EX-99.1 2 tm237909d1_ex99-1.htm EXHIBIT 99.1

 

Exhibit 99.1

 

Summary Unaudited Pro Forma Condensed Combined Financial Information and Other Data

 

The summary unaudited pro forma condensed combined financial information and other data set forth below give effect to the Mergers and the other related events contemplated by the Merger Agreement, as described in the section entitled “Unaudited Pro Forma Condensed Combined Financial Information” included in this offering circular. The unaudited pro forma condensed combined financial information of Ritchie Bros. also gives effect to other financing events contemplated by Ritchie Bros. or that have already occurred but are not yet reflected in the historical financial information of Ritchie Bros. and are considered material transactions separate from the Mergers. The Mergers 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 income statement data for the year ended December 31, 2022 and the summary unaudited pro forma condensed combined balance sheet data as of December 31, 2022 have been derived from the unaudited pro forma condensed combined financial statements included in the section entitled “Unaudited Pro Forma Condensed Combined Financial Information” in this offering circular. The unaudited pro forma condensed combined balance sheet as of December 31, 2022 is prepared on a combined basis using the historical audited consolidated balance sheets of Ritchie Bros. and IAA as of December 31, 2022, and January 1, 2023, respectively, giving pro forma effect to the Mergers and the other events contemplated as if each had been consummated on December 31, 2022 based on the assumptions and adjustments described in the accompanying notes to the unaudited pro forma condensed combined financial statements included elsewhere in this offering circular.

 

The unaudited pro forma condensed combined income statement for the year ended December 31, 2022 gives pro forma effect to the Mergers and the other events contemplated as if each had been consummated on January 1, 2022, the beginning of the earliest period presented, based on the assumptions and adjustments described in the accompanying notes. As the difference between Ritchie Bros.’ and IAA’s fiscal year-end dates is less than one fiscal quarter, the unaudited pro forma condensed combined income statement for the year ended December 31, 2022 combines the historical audited consolidated income statement of Ritchie Bros. and IAA for the fiscal year ended December 31, 2022 and for the fiscal year ended January 1, 2023, respectively.

 

The summary unaudited pro forma condensed combined financial information may not be indicative of the combined company’s future performance as a consolidated company. The summary unaudited pro forma condensed combined financial information does not give effect to any estimated synergies, cost savings and other benefits that may be related to the Mergers and other related Transactions. The summary unaudited pro forma condensed combined financial information and other data set forth below should be read in conjunction with the information included under the section entitled “Unaudited Pro Forma Condensed Combined Financial Information” and the historical consolidated financial statements of Ritchie Bros. and IAA, respectively, together with related notes, and the information set forth under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of Ritchie Bros.’ and IAA’s respective annual reports incorporated by reference in this offering circular.

 

Unaudited Pro forma Condensed Combined Statement of Operations Information:  Year Ended
December 31, 2022		 
   (in millions) 
Total revenue  $3,833 
Cost of services   1,164 
Cost of inventory sold   977 
      
Selling, general and administrative expenses   737 
Acquisition-related costs   127 
Depreciation and amortization expenses   393 
Foreign exchange loss (gain)   4 
Gain on disposition of property, plant and equipment   173 
Operating income   604 
      
Interest expense   (277)
Interest income   8 
Change in fair value of derivatives, net   1 
Other income (expense), net   (1)
Income before income taxes   335 
      
Income tax expense (benefit)   52 
      
Net income  $283 

 

 

 

 

Unaudited Pro Forma Condensed Combined Balance Sheet Information:   Pro Forma As of
December 31, 2022		  
    (in millions)  
Cash and cash equivalents   $ 659  
Total assets   $

12,392

  
Long-term debt, net:        
       Secured debt   $ 2,432  
       Unsecured debt   $ 785  
Series A Senior Preferred Shares   $ 485  
Total stockholders’ equity   $

5,517

  

 

Other Financial and Operating Data:  Year Ended
December 31, 2022		  
   (in millions)  
Pro forma net income(1)  $283  
Adjusted pro forma EBITDA (1)  $1,012  
Pro forma net income attributable to common stockholders(2)  $247  
Adjusted pro forma net income attributable to common stockholders(2)  $463  
Pro forma gross leverage(3)   3.2 x
Pro forma net leverage(3)   2.6 x
Pro forma net secured leverage(3)   1.8 x

 

 

(1)Adjusted pro forma EBITDA is derived from financial information contained elsewhere in this offering circular. See “Summary Historical Consolidated Financial and Other Data of Ritchie Bros.” and “Unaudited Pro Forma Condensed Combined Financial Information.” 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. Adjusted pro forma EBITDA represents pro forma EBITDA adjusted to add back share-based payments expense, acquisition-related costs, loss (gain) on disposition of property, plant and equipment and related costs, certain non-recurring advisory, legal and restructuring costs, change in fair value of derivatives and the fair value adjustments related to contingent consideration. Certain historical adjustments which are included in IAA Adjusted EBITDA and meet Ritchie Bros.’ definition have been included and adjusted for in the adjusted pro forma EBITDA. See “Non-GAAP Financial Measures” for a discussion of the reasons why management believes adjusted pro forma EBITDA is useful in evaluating our business, also for a discussion of the analytical limitations of these measures.

 

(2)Adjusted pro forma net income attributable to common stockholders is derived from financial information contained elsewhere in this offering circular. See “Summary Historical Consolidated Financial and Other Data of Ritchie Bros.” and “Unaudited Pro Forma Condensed Combined Financial Information.” Adjusted pro forma net income attributable to common stockholders is calculated from pro forma net income attributable to common stockholders adding back adjusting items that we do not consider to be part of our normal operating results, such as share-based payments expense, acquisition-related costs, amortization of acquired intangible assets and loss (gain) on disposition of property, plant and equipment and related costs. Also adjusted were certain non-recurring advisory, legal and restructuring costs, the change in fair value of derivatives, loss on redemption and extinguishment of indebtedness and related interest expense, and the fair value adjustments related to contingent consideration. Certain historical adjustments which are included in IAA’s adjusted net income and meet Ritchie Bros. definition have been included and adjusted for in the adjusted pro forma net income attributable to common stockholders.

 

(3)Pro forma gross leverage is calculated by dividing pro forma total debt (excluding debt issuance costs and capital lease obligations) by adjusted pro forma EBITDA. Pro forma net leverage is calculated by dividing pro forma net debt by adjusted pro forma EBITDA. Pro forma net secured leverage is calculated by dividing pro forma net secured debt by adjusted pro forma 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.

