyond our control. Even if we are able to integrate the
operations of Ritchie Bros. and the Target Companies, we may not realize the full benefits that we anticipate. If we achieve the expected
benefits, they may not be achieved within the anticipated time frame. Also, the synergies and other benefits from the Transactions may
be offset by costs incurred in integrating Ritchie Bros. and the Target Companies, increases in other expenses, operating losses or problems
in the business unrelated to the Transactions. As a result, there can be no assurance that such synergies or other benefits will be achieved
on a timely basis or at all or in currently expected amounts.
| |
|
Pro Forma
Year Ended
December 31,
2020 |
|
|
Pro Forma
Nine Months
Ended
September 30,
2020 |
|
|
Pro Forma
Nine Months
Ended
September 30,
2021 |
|
|
Pro Forma
Twelve Months
Ended
September 30,
2021 |
|
| |
|
(in thousands, except ratios) |
|
| Unaudited Pro Forma Combined Income Statements Data |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Total revenue |
|
$ |
1,658,370 |
|
|
$ |
1,216,038 |
|
|
$ |
1,248,035 |
|
|
$ |
1,690,367 |
|
| Cost of services |
|
|
167,156 |
|
|
|
126,196 |
|
|
|
115,792 |
|
|
|
156,752 |
|
| Cost of inventory sold |
|
|
661,564 |
|
|
|
482,950 |
|
|
|
474,707 |
|
|
|
653,321 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Selling, general and administrative expenses |
|
|
435,512 |
|
|
|
323,258 |
|
|
|
351,190 |
|
|
|
463,444 |
|
| Acquisition-related costs |
|
|
45,751 |
|
|
|
39,737 |
|
|
|
16,226 |
|
|
|
22,240 |
|
| Depreciation and amortization expenses |
|
|
109,852 |
|
|
|
81,394 |
|
|
|
93,189 |
|
|
|
121,647 |
|
| Gain on disposition of property, plant and equipment |
|
|
(1,573 |
) |
|
|
(1,536 |
) |
|
|
(1,346 |
) |
|
|
(1,383 |
) |
| Foreign exchange (gain) loss |
|
|
1,310 |
|
|
|
(1 |
) |
|
|
289 |
|
|
|
1,600 |
|
| Operating income |
|
|
238,798 |
|
|
|
164,040 |
|
|
|
197,988 |
|
|
|
272,746 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Interest expense |
|
|
(89,394 |
) |
|
|
(67,089 |
) |
|
|
(67,966 |
) |
|
|
(90,271 |
) |
| Other income (expense), net |
|
|
3,443 |
|
|
|
(4,142 |
) |
|
|
6,748 |
|
|
|
14,333 |
|
| Income before income taxes |
|
|
152,847 |
|
|
|
92,809 |
|
|
|
136,770 |
|
|
|
196,808 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Income tax expense |
|
|
45,446 |
|
|
|
31,191 |
|
|
|
35,323 |
|
|
|
49,578 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Net income |
|
$ |
107,401 |
|
|
$ |
61,618 |
|
|
$ |
101,447 |
|
|
$ |
147,230 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Balance Sheet Data |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Cash and cash equivalents |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
431,321 |
|
| Total assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
3,795,100 |
|
| Secured debt |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
361,283 |
|
| Unsecured debt |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
1,414,291 |
|
| Total debt |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
1,775,574 |
|
| Total liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
2,763,604 |
|
| Stockholders' equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
1,031,080 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Other Financial and Operating Data |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Pro forma non-GAAP adjusted EBITDA (1) |
|
$ |
419,945 |
|
|
$ |
299,206 |
|
|
$ |
329,027 |
|
|
$ |
449,766 |
|
| Pro forma gross leverage (2) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.9 |
x |
| Pro forma net leverage (2) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.0 |
x |
| Pro forma net secured leverage (2) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.2 |
)x |
| (1) | Pro forma non-GAAP adjusted EBITDA is derived from financial information contained elsewhere in this
offering circular. See “— Summary Historical Consolidated Financial and Other Data of Ritchie Bros.,”
“Unaudited Pro Forma Condensed Combined Financial Information,” and the historical carve-out combined financial
statements of the Acquired Businesses and related notes. Pro forma non-GAAP adjusted EBITDA represents pro forma EBITDA adjusted to
add back share-based payments expense, acquisition-related costs, gain or loss on disposition of property, plant and equipment and
excluding the effects of any non-recurring or unusual adjusting items. Pro forma EBITDA is calculated by adding back depreciation
and amortization expenses, interest expense, and income tax expense, and subtracting interest income from pro forma net income. Pro
forma EBITDA and pro forma non-GAAP adjusted EBITDA are calculated by giving pro forma effect to the Pro Forma Adjustments as if
they had occurred at the beginning of the applicable period. Pro forma EBITDA and pro forma non-GAAP adjusted EBITDA are not the
mathematical addition of Ritchie Bros.’ and the Acquired Businesses’ EBITDA and non-GAAP adjusted EBITDA, respectively.
See “Non-GAAP Financial Measures” for a discussion of the reasons why management believes pro forma non-GAAP adjusted
EBITDA is useful in evaluating our business and also for a discussion of the analytical limitations of these measures. |
The following
table provides a reconciliation of pro forma EBITDA and pro forma non-GAAP adjusted EBITDA to pro forma net income:
| |
|
Pro Forma
Year Ended
December 31,
2020 |
|
|
Pro Forma
Nine Months
Ended
September 30,
2020 |
|
|
Pro Forma
Nine Months
Ended
September 30,
2021 |
|
|
Pro Forma
Twelve Months
Ended
September 30,
2021 |
|
| |
|
(in thousands) |
|
| Pro forma net income |
|
$ |
107,401 |
|
|
$ |
61,618 |
|
|
$ |
101,447 |
|
|
$ |
147,230 |
|
| Depreciation and amortization |
|
|
109,852 |
|
|
|
81,394 |
|
|
|
93,189 |
|
|
|
121,647 |
|
| Interest income |
|
|
89,394 |
|
|
|
67,089 |
|
|
|
67,966 |
|
|
|
90,271 |
|
| Interest expense |
|
|
(2,599 |
) |
|
|
(1,889 |
) |
|
|
(1,306 |
) |
|
|
(2,016 |
) |
| Income tax expense |
|
|
45,446 |
|
|
|
31,191 |
|
|
|
35,323 |
|
|
|
49,578 |
|
| Pro forma EBITDA |
|
|
349,494 |
|
|
|
239,403 |
|
|
|
296,619 |
|
|
|
406,710 |
|
| Share-based payments expense |
|
|
22,354 |
|
|
|
17,683 |
|
|
|
17,528 |
|
|
|
22,199 |
|
| Acquisition-related costs |
|
|
45,751 |
|
|
|
39,737 |
|
|
|
16,226 |
|
|
|
22,240 |
|
| Gain on disposition of property, plant and equipment |
|
|
(1,573 |
) |
|
|
(1,536 |
) |
|
|
(1,346 |
) |
|
|
(1,383 |
) |
| Severance |
|
|
3,919 |
|
|
|
3,919 |
|
|
|
- |
|
|
|
- |
|
| Pro forma non-GAAP adjusted EBITDA |
|
|
419,945 |
|
|
|
299,206 |
|
|
|
329,027 |
|
|
|
449,766 |
|
| (2) | Pro forma gross leverage is calculated by dividing total pro forma debt by pro forma non-GAAP adjusted
EBTIDA. Pro forma net leverage is calculated by dividing pro forma net debt by pro forma non-GAAP adjusted EBITDA. Pro forma net secured
leverage is calculated by dividing pro forma net secured debt by pro forma non-GAAP adjusted EBITDA. We believe that these measures provide
useful information about the performance of our operations as an indication of the amount of time it would take us to settle both our
short and long-term debt. |
The following table provides a reconciliation of pro forma gross leverage, pro forma net leverage and pro forma net secured leverage as of September 30, 2021 and a reconciliation of pro forma non-GAAP adjusted EBITDA to pro forma net income for the twelve months ended September 30, 2021:
| (in thousands, except ratios) | |
Pro Forma
as at and for the
Twelve Months
Ended
September 30,
2021 | |
| Short-term debt | |
$ | 18,481 | |
| Long-term debt | |
| 1,757,093 | |
| Pro forma total debt | |
| 1,775,574 | |
| Less: Cash and cash equivalents | |
| (431,321 | ) |
| Pro forma net debt | |
| 1,344,253 | |
| Less: net unsecured debt: | |
| (1,414,291 | ) |
| Pro forma net secured debt | |
| (70,038 | ) |
| Pro forma net income | |
$ | 147,230 | |
| Add: depreciation and amortization expenses | |
| 121,647 | |
| Add: interest expense | |
| 90,271 | |
| Less: interest income | |
| (2,016 | ) |
| Add: income tax expense | |
| 49,578 | |
| Pro forma EBITDA | |
| 406,710 | |
| Share-based payments expense | |
| 22,199 | |
| Acquisition-related costs | |
| 22,240 | |
| Gain on disposition of property, plant and equipment | |
| (1,383 | ) |
| Severance | |
| — | |
| Pro forma non-GAAP adjusted EBITDA | |
$ | 449,766 | |
| Pro forma gross leverage | |
| 3.9 | x |
| Pro forma net leverage | |
| 3.0 | x |
| Pro forma net secured leverage | |
| (0.2 | )x |
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL
INFORMATION
The
unaudited pro forma condensed combined financial information of Ritchie Bros. is presented to illustrate the pro forma effects of the
following transactions: (i) the Acquisition, (ii) this offering of the notes and (iii) borrowings under the Delayed-Draw
Term Loans. We refer to the offering of these notes and the borrowings under the Delayed-Draw Term Loans collectively as the “Financing”.
The unaudited pro forma condensed combined balance sheet as of September 30,
2021 combines the historical consolidated balance sheet of Ritchie Bros. and the historical interim carve-out combined balance sheets
of the Acquired Businesses as of September 30, 2021, giving effect to the Acquisition and Financing as if they had occurred on September 30,
2021. The unaudited pro forma condensed combined income statements for the nine months ended September 30, 2021 and 2020, the twelve
months ended September 30, 2021, and the year ended December 31, 2020, combine the historical condensed consolidated income
statements of Ritchie Bros. and the historical carve-out combined income statements of the Acquired Businesses for the respective periods
giving effect to the Acquisition and Financing as if they had occurred on January 1, 2020, the first day of our 2020 fiscal year.
The unaudited pro forma condensed combined income statement for the twelve months ended September 30, 2021 is mathematically derived
from the unaudited pro forma condensed combined income statement for the year ended December 31, 2020, plus the unaudited pro forma
condensed combined income statement for the nine months ended September 30, 2021, less the unaudited pro forma condensed combined
income statement for the nine months ended September 30, 2020.
Assumptions underlying the pro forma adjustments are described in the
accompanying notes, which should be read in conjunction with the unaudited pro forma condensed combined balance sheet and income statements.
The unaudited pro forma condensed combined financial information set
forth below gives effect to transaction accounting adjustments to: (i) eliminate intragroup balances and transactions; (ii) record
consideration paid, assets acquired, and liabilities assumed through the Acquisition at their fair values; (iii) reflect amortization
of fair value adjustments for intangible assets; (iv) reflect changes in management compensation as a result of the Acquisition;
(v) reflect acquisition-related costs incurred in connection with the Acquisition; and (vi) reflect the Financing and related
costs (collectively, the “Pro Forma Adjustments”).
The
acquisition of the Acquired Businesses will be treated as a business combination using the acquisition method of accounting under the
provisions of ASC 805, which requires the Company to recognize the Acquired Businesses’ identifiable assets acquired and
liabilities assumed at fair value, recognize consideration transferred in the acquisition at fair value and recognize goodwill, if any,
as the excess of consideration transferred over the net of the acquisition date fair value of identifiable assets acquired and liabilities
assumed. The purchase consideration will be allocated to the assets and
liabilities acquired based upon their estimated fair values as of the date of completion of the Acquisition. As a result, the pro forma
adjustments are preliminary and subject to change as additional information becomes available and as additional analysis is performed.
The preliminary pro forma adjustments have been made solely for the purposes of providing the unaudited pro forma condensed combined financial
information. The fair values of identifiable tangible and intangible assets acquired and liabilities assumed are based on preliminary
valuations and estimates by management as of September 30, 2021. Adjustments to these preliminary estimates are expected to occur
and these adjustments could have a material impact on the accompanying unaudited pro forma condensed combined financial information.
The unaudited pro forma adjustments are based upon available information
and certain assumptions that we believe are reasonable under the circumstances. The unaudited pro forma condensed combined financial information
is presented for informational purposes only. The unaudited pro forma condensed combined financial information does not purport to represent
what our results of operations or financial condition would have been had the Acquisition and Financing described above actually occurred
on the dates indicated, and it does not purport to project our results of operations or financial condition for any future period or as
of any future date. The unaudited pro forma condensed combined financial information does not reflect management adjustments for any cost
savings or associated costs to achieve such savings from operating efficiencies or synergies that may result from the Acquisition. In
addition, this unaudited pro forma condensed combined financial information does not include the impacts of any future integration or
restructuring activities that may occur as a result of the Acquisition, since management has not completed the process of making these
assessments. The unaudited pro forma condensed combined financial information includes adjustments that are preliminary and may be revised,
and there can be no assurance that such revisions will not result in material changes to the information.
The unaudited pro forma condensed combined financial information should
be read in conjunction with the information included under the headings “Summary — Summary Historical Consolidated
Financial and Other Data of Ritchie Bros.,” “The Transactions” and the historical carve-out combined financial statements
of the Acquired Businesses including related notes, each of which is included elsewhere in this offering circular, as well as “Management’s
Discussion and Analysis of Financial Condition and Results of Operations of Ritchie Bros.” and the historical consolidated financial
statements of Ritchie Bros. included in Ritchie Bros.’ SEC filings incorporated by reference into this offering circular.
Unaudited Pro Forma Condensed Combined Balance
Sheet
as of September 30, 2021
(in thousands of U.S. dollars)
| | |
Historical | | |
Pro
Forma Transaction Accounting Adjustments | | |
| |
| | |
Ritchie Bros.
Auctioneers
Incorporated (As
reported) | | |
Euro
Auctions
Pillar | | |
Equipment &
Plant Services
Pillar | | |
Equipment
Sales
Pillar | | |
Intragroup
Elimination
Adjustments | | |
Acquisition | | |
Financing &
Other | | |
Ritchie Bros.
Auctioneers
Incorporated
Pro Forma | |
| | |
| | |
(Note
1) | | |
(Note
1) | | |
(Note
1) | | |
(Note
4A) | | |
(Note
5) | | |
(Note
5) | | |
| |
| Assets | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Current
assets: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Cash
and cash equivalents | |
$ | 362,612 | | |
$ | 102,608 | | |
$ | 4,840 | | |
$ | 5,494 | | |
$ | — | | |
$ | (1,168,530 | )(A) | |
$ | 1,124,297 | (J) | |
$ | 431,321 | |
| Restricted
cash | |
| 105,742 | | |
| 366 | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 106,108 | |
| Trade
and other receivables | |
| 253,715 | | |
| 26,064 | | |
| 58 | | |
| 501 | | |
| — | | |
| — | | |
| — | | |
| 280,338 | |
| Less:
allowance for credit losses | |
| (4,138 | ) | |
| (607 | ) | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| (4,745 | ) |
| Amounts
owed by related parties | |
| — | | |
| — | | |
| 16,043 | | |
| 16,502 | | |
| (6,402 | ) | |
| (26,143 | )(G) | |
| — | | |
| — | |
| Inventory | |
| 64,201 | | |
| 38,637 | | |
| 3,412 | | |
| 3,139 | | |
| — | | |
| 674 | (B) | |
| — | | |
| 110,063 | |
| Other
current assets | |
| 31,796 | | |
| 14,609 | | |
| — | | |
| 205 | | |
| — | | |
| — | | |
| — | | |
| 46,610 | |
| Income
taxes receivable | |
| 11,484 | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 11,484 | |
| Total
current assets | |
| 825,412 | | |
| 181,677 | | |
| 24,353 | | |
| 25,841 | | |
| (6,402 | ) | |
| (1,193,999 | ) | |
| 1,124,297 | | |
| 981,179 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Property,
plant and equipment | |
| 466,162 | | |
| 10,276 | | |
| — | | |
| 96 | | |
| — | | |
| (1,771 | )(C) | |
| — | | |
| 474,763 | |
| Other
non-current assets | |
| 149,819 | | |
| 13,235 | | |
| — | | |
| — | | |
| — | | |
| (12,717 | )(C) | |
| (896 | )(K) | |
| 149,441 | |
| Intangible
assets | |
| 285,148 | | |
| 1,247 | | |
| — | | |
| — | | |
| — | | |
| 280,867 | (D) | |
| — | | |
| 567,262 | |
| Goodwill | |
| 837,708 | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 763,771 | (E) | |
| — | | |
| 1,601,479 | |
| Deferred
tax assets | |
| 12,100 | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 8,876 | (F) | |