 

2

 

 

The following table provides a reconciliation of pro forma gross leverage, pro forma net leverage and pro forma net secured leverage as of December 31, 2022 and a reconciliation of adjusted pro forma EBITDA to pro forma net income for the year ended December 31, 2022:

 

  

Pro Forma
As of and For the Year
Ended
December 31, 2022

 
   (in millions) 
Pro forma total debt   $3,260 
       Less: Cash and cash equivalents    (659)
Pro forma net debt   $2,601 
       Less: gross unsecured debt    (800)
Pro forma secured net debt   $1,801 
Pro forma net income    283 
      Add: depreciation and amortization expenses    393 
      Add: interest expense    277 
      Less: interest income    (8)
      Add: income tax expense    52 
Pro forma EBITDA   $997 
      Share-based payment expense    44 
      Acquisition-related costs    127 
      Non-recurring advisory, legal and restructuring costs    8 
      Loss (gain) on disposition of property, plant and equipment and related costs    (168)
      Change in fair value of derivatives    (1)
      Fair value adjustments related to contingent consideration    5 
Adjusted pro forma EBITDA   $1,012 
Pro forma gross leverage    3.2 x 
Pro forma net leverage    2.6 x 
Pro forma net secured leverage    1.8 x 

  

3

 

 

Unaudited Pro Forma Condensed Combined Financial Information

 

The unaudited pro forma condensed combined financial information of Ritchie Bros. has been prepared in accordance with Article 11 of Regulation S-X, and presents the combination of the historical financial information of Ritchie Bros. and IAA adjusted to give effect to the Mergers and the other events contemplated by the Merger Agreement. The unaudited pro forma condensed combined financial information of Ritchie Bros. also gives effect to other financing events contemplated by Ritchie Bros. or that have already occurred but are not yet reflected in the historical financial information of Ritchie Bros. and are considered material transactions separate from the Mergers.

 

Description of the Mergers

 

On November 7, 2022, Ritchie Bros. and IAA entered into the Original Merger Agreement, which was subsequently amended on January 22, 2023. Pursuant to the Merger Agreement, Merger Sub 2, as successor company to IAA, will become an indirect wholly owned subsidiary of Ritchie Bros. Upon consummation of the Mergers:

 

Each share of IAA Common Stock issued and outstanding immediately prior to the Effective Time (excluding shares held by IAA and its subsidiaries and stockholders exercising their appraisal rights) will be surrendered and exchanged into the right to receive:

 

·$12.80 in cash, without interest (“cash consideration”); and

 

·0.5252 Ritchie Bros. common shares (“share consideration”).

 

Each outstanding IAA option, whether vested or unvested, each outstanding unvested IAA RSU award subject solely to time-based vesting, and each outstanding unvested IAA PRSU award subject to performance-based vesting at the Mergers Closing Date will be cancelled and exchanged into equivalent outstanding equity awards covering Ritchie Bros. common shares based on the equity award exchange ratio defined as the sum of:

 

(a)the quotient obtained by dividing (i) the cash consideration by (ii) the volume weighted average trading sale price of one share of Ritchie Bros. common shares for the five consecutive trading days immediately prior to the Mergers Closing Date; and

 

(b)the exchange ratio.

 

See “The Transactions” for additional information.

 

Expected Accounting Treatment of the Mergers

 

The Mergers will be accounted for as a business combination in accordance with the acquisition method of accounting under GAAP. Ritchie Bros. is determined to be the accounting acquirer and IAA is determined to be the accounting acquiree. This determination was primarily based on the transfer of cash consideration by Ritchie Bros. to the former economic interest holders of IAA and the relative share ownership, voting rights, composition of the governing body, and the designation of certain senior management positions of the combined entity. Under this method of accounting, the purchase price of the Mergers will be allocated to the assets acquired and liabilities assumed based on their preliminary fair values at the Mergers Closing Date. Any excess of the estimated fair value of the consideration transferred over the estimated fair value of identifiable assets and liabilities will be recorded as goodwill.

 

Other Financing Events

 

Debt Financing

 

Ritchie Bros. plans to fund the cash portion of the Merger Consideration through a combination of (i) cash from its balance sheet, (ii) borrowings under the Term Loan A Facility, (iii) the proceeds from the sale of the secured notes and the unsecured notes offered hereby or (iv) any combination of the foregoing.

 

In connection with the Merger Agreement, Ritchie Bros. entered into the Debt Commitment Letter with certain financial institutions that committed to provide, subject to the terms and conditions set forth therein, the Bridge Loan Facility in an aggregate principal amount of up to $2.8 billion and the Backstop Revolving Facility in an aggregate principal amount of up to $750.0 million. Ritchie Bros. subsequently obtained the Sixth Amendment to its Existing Credit Agreement which, among other things, permitted the Mergers and served to terminate the backstop commitments (including the Revolving Backstop Facility and $88.9 million of bridge commitments that served as a backstop for its existing term loans under the Existing Credit Agreement) and replace an additional $1.825 billion of bridge commitments with the New Term Loan A Facility. See “The Transactions—Financing of the Mergers” for additional information. The applicable interest rate on the Term Loan A Facility, assuming it is borrowed in U.S. Dollars at the adjusted term SOFR rate under the Sixth Amendment, will be determined at the then-current interest rate at the time of issuance and has been currently, as of the date of this offering circular, estimated to be 7.4% on February 17, 2023, which is the most recent practicable date for the preparation of the unaudited pro forma condensed combined financial information.

 

4

 

 

Ritchie Bros. plans to offer hereby $550.0 million aggregate principal amount of secured notes at an estimated rate, for purposes of the unaudited pro forma condensed combined financial information, of 6.75% and $800.0 million aggregate principal amount of unsecured notes at an estimated rate, for purposes of the unaudited pro forma condensed combined financial information, of 7.75%. Ritchie Bros. intends to borrow a total of $3.3 billion, including the Term Loan A Facility, that will be used to (a) finance the Mergers, (b) pay transaction costs, (c) repay certain existing indebtedness of IAA, (d) repay or refinance all existing indebtedness of Ritchie Bros. and (e) pay the Ritchie Bros. Special Dividend.

 

These agreements, assumptions and expectations are subject to change, and the debt issuance costs to be incurred and related interest expense could vary significantly from what is assumed in the unaudited pro forma condensed combined financial information. Other factors that are subject to change include, but are not limited to, the timing of borrowings, the amount of cash on hand at the time of the closing and inputs to interest rate determination on debt instruments issued.

 

Debt issuance costs are expected to be incurred for the New Term Loan A Facility, the secured notes and the unsecured notes and will be amortized over the respective terms of the debt.

 

See “The Transactions—Financing of the Mergers,” “Description of Secured Notes” and “Description of Unsecured Notes” for additional information.

 

Investment Transaction

 

On January 22, 2023, Ritchie Bros. entered into the SPA with the Starboard purchasers and, for certain purposes, Starboard Value LP and Jeffrey C. Smith, pursuant to which Ritchie Bros. agreed to issue and sell to the Starboard purchasers (a) 485,000,000 of Ritchie Bros.’ Preferred Shares at a purchase price of $1.00 per Preferred Share and (b) 251,163 common shares at a purchase price of $59.722 per share. The closing of the Investment Transaction occurred on February 1, 2023.

 

Holders of the Preferred Shares will receive annual dividends on a cumulative basis initially equal to 5.5% of the aggregate principal amount of $485.0 million and will be payable quarterly in arrears on March 15, June 15, September 15 and December 15 of each calendar year in cash or in common shares at Ritchie Bros.’ election. The Preferred Shares are participating securities and will also participate on an as-converted basis in any regular dividends paid to common shareholders, subject to a $0.27 per share per quarter floor.