| — | | |
| 20,976 | |
| Total
assets | |
$ | 2,576,349 | | |
$ | 206,435 | | |
$ | 24,353 | | |
$ | 25,937 | | |
$ | (6,402 | ) | |
$ | (154,973 | ) | |
$ | 1,123,401 | | |
$ | 3,795,100 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Liabilities
and Equity | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Current
liabilities: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Auction
proceeds payable | |
$ | 428,555 | | |
$ | 39,735 | | |
$ | — | | |
$ | — | | |
$ | — | | |
$ | — | | |
$ | — | | |
$ | 468,290 | |
| Amounts
owed to related parties | |
| — | | |
| 14,153 | | |
| — | | |
| 13 | | |
| (6,402 | ) | |
| (7,764 | )(G) | |
| — | | |
| — | |
| Trade
and other payables | |
| 228,939 | | |
| 7,454 | | |
| 226 | | |
| 993 | | |
| — | | |
| — | | |
| — | | |
| 237,612 | |
| Income
taxes payable | |
| 5,033 | | |
| 7,917 | | |
| 541 | | |
| 1,114 | | |
| — | | |
| — | | |
| — | | |
| 14,605 | |
| Short
term debt | |
| 18,481 | | |
| 30,183 | | |
| 184 | | |
| — | | |
| — | | |
| (30,367 | )(G) | |
| — | | |
| 18,481 | |
| Current
portion of long-term debt | |
| 1,172 | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 10,250 | (K) | |
| 11,422 | |
| Total
current liabilities | |
| 682,180 | | |
| 99,442 | | |
| 951 | | |
| 2,120 | | |
| (6,402 | ) | |
| (38,131 | ) | |
| 10,250 | | |
| 750,410 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Long-term
debt | |
| 632,520 | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 1,113,151 | (K) | |
| 1,745,671 | |
| Other
non-current liabilities | |
| 153,560 | | |
| 16,102 | | |
| — | | |
| — | | |
| — | | |
| (15,630 | )(C) | |
| — | | |
| 154,032 | |
| Deferred
tax liabilities | |
| 45,732 | | |
| 629 | | |
| — | | |
| — | | |
| — | | |
| 67,130 | (F) | |
| — | | |
| 113,491 | |
| Total
liabilities | |
$ | 1,513,992 | | |
$ | 116,173 | | |
$ | 951 | | |
$ | 2,120 | | |
$ | (6,402 | ) | |
$ | 13,369 | | |
$ | 1,123,401 | | |
$ | 2,763,604 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Stockholders’
equity | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Share
capital: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Common
stock | |
| 219,609 | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 219,609 | |
| Additional
paid-in capital | |
| 57,595 | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 57,595 | |
| Retained
earnings | |
| 836,759 | | |
| — | | |
| — | | |
| — | | |
| — | | |
| (30,861 | )(I) | |
| — | | |
| 805,898 | |
| Net
Parent Investment | |
| — | | |
| 89,652 | | |
| 23,066 | | |
| 23,409 | | |
| — | | |
| (136,127 | )(H) | |
| — | | |
| — | |
| Accumulated
other comprehensive income | |
| (52,022 | ) | |
| 610 | | |
| 336 | | |
| 408 | | |
| — | | |
| (1,354 | )(H) | |
| — | | |
| (52,022 | ) |
| Stockholders’
equity | |
| 1,061,941 | | |
| 90,262 | | |
| 23,402 | | |
| 23,817 | | |
| — | | |
| (168,342 | ) | |
| — | | |
| 1,031,080 | |
| Non-controlling
interest | |
| 416 | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 416 | |
| Total
stockholder's equity | |
| 1,062,357 | | |
| 90,262 | | |
| 23,402 | | |
| 23,817 | | |
| — | | |
| (168,342 | ) | |
| — | | |
| 1,031,496 | |
| Total
liabilities and equity | |
$ | 2,576,349 | | |
$ | 206,435 | | |
$ | 24,353 | | |
$ | 25,937 | | |
$ | (6,402 | ) | |
$ | (154,973 | ) | |
$ | 1,123,401 | | |
$ | 3,795,100 | |
See accompanying Notes to the Unaudited Pro
Forma Condensed Combined Financial Information
Unaudited Pro Forma Condensed Combined Income
Statement
for the Twelve Months Ended September 30,
2021
(in thousands of U.S. dollars, except for per
share amounts)
| | |
Historical | | |
Pro
Forma Transaction Accounting Adjustments | | |
| |
| | |
Ritchie
Bros.
Auctioneers
Incorporated | | |
Euro
Auctions
Pillar | | |
Equipment &
Plant Services
Pillar | | |
Equipment
Sales Pillar | | |
Intragroup
Elimination
Adjustments | | |
Acquisition | | |
Financing &
Other | | |
Ritchie
Bros.
Auctioneers
Incorporated
Pro Forma | |
| | |
| | |
(Note
1) | | |
(Note
1) | | |
(Note
1) | | |
(Note
4B) | | |
(Note
6) | | |
(Note
6) | | |
| |
| Revenue: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Service
revenue | |
$ | 904,626 | | |
$ | 53,931 | | |
$ | — | | |
$ | — | | |
$ | (2,259 | ) | |
$ | — | | |
$ | — | | |
$ | 956,298 | |
| Inventory
sales revenue | |
| 536,385 | | |
| 131,335 | | |
| 29,991 | | |
| 36,358 | | |
| — | | |
| — | | |
| — | | |
| 734,069 | |
| Total
revenue | |
| 1,441,011 | | |
| 185,266 | | |
| 29,991 | | |
| 36,358 | | |
| (2,259 | ) | |
| — | | |
| — | | |
| 1,690,367 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Operating
expenses: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Cost
of services | |
| 147,377 | | |
| 9,375 | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 156,752 | |
| Cost
of inventory sold | |
| 482,084 | | |
| 114,970 | | |
| 25,866 | | |
| 32,660 | | |
| (2,259 | ) | |
| — | | |
| — | | |
| 653,321 | |
| Selling,
general and administrative expenses | |
| 444,795 | | |
| 16,029 | | |
| 903 | | |
| 945 | | |
| — | | |
| 772 | (B) | |
| — | | |
| 463,444 | |
| Acquisition-related
costs | |
| 22,240 | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 22,240 | |
| Depreciation
and amortization expenses | |
| 84,247 | | |
| 1,119 | | |
| — | | |
| 19 | | |
| — | | |
| 36,262 | (D) | |
| — | | |
| 121,647 | |
| Gain
on disposition of property, plant and equipment | |
| (1,334 | ) | |
| (14 | ) | |
| — | | |
| (35 | ) | |
| — | | |
| — | | |
| — | | |
| (1,383 | ) |
| Foreign
exchange loss (gain) | |
| 1,070 | | |
| 1,164 | | |
| (172 | ) | |
| (462 | ) | |
| — | | |
| — | | |
| — | | |
| 1,600 | |
| Total
operating expenses | |
| 1,180,479 | | |
| 142,643 | | |
| 26,597 | | |
| 33,127 | | |
| (2,259 | ) | |
| 37,034 | | |
| — | | |
| 1,417,621 | |
| Operating
income (loss) | |
| 260,532 | | |
| 42,623 | | |
| 3,394 | | |
| 3,231 | | |
| — | | |
| (37,034 | ) | |
| — | | |
| 272,746 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Interest
expense | |
| (35,387 | ) | |
| (506 | ) | |
| — | | |
| (12 | ) | |
| — | | |
| — | | |
| (54,366 | )(F) | |
| (90,271 | ) |
| Other
income (expense), net | |
| 4,382 | | |
| 9,732 | | |
| 224 | | |
| (5 | ) | |
| — | | |
| — | | |
| — | | |
| 14,333 | |
| Income
(loss) before income taxes | |
| 229,527 | | |
| 51,849 | | |
| 3,618 | | |
| 3,214 | | |
| — | | |
| (37,034 | ) | |
| (54,366 | ) | |
| 196,808 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Income
tax expense (benefit) | |
| 59,330 | | |
| 9,833 | | |
| 688 | | |
| 610 | | |
| — | | |
| (6,903 | )(E) | |
| (13,980 | )(E) | |
| 49,578 | |
| Net
income (loss) | |
$ | 170,197 | | |
$ | 42,016 | | |
$ | 2,930 | | |
$ | 2,604 | | |
$ | — | | |
$ | (30,131 | ) | |
$ | (40,386 | ) | |
$ | 147,230 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Net
income (loss) attributable to: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Stockholders | |
$ | 170,129 | | |
$ | 42,016 | | |
$ | 2,930 | | |
$ | 2,604 | | |
$ | — | | |
$ | (30,131 | ) | |
$ | (40,386 | ) | |
$ | 147,162 | |
| Non-controlling
interests | |
| 68 | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 68 | |
| Net
income (loss) | |
$ | 170,197 | | |
$ | 42,016 | | |
$ | 2,930 | | |
$ | 2,604 | | |
$ | — | | |
$ | (30,131 | ) | |
$ | (40,386 | ) | |
$ | 147,230 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Earnings
per share attributable to stockholders: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Basic | |
$ | 1.54 | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
$ | 1.33 | |
| Diluted | |
$ | 1.52 | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
$ | 1.32 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Weighted
average number of shares outstanding: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Basic | |
| 110,401,318 | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| 110,401,318 | |
| Diluted | |
| 111,583,519 | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| 111,583,519 | |
See accompanying Notes to the Unaudited Pro
Forma Condensed Combined Financial Information
Unaudited Pro Forma Condensed Combined Income
Statement
for the Nine Months Ended September 30,
2021
(in thousands of U.S. dollars, except for per
share amounts)
| | |
Historical | | |
Pro Forma Transaction Accounting Adjustments | | |
| |
| | |
Ritchie
Bros.
Auctioneers
Incorporated
(As reported) | | |
Euro
Auctions
Pillar | | |
Equipment &
Plant Services
Pillar | | |
Equipment
Sales
Pillar | | |
Intragroup
Elimination
Adjustments | | |
Acquisition | | |
Financing &
Other | | |
Ritchie
Bros.
Auctioneers
Incorporated
Pro Forma | |
| | |
| | |
(Note
1) | | |
(Note
1) | | |
(Note
1) | | |
(Note
4B) | | |
(Note
6) | | |
(Note
6) | | |
| |
| Revenue: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Service
revenue | |
$ | 672,971 | | |
$ | 37,263 | | |
$ | — | | |
$ | — | | |
$ | (1,590 | ) | |
$ | — | | |
$ | — | | |
$ | 708,644 | |
| Inventory
sales revenue | |
| 384,627 | | |
| 103,763 | | |
| 23,156 | | |
| 27,845 | | |
| — | | |
| — | | |
| — | | |
| 539,391 | |
| Total
revenue | |
| 1,057,598 | | |
| 141,026 | | |
| 23,156 | | |
| 27,845 | | |
| (1,590 | ) | |
| — | | |
| — | | |
| 1,248,035 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Operating
expenses: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Cost
of services | |
| 108,107 | | |
| 7,685 | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 115,792 | |
| Cost
of inventory sold | |
| 344,763 | | |
| 86,359 | | |
| 19,936 | | |
| 25,239 | | |
| (1,590 | ) | |
| — | | |
| — | | |
| 474,707 | |
| Selling,
general and administrative expenses | |
| 336,475 | | |
| 12,780 | | |
| 623 | | |
| 675 | | |
| — | | |
| 637 | (B) | |
| — | | |
| 351,190 | |
| Acquisition-related
costs | |
| 16,226 | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 16,226 | |
| Depreciation
and amortization expenses | |
| 64,912 | | |
| 746 | | |
| — | | |
| 11 | | |
| — | | |
| 27,520 | (D) | |
| — | | |
| 93,189 | |
| Gain
on disposition of property, plant and equipment | |
| (1,311 | ) | |
| — | | |
| — | | |
| (35 | ) | |
| — | | |
| — | | |
| — | | |
| (1,346 | ) |
| Foreign
exchange loss (gain) | |
| 788 | | |
| 173 | | |
| (157 | ) | |
| (515 | ) | |
| — | | |
| — | | |
| — | | |
| 289 | |
| Total
operating expenses | |
| 869,960 | | |
| 107,743 | | |
| 20,402 | | |
| 25,375 | | |
| (1,590 | ) | |
| 28,157 | | |
| — | | |
| 1,050,047 | |
| Operating
income (loss) | |
| 187,638 | | |
| 33,283 | | |
| 2,754 | | |
| 2,470 | | |
| — | | |
| (28,157 | ) | |
| — | | |
| 197,988 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Interest
expense | |
| (26,620 | ) | |
| (376 | ) | |
| — | | |
| (10 | ) | |
| — | | |
| — | | |
| (40,960 | )(F) | |
| (67,966 | ) |
| Other
income (expense), net | |
| 2,800 | | |
| 3,656 | | |
| 162 | | |
| 130 | | |
| — | | |
| — | | |
| — | | |
| 6,748 | |
| Income
(loss) before income taxes | |
| 163,818 | | |
| 36,563 | | |
| 2,916 | | |
| 2,590 | | |
| — | | |
| (28,157 | ) | |
| (40,960 | ) | |
| 136,770 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Income
tax expense (benefit) | |
| 42,541 | | |
| 7,508 | | |
| 554 | | |
| 492 | | |
| — | | |
| (5,239 | )(E) | |
| (10,533 | )(E) | |
| 35,323 | |
| Net
income (loss) | |
$ | 121,277 | | |
$ | 29,055 | | |
$ | 2,362 | | |
$ | 2,098 | | |
$ | — | | |
$ | (22,918 | ) | |
$ | (30,427 | ) | |
$ | 101,447 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Net
income (loss) attributable to: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Stockholders | |
$ | 121,273 | | |
$ | 29,055 | | |
$ | 2,362 | | |
$ | 2,098 | | |
$ | — | | |
$ | (22,918 | ) | |
$ | (30,427 | ) | |
$ | 101,443 | |
| Non-controlling
interests | |
| 4 | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 4 | |
| Net
income (loss) | |
$ | 121,277 | | |
$ | 29,055 | | |
$ | 2,362 | | |
$ | 2,098 | | |
$ | — | | |
$ | (22,918 | ) | |
$ | (30,427 | ) | |
$ | 101,447 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Earnings
per share attributable to stockholders: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Basic | |
$ | 1.10 | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
$ | 0.92 | |
| Diluted | |
$ | 1.09 | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
$ | 0.91 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Weighted
average number of shares outstanding: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Basic | |
| 110,233,851 | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| 110,233,851 | |
| Diluted | |
| 111,333,247 | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| 111,333,247 | |
See accompanying Notes to the Unaudited Pro
Forma Condensed Combined Financial Information
Unaudited Pro Forma Condensed Combined Income
Statement
for the Year Ended December 31, 2020
(in thousands of U.S. dollars, except for per
share amounts)
| | |
Historical | | |
Pro Forma Transaction Accounting Adjustments | | |
| |
| | |
Ritchie Bros.
Auctioneers
Incorporated
(As reported) | | |
Euro
Auctions
Pillar | | |
Equipment &
Plant Services
Pillar | | |
Equipment
Sales
Pillar | | |
Intragroup
Elimination
Adjustments | | |
Acquisition | | |
Financing &
Other | | |
Ritchie Bros.
Auctioneers
Incorporated
Pro Forma | |
| | |
| | |
(Note 1) | | |
(Note 1) | | |
(Note 1) | | |
(Note 4B) | | |
(Note 6) | | |
(Note 6) | | |
| |
| Revenue: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Service revenue | |
$ | 871,596 | | |
$ | 54,929 | | |
$ | — | | |
$ | — | | |
$ | (2,729 | ) | |
$ | — | | |
$ | — | | |
$ | 923,796 | |
| Inventory sales revenue | |
| 505,664 | | |
| 136,040 | | |
| 32,790 | | |
| 60,080 | | |
| — | | |
| — | | |
| — | | |
| 734,574 | |
| Total revenue | |
| 1,377,260 | | |
| 190,969 | | |
| 32,790 | | |
| 60,080 | | |
| (2,729 | ) | |
| — | | |
| — | | |
| 1,658,370 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Operating expenses: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Cost of services | |
| 157,296 | | |
| 9,860 | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 167,156 | |
| Cost of inventory sold | |
| 458,293 | | |
| 125,023 | | |
| 28,249 | | |
| 52,054 | | |
| (2,729 | ) | |
| 674 | (A) | |
| — | | |
| 661,564 | |
| Selling, general and administrative expenses | |
| 417,523 | | |
| 15,139 | | |
| 927 | | |
| 1,389 | | |
| — | | |
| 534 | (B) | |
| — | | |
| 435,512 | |
| Acquisition-related costs | |
| 6,014 | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 39,737 | (C) | |
| — | | |
| 45,751 | |
| Depreciation and amortization expenses | |
| 74,921 | | |
| 924 | | |
| — | | |
| 13 | | |
| — | | |
| 33,994 | (D) | |
| — | | |
| 109,852 | |
| Gain on disposition of property, plant and equipment | |
| (1,559 | ) | |
| (14 | ) | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| (1,573 | ) |
| Foreign exchange loss (gain) | |
| 1,612 | | |
| — | | |
| (161 | ) | |
| (141 | ) | |
| — | | |
| — | | |
| — | | |
| 1,310 | |
| Total operating expenses | |
| 1,114,100 | | |
| 150,932 | | |
| 29,015 | | |
| 53,315 | | |
| (2,729 | ) | |
| 74,939 | | |
| — | | |
| 1,419,572 | |
| Operating income (loss) | |
| 263,160 | | |
| 40,037 | | |
| 3,775 | | |
| 6,765 | | |
| — | | |
| (74,939 | ) | |
| — | | |
| 238,798 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Interest expense | |
| (35,568 | ) | |
| (651 | ) | |
| — | | |
| (175 | ) | |
| — | | |
| — | | |
| (53,000 | )(F) | |
| (89,394 | ) |
| Other income (expense), net | |
| 8,296 | | |
| (5,029 | ) | |
| 176 | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 3,443 | |
| Income (loss) before income taxes | |
| 235,888 | | |
| 34,357 | | |
| 3,951 | | |
| 6,590 | | |
| — | | |
| (74,939 | ) | |
| (53,000 | ) | |
| 152,847 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Income tax expense (benefit) | |
| 65,530 | | |
| 7,013 | | |
| 751 | | |
| 1,252 | | |
| — | | |
| (15,475 | )(E) | |
| (13,625 | )(E) | |
| 45,446 | |
| Net income (loss) | |
$ | 170,358 | | |
$ | 27,344 | | |
$ | 3,200 | | |
$ | 5,338 | | |
$ | — | | |
$ | (59,464 | ) | |
$ | (39,375 | ) | |
$ | 107,401 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Net income (loss) attributable to: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Stockholders | |
$ | 170,095 | | |
$ | 27,344 | | |
$ | 3,200 | | |
$ | 5,338 | | |
$ | — | | |
$ | (59,464 | ) | |
$ | (39,375 | ) | |
$ | 107,138 | |
| Non-controlling interests | |
| 263 | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 263 | |
| Net income (loss) | |
$ | 170,358 | | |
$ | 27,344 | | |
$ | 3,200 | | |
$ | 5,338 | | |
$ | — | | |
$ | (59,464 | ) | |
$ | (39,375 | ) | |
$ | 107,401 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Earnings per share attributable to stockholders: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Basic | |
$ | 1.56 | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
$ | 0.98 | |
| Diluted | |
$ | 1.54 | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
$ | 0.97 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Weighted average number of shares outstanding: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Basic | |
| 109,054,493 | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| 109,054,493 | |
| Diluted | |
| 110,310,984 | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| 110,310,984 | |
See accompanying Notes to the Unaudited Pro
Forma Condensed Combined Financial Information
Unaudited Pro Forma Condensed Combined Income
Statement
for the Nine Months Ended September 30,
2020
(in thousands of U.S. dollars, except for per
share amounts)
| | |
Historical | | |
Pro
Forma Transaction Accounting Adjustments | | |
| |
| | |
Ritchie
Bros.