 

Pursuant to the articles of amendment of Ritchie Bros. governing the Preferred Shares, holders of the Preferred Shares will have redemption rights upon consummation of a change of control of Ritchie Bros. to require Ritchie Bros. to repurchase the Preferred Shares at an amount in cash equal to the applicable conversion price plus accrued and unpaid dividends thereon, plus a make whole premium. Holders of the Preferred Shares also have non-contingent rights to convert the Preferred Shares into Ritchie Bros. common shares. The conversion rate will initially be 0.0136986 Ritchie Bros. common shares per $1.00 conversion amount, subject to customary anti-dilution adjustment provisions, including an adjustment for the Ritchie Bros. Special Dividend to be paid in connection with the Mergers.

 

See “Summary—Other Recent Developments” for additional information.

 

5

 

 

Ritchie Bros. Special Dividend

 

Ritchie Bros.’ board of directors announced that, contingent on the closing of the Mergers, it expects to approve the issuance the Ritchie Bros. Special Dividend to Ritchie Bros. shareholders in the amount of $1.08 per common share, which will be payable to holders of record of Ritchie Bros. common shares as of a pre-Mergers Closing Date record date, to be determined with the consent of TSX.

 

Other Information

 

The unaudited pro forma condensed combined financial information was derived from and should be read in conjunction with the following historical financial statements and the accompanying notes, which are incorporated by reference in this offering circular:

 

·the historical audited consolidated financial statements of Ritchie Bros. as of and for the year ended December 31, 2022, included in Ritchie Bros.’ Annual Report on Form 10-K filed with the SEC on February 21, 2023; and

 

·the historical audited consolidated financial statements of IAA as of and for the fiscal year ended January 1, 2023, included in IAA’s Annual Report on Form 10-K filed with the SEC on February 24, 2023.

 

The unaudited pro forma condensed combined financial information should also be read together with the information set forth under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of Ritchie Bros.’ and IAA’s respective annual reports incorporated by reference in this offering circular. The unaudited pro forma condensed combined financial information should also be read together with other financial information related to the Mergers included elsewhere in this offering circular, including the Merger Agreement and the description of certain terms thereof set forth under “The Transactions.”

 

6

 

 

UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
AS OF DECEMBER 31, 2022

(in millions)

 

   Historical                       
   Ritchie Bros.
Auctioneers
Incorporated		   IAA, Inc                       
   As of
December 31,
2022		   As of
January 1,
2023		   Transaction
Accounting
Adjustments -
Reclassification		  Notes  Transaction
Accounting
Adjustments-
Financing		  Notes  Transaction
Accounting
Adjustments
Acquisition		  Notes  Pro
Forma
Combined		 
ASSETS                                    
Current assets:                                    
Cash and cash equivalents  $494   $196   $—     $3,217  4(a)  $(50) 5(a)  $

659

 
                     (627) 4(b)   (2,863) 5(b)     
                     500  4(c)   (88) 5(c)     
                            (120) 5(d)     
Restricted cash   132    —    —      —      —      132 
Trade and other receivables   186    455    —      —      —      641 
Less: allowance for credit losses   (3)   (10)   —      —      —      (13)
Prepaid consigned vehicle charges   —    68    —      —      (68) 5(b)   — 
Inventory   103    —    51  2(a)   —      —      154 
Other current assets   48    79    (51) 2(a)   —      —      69 
              (7) 2(b)                   
Income taxes receivable   3    —    7  2(b)   —      —      10 
Total current assets   963    788    —      3,090      (3,189)     

1,652

 
Non-current assets:                                    
Property, plant and equipment   459    384    —      —      232  5(b)   1,075 
Operating lease right-of-use assets   —    1,204    123  2(c)   —      30  5(b)   1,357 
Other non-current assets   163    34    (123) 2(c)   —      —      74 
Intangible assets   323    185    —      —      2,155  5(b)   2,663 
Goodwill   949    768    —      —      

3,847

  5(b)   5,564 
Deferred tax assets   7    —    —      —      —      7 
Total assets  $2,864   $3,363   $—     $3,090     $3,075     $12,392 

 

7

 

 

UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET - (continued)
AS OF DECEMBER 31, 2022

(in millions)

 

   Historical                       
   Ritchie Bros.
Auctioneers
Incorporated		   IAA, Inc                       
   As of
December 31,
2022		   As of
January 1,
2023		   Transaction
Accounting
Adjustments
Reclassification		  Notes  Transaction
Accounting
Adjustments
Financing		  Notes  Transaction
Accounting
Adjustments
Acquisition		  Notes  Pro
Forma
Combined		 
LIABILITIES, SERIES A SENIOR PREFERRED SHARES AND EQUITY                                    
Current liabilities:                                    
Auction proceeds payable  $426   $—   $8  2(d)  $—     $—     $434 
Trade and other liabilities   295    231    (13) 2(c)   (13) 4(b)   (4)  5(a)   

594

 
              (8) 2(d)          14  5(b)     
              99  2(e)          (7)  5(c)     
Short-term right-of-use operating lease liabilities   —    88    13  2(c)   —      67  5(b)   168 
Accrued employee benefits and compensation expenses   —    34    (34) 2(e)   —      —      — 
Other accrued expenses   —    65    (65) 2(e)   —      —      — 
Income taxes payable   41    —    —      —      —      41 
Short-term debt   29    —    —      (29) 4(b)   —      — 
Current portion of long-term debt   4    32    —      96  4(a)   (32) 5(b)   96 
                     (4) 4(b)            
Total current liabilities   795    450    —      50      38      1,333 
Non-current liabilities:                                    
Long-term debt   577    1,091    —      3,121  4(a)   (1,091) 5(b)   3,121 
                     (577) 4(b)            
Long-term right-of-use operating lease liabilities   —    1,165    112  2(c)   —      (86) 5(b)   1,191 
Other non-current liabilities   148    23    (112) 2(c)   —      (1) 5(b)   58 
Deferred tax liabilities   54    67    —      —      566  5(b)   687 
Total liabilities   1,574    2,796    —      2,594      (574)     6,390 
                                     
Commitments and contingencies   —    —    —      —      —      — 
Series A Senior Preferred Shares   —    —    —      485  4(c)   —      485 
                                     
Stockholder’s Equity:                                    
Preferred stock   —    —    —      —      —      — 
Common stock   246    1    —      15  4(c)   (1) 5(b)   261 
Treasury stock   —    (61)   —      —      61  5(b)   — 
Additional paid-in capital   86    26    —      —      4,391  5(b)   4,503 
Retained earnings   1,043    655    —      (4) 4(b)   (46) 5(a)   838 
                            (609) 5(b)     
                            (81) 5(c)     
                            (120) 5(d)     
Accumulated other comprehensive loss   (85)   (54)   —      —      54  5(b)   (85)
Non-controlling interest   —    —    —      —      —      — 
Total stockholder’s equity   1,290    567    —      11      

3,649

      

5,517

 
Total liabilities, Series A Senior Preferred Shares, and stockholder’s equity  $2,864   $3,363   $—     $3,090     $

3,075

     $

12,392

 

 

8

 

 

UNAUDITED PRO FORMA CONDENSED COMBINED INCOME STATEMENT
FOR THE YEAR ENDED DECEMBER 31, 2022

(in millions, except share and per share amounts)

 