Auctioneers
Incorporated
(As reported) | | |
Euro
Auctions
Pillar | | |
Equipment &
Plant
Services Pillar | | |
Equipment
Sales
Pillar | | |
Intragroup
Elimination
Adjustments | | |
Acquisition | | |
Financing &
Other | | |
Ritchie
Bros.
Auctioneers
Incorporated
Pro Forma | |
| | |
| | |
(Note
1) | | |
(Note
1) | | |
(Note
1) | | |
(Note
4B) | | |
(Note
6) | | |
(Note
6) | | |
| |
| Revenue: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Service
revenue | |
$ | 639,941 | | |
$ | 38,261 | | |
$ | — | | |
$ | — | | |
$ | (2,060 | ) | |
$ | — | | |
$ | — | | |
$ | 676,142 | |
| Inventory
sale revenue | |
| 353,906 | | |
| 108,468 | | |
| 25,955 | | |
| 51,567 | | |
| — | | |
| — | | |
| — | | |
| 539,896 | |
| Total
revenue | |
| 993,847 | | |
| 146,729 | | |
| 25,955 | | |
| 51,567 | | |
| (2,060 | ) | |
| — | | |
| — | | |
| 1,216,038 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Operating
expenses: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Cost
of services | |
| 118,026 | | |
| 8,170 | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 126,196 | |
| Cost
of inventory sold | |
| 320,972 | | |
| 96,412 | | |
| 22,319 | | |
| 44,633 | | |
| (2,060 | ) | |
| 674 | (A) | |
| — | | |
| 482,950 | |
| Selling,
general and administrative expenses | |
| 309,203 | | |
| 11,890 | | |
| 647 | | |
| 1,119 | | |
| — | | |
| 399 | (B) | |
| — | | |
| 323,258 | |
| Acquisition-related
costs | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 39,737 | (C) | |
| — | | |
| 39,737 | |
| Depreciation
and amortization expenses | |
| 55,586 | | |
| 551 | | |
| — | | |
| 5 | | |
| — | | |
| 25,252 | (D) | |
| — | | |
| 81,394 | |
| Gain
on disposition of property, plant and equipment | |
| (1,536 | ) | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| (1,536 | ) |
| Foreign
exchange loss (gain) | |
| 1,330 | | |
| (991 | ) | |
| (146 | ) | |
| (194 | ) | |
| — | | |
| — | | |
| — | | |
| (1 | ) |
| Total
operating expenses | |
| 803,581 | | |
| 116,032 | | |
| 22,820 | | |
| 45,563 | | |
| (2,060 | ) | |
| 66,062 | | |
| — | | |
| 1,051,998 | |
| Operating
income (loss) | |
| 190,266 | | |
| 30,697 | | |
| 3,135 | | |
| 6,004 | | |
| — | | |
| (66,062 | ) | |
| — | | |
| 164,040 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Interest
expense | |
| (26,801 | ) | |
| (521 | ) | |
| — | | |
| (173 | ) | |
| — | | |
| — | | |
| (39,594 | )(F) | |
| (67,089 | ) |
| Other
income (expense), net | |
| 6,714 | | |
| (11,105 | ) | |
| 114 | | |
| 135 | | |
| — | | |
| — | | |
| — | | |
| (4,142 | ) |
| Income
(loss) before income taxes | |
| 170,179 | | |
| 19,071 | | |
| 3,249 | | |
| 5,966 | | |
| — | | |
| (66,062 | ) | |
| (39,594 | ) | |
| 92,809 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Income
tax expense (benefit) | |
| 48,741 | | |
| 4,688 | | |
| 617 | | |
| 1,134 | | |
| — | | |
| (13,811 | )(E) | |
| (10,178 | )(E) | |
| 31,191 | |
| Net
income (loss) | |
$ | 121,438 | | |
$ | 14,383 | | |
$ | 2,632 | | |
$ | 4,832 | | |
$ | — | | |
$ | (52,251 | ) | |
$ | (29,416 | ) | |
$ | 61,618 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Net
income (loss) attributable to: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Stockholders | |
$ | 121,239 | | |
$ | 14,383 | | |
$ | 2,632 | | |
$ | 4,832 | | |
$ | — | | |
$ | (52,251 | ) | |
$ | (29,416 | ) | |
$ | 61,419 | |
| Non-controlling
interests | |
| 199 | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 199 | |
| Net
income (loss) | |
$ | 121,438 | | |
$ | 14,383 | | |
$ | 2,632 | | |
$ | 4,832 | | |
$ | — | | |
$ | (52,251 | ) | |
$ | (29,416 | ) | |
$ | 61,618 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Earnings
per share attributable to stockholders: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Basic | |
$ | 1.11 | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
$ | 0.56 | |
| Diluted | |
$ | 1.10 | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
$ | 0.56 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Weighted
average number of shares outstanding: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Basic | |
| 108,887,026 | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| 108,887,026 | |
| Diluted | |
| 110,060,712 | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| 110,060,712 | |
See accompanying Notes to the Unaudited Pro
Forma Condensed Combined Financial Information
NOTES TO THE UNAUDITED PRO FORMA CONDENSED COMBINED
FINANCIAL INFORMATION
Note 1. Basis of Preparation
The unaudited pro forma condensed combined financial information has
been prepared using information derived from, and should be read in conjunction with, Ritchie Bros.’ audited consolidated income
statement for the fiscal year ended December 31, 2020, unaudited consolidated balance sheet as of September 30, 2021 and unaudited
consolidated income statements for the nine months ended September 30, 2021 and 2020, which are prepared in accordance with U.S.
GAAP and incorporated by reference into this offering circular.
The Acquired Businesses includes businesses owned individually by
three related parties, each of whom (individually or through wholly owned entities) is a party to the SPA. Accordingly, there are three
separate reporting entities, corresponding to the business owned by each of the related parties, and collectively referred to as the
Acquired Businesses:
| · | Euro Auctions Pillar, which represents the business controlled by Derek Keys; |
| · | Equipment & Plant Services Pillar, which represents the business owned by Trevor Keys and Jolene Keys; and |
| · | Equipment Sales Pillar, which represents the business controlled by Lynden Keys and Wendy Keys. |
The Euro Auctions Pillar reflects the carved out combined activities
of the companies detailed below:
| · | Euro Auctions Limited (NI663696) |
| · | Euro Auctions (UK) Limited (NI663692) |
| · | Euro Auctions GmbH (HRB13567) |
| · | Yoder & Frey Auctioneers LLC (12075006) |
| · | Euro Auctions Pty Ltd (ABN33154193576) |
| · | Euro Auctions Plant S.L. (M728536) |
| · | Euro Auctions UK No.2 Limited (Spanish branch) (NI041778) |
| · | Euro Auctions UK No.2 Limited (Australian branch) (NI041778) |
| · | William Keys & Sons Holdings Limited (NI663694) |
| · | William Keys & Sons LLC (13004156) |
| · | William Keys & Sons Limited (NI663693); and |
| · | Euro Auctions FZE (252526) |
The
Equipment & Plant Service Pillar, reflects the carved out combined activities of the companies detailed below:
| · | Equipment & Plant Services No.1 Limited (NI046558); |
| · | Equipment & Plant Services Holdings Limited (NI666356); and |
| · | Equipment & Plant Services Limited (NI666354) |
The Equipment Sales Pillar, reflects the carved out combined activities
of the companies detailed below:
| · | Equipment Sales Limited (NI668774) |
| · | Equipment Sales No.2 Limited (NI666146); and |
| · | Equipment Sales No.3 Limited (NI042032) |
The unaudited pro forma condensed combined financial information has
been prepared using information derived from, and should be read in conjunction with, the audited carve-out combined income statements
for the fiscal year ended December 31, 2020, unaudited interim carve-out combined balance sheets as of September 30, 2021 and
unaudited interim carve-out combined income statements for the nine months ended September 30, 2021 and 2020, of the Euro Auctions
Pillar, the Equipment & Plant Services Pillar and the Equipment Sales Pillar, which are each prepared in accordance with U.S.