    Historical                                
    Ritchie Bros.
Auctioneers
Incorporated		     IAA, Inc.                                
    Year ended
 December 31,
 2022		     Year ended
 January 1,
 2023		     Transaction
Accounting
 Adjustments -
Reclassification		   Notes   Transaction
Accounting
Adjustments -
 Financing		   Notes   Transaction
Accounting
 Adjustments -
 Acquisition		   Notes   Pro
Forma
 Combined		  
Revenue:                                                      
Service revenue   $ 1,051     $ 1,686     $ —       $ —       $ —       $ 2,737  
Inventory sales revenue     683       413       —         —         —         1,096  
Total revenue     1,734       2,099       —         —         —         3,833  
                                                       
Operating expenses:                                                      
Cost of services     168       996       —         —         —         1,164  
Cost of inventory sold     609       368       —         —         —         977  
Selling, general and administrative expenses     540       212       (9 ) 2(f)     —         (13 ) 6(e)     737  
                                          7   6(f)        
Acquisition-related costs     37       —       9   2(f)     —         81   6(d)     127  
Depreciation and amortization expenses     97       106       —         —         (62 ) 6(a)     393  
                                          252   6(b)        
Foreign exchange loss (gain)     (1 )     —       5   2(g)     —         —         4  
Total operating expenses, net     1,450       1,682       5         —         265         3,402  
Gain on disposition of property, plant and equipment     171       —       2   2(h)     —         —         173  
Operating income     455       417       (3 )       —         (265 )       604  
                                                       
Interest expense     (58 )     (52 )     —         (248 ) 4(d)     52   6(c)     (277 )
                                29   4(e)                  
Interest income     7       1       —         —         —         8  
Change in fair value of derivatives, net     1       —       —         —         —         1  
Other income (expense), net     1       (5 )     (2 ) 2(h)     —         —         (1 )
                      5   2(g)                            
Income before income taxes     406       361       —         (219 )       (213 )       335  
                                                       
Income tax expense (benefit)     86       69       —         (53 ) 4(f)     (50 ) 4(f)     52  
Net income (loss)   $ 320     $ 292     $ —       $ (166 )     $ (163 )     $ 283  
                                                       
Cumulative dividends on Series A Senior Preferred Shares     —       —       —         (27 ) 4(g)     —         (27 )
Allocated earnings to participating securities     —       —       —         (9 ) 4(g)               (9 )
Net income (loss) attributable to:                                                      
Common Stockholders   $ 320     $ 292     $ —       $ (202 )     $ (163 )   $ 247  
Non-controlling interests     —       —       —         —         —         —  
Earnings per share attributable to common stockholders:                                                      
Basic   $ 2.89                                       6(g)   $ 1.36  
Diluted   $ 2.86                                       6(g)   $ 1.35  
Weighted average number of shares outstanding                                                      
Basic     110,781,282                                       6(g)     181,495,848  
Diluted     111,886,025                                       6(g)     182,782,956  

 

9

 

 

NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION

 

1.            Basis of Presentation

 

The Mergers will be accounted for as a business combination in accordance with the acquisition method of accounting under GAAP. Ritchie Bros. is determined to be the accounting acquirer and IAA is determined to be the accounting acquiree.

 

The unaudited pro forma condensed combined financial information has been prepared in accordance with Article 11 of Regulation S-X. The adjustments in the unaudited pro forma condensed combined financial information have been identified and presented to provide relevant information in accordance with GAAP necessary for an illustrative understanding of Ritchie Bros. upon consummation of the Mergers and the other related events contemplated by the Merger Agreement and this offering circular. Assumptions and estimates underlying the unaudited pro forma adjustments set forth in the unaudited pro forma condensed combined financial information are described in the accompanying notes.

 

The unaudited pro forma condensed combined balance sheet as of December 31, 2022 is prepared on a combined basis using the historical audited consolidated balance sheets of Ritchie Bros. and IAA as of December 31, 2022, and January 1, 2023, respectively, giving pro forma effect to the Mergers and the other related events contemplated by the Merger Agreement as if each had been consummated on December 31, 2022 based on the assumptions and adjustments described in the accompanying notes.

 

The unaudited pro forma condensed combined income statement for the year ended December 31, 2022 gives pro forma effect to the Mergers and the other related events contemplated by the Merger Agreement as if each had been consummated on January 1, 2022, the beginning of the earliest period presented, based on the assumptions and adjustments described in the accompanying notes. As the difference between Ritchie Bros.’ and IAA’s fiscal year-end dates is less than one fiscal quarter, the unaudited pro forma condensed combined income statement for the year ended December 31, 2022 combines the historical audited consolidated income statements of Ritchie Bros. and IAA for the fiscal year ended December 31, 2022, and for the fiscal year ended January 1, 2023, respectively.

 

The unaudited pro forma condensed combined financial information has been presented for informational purposes only and is not necessarily indicative of the operating results that would have been achieved had the Mergers occurred on the dates indicated, and does not reflect adjustments for any anticipated synergies, operating efficiencies, tax savings or integration costs. The unaudited pro forma condensed combined financial information does not purport to project the future operating results or financial position of Ritchie Bros. following the completion of the Mergers. Ritchie Bros. and IAA have not had any historical relationship prior to the Mergers. Accordingly, no pro forma adjustments were required to eliminate activities between the companies.

 

The unaudited pro forma adjustments represent Ritchie Bros. management’s estimates based on information available as of the date of this offering circular and are subject to change as additional information becomes available and analyses are performed. If the actual facts are different than these assumptions, then the amounts and shares outstanding in the unaudited pro forma condensed combined financial information will be different and those changes could be material.

 

2.            Significant Accounting Policies

 

The accounting policies used in the preparation of the unaudited pro forma condensed combined financial information are those set out in Ritchie Bros.’ audited annual financial statements as of and for the year ended December 31, 2022. The Preferred Shares are classified outside of stockholder’s equity on the condensed combined pro forma balance sheet because the holders of such shares have redemption rights in the event of a change in control, which is deemed outside of Ritchie Bros.’ control. Ritchie Bros. management is currently evaluating for significant accounting policy differences between the two entities. Upon consummation of the Mergers, Ritchie Bros. management will perform a comprehensive review of the accounting policies between the two entities and may identify differences in accounting policies between the two entities which, when conformed, could be material.

 

10

 

 

Certain reclassifications are reflected in the unaudited pro forma condensed combined balance sheet and unaudited pro forma condensed combined income statement to conform presentation between IAA and Ritchie Bros. These reclassifications have no effect on previously reported total assets, total liabilities and shareholders’ equity, or net income of Ritchie Bros. or IAA. The unaudited pro forma condensed combined financial information may not reflect all reclassifications necessary to conform IAA’s presentation to that of Ritchie Bros. due to limitations on the availability of information as of the date of this offering circular. Additional reclassification adjustments may be identified as more information becomes available.

 

The following reclassification adjustments were made to conform presentation between IAA and Ritchie Bros.:

 

(a)Represents the reclassification of inventory assets from other current assets to inventory.

 

(b)Represents the reclassification of income taxes receivable from other current assets to income taxes receivable.