GAAP and included elsewhere in this offering circular.
The historical financial information has been adjusted to give pro
forma effect to events that are: (a) directly attributable to the Acquisition and Financing and (b) factually supportable. The
pro forma adjustments related to the Acquisition and Financing are preliminary and based on estimates including purchase consideration,
acquisition-related costs, debt issuance costs related to the Financing, fair values of the assets acquired and liabilities assumed, useful
lives of any acquired intangible assets, and the associated tax impacts. The pro forma financial information has been prepared to illustrate
the estimated effects of the Acquisition and Financing. The final determination of the allocation of purchase consideration will be based
on the final purchase consideration and the fair values of assets acquired and liabilities assumed as of the date the Acquisition closes
and could result in material changes to the unaudited pro forma condensed combined financial information, including goodwill.
The pro forma financial information has been prepared using the acquisition
method of accounting for business combinations under U.S. GAAP. The final allocation of the purchase consideration to the assets acquired
and liabilities assumed is subject to change as additional information becomes available and as additional analysis is performed. The
final determination of fair values of the assets acquired and liabilities assumed could result in material changes to the unaudited pro
forma condensed combined financial information.
In preparation of the unaudited pro forma condensed combined financial
information, Ritchie Bros. performed a preliminary review of the Acquired Businesses’ accounting policies to identify significant
differences from the accounting policies used to prepare Ritchie Bros.’ historical financial statements. Based on the procedures
performed to date, the accounting policies of the Acquired Businesses are similar in all material respects to those of Ritchie Bros. After
the Acquisition is completed, Ritchie Bros. will conduct an additional review of the Acquired Businesses’ accounting policies to
determine if differences in accounting policies require adjustment or reclassification of the Acquired Businesses’ results of operations,
assets or liabilities to conform to Ritchie Bros.’ accounting policies and classifications. As a result of that review, Ritchie
Bros. may identify differences between the accounting policies that, when conformed, could have a material impact on its future consolidated
financial statements.
The unaudited pro forma condensed combined financial information is
preliminary, provided for illustrative purposes only and does not purport to represent what the actual consolidated income statement or
consolidated balance sheet would have been had the Acquisition and Financing occurred on the dates assumed, and are not indicative of
the combined future consolidated results of operations or financial position. The actual results reported in periods following the Acquisition
and Financing may differ significantly from those reflected in these unaudited pro forma condensed combined financial information presented
herein. Differences may arise as a result of, but not limited to, changes in the assumptions used and actual costs incurred, execution
of other contractual agreements as required by the SPA, and any cost savings from operating efficiencies, synergies, integration or restructuring
activities that may arise in conjunction with the Acquisition and Financing.
Currency amounts are reported in thousands of the respective currency
unit, except per share amounts.
Note 2. Calculation of Estimated Purchase Consideration
Purchase consideration for the Acquisition has been estimated based
on the British pounds sterling (“GBP”) transaction price in the SPA and translated at a rate of approximately 0.7419 GBP per
U.S. dollar as of September 30, 2021.
| | |
Purchase
Consideration | | |
Purchase
Consideration | |
| | |
GBP | | |
USD | |
| Base purchase price | |
£ | 775,000 | | |
$ | 1,044,615 | |
| Adjustments pursuant to SPA(1) | |
| 48,970 | | |
| 66,006 | |
| Costs paid on behalf of vendors | |
| 4,588 | | |
| 6,184 | |
| Total estimated purchase consideration | |
£ | 828,558 | | |
$ | 1,116,805 | |
(1) Adjustments
to the base purchase price are based on net cash (debt) and excess working capital adjustments measured as of April 30, 2021 pursuant
to the SPA.
The estimated purchase consideration reflected in this unaudited pro
forma condensed combined financial information does not purport to represent what the actual purchase consideration will be and the actual
purchase consideration may differ materially from the estimated purchase consideration primarily due to differences in the GBP and U.S.
dollar exchange rate between September 30, 2021 and the closing date. A 10% increase (decrease) in the exchange rate of GBP to U.S.
dollars would decrease (increase) the total estimated purchase consideration by approximately $102,000 ($124,000).
Note 3: Preliminary Purchase Price Allocation
The following table sets forth a preliminary allocation of the estimated
purchase consideration to the preliminary fair values of the identifiable tangible and intangible assets acquired and liabilities assumed
of the Acquired Businesses based on the Acquired Businesses’ September 30, 2021 balance sheets, with the excess recorded as
goodwill:
Provisional Purchase Price and Purchase Price Allocation for the
Acquired Businesses
| Assets acquired: | |
| | |
| Cash and cash equivalents | |
$ | 100,954 | |
| Restricted cash | |
| 366 | |
| Trade and other receivables | |
| 26,623 | |
| Less: allowance for credit losses | |
| (607 | ) |
| Inventory | |
| 45,862 | |
| Other current assets | |
| 14,814 | |
| Property, plant and equipment | |
| 8,601 | |
| Other non-current assets | |
| 518 | |
| Intangible assets | |
| 282,114 | |
| Total assets acquired | |
$ | 479,245 | |
| | |
| | |
| Liabilities assumed: | |
| | |
| Auction proceeds payable | |
$ | 39,735 | |
| Trade and other payables | |
| 8,673 | |
| Income taxes payable | |
| 9,572 | |
| Other non-current liabilities | |
| 472 | |
| Deferred tax liabilities | |
| 67,759 | |
| Total liabilities assumed | |
| 126,211 | |
| Net assets acquired, excluding goodwill (a) | |
| 353,034 | |
| Total estimated purchase consideration (b) | |
| 1,116,805 | |
| Estimated goodwill (b-a) | |
$ | 763,771 | |
The following describes the valuation methods used to determine the
estimated fair values of the Acquired Businesses’ significant assets acquired and liabilities assumed:
Intangible
Assets: Preliminary identifiable intangible assets in the unaudited pro forma condensed combined financial information include
trade names and trademarks, the technology platform, customer relationships, and noncompete agreements with the vendors, each of which
are considered definite-lived intangible assets. Intangible assets are valued on a disaggregated basis using the following methods:
| · | Trade names and trademarks. The fair value of the Euro Auctions trade name was assessed using the relief from royalty valuation
technique under an income valuation approach. This technique estimates values based on the present value of license costs that are avoided
by ownership of the asset. Significant assumptions included in the fair value assessment of trade names and trademarks include the royalty
rate, which was determined by comparable transactions and the perceived strength of the brands in the market. |
| · | Internally developed software. The fair value of the Acquired Businesses’ internally developed software was assessed
using the relief from royalty valuation technique under an income valuation approach. This technique estimates values based on the present
value of license costs that are avoided by ownership of the asset. A significant assumption included in the fair value assessment of the
technology platform includes the royalty rate, which was determined by comparable technology transactions. |
| · | Customer relationships. The fair value of the customer and seller relationships was valued using the excess earnings valuation
technique under an income valuation approach. This technique estimates the cash flows of the asset after applying adjustments to operating
expenses and then deducts contributory asset charges. |
| · | Noncompete agreement. The fair value of the noncompete agreement was valued using the with and without valuation technique
under an income valuation approach. This approach estimates the cash flows of the Acquired Businesses inclusive of the noncompete agreement
to the hypothetical value of the same business excluding the agreement adjusted for the effective probability that the covenanter would
compete, and compete successfully. |
Other significant assumptions made in estimating the preliminary valuations
include estimated annual net cash flows for each intangible asset (including revenues, operating expenses, market participant synergies,
net working capital requirements, and capital expenditures), the expected life of each intangible asset and the appropriate discount rates,
tax rates and foreign currency exchange rates for the applicable jurisdictions. The determination of fair values requires significant
judgment and the fair values are sensitive to changes to the underlying inputs and assumptions.
Deferred
Tax Liabilities: Adjustments to record deferred taxes relate to taxable and deductible temporary differences that arise from
a difference between the tax basis and the recognized value of assets acquired and liabilities assumed in the acquisition. The deferred
tax liabilities represent the deferred tax impact associated with the incremental differences in the book and the tax basis created from
the Acquisition and Financing.
Goodwill:
Goodwill is calculated as the difference between the assumed acquisition date fair value of the consideration transferred and the fair
values assigned to the identifiable assets acquired and liabilities assumed. Goodwill is not amortized but is tested for impairment at
least annually, or more frequently if indicators of potential impairment exist.