 

(c)Represents the reclassification of operating lease right-of-use assets from other non-current assets to operating lease right-of-use assets, and the reclassification of operating lease liabilities from trade and other liabilities to short-term right-of-use operating lease liabilities, and other non-current liabilities to long-term right-of-use operating lease liabilities.

 

(d)Represents the reclassification of certain payables to sellers from trade and other liabilities to auction proceeds payable.

 

(e)Represents the reclassification of certain current liabilities from accrued employee benefits and compensation expenses and other accrued expenses to trade and other liabilities.

 

(f)Represents the reclassification of certain acquisition-related costs from selling, general and administrative expenses to acquisition-related costs.

 

(g)Represents the reclassification of foreign exchange losses from other income (expense), net to foreign exchange loss (gain).

 

(h)Represents the reclassification of gain on disposition of property, plant and equipment from other income (expense), net to gain on disposition of property, plant and equipment.

 

3.            Calculation of Merger Consideration and Preliminary Purchase Price Allocation of the Mergers

 

Upon the consummation of the Mergers, holders of the 133,859,057 issued and outstanding shares of IAA Common Stock, in addition to holders of IAA phantom stock awards, based on the capitalization of IAA as of February 21, 2023, will be entitled to receive $12.80 per share in cash, plus an aggregate of 70,334,262 newly issued Ritchie Bros. common shares as calculated based on the exchange ratio. Holders of the issued and outstanding IAA equity awards as of February 21, 2023 will receive Ritchie Bros. equity awards or shares covering an estimated 516,658 Ritchie Bros. common shares after giving effect to the equity award exchange ratio, based on the following events contemplated by the Merger Agreement:

 

·the cancellation and exchange of all 133,859,057 issued and outstanding shares of IAA Common Stock (including 27,855 shares underlying IAA restricted stock awards), in addition to 59,992 shares underlying IAA phantom stock awards granted to non-employee directors, for $12.80 per share in cash plus an aggregate of 70,334,262 newly issued Ritchie Bros. common shares as calculated based on the exchange ratio;

 

·the cancellation and exchange of all 230,346 granted and outstanding vested and unvested IAA options into Ritchie Bros. options for the purchase of 167,346 Ritchie Bros. common shares with the same terms and vesting conditions except for the number of underlying shares and the exercise price, each of which was adjusted by the estimated equity award exchange ratio;

 

11

 

 

·the cancellation and exchange of all 268,291 granted and outstanding unvested IAA RSU awards into 194,733 Ritchie Bros. RSUs for Ritchie Bros. common shares with the same terms and vesting conditions except for the number of underlying shares, which was adjusted by the estimated equity award exchange ratio; and

 

·the cancellation and exchange of all 212,979 granted and outstanding unvested IAA PRSU awards into 154,579 Ritchie Bros. RSUs for Ritchie Bros. common shares with similar terms except for having time-only vesting conditions and for the underlying number of shares, which was adjusted by the estimated equity award exchange ratio.

 

Preliminary Merger Consideration

 

The preliminary fair value of the Merger Consideration expected to be transferred on the Mergers Closing Date includes the estimated value of the cash consideration, the estimated fair value of approximately 70,334,262 Ritchie Bros. common shares to be issued, the estimated fair value of assumed IAA equity awards attributable to pre-combination services, and the estimated amount of cash to be paid for the repayment of certain existing indebtedness of IAA. The preliminary Merger Consideration is as follows:

 

   (dollars in millions) 
Estimated cash consideration(1)  $1,714 
Estimated fair value of Ritchie Bros. common shares to be issued(2)   4,402 
Estimated fair value of assumed IAA equity awards attributable to pre-combination service(3)   15 
Estimated repayment of certain existing indebtedness of IAA(4)   1,149 
Total preliminary Merger Consideration  $7,280 

 

 

(1)Represents the preliminary cash consideration to be paid to IAA stockholders pursuant to the Merger Agreement based on the capitalization of IAA as of February 21, 2023.

 

(2)Represents the preliminary fair value of Ritchie Bros. common shares to be issued to IAA stockholders pursuant to the Merger Agreement based on the capitalization of IAA as of February 21, 2023, at a $62.59 closing price of Ritchie Bros. common shares as of February 17, 2023.

 

(3)Represents the preliminary portion of the fair value of stock options, restricted stock units and performance-based restricted stock units being cancelled and exchanged by Ritchie Bros. upon completion of the Mergers that is attributable to pre-combination service.

 

(4)Represents the total preliminary cash consideration to be paid concurrent with the closing of the Mergers to retire certain existing indebtedness of IAA with an outstanding balance of approximately $1,149.1 million as of January 1, 2023, including accrued interest and prepayment penalties.

 

The actual fair value of Ritchie Bros. common shares to be issued as share consideration will depend on the closing price per share of Ritchie Bros. common shares at the Mergers Closing Date, and therefore, the actual share consideration, as a part of the Merger Consideration, will fluctuate with the market price of Ritchie Bros. common shares until the Mergers are consummated. A sensitivity analysis related to the fluctuation in the price of Ritchie Bros. common shares was performed to assess the impact that a hypothetical change of 10% to the closing price per share of Ritchie Bros. common shares as of February 17, 2023 would have on the estimated Merger Consideration and goodwill as of the Mergers Closing Date, as follows:

 

   Stock Price   Estimated
Merger
Consideration		   Estimated
Goodwill		 
             
Change in Stock Price  (dollars in millions, except stock price) 
Increase of 10%  $68.85   $7,722   $5,057 
Decrease of 10%  $56.33   $6,839   $4,174 

 

12

 

 

Preliminary Purchase Price Allocation

 

Under the acquisition method of accounting, the identifiable assets acquired and liabilities assumed will be recorded by Ritchie Bros. at their acquisition date fair values. The excess purchase price over the fair values of identifiable assets and liabilities is recorded as goodwill.

 

The preliminary estimate of fair values of assets acquired and liabilities assumed have been determined by management of Ritchie Bros. using publicly available benchmarking information and other assumptions, including market participant assumptions. The purchase price allocation is preliminary and subject to change, as additional information becomes available and as additional analyses are performed. The differences that may occur between the preliminary estimates and the final purchase price allocation when the valuation and other studies are finalized could be material.

 

The fair value assigned to intangible assets has been estimated based on third-party preliminary valuation studies utilizing income-based methodologies and corroborated with publicly available market benchmarks. The preliminary land fair value estimation was based on broker valuations, tax appraisals and other information provided by IAA management. The estimated fair values of land are preliminary and subject to a valuation assessment post-close. Other property, plant and equipment and working capital amounts are assumed to have fair values equal to historical book values. Real and personal property will be valued as of the acquisition date but were not included in the preliminary valuation assessment. The final purchase price allocation will be based on appraisals subsequent to the consummation of the Mergers and may result in materially different allocations for assets than those presented in this unaudited pro forma condensed combined balance sheet. The intangible assets identified in the preliminary purchase price allocation are subject to further examination which may result in additional assets identified, excluded or further segmented. Any change in the amount of the final purchase price allocated to amortizable, finite lived intangible assets as well as property, plant and equipment could materially affect the amount of amortization and depreciation expense. The preliminary purchase price and purchase price allocation are presented as follows:

 

   (dollars in millions) 
Estimated cash consideration  $1,714 
Estimated fair value of Ritchie Bros. common shares to be issued   4,402 
Estimated fair value of assumed IAA equity awards attributable to pre-combination service   15 
Estimated repayment of certain existing indebtedness of IAA   1,149 
Total estimated Merger Consideration  $7,280 
      
Cash and cash equivalents  $146 
Trade and other receivables   445 
Inventory   51 
Income taxes receivable   7 
Other current assets   21 
Property, plant and equipment   616 
Operating lease right-of-use assets   1,234 
Other non-current assets   34 
Intangible assets   2,340 
Total assets  $

4,894

 
      
Auction proceeds payable  $8 
Trade and other liabilities   332 
Short-term right-of-use operating lease liability   155 
Long-term right-of-use operating lease liability   1,079 
Other non-current liabilities   22 
Deferred tax liabilities   633 
Total liabilities  $

2,229

 
      
Preliminary fair value of net assets acquired  $2,665 
Preliminary allocation of goodwill   4,615 
Historical goodwill of IAA   768 
Adjustment to goodwill  $3,847 

 

13

 

 

Goodwill will not be amortized but instead will be reviewed for impairment at the reporting unit level at least annually, and more often if indicators of impairment are identified. Goodwill represents future economic benefits including going concern value, the value of future buyer and provider relationships, the opportunity to scale and expand market offerings, and other expected synergies. Goodwill recognized in the Mergers is not expected to be deductible for tax purposes.

 

4.Transaction Accounting Adjustments - Financing

 

(a)Reflects the expected newly raised Term Loan A Facility, secured notes and unsecured notes offered hereby with a total principal amount of $3,260.0 million to fund the Mergers as described in the other financing events section above, net of a total $43.4 million in deferred financing costs.

 

     (dollars in millions) 
  Term Loan A Facility  $1,910 
  Estimated deferred financing costs   (18)
  Current portion of long-term debt   (96)
  Long-term debt  $1,796 
        
  Senior secured notes  $550 
  Estimated deferred financing costs   (10)
  Current portion of long-term debt   — 
  Long-term debt  $540 
        
  Senior unsecured notes  $800 
  Estimated deferred financing costs   (15)
  Current portion of long-term debt   — 
  Long-term debt  $785 

 

(b)Represents the repayment or refinancing of Ritchie Bros. existing debt using the proceeds from the newly raised borrowings, including the repayment or refinancing of all of our outstanding short-term debt, redemption of the 2016 Notes and repayment or refinancing of the delayed-draw term loan, and the associated write-off of unamortized deferred debt issuance costs.

 

(c)Represents the proceeds from Investment Transaction in aggregated amount of $500.0 million in connection with the sale and issuance of (i) 485,000,000 of Ritchie Bros. Preferred Shares at a purchase price of $1.00 per share, and (ii) 251,163 shares of Ritchie Bros. common shares at a purchase price of $59.722 per share, pursuant to the SPA.

 

(d)Represents the total interest expense and amortization of deferred issuance costs for the Term Loan A Facility, secured notes offered hereby and unsecured notes offered hereby to be incurred by Ritchie Bros. to fund the Mergers as described in “—Other Financing Events.” Interest expense is calculated using an effective interest rate. The effective interest rates for the Term Loan A Facility, secured notes offered hereby and unsecured notes offered hereby were 7.7%, 7.2% and 8.1%, respectively.

 

14

 

 

Based upon the estimated balance of the Term Loan A Facility, secured notes offered hereby and unsecured notes offered hereby to be incurred, a hypothetical 125 basis point increase in interest rates would increase the interest expense by approximately $40.6 million for the year ended December 31, 2022; a hypothetical 125 basis point decrease in interest rates would decrease the interest expense by approximately $40.6 million for the year ended December 31, 2022.

 

(e)Represents the elimination of interest expense and write-off of unamortized deferred debt issuance costs associated with the repayment or refinancing of Ritchie Bros. existing debt using the proceeds from the newly raised borrowings, including the repayment or refinancing of all of our outstanding short-term debt, redemption of the 2016 Notes and repayment or refinancing of the delayed-draw term loan.

 

(f)Represents the tax expense (benefit) impact at an estimated blended effective tax rate of 23.7% for the year ended December 31, 2022, based on the weighted-average statutory tax rate of the jurisdictions expected to be impacted for each of these periods and is not necessarily indicative of the effective tax rate of Ritchie Bros. following the Mergers, which could be significantly different depending on post-acquisition activities, including the geographical mix of income among other factors. The actual tax effects of the Mergers will differ from the pro forma adjustments, and the differences may be material.

 

(g)Represents the estimated cumulative preferred share dividend and participation rights associated with the Preferred Shares sold and issued in connection with the Investment Transaction.

 

5.Transaction Accounting Adjustments to Unaudited Pro Forma Condensed Combined Balance Sheet

 

The adjustments included in the unaudited pro forma condensed combined balance sheet as of December 31, 2022 are as follows:

 

(a)Represents the settlement, by IAA immediately prior to the closing, of the transaction costs accrued as of December 31, 2022 and the remaining estimated transaction costs to be incurred by IAA in connection with the Mergers.

 

(b)Represents the adjustments to historical IAA balances to reflect the impact of acquisition accounting as outlined in Note 3 above, based on the total preliminary Merger Consideration of $7,280.1 million, which consists of (i) cash consideration of $1,714.0 million to be paid to IAA stockholders, (ii) the issuance of 70,334,262 Ritchie Bros. common shares with an estimated fair value of $4,402.0 million, (iii) the issuance of Ritchie Bros. equity awards covering 516,658 Ritchie Bros. common shares with an estimated fair value of $14.9 million attributable to IAA equity award holders’ pre-combination service, and (iv) the repayment of certain existing indebtedness of IAA outstanding as of January 1, 2023 of approximately $1,149.1 million, including accrued interest and prepayment penalties under IAA’s credit facilities and senior notes, as summarized below:

 

     (dollars in millions) 
  Total Merger Consideration  $7,280 
  Less: identifiable net assets acquired(1)   (2,665)
  Estimated goodwill  $4,615 
        
  IAA historical goodwill   768 
  Adjustment to goodwill  $3,847 
        
  Historical Ritchie Bros. goodwill   949 
  Pro forma goodwill  $5,564 

 

15

 

 

 

(1)The purchase price allocation is based on preliminary estimates of fair value of assets acquired and liabilities assumed. The difference between the estimated total Merger Consideration and preliminary identifiable net assets acquired is recorded as estimated goodwill. The preliminary purchase price and purchase price allocation are presented in Note 3 above. Upon completion of the fair value assessment after the Mergers, it is anticipated that the ultimate purchase price allocation will differ from the preliminary assessment outlined here. Any changes to the initial estimates of the fair value of the acquired assets and assumed liabilities will be recorded as adjustments to those assets and liabilities, and residual amounts will be allocated to goodwill. Final consideration will be determined at the closing of the Mergers.

 

Prepaid consigned vehicle charges include inbound tow, titling costs and enhancement charges associated with the receipt of a consigned vehicle for auction. These costs are incurred by IAA and are not reimbursable. Because Ritchie Bros. will not receive a future economic benefit from these deferred costs, they do not qualify for asset recognition in the Mergers.