Note 4. Pro forma intragroup adjustments and elimination entries
| (A) | Reflects the elimination of intragroup balances reported as amounts owed to related parties in the financial statements of the Euro
Auctions Pillar against balances reported as amounts owed by related parties by the other reporting entities in the Acquired Businesses
as of September 30, 2021, as follows: |
| Equipment & Plant Services Pillar | |
$ | 3,257 | |
| Equipment Sales Pillar | |
| 3,145 | |
| | |
$ | 6,402 | |
| (B) | Reflects the elimination of intragroup transactions between the Euro Auction Pillar, the Equipment Sales Pillar and the Equipment &
Plant Services Pillar. |
| Commissions earned by the Euro Auctions
Pillar from: | |
Twelve Months
Ended
September 30,
2021 | | |
Nine
Months
Ended
September 30,
2021 | | |
Year
Ended
December 31,
2020 | | |
Nine
Months
Ended
September 30,
2020 | |
| Equipment & Plant Services Pillar | |
$ | 1,147 | | |
$ | 791 | | |
$ | 1,014 | | |
$ | 658 | |
| Equipment Sales Pillar | |
| 1,112 | | |
| 799 | | |
| 1,715 | | |
| 1,402 | |
| | |
$ | 2,259 | | |
$ | 1,590 | | |
$ | 2,729 | | |
$ | 2,060 | |
Note 5. Pro forma transaction accounting adjustments to the unaudited
pro forma condensed combined pro forma balance sheet
| (A) | Reflects cash paid for the Acquisition of $1,116,805 as described in Note 2; payment of acquisition-related costs subsequent to September 30,
2021 in the amount of $39,737; repayment of the Acquired Businesses’ short-term debt of $30,367 as required by the SPA; and net
proceeds from the settlement of the Acquired Businesses’ related party balances of $18,379 as required by the SPA. |
| (B) | Reflects the fair value adjustment to acquired inventory. |
| (C) | Reflects the removal of the carrying values of the right-of-use asset, lease liability and leasehold improvements of an auction facility
that will not be assumed or utilized by the Company upon acquisition. Pursuant to the SPA, the Acquired Businesses are required to enter
into long-term leases on properties currently leased on a short-term basis from related parties. No adjustment has been made for the resulting
right of use asset and lease liability expected to arise on acquisition as lease terms have not been agreed upon. |
| (D) | Reflects the estimated fair value adjustment to the Acquired Businesses’ identified intangible assets, determined in GBP and
translated to USD using the September 30, 2021 exchange rate of approximately 0.7419 GBP per USD. The following table shows a preliminary
estimate of the fair value of those intangible assets and their related average estimated useful lives: |
| | |
Estimated
Useful Life
(in Years) | |
Preliminary
Estimated
Fair Value | |
| Trade name/trademarks | |
7 | |
$ | 86,265 | |
| Technology platforms | |
4 | |
| 14,153 | |
| Customer and seller relationships | |
10 | |
| 173,878 | |
| Noncompete agreement | |
3 | |
| 7,818 | |
| Total Intangible assets | |
| |
| 282,114 | |
| Less: Acquired Businesses’ historical intangible assets | |
| |
| (1,247 | ) |
| Net adjustment | |
| |
$ | 280,867 | |
No adjustment has been made to reflect the surrender of an
auction license in Dubai at the time of the acquisition as it had no carrying value in the historical balance sheet of the Acquired Businesses.
| (E) | Reflects the preliminary estimate of goodwill recognized as a result of the Acquisition, which represents the amount by which the
estimated purchase consideration exceeds the estimated fair values of the Acquired Businesses’ assets acquired and liabilities assumed.
(Refer to Note 3 above.) |
| (F) | Reflects an increase in deferred tax assets and liabilities as a result of pro forma transaction accounting adjustments, tax-effected
at the applicable statutory rates. |
| (G) | Reflects the repayment of the Acquired Businesses’ short term debt and settlement of the Acquired Businesses’ related
party balances prior to the completion of the Acquisition as required by the SPA. |
| (H) | Reflects the elimination of the Acquired Businesses’ historical net parent investment balances. |
| (I) | Reflects adjustment to retained earnings to record estimated acquisition costs of $39,737 expected to be incurred subsequent to September 30,
2021, net of a deferred tax benefit of $8,876. |
| (J) | Reflects aggregate proceeds from the Financing of $1,140,174 as described in Note 5(K) and estimate cash payments of $15,877
for debt issuance costs expected to be incurred and paid subsequent to September 30, 2021 in respect of the Financing of the Acquisition. |
| (K) | Reflects the following adjustments: |
| · | Reclassification of $896 of deferred financing costs from non-current assets to long-term debt upon completion of the Financing of
the Acquisition. |
| · | Capitalization of $15,877 of incremental debt issuance costs to long-term debt related to the Financing. |
| · | Borrowings of $1,123,401, net of total debt issuance costs of $16,773, of which $10,250 is classified as a current portion of long-term
debt and $1,113,151 is reflected as long-term debt. |
| | |
Proceeds
Source
Currency | |
Proceeds
USD | |
USD notes (assumed rate of interest of [5.00%], due ·, 2031) | |
$ | 600,000 | | |
$ | 600,000 | |
Canadian notes (assumed rate of interest of [5.00%], due ·, 2029) | |
C$ | 425,000 | | |
| 335,174 | |
Delayed-Draw Term Loan
(assumed rate of interest of variable rate of 2.67%, based on an adjusted SONIA at September 30, 2021 plus an applicable margin expected to apply as a result of the Financing) | |
£ | 152,090 | | |
| 205,000 | |
| Total proceeds from Financing | |
| | | |
$ | 1,140,174 | |
The Delayed Draw Term Loan is subject to mandatory principal
repayments of 5% per year commencing the earlier of when the total available balance has been drawn or the third quarter of 2022.
The interest rate on amounts outstanding on the Company’s
existing Revolving Facilities, including the Delayed Draw Term Loan, is based in part on the leverage ratio of Ritchie Bros. As a result
of the Financing, the interest rate on the Revolving Facilities is expected to increase by 0.75% due to the impact of the notes offered
herein on the calculated leverage ratio, which increase has been included above in respect of the Delayed Draw Term Loan.
Note 6. Pro forma transaction accounting adjustments to the unaudited
pro forma condensed combined income statements
| (A) | Reflects the incremental cost of sales as a result on the fair value adjustment to inventory, assuming the Acquisition occurred on
January 1, 2020. |
| (B) | Reflects the net increase to management compensation to recognize the minimum annual compensation to be provided to the shareholder,
sole director and principal executive of the Euro Auctions Pillar pursuant to the terms of a service agreement signed in conjunction with
the SPA, such compensation to be in the form of salary and share-based awards granted under Ritchie Bros.’ long-term incentive plans.
These awards are subject to estimation and may differ from amounts reported. No adjustment has been made for employment agreements to
be entered into prior to close with respect to other shareholders or principal executives expected to be employed by the Company as the
terms of the compensation agreements are not yet agreed upon or finalized. |
| (C) | Reflects an adjustment to acquisition-related costs expected to be incurred subsequent to September 30, 2021, which have been
presented as if they were incurred on the assumed acquisition date of January 1, 2020. |
| (D) | Reflects the elimination of historical amortization expense related to the Acquired Businesses’ existing intangible assets and
additional amortization of acquired intangible assets based on the preliminary estimated fair values and useful lives. For estimated intangible
asset fair values and the associated useful lives, see Note 5(D). |
| | |
Twelve Months
Ended
September 30,
2021 | | |
Nine
Months
Ended
September 30,
2021 | | |
Year
Ended
December 31,
2020 | | |
Nine
Months
Ended
September 30,
2020 | |
| Amortization expense of acquired intangible assets at fair value | |
$ | 36,409 | | |
$ | 27,632 | | |
$ | 34,134 | | |
$ | 25,357 | |
| Elimination of historical amortization expense | |
| (147 | ) | |
| (112 | ) | |
| (140 | ) | |
| (105 | ) |
| Net pro forma adjustment | |
$ | 36,262 | | |
$ | 27,520 | | |
$ | 33,994 | | |
$ | 25,252 | |
| (E) | Reflects the estimated tax effects at the estimated applicable statutory rates and assumes no valuation allowance is required as a
result of future deductible amounts. No adjustments have been made with respect to any future restructuring that may be undertaken in
conjunction with the completion of the Transactions. The effective tax rate of the combined company could be significantly different (either
higher or lower) depending on post-acquisition activities including integration, organizational restructuring, intercompany financing
arrangements, repatriation decisions, cash needs, and the geographical mix of income. |
| (F) | Interest expense reflects the interest associated with the borrowings described in Notes 5(K). |
The table below depicts the related adjustment to interest
expense for the periods presented as if the above transactions occurred on January 1, 2020:
| | |
Twelve Months
Ended
September 30,
2021 | | |
Nine
Months
Ended
September 30,
2021 | | |
Year
Ended
December 31,
2020 | | |
Nine Months
Ended
September 30,
2020 | |
| Cash interest expense of the Financing: | |
| | | |
| | | |
| | | |
| | |
| The USD notes | |
$ | 30,000 | | |
$ | 22,500 | | |
$ | 30,000 | | |
$ | 22,500 | |
| The Canadian notes | |
| 16,814 | | |
| 12,738 | | |
| 15,856 | | |
| 11,780 | |
| Delayed-Draw Term loan | |
| 5,552 | | |
| 4,214 | | |
| 5,205 | | |
| 3,867 | |
| Total Cash interest expense of the Financing | |
| 52,366 | | |
| 39,452 | | |
| 51,061 | | |
| 38,147 | |
| Amortization of deferred financing fees on the Financing: | |
| | | |
| | | |
| | | |
| | |
| Total Amortization of deferred financing fees on the Financing | |
| 2,000 | | |
| 1,508 | | |
| 1,939 | | |
| 1,447 | |
| Total interest expense on the Financing and pro forma increase to interest expense | |
$ | 54,366 | | |
$ | 40,960 | | |
$ | 53,000 | | |
$ | 39,594 | |
The pro forma adjustments assume debt issuance costs associated
with the Financing are being amortized to interest expense using the straight-line method over the term of the respective facility or
notes.