 

The identifiable net assets acquired includes a deferred tax liability which is associated with the preliminary purchase price allocation and the pro forma adjustments. These purchase accounting adjustments create new differences between the book basis and tax basis of the respective assets. The amount of these adjustments to the unaudited pro forma condensed combined balance sheet is determined by applying the blended statutory rate of approximately 24% to the portion of these adjustments assuming all assets are within U.S. jurisdictions.

 

The acquired right-of-use assets and lease liabilities are measured and recognized based on the remaining future lease payments using Ritchie Bros.’ incremental borrowing rates. The current portion of the lease liability is calculated as the present value of the contractual lease payments for the subsequent twelve months. No amounts were recorded in the unaudited pro forma condensed combined income statements related to the lease adjustment as the amount is not material.

 

The assumed liabilities include a one-time one percent excise tax incurred on the cash consideration that increases the repurchase excise tax base for IAA concurrent with the Mergers. This tax was added by the Inflation Reduction Act and is effective January 1, 2023.

 

The adjustments to additional paid-in capital in connection with the acquisition accounting for the Mergers are summarized below:

 

     (dollars in millions) 
  Elimination of IAA historical additional paid-in capital  $(26)
  Estimated fair value of Ritchie Bros. common shares to be issued   4,402 
  Estimated fair value of assumed IAA equity awards attributable to pre-combination service   15 
  Additional paid-in capital  $4,391 

 

(c)Represents the settlement of transaction costs accrued as of December 31, 2022 and the remaining estimated transaction costs to be incurred by Ritchie Bros. in connection with the Mergers.

 

(d)Represents the one-time Ritchie Bros. Special Dividend expected to be approved and declared in connection with the closing of the Mergers in an estimated aggregated amount of $120.0 million. The Ritchie Bros. Special Dividend is expected to be payable in cash to holders of record of Ritchie Bros. common shares as of a pre-closing record date.

 

6.Transaction Accounting Adjustments to Unaudited Pro Forma Condensed Combined Income Statement

 

The adjustments included in the unaudited pro forma condensed combined income statement for the year ended December 31, 2022 are as follows:

 

(a)Represents the elimination of IAA historical amortization expense relate to identifiable intangible assets.

 

(b)Represents the recognition of new amortization expense related to acquired identifiable assets based on the estimated fair value as of February 17, 2023. Amortization expense is calculated based on the estimated fair value of each of the identifiable intangible assets and the associated estimated useful lives below:

 

     Estimated Value   Potential Useful Life 
  Assets acquired  (dollars in millions)   (years) 
  Provider and buyer relationships  $2,030   10 
  Developed technology   150   6 
  Trade names and trademarks   160   6 
  Total assets acquired  $2,340     

 

16

 

 

(c)Represents the elimination of the interest expense associated with IAA’s extinguished credit facilities and senior notes.

 

(d)Represents the remaining one-time direct and incremental transaction costs anticipated to be incurred by Ritchie Bros. prior to, or concurrent with, the Mergers and are reflected in the unaudited pro forma condensed combined balance sheet as a direct reduction to the combined entity’s accumulated deficit and are assumed to be cash settled.

 

(e)Represents the elimination of historical IAA stock-based compensation expense related to IAA equity awards.

 

(f)Represents the recognition of new stock-based compensation expense for the post-combination portion of the cancelled and exchanged IAA equity awards.

 

As IAA restricted stock awards and IAA phantom stock awards granted to non-employee directors will be settled at closing with no future service required, the entire post-combination portion of such awards of $0.3 million will be recognized as compensation expense immediately after the closing of the Mergers. Vested IAA options will be cancelled and exchanged to Ritchie Bros. options, and the post-combination fair value step-up that will be expensed immediately after the closing of the Mergers is not material. These are non-recurring adjustments.

 

IAA options, IAA RSU awards and IAA PRSU awards are cancelled and exchanged into 516,658 Ritchie Bros. awards with an estimated aggregate fair value of $25.6 million, of which $10.7 million is attributable to post-combination services and will be recognized as compensation expense throughout the remaining service periods. Ritchie Bros. awards will be subject to the same terms and conditions applicable to the corresponding IAA equity awards, including vesting terms. With respect to any RSU awards that replace IAA PRSU awards, vesting will no longer be subject to the achievement of performance goals and will solely be based on providing continued services to Ritchie Bros. through the end of the applicable service period.

 

(g)Represents the pro forma basic and diluted net income per share attributable to the combined entity’s common shareholders presented in conformity with the two-class method required for participating securities as a result of the pro forma adjustments. The two-class method requires income available to common shareholders for the period to be allocated between shares of common stock and participating securities based on their respective rights to receive earnings as if all earnings for the period had been distributed. The Preferred Shares of the combined entity are participating securities that contractually entitle the holders of such shares to participate in the combined entity’s earnings but do not contractually require the holders of such shares to participate in the combined entity’s losses.

 

The pro forma basic net income per share attributable to the combined entity’s common shareholders is calculated using the historical basic weighted average shares of Ritchie Bros. common shares outstanding, adjusted for the additional new shares of Ritchie Bros. common stock to be issued to consummate the Mergers, and the new shares of Ritchie Bros. common stock issued and sold to the Starboard purchasers. Pro forma diluted net income per share attributable to the combined entity’s common shareholders is calculated using the historical diluted weighted average shares of Ritchie Bros. common shares outstanding, adjusted for the additional new shares of Ritchie Bros. common stock to be issued to consummate the Mergers, and the new shares of Ritchie Bros. common stock issued and sold to the Starboard purchasers, and the potentially dilutive effect of the exchanged IAA options, IAA RSU awards and IAA PRSU awards.

 

The pro forma weighted average shares outstanding used to calculate pro forma basic and diluted net income per share attributable to common shareholders was not adjusted for the potential common shares to be issued to settle the cumulative dividend payments and allocated earnings attributable to the Preferred Shares as such amounts are assumed to be cash settled at the combined entity’s election for purposes of this unaudited pro forma condensed combined financial information. The impact to pro forma basic and diluted net income per share attributable to the combined entity’s common shareholders assuming share settlement of such amounts is not material.

 

17

 

 

   For the year ended
December 31, 2022		 
   (dollars in millions,
except share
and per
share data)		 
Numerator:     
Net income  $283 
Cumulative dividend related to the issuance of Series A Senior Preferred Shares   (27)
Allocated earnings to participating securities   (9)
Pro forma net income attributable to common stockholders  $247 
      
Denominator:     
Historical Ritchie Bros. weighted average shares outstanding (basic)   110,781,282 
Ritchie Bros. common shares to be issued to IAA stockholders pursuant to the Merger Agreement(1)   70,334,262 
Ritchie Bros. common shares to be issued to holders of assumed IAA equity awards subject to post-closing vesting(2)   129,141 
Common shares issued in connection with the Investment Transaction   251,163 
Pro forma weighted average shares (basic)   181,495,848 
      
Historical Ritchie Bros. weighted average shares outstanding (diluted)   111,886,025 
Ritchie Bros. common shares to be issued to IAA stockholders pursuant to the Merger Agreement(1)   70,334,262 
Ritchie Bros. common shares to be issued to holders of assumed IAA equity awards subject to post-closing vesting(2)   311,506 
Common shares issued in connection with the Investment Transaction   251,163 
Pro forma weighted average shares (diluted)   182,782,956 
      
Pro forma net income per share attributable to common shares:     
Basic  $1.36 
Diluted  $1.35 

 

 

(1)Includes the cancellation and exchange of all 133,859,057 issued and outstanding shares of IAA Common Stock (including 27,855 shares underlying IAA restricted stock awards), in addition to 59,992 shares underlying IAA phantom stock awards granted to non-employee directors based on the capitalization activity of IAA as of February 21, 2023, into $12.80 per share in cash, plus an aggregate of 70,334,262 Ritchie Bros. common shares.