A 0.125% increase or decrease in the interest rate of borrowings
under the Delayed Draw Facility, which utilize a floating rate, and the assumed interest rates under the notes, which assume fixed rates
of interest as shown above, would impact interest expense in the unaudited pro forma condensed combined income statements for each period
as follows:
| | |
Twelve Months
Ended
September 30,
2021 | | |
Nine Months
Ended
September 30,
2021 | | |
Year
Ended
December 31,
2020 | | |
Nine
Months
Ended
September 30,
2020 | |
| Change in interest expense assuming: | |
| | | |
| | | |
| | | |
| | |
| Increase of 0.125% | |
$ | 1,429 | | |
$ | 1,078 | | |
$ | 1,390 | | |
$ | 1,039 | |
| Decrease of 0.125% | |
| (1,429 | ) | |
| (1,078 | ) | |
| (1,390 | ) | |
| (1,039 | ) |
Risk
Factors
If our ability, or the ability of our third party service partners,
cloud computing platform providers or third party data center hosting facilities, to safeguard the reliability, integrity and confidentiality
of our and their information technology systems is compromised, and unauthorized access is obtained to our systems or customers’,
suppliers’, counterparties’ and employees’ confidential information, or authorized access is blocked or disabled, we
may incur significant harm, legal exposure or a negative financial impact. Such risks could be exacerbated after the consummation of the
Acquisition.
We rely on information technology
(“IT”) resources to manage and operate our business, including maintaining proprietary databases containing sensitive and
confidential information about our customers, suppliers, counterparties and employees (which may include personal information and credit
information) and utilizing approved third-party technology providers to support the management and operation of IT systems and infrastructure.
As the malicious tools and techniques used to breach, obtain unauthorized access to, impair or sabotage IT systems and devices and the
data processed or stored thereby, and infrastructure become more sophisticated and change frequently, the risk of a security event increases
as we may not be able to anticipate these malicious tools and techniques or to implement adequate preventative and protective measures.
Unauthorized parties have in the past, and may also in the future, attempt to gain access to our and our providers’ primary and
backup systems or facilities through various means, including hacking into IT systems or facilities, fraud, trickery or other means of
deceiving our and their employees or contractors. Employee error, malfeasance, or other errors or negligence in the storage, use, or transmission
of our data could also result in an actual or perceived privacy or security breach or other security incident. Although we have policies
restricting the access to the personal and confidential information we store, there is a risk that these policies may not be effective
in all cases. Further, breaches experienced by other companies may also be leveraged against us. For example, credential stuffing attacks
are becoming increasingly common and sophisticated actors can mask their attacks, making them increasingly difficult to identify and prevent.
A party that is able to circumvent security measures could misappropriate our or our customers’ confidential information, cause
interruption to our operations, or damage our computing infrastructure, networks and stored data.
In addition, our limited control
over our customers may affect the perception of the security and integrity of our IT systems and create financial or legal exposure. For
example, our customers may accidentally disclose their passwords, use insecure passwords, or store them on a device that is lost or stolen,
providing bad actors with access to a customer’s account and the possible means to redirect customer payments. Further, users on
our platforms could have vulnerabilities on their own devices that are entirely unrelated to our systems and platforms but could mistakenly
attribute their own vulnerabilities to us. Under credit card payment rules and our contracts with credit card processors, if there is
a breach of payment card information used to process transactions, we could be liable to the payment card issuing banks for their cost
of issuing new cards and related expenses. We may also be held liable for certain fraudulent credit card transactions and other payment
disputes with customers. If we were unable to accept payment cards, our results of operations would be materially and adversely affected.
As many other companies around
the globe experience on a daily basis, we are often targets of cyber attacks which we thwart and learn from. Late in the fourth quarter
of 2021, we detected a security event where a third party gained unauthorized access to portions of our IT systems (the “Incident”).
Upon detection, we immediately took steps to shut down access to the affected systems. The swift action of our Tech department ensured
no disruption to our services and to date we believe there was no apparent customer data breach.
We took steps to reinforce our
security practices, enhance our security monitoring and controls, and review and fortify our data storage. We also promptly launched an
investigation with the assistance of a leading cybersecurity forensics firm and notified appropriate law enforcement. Although the investigation
is ongoing, there is evidence that the unauthorized third party deployed malware to portions of our IT systems and misappropriated a number
of unspecified files from our internal network.
Again, the Incident has not
caused any interruption in our ability to serve our customers and business partners. We are working to identify the source and scope of
the Incident. If we determine personal or confidential information of our customers, suppliers and counterparties was affected, we will
notify the applicable parties as appropriate.
Although we implement and maintain
information security measures to mitigate our risks with respect to this and other IT-related security incidents, there can be no assurance
that these measures, will ensure that our operations are not disrupted, that we will be immune from these security risks, that we will
prevent an attack from occurring in the future, or that our internal controls, for instance relating to user access management, will perform
as intended to prevent unauthorized access to our systems and data. Any breach of our IT systems may have a material adverse impact on
our business, the assessment of the performance of our internal control environment, results of operations, reputation, stock price and
our ability to access capital markets, and may also be deemed to contribute to a material weakness in internal controls over financial
reporting.
Security events, such as the
Incident, hacking or other malicious or surreptitious activity (or the perception that such activities have occurred), could damage our
reputation, cause a loss of confidence in the security of our services and thereby a loss of customers, and expose us to a risk of loss,
governmental investigations and enforcement actions or litigation and possible liability for damages. We may be required to make significant
expenditures and divert management attention to monitor, detect and prevent security events, to remediate known or potential security
vulnerabilities, or to alleviate problems caused by any security events. In addition, a breach of our network, may result in the loss
of valuable business data, the misappropriation of our valuable intellectual property or trade secret information, misappropriation of
our customers’ or employees’ personal information, service delays, key personnel being unable to perform duties or communicate
throughout the organization, loss of sales, significant costs for data restoration and other adverse impacts on our business. Further,
such a breach may require notification to governmental agencies, individuals or other third parties pursuant to various privacy and security
laws.
Ransomware attacks are becoming
increasingly prevalent and severe, and can lead to significant interruptions in our operations, loss of data and income, reputational
loss, and diversion of funds. The costs of mitigating cybersecurity risks are significant and are likely to increase in the future. Our
third-party service providers may be vulnerable to interruption or loss of valuable business data and information of our customers and
employees (among others). Data stored by our third party providers might be improperly accessed due to a variety of events beyond our
control, including, but not limited to, employee error or negligence, natural disasters, terrorist attacks, telecommunications failures,
computer viruses, hackers and other security issues. Additionally, if any of our third-party technology providers violate applicable laws
or our contracts or policies, such violations may also put our customers’ information at risk and could in turn have a material
and adverse effect on our business. These issues are likely to become costlier as we expand. Our insurance policies may not be adequate
to reimburse us for losses caused by security breaches, and we may not be able to fully collect, if at all, under these insurance policies.
Such risks could be exacerbated after the consummation of the Acquisition. There can be no assurance that future cyberattacks will not
be material or significant.
We believe that the laws and
regulations being proposed and adopted in the United States, Canada, Australia, the European Union and in other jurisdictions will be
increasingly restrictive in the field of data privacy and protection which will in turn result in an increase in regulatory burdens for
us to address to continue meeting our customers’ expectations, in particular in relation to the sharing of personal information
with third parties, commercial electronic messages (such as email, SMS or other mobile chat applications), and the tracking of online
activities for advertising. As our capacity to process large volumes of data increases, customer sentiment towards increased transparency
and control and further interpretive guidance from regulatory agencies, may require us to change our operations and practices in a manner
adverse to our business. In this uncertain and shifting regulatory and trust climate, even the perception that the privacy and security
of personal information are not satisfactorily addressed or do not meet regulatory requirements could result in adverse publicity and
reputation loss. Such risks could be exacerbated after the consummation of the Acquisition.