 

(2)A total of 268,291 granted and outstanding unvested IAA RSU awards and 212,979 shares granted and outstanding of unvested IAA PRSU awards are cancelled and converted into 349,312 shares of Ritchie Bros. RSU awards. The number of such Ritchie Bros. RSU awards vested during the first 12 months after the Mergers are added to the historical basic Ritchie Bros. common shares outstanding. The weighted average impact to the number of shares added to the historical basic Ritchie Bros. common shares is not material.

 

7.Non-GAAP Measures

 

Below is a description of our unaudited pro forma non-GAAP financial measures. The pro forma non-GAAP metrics included in this offering circular have been prepared in accordance with Item 10 of Regulation S-K. We regularly review the following non-GAAP financial measures to evaluate our business, measure our performance, identify trends, prepare financial projections and make business decisions. The measures set forth below should be considered in addition to, not as a substitute for or in isolation from, our financial results prepared in accordance with GAAP or the unaudited pro forma financial information presented in this offering circular. Other companies may calculate these measures differently, limiting their usefulness as comparative measures. The pro forma non-GAAP measures are presented herein because these are important metrics used by management as one of the means by which it assesses acquisition targets. Moreover, they are frequently used by analysts, investors and other interested parties to evaluate companies in our industry.

 

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The unaudited pro forma non-GAAP financial measures were derived from and should be read in conjunction with the following SEC filings and incorporated exhibits, which are incorporated by reference in this offering circular:

 

·the non-GAAP financial information of Ritchie Bros. as of and for the year ended December 31, 2022 set forth under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in Ritchie Bros.’ Annual Report on Form 10-K filed with the SEC on February 21, 2023; and

 

·the non-GAAP financial information as of and for the year ended January 1, 2023 included within Exhibit 99.1 of IAA’s Current Report (excluding any information and exhibits furnished under Item 2.02 or 7.01) on Form 8-K filed with the SEC on February 22, 2023.

 

Adjusted pro forma EBITDA and adjusted pro forma net income attributable to common stockholders have limitations as analytical measures, and you should not consider these measures in isolation or as a substitute for analysis of our results as reported under GAAP. Some of these limitations are that the non-GAAP measures:

 

·do not reflect interest income, interest expense or other non-operating gains and losses, which may represent an increase to or reduction in cash available to us;

 

·exclude non-cash charges for depreciation of property, plant and equipment and amortization of intangible assets, and although the assets being depreciated and amortized may have to be replaced in the future, adjusted pro forma EBITDA does not reflect cash capital expenditure requirements for such replacements or for new capital expenditure requirements;

 

·do not reflect acquisition costs, restructuring costs, litigation costs or other costs that we do not consider to be routine in nature for the ongoing financial performance of our business, which may represent a reduction in cash available to us;

 

·exclude non-cash charges for stock-based compensation expense, which is expected to continue to be part of our compensation strategy;

 

·do not reflect provisions for income taxes, which may represent a reduction in cash available to us.

 

Adjusted pro forma EBITDA is calculated by adding back depreciation and amortization, interest expense, income tax expense, and subtracting interest income from pro forma net income, as well as adding back share-based payments expense, acquisition-related costs, loss (gain) on disposition of property, plant and equipment and related costs, certain non-recurring advisory, legal and restructuring costs, change in fair value of derivatives, and the fair value adjustments related to contingent consideration. Certain historical adjustments which are included in IAA Adjusted EBITDA, and meet Ritchie Bros.’ definition, have been included and adjusted for in the adjusted pro forma EBITDA reconciliation below.

 

Adjusted pro forma net income attributable to common stockholders eliminates the financial impact of adjusting items from pro forma net income attributable to common stockholders that we do not consider to be part of our normal operating results, such as share-based payments expense, acquisition-related costs, amortization of acquired intangible assets, and loss (gain) on disposition of property, plant and equipment and related costs. Also adjusted were certain non-recurring advisory, legal and restructuring costs, the change in fair value of derivatives, loss on redemption and extinguishment of indebtedness and related interest expenses, and the fair value adjustments related to contingent consideration. Certain historical adjustments which are included in IAA’s adjusted net income, and meet Ritchie Bros. definition, have been included and adjusted for in the adjusted pro forma net income attributable to common stockholders reconciliation below.

 

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The following table reconciles adjusted pro forma EBITDA to pro forma net income, the most directly comparable pro forma financial measure:

 

   For the year ended
December 31, 2022		 
   (dollars in millions) 
Pro forma net income  $283 
Add: depreciation and amortization   393 
Add: interest expense   277 
Less: interest income(1)   (8)
Add: income tax expense   52 
Pro forma EBITDA  $997 
Share-based payment expense(2)   44 
Acquisition-related costs   127 
Non-recurring advisory, legal and restructuring costs(3)   8 
Loss (gain) on disposition of property, plant and equipment and related costs(4)   (168)
Change in fair value of derivatives   (1)
Fair value adjustments related to contingent consideration(5)   5 
Adjusted pro forma EBITDA  $1,012 

 

 

(1)Includes $0.9 million of interest income for IAA for the year ended January 1, 2023.
(2)Includes $7.0 million of pro forma IAA share-based payment expenses for the year ended January 1, 2023.
(3)Includes $3.0 million of non-recurring IAA retention/severance costs and professional fees costs for the year ended January 1, 2023.
(4)Includes $(1.0) million of IAA costs related to loss (gain) on disposition of property, plant and equipment for the year ended January 1, 2023.
(5)Adjustment specific to IAA only activities for the period.

 

The following table reconciles adjusted pro forma net income attributable to common stockholders to pro forma net income attributable to common stockholders, the most directly comparable pro forma financial measure:

 

   For the year ended
December 31, 2022		 
   (dollars in millions) 
Pro forma net income attributable to common stockholders  $247 
Share-based payment expense   44 
Acquisition-related costs   127 
Amortization of acquired intangible assets(1)   285 
Non-recurring advisory, legal and restructuring costs   8 
Loss (Gain) on disposition on property, plant and equipment and related costs   (168)
Loss on redemption and extinguishment of indebtedness and related interest expenses(2)   10 
Change in fair value of derivatives   (1)
Fair value adjustments related to contingent consideration   5 
Related tax effects of the above   (86)
Related allocation of the above to participating securities   (8)
Adjusted pro forma net income attributable to common stockholders  $463 

 

 

(1)Includes the recognition of new amortization expense related to identifiable acquired assets based on the estimated fair values as of February 17, 2023.

 

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